Christopher Menkin's  Instablog

Palm Desert Springs succumbs, FDIC Can't find acquirer in MD

The four branches of HarVest Bank of Maryland, Gaithersburg, Maryland were closed with Sonabank, McLean, Virginia, to assume all of the deposits. Founded November 15, 2004 they had 24 full time employees at five offices: Bethesda, Frederick, Gaithersburg, Germantown, and Rockville.

Tier 1 risk-based capital .0097

Jack McDonnell was the chairman of the board and the claim to fame was Michael S. Steele, who was the former Lt. Governor as well as Chairman of the Republication National Committee.

Michael S. Steele
64th Chairman of the Republican National Committee

The board sounds like a who's who, including Louis M. Poppe was on the SBA National advisory Council and the host of others seem strong, but evidently not very involved in the bank itself. Full board here: http://www.harvestbankmd.com/go.cfm?do=page.view&pid=4

(If web site down,here is a copy: http://leasingnews.org/items/harvest_bank.jpg )

The bank had been trying to raise capital and in June of last year had several investors, but the reality was the bank had lost $12.4 million in 2010 and non-current loans were at $16.8 million with a net worth which would become $2.8 million by the end of 2011 from a high of $16.9 million in 2009, just four years earlier.

(in millions, unless otherwise)

Net Equity
2006 $11.9
2007 $15.1
2008 $16.7
2009 $16.9
2010 $5.0
2011 $2.8
3/31 $1.2

Profit
2006 -$1.5
2007 $1.7
2008 -$428,000
2009 -$1.6
2010 -$12.4
2011 -$2.8
3/31 -$1.5

Non-Current Loans
2006 0
2007 $2.3
2008 $7.4
2009 $10.1
2010 $16.8
2011 $19.2

Charge Offs

2006 0
2007 0
2008 $1.3 ($1.2 1-4 family residential, $91,000 commercial and industrial)
2009 $2.1 ($784,000 1-4 family, $718 nonfarm-nonres., $389,000 commercial-industrial, $28,000
Indiv.)
2010 $3.2 ($1.1 construction/land, $962,000 1-4 family, $675,000 nonafrm-nonres, $535,000
commercial)
2011 $1.4 ($703,000 commercial-industrial, $484,000 nonfarm nonres., $116,000 construction/land, $77,000 1-4 family)
3/31 $695,000 ($384,000 1-4 family, $301,000 multifamily, $10,000 commercial loans)

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

As of December 31, 2011, HarVest Bank of Maryland had approximately $164.3 million in total assets and $145.5 million in total deposits. In addition to assuming all of the deposits of the failed bank, Sonabank agreed to purchase essentially all of the assets.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $17.2 million.

www.fdic.gov/news/news/press/2012/pr1204...

(click to enlarge)

Palm Desert National Bank, Palm Desert, California was closed with Pacific Premier Bank, Costa Mesa, to assume all of the deposits. Founded December 7, 1981 it had 36 full time employees. 2006 the bank had 141 full time employees, 2007 158, 2008 96, 2009 83, 2010 67, 2011 34. It was locally owned and operated by a board of very good friends.

The losses hit the real estate down turn, and is a good example of not only the growth of non-current loans, almost all real estate, but the heavy losses in construction and land development, hit the bank at $7.3 million in 2008, $11.8 million in 2009, and $3.7 in 2010 along with corresponding high commercial industrial write off of 42.8 million and $2.9 and almost $1 million.

Charge Offs
2006 $308,000 ($253,000 1-4 family homes, $60,000 commercial-industrial, -$5,000 individual)
2007 $17,000 (-$114,000, $120,000 commercial/industrial, $11,000 individual)
2008 $10.5 ($7.3 construction/land, $2.8 commercial/industrial, $308,000 1-4 family, $34,000 indiv.)
2009 $17.6 ($11.8 construction/land, $2.9 commercial/industrial, $392,000 nonfarm nonres.)
2010 $5.9 ($3.7 commercial/industrial, $954,000 construction/land, $532,000 nonfarm, nonres.,
$85,000 ind.)
2011 $2.1 ($925,000 1-4 family, $810,000 nonfarm nonres., $601,000 commercial, $163,000 multifamily, $93 individual, -$458,000 construction/land).

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

The net equity went from $34.7 million in 2008 to $2 million end of 2011.

After receiving directive to raise capital, Palm Desert sold its branch in La Quinta and Palm Springs to Bank of Southern California, San Diego. It also sold its Electronic Banking Solutions division, EBS, to First California Bank for $5 million. It had created the division 1994 with a mission to provide premier electronic banking services throughout the United States for a variety of product line services.

Despite the sale of assets, the cutting of expenses, including cutting full time employees from 158 in 2007 to 34 by year end 2022, the small bank could not overcome the four years of high non-current loans, the charge offs, resulting in three years of terrible losses for its size.

