Regulators close 4 Ga., Calif. banks; 22 in 2011

[February 19, 2011]  WASHINGTON (AP) -- Regulators on Friday shut down two small banks in Georgia and two in California, boosting to 22 the number of U.S. bank failures this year after the weak economy and mounting bad debt brought down 157 banks in 2010.

The Federal Deposit Insurance Corp. on Friday seized Habersham Bank, based in Clarkesville, Ga., with $387.6 million in assets; Citizens Bank of Effingham, based in Springfield, Ga., with $214.3 million in assets; Charter Oak Bank of Napa, Calif., with $120.8 million in assets; and San Luis Trust Bank, based in San Luis Obispo, Calif., with $332.6 million in assets.

SCBT National Association, based in Orangeburg, S.C., agreed to assume the assets and deposits of Habersham Bank. HeritageBank of the South, based in Albany, Ga., is acquiring the assets and deposits of Citizens Bank of Effingham.

Bank of Marin, based in Novato, Calif., is assuming all the deposits and about $92 million of the assets of Charter Oak Bank; the FDIC is retaining the rest for eventual sale. First California Bank, based in Westlake Village, Calif., is acquiring the assets and deposits of San Luis Trust Bank.

In addition, the FDIC and SCBT agreed to share losses on $270.7 million of Habersham Bank's loans and other assets. The agency and HeritageBank of the South are sharing losses on $158.1 million of Citizens Bank of Effingham's loans. The FDIC and First California Bank are sharing losses on $241.7 million of San Luis Trust Bank's assets.

Georgia and California have been among the hardest-hit states for bank failures amid an avalanche of bad loans -- especially for commercial real estate. Twenty-one banks were shuttered in Georgia and 12 in California last year. The shutdowns of Habersham Bank and Citizens Bank of Effingham brought the number of failures in Georgia this year to six. Charter Oak Bank and San Luis Trust Bank lifted the tally of 2011 failures in California to three.

Florida and Illinois also have seen large numbers of bank failures.

The failure of Habersham Bank is expected to cost the deposit insurance fund $90.3 million. The failure of Citizens Bank of Effingham is expected to cost $59.4 million. That of Charter Oak Bank is expected to cost $21.8 million; San Luis Trust Bank, $96.1 million.

Also Friday, the holding company of a Denver-based bank that was closed on Jan. 21 filed suit against the FDIC and the federal Office of Thrift Supervision for an action it called "arbitrary and capricious" and lacking any "rational basis" in law.

United Western Bancorp Inc. said the decision to close the bank by the OTS, a Treasury Department agency, and to appoint the FDIC as receiver was premature and came just when United Western Bank was close to raising $200 million in capital.

"The completion of this transaction would have eliminated the need to seize the bank, thereby avoiding a significant loss to the deposit insurance fund," United Western Bancorp said.

The failure of United Western Bank, which had about $2 billion in assets, is expected to cost the insurance fund $312.8 million.

The thrift agency deemed the bank to be undercapitalized "and in an unsafe and unsound condition to transact business."

OTS spokesman William Ruberry said Friday that the agency had valid grounds for its decision and will contest the suit. FDIC spokesman Greg Hernandez declined to comment.

The 157 bank closures last year topped the 140 shuttered in 2009. It was the most in a year since the savings-and-loan crisis two decades ago.

The FDIC has said that 2010 likely would be the peak for bank failures.

The 2009 failures cost the insurance fund about $36 billion. The failures last year cost around $21 billion, a lower price tag because the banks that failed in 2010 were smaller on average. Twenty-five banks failed in 2008, the year the financial crisis struck with force; only three succumbed in 2007.

The growing number of bank failures has sapped billions of dollars out of the deposit insurance fund. It fell into the red in 2009, and its deficit stood at $8 billion as of Sept. 30.

The number of banks on the FDIC's confidential "problem" list rose to 860 in the third quarter of last year from 829 three months earlier. The 860 troubled banks is the highest number since 1993, during the savings-and-loan crisis.

The FDIC expects the cost of resolving failed banks to total around $52 billion from 2010 through 2014.

Depositors' money -- insured up to $250,000 per account -- is not at risk, with the FDIC backed by the government. That insurance cap was made permanent in the financial overhaul law enacted in July.

[Associated Press; By MARCY GORDON]

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.