Contrarian Pundit

This evening, regulators closed Tamalpais Bank:

Tamalpais Bank, San Rafael, California, was closed today by the California Department of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Union Bank, National Association, San Francisco, California, to assume all of the deposits of Tamalpais Bank.

The seven branches of Tamalpais Bank will reopen on Monday as branches of Union Bank, N.A. …

This evening and over the weekend, depositors of Tamalpais Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of December 31, 2009, Tamalpais Bank had approximately $628.9 million in total assets and $487.6 million in total deposits. …

The FDIC and Union Bank, N.A. entered into a loss-share transaction on $522.3 million of Tamalpais Bank’s assets. Union Bank, N.A. will share in the losses on the asset pools covered under the loss-share agreement. The loss-share transaction is projected to maximize returns on the assets covered by keeping them in the private sector. The transaction also is expected to minimize disruptions for loan customers. For more information on loss share, please visit: http://www.fdic.gov/bank/individual/failed/lossshare/index.html.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $81.1 million. … Tamalpais Bank is the 49th FDIC-insured institution to fail in the nation this year, and the third in California. The last FDIC-insured institution closed in the state was Innovative Bank, Oakland, earlier today.

Notice that $100 million of Tam Bank’s toxic waste assets did not make it into the loss-share agreement with Union Bank.

I have covered Tamalpais Bank’s travails extensively, since I broke the story of its lending relationship with San Francisco’s notorious Lembi Group.  I don’t have time right now to summarize my thoughts—I will try to do so later this weekend.  Instead, I offer you a listing of my stories and posts below, and the thoughts of a former bank regulator, offered to me by e-mail earlier today:

Consolidated entity is financial roadkill, with deficit NW, noncompliance with C&D’s, PCA started, huge volume of nonperforming loans, over $100 million FHLB borrowings that can be called in default at any time, 75% of loans in commercial RE in terrible market, 2/3 of deposits in hot money [brokered deposits and or "wholesale CDs"] and going concern qualification by CPAs.

Obviously they know numbers for 1st quarter ending 3-31-10 which probably continued bad news. They have to file this soon-Bank call report filing for 1st Q is due by end of April unless they are taken over by FDIC by then.

Additionally,With only $29 million in cash at 12-31-09 and lots of maturing deposits liquidity crisis is key.

This disaster can be best described as caused by greedy management, unsafe and unsound, and reckless lending practices creating huge concentrations and (subconcentrations of credit to individual borrowers) in risky and obviously poorly underwritten commercial real estate loans, some out of state in Arizona. “Earnings” were overstated by maintaining an obviously inadequate allowance for loan losses until the company went over a cliff. Deferred tax assets of $11 million were kept on books as asset until 12-09 essentially overstating capital with an obviously questionable asset. (Page 47 of 10-k)

Risks were further compounded by the bank’s high risk strategy of reliance on high cost wholesale CDs, FHLB borrowings and brokered deposits. Franchise value to the FDIC will be minimal because there is little there, there.

The regulators belatedly issued a C&D in late 2009 only after bank was clearly near failure and “dead meat”.

His impatience with the banking regulators in this case isn’t isolated. Consider these thoughts by an anonymous poster on Yahoo! Finance:

What is the the FDIC doing?

I am a CPA and got into the business of taking over financial institutions that were in trouble. I was Chairman and CEO of four medium to large size financial institutions and salvaged everyone. I retired in 1984. When I was in the business the FDIC would not screw around with an institution with nearly a quarter of a million dollars negative net worth and when they gave notice the way they did on March 21 the bank was gone on that date. What’s going on?

For your Tam Bank reading pleasure, check out:

When smart money said “no more,” not-so-smart Marin bank loaned the Lembis $41 million.

Tamalpais Bank Update

Tam Bank Comparable: What Happened To Casa Madrona?

Tamalpais Bank Update: Do Not Ask For Whom The Bell Tolls …

Tamalpais Bank Update: NASDAQ Threatens Delisting

Bank Failure Roundup: Where are the Buzzards Circling?

Tamalpais Bank Update: Next Item in the Auction …

Tamalpais Bank Update: How to Prepare for the Feds Coming to Town

Tamalpais Bank Update: Uh, we need more time with the books …

Tamalpais Bank Update: How To Get That Hot Money Without Breaking Any Rules

Tamalpais Bank Update: What Does a Zombie Look Like?