Government regulators have started its Friday afternoon closures with a small bank in Florida. Details are below. I’ll add new posts if there are more bank failures later today.
Commerce Bank of Southwest Fla. in Fort Myers was closed, then taken over by Central Bank of Stillwater, Minn. There was just one branch. Estimated cost to the FDIC: $23.6 million.
It’s the 124th U.S. bank closure this year.
And so, the countdown for Horizon Bank continues…
Commerce Bank was 3rd on the list of most undercapitalized banks based on the Sep 30 Uniform Bank Performance Reports. Horizon was 7th; however, two of the top seven have been closed by the FDIC, so Horizon is now 5th.
Here’s an update list for those keeping score:
http://nwcitizen.us/documents/Undercapitalized%20Banks%209-30-09.pdf
Dave, what are your thoughts on Horizon’s future? And what kind of impact would a closure have on our community?
Uh, He’s a journalist not an economist.
Hi Joel,
Citizen’s correct, I’m just a journalist, but I can tell you what I’ve learned talking to the bankers and watching what’s been happening to other banks.
Horizon really, really needs an outside investor in order to survive. If they can’t find one, the FDIC will most likely step in. The FDIC rarely tips its hand about when it will step in, so it’s hard to say what sort of deadline they’ve set. The deadline for the Cease-and-Desist order is this week, but the deadline has past on several other banks (including Everett-based Frontier Bank) without any action taken yet.
If the FDIC steps in, the most likely scenario is they will have some other bank take it over. Everyone who has deposits under $250,000 is insured, so for them the main difference they would notice is the name change. Same thing for loans. The community impact could be jobs (depending on what the new bank wants to do with the branches) and possibly one less local financial institution for business owners to get financing.
Real estate projects like Fairhaven Highlands are under a separate agreement with the FDIC; I don’t know what would become of that if the FDIC steps in. I would guess that it depends on the type of bank that took over Horizon and what agreement they make with the FDIC.
Since Dave introduced the Fairhaven Highlands aspect of Horizon Bank being taken over by the FDIC, it might be worth mentioning that the successor bank is not likely to treat the project the same way Horizon has.
Currently, Horizon Bank has loaned more than $24 million to the joint venture that owns Fairhaven Highlands. The joint venture itself is owned 50% by Horizon and 50% by Greenbriar Construction.
It appears that the joint venture, known as GBNW, has not been paying interest on its $24 million loan; instead, Horizon has simply increased the loan to cover interest, using the interest reserve method.
A successor bank may require the joint venture to immediately begin paying interest, which is likely to be more than a million dollars per year, forcing Greenbriar Construction to contribute half of that.
Given the current market for raw land, the value of Fairhaven Highlands has fallen substantially, as has the value of most other properties. GBNW may not be willing to pay interest on a loan that greatly exceeds the underlying value of the land. The successor bank might be forced to foreclose on the property and treat it like any other foreclosed property.
Since this situation is likely, the successor bank might require the FDIC to deal with this problem from the beginning, rather than taking it on. It is possible the FDIC will immediately take over the land and the underlying loan if and when it takes over Horizon.
Horizon Bank is hoping to obtain permits as quickly as possible to enhance the value of Fairhaven Highlands. Unfortunately for the bank, permits are dependent on the EIS process, which has been bogged down for two years already and doesn’t look good for the bank. More than three hundred comment letters were received on the Draft EIS along with the testimony at the public hearing. More than a thousand pages of issues and questions need to be addressed before the EIS can be finalized. Even after the EIS if final, the Bellingham Planning Commission will hold a public hearing before making a recommendation to the city as to whether permits should be issued.
This process will take many months – if not another year – to complete. It’s not likely the FDIC will be able to wait that long before taking action.
Link to the City of Bellingham website re: comments on the Draft EIS:
http://www.cob.org/government/departments/pcd/fairhaven-highlands/deis-public-comments.aspx