In the wake of another US bank failure in early February 2010, the two branches of 1st American State Bank of Hancock Minnesota have reopened as branches of Community Development Bank, FSB, under the watchful eye of the Federal Deposit Insurance Corporation (FDIC) and the Minnesota Department of Commerce. BankProspector provides Distressed Pro members with clear insight that failure was caused by a heavy distressed construction loan portfolio.

1st American State Bank of Minnesota had approximately $18.2 million in total assets and $16.3 million in total deposits. The FDIC and Community Development Bank, FSB of Ogema, MN entered into a loss-share transaction of $11.7 million to move the failed bank and its assets to Community Development Bank. Despite regulators shutting down 1st American, as we have seen with the previous 15 bank failures of 2010, the failed institution’s assets are being enveloped by another (FDIC-insured) institution, and customers are inconvenienced by the event, but are largely not impacted.

1st American State Bank of Minnesota shouldered heavy amounts of distressed construction loans across their portfolio, as well as commercial loans, to the point where 65% and 40% were noncurrent respectively. Nonaccrual levels of the same stood at approximately $636,000 and $776,000, with OREO levels of $407,000 and $283,000 across construction and commercial loan types.

1st American is the 16th FDIC-insured institution to fail in the nation this year, and the 3rd Minnesota bank failure. If you watch list bank failures, you know that MN now holds the highest 2010 single state number of failures across the country at 3. There were 140 banks that failed in 2009, the highest count since 1992, and with 15 FDIC-insured banks being shut down in January 2010 alone, the country is on pace to surpass the 2009 failure count – it should be noted however, the pace of bank failure has slowed in early February. The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) of the 1st American closing will be approximately $3.1 million.

It was recently announced that United Valley Bank will pay the Federal Deposit Insure Corporation (FDIC) a premium of 7.35% to assume all deposits of Marshall Bank, National Association after the Hallock, MN institution failed in late January.

United Valley Bank signed an agreement to purchase essentially all of the failed bank’s assets, and the 3 branches of Marshall Bank, N.A. will be opening as branches of United Valley Bank.

The institution carried capital adequacy and leverage ratios under 6%, however, Marshall Bank was hampered by construction lending, with approximately 58% of their portfolio noncurrent. The FDIC estimates the cost to the Deposit Insurance Fund (DIF) will be $4.1 million. Marshall Bank, National Association is the second institution in Minnesota to fail during 2010.