Tennessee Suffers Two Bank Failures After Nearly Decade-Long Break

In the matter of an evening, Tennessee jumped from having no bank failures so far this crisis, to being tied with Florida so far this year.

On Friday, the Tennessee Department of Financial Institutions seized Tennessee Commerce Bank in Franklin and BankEast in Knoxville. Elsewhere, the Minnesota Department of Commerce closed Patriot Bank Minnesota in Forest Lake and the Florida Office of Financial Regulation shuttered the First Guaranty Bank and Trust Co. in Jacksonville.

The four failures are expected to cost the Deposit Insurance Fund a total of $607 million. Three banks failed a week earlier, marking the beginning of bank failures this year.

The $1.2 billion-asset Tennessee Commerce had been critically undercapitalized since the end of the third quarter and warned last week that it hadn't satisfied a regulatory order to boost capital by Dec. 31 and that its bank could be seized if it didn't raise the requisite equity.

Republic Bank & Trust Co. in Louisville, Ky., agreed to assume all of Tennessee Commerce's $1.2 billion in deposits and buy $203.9 million of its assets. The FDIC said in a press release that it would retain the remainder for later disposition. The failure is expected to cost the Deposit Insurance Fund $416.8 million.

It is particularly good timing for the Republic. Last month, the $3.4 billion-asset company ended a stand-off with the FDIC over its ability to make refund-anticipation loans to taxpayers. Republic agreed to end the product after this tax season, but was positioned to lose $24.5 million in earnings a year from it.

U.S. Bancorp Inc. in Minneapolis agreed to buy the $272 million-asset BankEast and assume all $268.8 million of deposits. That failure is expected to cost the Deposit Insurance Fund $75.6 million. According to data from Trepp LLC, BankEast had been undercapitalized since the second quarter of 2010.

The failed bank deal is a small one for the $340 billion-asset U.S. Bancorp, though it adds 10 branches to the company's existing 81-branch network in the state and expands its retail presence into Knoxville, the company said in a press release. U.S. Bancorp already employs 1,100 people in Knoxville, mostly at its customer service center for its merchant processing subsidiary, Elavon.

U.S. Bancorp is one of the few mega banks to participate in the resolution of failed community banks.

While bank failures is a new territory for Tennessee, that is certainly not the case for Florida, where dozens of banks have failed since 2008.

Serial failed bank acquirer CenterState Bank of Florida entered into an agreement with the FDIC to assume First Guaranty's $349.5 million in deposits and buy all of its $378 million in assets. It will share in the losses with the FDIC on $292.9 million of the assets. First Guaranty's failure is expected to cost the Deposit Insurance Fund $82 million.

In November, First Guaranty, Jacksonville's oldest community bank, said it would sell the best part of its operations to CertusBank in Greenville, S.C. for $96 million. It is unclear why that deal wasn't enough to save the bank, however, the deal would have left the struggling bank with its problem assets, along with a branch and some deposits. In other savior-type deals, regulators have said that the least costly resolution was to close the whole institution, rather than allow its owners to sell it off in piecemeal.

Lastly, First Resource Bank in Savage, Minn., agreed to assume all $108.3 million of Patriot Bank's deposits. It also agreed to buy essentially all of Patriot Bank's $111.3 million in assets, with $79.4 million of those assets covered by a loss-share agreement with the FDIC. Patriot Bank's failure is expected to cost the Deposit Insurance Fund $32.6 million.