Tier 1 risk-based capital ratio .0231

(in millions, unless otherwise)

Net Equity
2006 $29.9
2007 $30.4
2008 $34.7
2009 $13.4
2010 $7.0
2011 $2.0

Profit
2006 $6.7
2007 -$79,000
2008 $5.1
2009 -$19.5
2010 -$6.4
2011 -$4.4

Non-Current Loans
2006 $619,000
2007 $14.5
2008 $29.8
2009 $32.5
2010 $29.9
2011 $15.2

As of December 31, 2011, Palm Desert National Bank had approximately $125.8 million in total assets and $122.8 million in total deposits. In addition to assuming all of the deposits of the failed bank, Pacific Premier Bank agreed to purchase essentially all of the assets.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $20.1 million.

www.fdic.gov/news/news/press/2012/pr1205...

The two offices of Bank of the Eastern Shore, Cambridge, Maryland were closed and no acquirer was found. Founded August 19, 1986 the bank had gone from 49 full time employees to 30 end of year 2011 in their two offices in Cambridge, 1025 Washington Street, and 301 Crusader Road.

Tier 1 risk-based capital ratio .0181%

To protect the depositors, the FDIC created the Deposit Insurance National Bank of Eastern Shore (DINB), which will remain open until May 25, 2012 to allow depositors access to their insured deposits and time to open accounts at other insured institutions.

As of December 31, 2011, Bank of the Eastern Shore had $166.7 million in total assets and $154.5 million in total deposits. At the time of closing, the amount of deposits exceeding the insurance limits were undetermined. Uninsured deposits were not transferred to the DINB. The amount of uninsured deposits will be determined once the FDIC obtains additional information from those customers.

The cost to the FDIC's Deposit Insurance Fund is estimated to be $41.8 million.

Cambridge was settled by English colonist in 1684, and is one of the oldest colonial cities. Once into tobacco, it became a farming community, then canning, and now primarily tourist with a population of 12,326. The 400-room Hyatt Regency Chesapeake Bay resort is well known for it's a golf course, spa, and marina. The resort was the site of the 2007 US House Republican Conference, which included an address by U.S. President George W. Bush.

Not much was found on the bank board of directors, except for two cease and desist orders from the FDIC.

August 12, 2010
First cease and desist
www.dllr.state.md.us/finance/consumers/p...

April 30, 2011
Second cease and desist www.federalreserve.gov/newsevents/press/...

On March 12, 2012 the County Council of Dorchester County "Based on the request of Harold S. Robbins, President, the Council agreed to execute a letter citing the Bank of the Eastern Shore as a valuable asset to Dorchester County. Councilman Newcomb abstained. The Council acknowledged that bank officials are applying for funds from a Government sponsored program geared towards economic development and specific to foreign investment but acknowledged that the Bank officials are not asking for a letter of support for that application."

The bank had its toughest years and thus the two cease and desist order, but by the first one, the bank was in serious trouble and year-end 2011 the idea a letter from the county council would help sounds way out of touch with reality. Non-current loans in 2009 were $25.1 million and $26.2 million, way too high for a small ban, and by the end of March the net equity had dropped from $24.2 million in 2008 to $2.5 million after so high charge offs.

One major culprit:

(click to enlarge)

(in millions, unless otherwise)

Net Equity
2006 $21.8
2007 $23.2
2008 $24.2
2009 $18.5
2010 $10.9
2011 $3.0
3/31 $2.5

Profit
2006 $2.2
2007 $2.1
2008 $278,000
2009 -$4.9
2010 -$9.2
2011 -$7.9
3/31 -$529,000

Non-Current Loans
2006 $1.5
2007 $889,000
2008 $4.7
2009 $25.1
2010 $26.2
2011 $9.1

Charge Offs
2006 0
2007 0
2008 $262,000 ($152,000 nonfarm-nonresidential, $90,000 to individuals)
2009 $1.9 ($750,000 multifamily, $750,000 nonfarm nonr, res., $617,000 commercial, $464,000 indiv.)
2010 $7.6 ($2.8 construction/land, $2.6 nonfarm, nonres., $954,000 1-4 family, $953,000 commercial, $214,000 loans to individuals)
2011 $5.4 ($1.8 nonfarm-nonres., $1.6 1-4 family, $1.2 commercial, $623,000 construction, land, $88,000 to individuals-$23,000 auto, $65,000 credit cards) 3/31 $602,000 ($332,000 nonfarm-nonres., $85,000 commercial/industrial, $91,000 indiv., $85,000 commercial/industrial, $23,000 1-4 family)

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

Information about the operation and deposits can be found in the following press release:

www.fdic.gov/news/news/press/2012/pr1204...

The four branches of Inter Savings Bank, fsb D/B/A InterBank, fsb, Maple Grove, Minnesota were closed with Great Southern Bank, Reeds Spring, Missouri, to assume all of the deposits. Founded July 26, 1965 they had 41 full time employees at their four offices: Edina, Lakeville, Maple Grove, and Roseville. December 31, 2007 they had 122 full time employees, 2008 108, $2009 103, 2010 44, 2011 41.

