Eighth U.S. Bank Fails This Year

First Priority Bank of Florida was closed by bank regulators Friday, making it the eighth U.S. bank this year to succumb to the weak economy and credit crisis heightened by plunging home prices.

The Federal Deposit Insurance Corp. stated that the failure of First Priority Bank will cost the federal fund that insures deposits an estimated $72 million. First Priority had $259 million in assets and $227 million in deposits.

The insured deposits of First Priority would be taken up by SunTrust Banks Inc. The six branches of the erstwhile bank would reopen Monday as branches of SunTrust Bank and it would be business as usual, informed the FDIC.

First Priority had been struggling for the last year and a half. On June 25, the FDIC issued a ‘prompt corrective action directive’ calling First Priority a ‘significantly undercapitalized’ institution and gave the bank a month’s time to increase the volume of capital to a level sufficient to restore the bank to an ‘adequately capitalized’ capital category.

As per FDIC records, on June 30, more than 16.5 percent of First Priority's assets were stuck in non-accrual loans, for which full re-payment is doubtful. Besides, more than $13 million in loans of the ailing bank were between 30 and 89 days past due. Miami banking consultant Ken Thomas had termed it ‘ a dead bank walking.’

First Priority, he said, made a mistake by straying in search of new business. As a third of its small business lending, according to him, was outside Manatee and Sarasota counties, ‘questionable borrowers’ had a field day at its expense. Such borrowers purposefully "seek out new banks. They know the new banks are the aggressive ones," he added.

Board members of First Priority had replaced its founder, George Namjy, at the helm of affairs with former Naples banker Kevin Hale. But by then it was too late. "He was put in an almost impossible position to save this bank and obviously he couldn't do it," opines Thomas.

First Priority Bank is the first failure in Florida since Tallahassee's Guaranty National Bank in 2004. "But it won't be the last," said Chip MacDonald, a partner and banking attorney for Jones Day in Atlanta, sounding an ominous note on things to come.

Echoing his analysis, Thomas foresees more failures along Florida's west coast, where new banks had flocked in the early part of this decade to share the spoils of the residential building boom.

Trying to analyze the reason for the imminent failure of these banks, Thomas said that banks in that area "were heavily involved in construction lending, commercial real estate and they were very aggressive. These new banks focused so much on growth they put aside a lot of conservative banking principles."