Regulators Seize Biggest Failed Bank in 3 Years

WASHINGTON — Bank failures are apparently not just reserved for the smallest institutions.

Regulators seized the largest institution to be closed in over three years late Friday. The Office of the Comptroller of the Currency shuttered the $3.1 billion-asset First National Bank in Edinburg, Texas, and it was sold by the Federal Deposit Insurance Corp. in a deal estimated to cost $637 million to the Deposit Insurance Fund.

It followed the closure earlier in the day of The Community's Bank, a $26 million-asset institution in Bridgeport, Conn., which was the first bank to fail in the state in 11 years. A total of 22 institutions have failed so far this year.

First National's closure, which came after eight straight quarters of reported losses for the bank, broke an extended pattern of only banks with less than $1 billion in assets being declared insolvent. It was the largest failure since April 30, 2010, when the FDIC seized both Westernbank Puerto Rico and R-G Premier Bank of Puerto Rico, with asset sizes, respectively, of $8.6 billion and $4.2 billion. The last failure of a bank to hit the billion-dollar cutoff was that of Tennessee Commerce Bank, in Franklin, Tenn., which failed in January 2012 with just over $1 billion in assets.

"The OCC acted after finding that the bank had experienced substantial dissipation of assets and earnings due to unsafe and unsound practices," the agency said in a brief statement.

The bank and its parent company, First National Bank Group, were subject to regulatory enforcement actions as far back as 2011, and earlier this year the bank announced plans to consider "strategic alternatives." As of the end of the second quarter, the bank reported a "core" capital ratio of 1.96%.

The FDIC announced that PlainsCapital Bank in Dallas had agreed to assume all of First National's $2.3 billion in deposits and acquire about $2.7 billion of its assets. PlainsCapital will operate the failed bank's 51 former branches under normal business hours, including two branches in El Paso that did business as The National Bank of El Paso. The FDIC and the acquirer agreed to share losses on $1.8 billion of First National's assets.

Meanwhile, regulators could not find a buyer for the operations of the bank that failed earlier in the day. The FDIC said it would mail a check for only the insured deposits of the customers of The Community's Bank. The bank failed with nearly $26 million in total deposits, and the FDIC said it would determine the amount of uninsured deposits after it obtains additional customer information. The failure was estimated to cost $7.8 million to the DIF. The last bank to fail in the state was Connecticut Bank of Commerce, in Stamford, which was closed in June 2002.