Bank Beat---Illinois and Indiana Bank Fail/Why?

by Christopher Menkin
 

What we are now seeing are first and second mortgage real estate failures. Out of the 707 banks in trouble who received TARP (Troubled Asset Relief Program), 390 institutions are still in the program, including 370 banks. While the FDIC says there will be less banks closed this year than last when the count was 92, many of these 370 banks have been unable to repay their TARP loans.

While it may appear I am criticizing the TARP program, I am not. Signed into law by U.S. President George W. Bush on October 3, 2008, it was a component of the government’s measures to address the subprime mortgage crisis. While many banks found it showing a weakness, it had a purpose and President Bush should be commended for his administration implementing the program.

TARP was a tremendous help. I also think the FDIC is doing an excellent job. When they started they asked those retired to come back, tried to find other employees, and did an outstanding job as the taking over of a bank is a major task requiring many people. It is not only the discovery and decision making, but finding a successor, the bidding process, the negotiations, but the actual work.

Those with opposing views should visit their web site fdic.gov to learn more about their role and their accomplishments.

Yes, there are less banks on the “trouble bank” list for sure, but we are not out of the woods yet as evidenced by these two banks failures.

The three offices of Charter National Bank and Trust, Hoffman Estates, Illinois were closed with Barrington Bank & Trust Company, National Association, Barrington, Illinois, to assume all of the deposits.

Founded July 31, 1980 there were 31 full time employees at their two offices in Hoffman Estates and lone in Hanover Park. The bank had merged with First National Bank of Hoffman Estates on September 7, 1993. The end of 2006 they had 50 full time employees.

2011 year-end Tier 1 risk-based capital .01260% (not a typo. editor)

Barrington Bank & Trust is one of Wintrust 15 wholly owned community banks. Wintrust has purchased several banks in default and now has over 100 branch locations. They also have over $16 billion in assets. They have done very well in the last few years being well capitalized. Picking up failed banks gives them new branches, clean, as well as deposits, adding to their overall abilities.

The FDIC didn’t do too badly on this sale either, as it is estimated the cost to the Deposit Insurance Fund (DIF) will be $17.4 million

It is obvious the problems with Charter National Bank were poor 1st and 2nd mortgage loans with many defaults and housing projects also not going ahead that caught up with them in 2009.

Charge Offs

2006 $52,000 ($33,000 loans to individuals, $20,000 commercial/industrial, -$1,000 1-4 family)
2007 $692,000 ($687,000 multifamily residential, $4,000 commercial/industrial, $1,000 indiv.)
2008 $257,000 ($137,000 construction/land, commercial/ind. $91,000 $29,000 individuals)
2009 $1.2 ($652,000 construction/land, $419,000 commercial/ind. $84,000 nonfarm, $30,000 1-4 fam.)
2010 $3.4 ($1.8 construction/land.,$1.4 nonfarm nonres., $156,000 1-4 family, $119,000 individuals)
2011 $1.9 ($1.4 1-4 family residential, $410,000 nonfarm, $15,000 commercial/ind., $11,000 indiv.)

–FDIC Records—

Construction and Land, 1-4 family multiple residential, Multiple Family Residential, Non-Farm Non-Residential loans.

(in millions, unless otherwise)

Net Equity
2006 $11.6
2007 $10.7
2008 $10.2
2009 $8.8
2010 $4.5
2011 $313,000

Profit
2006  $1.6
2007  $584,000
2008 -$173,000
2009 -$1.7
2010 -$4.1
2011 -$4.5

Non-Current Loans
2006 $258,000
2007 $3
2008 $2.95
2009 $7.1
2010 $7.0
9/30 $9.3

–FDIC records-

As of December 31, 2011, Charter National Bank and Trust had approximately $93.9 million in total assets and $89.5 million in total deposits. In addition to assuming all of the deposits of the failed bank.

The FDIC and Barrington Bank & Trust Company, National Association entered into a loss-share transaction on $72.1 million of Charter National Bank and Trust’s assets.

http://www.fdic.gov/news/news/press/2012/pr12017.html

The four branches of SCB Bank, Shelbyville, Indiana were closed with First Merchants Bank, National Association, Muncie, Indiana, to assume all of the deposits. Formed January 1, 1891 the bank made it through the Great Depression, joined FDIC January 25, 1937 and 57 full time employees at their two offices in Shelbyville, one in Morristown, and one in Saint Paul. They had 62 full time employees year-end 2007. Originally known as Shelby County Bank, they changed the name in July, 2007.

Tie 1 risk-based capital ratio $4.14% September 30, 2011.

First Merchants in the arrangement purchased $117 million in SCB loans and assumed $136 million of its deposits. The purchase did not include all development loans, all land lands and all non-performing loans, including non-accrual, restructured and 90 days past due credits and all OREO balances. In addition, they are purchasing SCB’s main office building for $1.4 million. The remaining assets were purchased for a $29 million discount and the deposits were assumed at no premium.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $33.9 million.

SCB is the third bank to fail in Indiana since the banking crisis developed three years ago, following Columbus-based Irwin Union and Evansville-based Integra, the Indianapolis Business Journal reports.

The problem here is quite obvious as SCB Bank had a very high loss rate with real estate loans mixed with commercial and industrial loans. As with the bank that failed in Illinois, the problems with real estate began in 2009:

Charge Offs

2006 $122,000 (1-4 family $163,000, -$40,000 nonfarm nonres., $5,000 loans to individuals)
2007 $498,000 ($273,000 1-4 family, $157,000 commercial/industrial, $76,000 nonfarm)
2008 $170,000 ($233,000 1-4 family, -$37,000 loans to indiv., -$28,000 commercial/ind.
2009 $2.9 ($1 1-4 family, $1 commercial/industrial, $811,000 nonfarm nonres., $84,000 multifamily)
2010 $10.4 ($4.9 1-4 family, $3.0 commercial/ind., $1.0 nonfarm nonres., $331,000 individual
2011 $2.4 ( $988,000 1-4 family, $799,000 commercial/ind., $119,00 other consumer loans, $126,000 construction/land development,$114,000 nonfarm nonres.,Indiv. $97,000. )
—FDIC records–

Construction and Land, 1-4 family multiple residential, Multiple Family Residential, Non-Farm Non-Residential loans.

(in millions, unless otherwise)

Net Equity
2006 $12.2
2007 $22.4
2008 $14.9
2009 $20.4
2010 $9.5
9/30 $5.5

Profit
2006 $1.4
2007 $717,000
2008 $1.2
2009 – $1.7
2010 -$12.1
9/30 -$3.7

Non-Current Loans
2006 $2.6
2007 $7.4
2008 $3.8
2009 $7.7
2010 $13.5
9/30 $15.8

–FDIC records–

As of December 31, 2011, SCB Bank had approximately $182.6 million in total assets and $171.6 million in total deposits.

http://www.fdic.gov/news/news/press/2012/pr12018.html

List of Bank Failures:
http://www.fdic.gov/bank/individual/failed/banklist.html

Bank Beat:
http://www.leasingnews.org/Conscious-Top%20Stories/Bank_Beat.htm