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Texas Bank Takes FDIC For $637.5 Million DIF (The Biggest Bank Failure In 3 Years) Why Did Connecticut's Only Minority Owned Bank Fail?

Bank Beat

The 51 branches of First National Bank, Edinburg, Texas, were closed with PlainsCapital Bank, Dallas, Texas, to assume all of the deposits.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $637.5 million.

Despite the trend of less bank failures, the Deposit Insurance Fund (DIF) balance has continued to increase. This bank failure may be one of the main reasons that banks had their participation raised. The DIF balance - the net worth of the fund - rose to $37.9 billion as of June 30 from $35.7 billion as of March 31. 2013. DIF total $241.6 million, 2011; $767 million; 2010 $2.01 billion.
leasingnews.org/archives/Jul2013/7_09.htm#snl

Founded in January 1, 1934 the bank had 716 full time employees at their 51 offices, 62 in Hidalgo County, 8 Cameron County, 5 Harris County, 4 in Bexar and Nueces County, 3 in Webb Count, 2 in El Paso and Travis Counties, and one in Dallas, Maverick, Montgomery, Starr, and Williamson Counties.

June 30, 2013: Tier 1 risk-based capital ratio: 2.88%

"Besides its financial troubles, the bank has had to deal with major litigation. A Houston jury last summer socked the bank with a $118 million verdict after finding it defrauded an investor group by taking possession of three hospitals purchased by the group. A judge in November reduced the verdict, entering a $66 million judgment against the bank.

"Ortega said the bank will report the judgment in its fourth-quarter results, which haven't been filed with regulators yet.

"In San Antonio, investors in the Tundra Village project near the Toyota plant are suing the bank for at least $25 million. The failed project exposed a pattern of loose and reckless lending practices by bank officials, the investors allege."

The above comes from a September 14, 2013 report written by Patrick Danner, which appears to have the complete story on the demise of the bank; cronyism, mismanagement, very poor loan judgment:
www.mysanantonio.com/news/local_news/art....php

The charge offs and non-current loan statistics reflect the mysantonio.com article:

(in millions, unless otherwise)

Charge Offs

2006 $6.9 ($2.6 commercial/ind.,$1.7 individuals, $1.2 ag. products,$1.2 other loans, $748,000 nonfarm/nonres.,$329,000 farmland, $219, construction,-$230,000 commercial/industrial to non-US addresses)
2007 $7.4 ($2.5 nonfarm/nonres.,$2.3 commercial/ind.,$1.8 individual, $944,00 multi-family, $$623,000 other loans, -$135, 1-4 family, -$34,000 farmland)
2008 $10.1 ($3.3 1-4 family, $3.1 commercial/ind., $1.7 construction/land,$1.5 individuals, -$1,141 other loans, -$111,000 foreign inst.)
2009 $9.7 ($4.4 commercial/industrial,$1.9 individuals, $1.7 construction/land, $621,000 1-4 family, $581,000 nonfarm/nonres., $374,000 farmland, $98,000 multi-family)
2010 $12.1 ($4.1 commercial/industrial,$2.1 construction/land, $2.1 individuals, $1.5 other loans, $1.4 nonfarm/nonres., $380,000 multifamily, $364,000 1-4 family)
2011 $39.7 ( $15.8 nonfarm/nonres., $11.2 construction/land, $7.9 commercial/industrial, $2.7 individuals, $1.2 1-4 family, $715,000 multi-family, $22,000 other loans)
2012 $59.8 ($22.5 nonfarm/nonres.,$17.3 construction/land, $6.3 commercial/industrial, $5.8 multifamily, $4.6 1-4 family, $1.0 individuals)
6/12 $16.8 ($9.4 nonfarm/nonres., $3.1 1-4 family, $2.3 construction/land, $1.0 commercial/industrial, $560,000 multifamily, $277,000 individuals)

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

Non-Current Loans
2006 $6.5
2007 $16.2
2008 $86.3
2009 $101.4
2010 $108.6
2011 $385.2
2012 $369.2
6/20 $270.2

Profit
2006 $37.0
2007 $41.0
2008 -$71.3
2009 $23.0
2010 $14,5
2011 -$26.0
2012 -$136.5
6/30 -$14.5

Net Equity
2006 $243.8
2007 $321.1
2008 $262.3
2009 $322.9
2010 $340.3
2011 $327.7
2012 $190.9
6/30 $171.4

Full-time employees:
2006 921
2007 1,116
2008 940
2009 801
2010 806
2011 802
2012 777
6/39 716

As of June 30, 2013, First National Bank had approximately $3.1 billion in total assets and $2.3 billion in total deposits. In addition to assuming all of the deposits of First National Bank, Plains Capital Bank agreed to purchase approximately $2.7 billion of First National Bank's assets. The FDIC will retain the remaining assets for later disposition.