Tier 1 risk-based capital ratio .0204 end of year December 31, 2011 (first quarter was not available).

In the recent bank failures, many have been caused by heavy construction/land development followed by nonfarm nonresidential loans, to the going finished buildings that began to see low occupancy. In InterBank the residential first and second mortgage loan write-offs were very high, starting in 2008, as well as a history on high non-current loans going well before the write-offs. An example of a group buying in the mortgage marketplace and the lack of business and thus any fees as evidenced by their drop in full time employees from 122 in 2007 to 41 year-end 2011.

(in millions, unless otherwise)

Net Equity
2006 $73.1
2007 $73.7
2008 $49.4
2009 $27.1
2010 $13.3
2011 $7.3

Profit
2006 $10.3
2007 $1.0
2008 -$23.4
2009 -$16.2
2010 -$13.6
2011 -$6.0

Non-Current Loans
2006 $23.3
2007 $28.0
2008 $29.5
2009 $30.1
2010 $26.2
2011 $28.3

Charge Offs
2006 $660,000 ($604,000 1-4 family, $50,000 nonfarm, $6,000 individuals)
2007 $2.3 ($2.3 1-4 family residential properties)
2008 $12.5 ($12 1-4 family, $336,000 multifamily, $113,000 nonfarm nonres.,$47,000 individual)
2009 $15.1 ($14.2 1-4 family, $796,000 nonfarm nonres.,$118,000 multifamily, $6,000 individual)
2010 $16.8 ($16.7 1-4 family, $$53,000 multifamily, $39,000 nonfarm nonres, -$5,000 individual)
2011 $11.9 ($10.5 1-4 family, $1.0 multifamily, $381,000 nonfarm, -$30,000 individual)

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

As of December 31, 2011, InterBank, fsb had approximately $481.6 million in total assets and $473.0 million in total deposits. In addition to assuming all of the deposits of the failed bank, Great Southern Bank agreed to purchase essentially all of the assets.

The FDIC and Great Southern Bank entered into a loss-share transaction on $413.0 million of InterBank, fsb's assets.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $117.5 million

www.fdic.gov/news/news/press/2012/pr1204...

The six branches of Plantation Federal Bank, Pawleys Island, South Carolina were closed with First Federal Bank (formerly known as First Federal Savings and Loan Association of Charleston), Charleston, South Carolina, to assume all of the deposits

Murrells Branch

Pawleys Branch

Myrtle Branch

Founded October 20, 1986 the bank had 76 full time employees at their six offices: three in Greenville, one each in Myrtle Beach, Murrells Inlet, and Pawleys Island. 2008 152, 2009 135, 2010 67, 2011 76. In July, 2011, Plantation Federal sold its Georgetown branch to Citizens Bank to raise extra capital. June, 2010 it has been told to raise additional capital, but by year-end the loss was $17.9 million followed by a loss of $20.2 million bringing the equity from $52.8 million in year 2008 to $5.1 million year-end 2011

Construction and land development loans were the culprit as the entire area had overbuilt and was seeing drop offs in tourism as well as second home development.

Tier 1 risk-based capital was .0151

(in millions, unless otherwise)

Net Equity
2006 $25.1
2007 $27.3
2008 $52.8
2009 $45.3
2010 $24.6
2011 $5.1

Profit
2006 $1.9
2007 $1.3
2008 $937,000
2009 -$9.4
2010 -$17.9
2011 -$20.2

Non-Current Loans
2006 $331,000
2007 $412,000
2008 $7.1
2009 $53.0
2010 $44.8
2011 $46.0

Charge Offs
2006 $44,000 ($25,000 commercial/industrial, $19,000 individuals)
2007 $43,000 ($43,000 individuals)
2008 $453,000 ($422,000 1-4 family homes, $30,000 individuals, $1,000 construction/land)
2009 $11.7 ($5.3 construction/land, $2.5 1-4 family, $2.3 nonfarm nonrs., $1.1 commercial/industrial,$250,000 multifamily, $128,000 individual)
2010 $15.9 ($6.5 construction/land, $2.7 nonfarm nonres., $1.7 commercial industrial, $250,000 indivi.)
2011 $15.0 ($5,000 commerical, $4.4 construction/land, $2.7 1-4 family, $1.8 nonfarm nonres., $414 indiv.)

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

The FDIC and First Federal Bank entered into a loss-share transaction on $221.7 million of Plantation Federal Bank's assets. First Federal Bank will share in the losses on the asset pools covered under the loss-share agreement. For more information on loss share, please visit: www.fdic.gov/bank/individual/failed/loss....

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $76.0 million.

www.fdic.gov/news/news/press/2012/pr12048.htm

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

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.