Any hope that the pace of bank failures might be slowing was dashed on Friday when the FDIC announced five new names to add to the growing list of the defunct. The total number of failed banks this year now stands at 45. The day's activities cost the FDIC's deposit fund $264.2 million.
Once again Georgia led the way. Since August 2008, 14 banks have failed in Georgia. The first to go on Friday was Community Bank of West Georgia, based in Villa Rica. It was founded in 2003 to take advantage of the red hot real estate market in Atlanta's suburbs. As of the first quarter of 2009, about one-third of the bank’s $129 million in total loans were in some stage of delinquency, default or had become bank-owned foreclosures, according to the Atlanta Business Chronicle.
Usually when a bank fails, the FDIC finds a neighboring institution to help defray the cost of the failure in exchange for assets and deposits in what's called a "purchase and assumption agreement." Customers of the failed bank continue with the new bank as if nothing had happened. The FDIC could find no takers for Community Bank of West Georgia. It will instead mail checks to insured depositors for their funds.
Next to fail was Neighborhood Community Bank of Newnan, Ga. In this case, the FDIC struck a purchase and assumption agreement with CharterBank of West Point, Ga.
Since the FDIC likes to close banks after business hours, it announces failures from east to west, usually beginning around 5 p.m. Eastern Standard Time. Almost two hours after the agency revealed the first Georgia failure, it moved west to Minnesota where Horizon Bank of Pine City officially failed. The bank's assets and deposits were picked up by Stearn's Bank of St. Cloud.
As in Georgia, bad real estate lending seems to be the culprit.
The Star Tribune had the quote of the day:
"There's a lot of toxic assets," said Norm Skalicky, CEO and major owner of Stearns Bank, who was in Pine City on Friday. "Everybody was on kind of a spending spree. That has to get flushed out, I guess."
From Minnesota, the financial grim reaper swung over to California, where reckless real estate lending has led to multiple bank failures in the past two years. The FDIC announced the failure of Irvine-based MetroPacific Bank. Sunwest Bank of Tustin, Calif., picked up its non-brokered deposits. To cap the day off, shortly before 10 p.m. EST, the FDIC issued a press release on the closing of Mirae Bank, located in Los Angeles' Koreatown district. The press release offered Korean and Chinese translations. Wilshire State Bank of Los Angeles assumed all the non-brokered deposits.
The Los Angeles Timesreports that the FDIC has hired about 400 people to staff an office in Irvine to supervise bank closures in the region. As of late May, the FDIC's list of problem banks nationwide numbered 305. It's shaping up to be a busy summer and fall in the bank closure business.