Failed Bank Series: First National Bank of Crestview

The FDIC announced on January 16th that the First National Bank of Crestview in Florida had been taken into FDIC receivership.  The FDIC entered into an agreement with the First NBC Bank of New Orleans to assume all deposits of First National Bank of Crestview.

The First National Bank of Crestview was a $79m bank located in Crestview, Florida.  The bank had three branches all located in Okaloosa County.

The bank had shrunk dramatically from over $250m in assets in 2005 to $79m at the end of Q3, the date of their most recent regulatory filings.  The bank struggled with shrinking retail deposits over the past decade.  In 2005 the bank had $147m in retail deposits a figured that dropped to $85m at the end of Q3 2014.  Without a stable deposit base the bank couldn’t grow their loan portfolio and loans outstanding followed a similar trajectory to their deposits.

What didn’t shrink was the bank’s operating expenses.  In 2005 the bank had an efficiency ratio, a measure of operating expenses to revenue of 45%, a figure that could be considered very low for a small community bank.  This figure crossed 100% in 2010 and was 654% at the end of Q3 2014.  To put that into perspective for every $1 the bank received in interest on money they lent they had $6.40 in operating costs.  With expenses this high the bank quickly spent down their capital.

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Tier 1 capital was 2.36% at the end of the third quarter.  Tier 1 of 2.36% is well below what is considered ‘well capitalized’ by the FDIC.  What is somewhat unusual about this bank is they weren’t struggling with out of control loan losses.  At the end of the third quarter only 1.25% of their loans were non-current.  Their non-current loans to loans had been trending downward as well.

What ended the life of First National Bank of Crestview were high operating costs and a rapidly shrinking capital base.  At the end of the third quarter the bank had $813k in equity capital.  Their operating expenses were averaging $800k.  The bank also had continuing expenses related to their portfolio of foreclosures.  From a simple numbers basis if the bank hadn’t had any issues with their foreclosure portfolio they had about a quarter or possibly two left before running out of capital.  With the FDIC announcement we can ascertain that they weren’t able to get their foreclosure portfolio under control, and before risking the bank’s deposits the FDIC moved to terminate the bank.

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