The FDIC and PlainsCapital Bank entered into a loss-share transaction on $1.8 billion of First National Bank's assets. PlainsCapital Bank will share in the losses on the asset pools covered under the loss-share agreement.

"The Community Bank," Bridgeport, Connecticut was closed by the Connecticut Department of Banking, which appointed the FDIC as receiver. The FDIC reports, they were unable to find another financial institution to take over the banking operations. Depositors with account balances in excess of $250,000 may therefore face losses. The FDIC did not disclose the amount of uninsured deposits, if any, held by The Community's Bank.

It becomes the first bank to fail in Connecticut since Circle Trust, Darien, September 30, 2005.There have been 43 bank failures in Connecticut since 1989. Thirty-one (31) were state-chartered institutions.
www.ct.gov/dob/cwp/view.asp?a=2228&q=296974

Founded February 23, 2001, the bank had 12 full time employees as of June 30, 2013 at its two offices in Bridgeport. It reportedly was the state's only minority-owned bank.

Bridgeport Mayor Bill Finch said in a statement that he was "shocked and saddened" by the bank's failure.

"The closing of this bank means our minority community, which oftentimes does not have the same access to credit as others do, is now bereft without this bank's focus on providing access to credit or capital," Finch said. "It is not clear how the state could allow this to happen."

A bankencyclopdia.com regarding year end December 31, 2011 has income and expenses (dollars in figures in thousands) shows the loss that matches the FDIC of $610,000 but also brings out numbers not in the FDIC:


 

Total Non-interest Expence $2448
Salaries and employee benefits $1011
Premises and equipment expense $165
Additional non-interest expense $1272

www.bankencyclopedia.com/The-Community-s....html

Year-end FDIC records report 13 full-time employees and perhaps the salaries are too high, and what is the "additional noninterest expense?"

Peter F. Hurst, Jr.
(Photo: thehistorymakers.com)

Founder. chairman of the board, and chief executive office of the bank is Bridgeport attorney Peter Frederick Hurst, Jr. He had a very good background in banking, according to his biography: "From 1984 to 1986, Hurst served in the General Counsel's Office of the Federal Reserve Bank. Moving to New York City, Hurst worked as an investment banker with E.F. Hutton, and in 1987, became senior vice president with Dean Witter. Going into business for himself in 1990, Hurst worked with smaller clients through Bahia Partners and Hurst Capital Partners. In 2001 Hurst created the Community's Bank, opening branches in the Connecticut cities of Hartford, Bridgeport, and Bloomfield. As founder, chairman of the board, chief executive officer, and president of the Urban Financial Group, the company which controls Community's Bank, Hurst runs the only independent, minority owned bank in Connecticut."
www.thehistorymakers.com/biography/peter...-40

Interesting in his biography that Hurst was general counsel to Federal Reserve Bank, but the FDIC reports the bank was a "non-member" of the Federal Reserve.

There was no listing of directors found. It is not often that the chairman also serves as chief executive officer. It appears the failure resides on the board of directors.

June 30, 2013: Tier 1 risk-based capital ratio:1.89%

(in millions, unless otherwise)

Non-Current Loans
2006 0
2007 $757,000
2008 $507,000
2009 $1.7
2010 $2.3
2011 $1.5
2012 $827,000
6/30 $627,000

Note: the charge offs are small:

Charge Offs
2006 $8,000 ( $7,000 other loans, $1,000 individuals)
2007 $30,000 ( $30,000 individuals
2008 -$6,000 ( -$6,000 individuals)
2009 $60,000 ( $38,000 commercial/industrial, $22,000 Individuals)
2010 $72,000 ($45,000 nonfarm/nonres, $24,000 individuals, $22,000 construction/land, -$38,000 commercial/industrial)
2011 $29,000 ($44,000 nonfarm/nonres., -$8,000 auto, -$4,000 1-4 family, -$1,000 commercial/industrial
2012 $12,000 ($35,000 commercial/ind.,-$20,000 construct/land, -$3,000 1-4 family)
6/30 $25,000 ($18,000 nonfarm/nonres., $9,000 multifamily, -$2,000 1-4 family).

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

Net Equity
2006 $5.5
2007 $5.0
2008 $4.6
2009 $4.4
2010 $3.9
2011 $3.5
2012 $1.7
6/30 -$31,000

Profit
2006 -$339,000
2007 -$610,000
2008 -$488,000
2009 $138,000
2010 -$475,000
2011 -$610,000
2012 -$1.8
6/30 -$1.3

As of June 30, 2013, The Community's Bank had approximately $26.3 million in total assets and $25.7 million in total deposits. The amount of uninsured deposits will be determined once the FDIC obtains additional information from those customers.

The FDIC as receiver will retain all the assets from The Community's Bank for later disposition.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $7.8 million.

www.fdic.gov/news/news/press/2013/pr13082.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

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