Federal Deposit
Insurance Corporation

2008 Annual Report

I. Management's Discussion and Analysis

Resolutions and Receiverships
The FDIC has the unique mission of protecting depositors of insured banks and savings associations. No depositor has ever experienced a loss on the insured amount of his or her deposit in an FDIC-insured institution due to a failure. Once an institution is closed by its chartering authority – the state for state-chartered institutions, the Office of the Comptroller of the Currency (OCC) for national banks and the Office of Thrift Supervision (OTS) for federal savings associations – and the FDIC is appointed receiver, it is responsible for resolving the failed bank or savings association.

The FDIC has at its disposal and employs a variety of business practices to resolve a failed institution. These business practices typically fall under work associated with the resolution process or the receivership process. Depending on the characteristics of the institution, the FDIC may recommend several of these practices to ensure prompt and smooth payment of deposit insurance to insured depositors, to minimize impact on the Deposit Insurance Fund, and to speed dividend payments to creditors of the failed institution.

The resolution process involves valuing a failing institution, marketing it, soliciting and accepting bids for the sale of the institution, determining which bid is least costly to the insurance fund, and working with the acquiring institution through the closing process.

In order to minimize disruption to the local community, the resolution process must be performed quickly and as smoothly as possible. There are two basic resolution methods: purchase and assumption transactions and deposit payoffs. A third resolution option, open bank assistance transactions, generally can only be used in the event the bank’s failure would result in systemic risk.

The purchase and assumption transaction (P&A) is the most common resolution method used for f­ailing institutions. In a P&A, a healthy institution assumes certain liabilities of the failed institution and purchases certain assets of the failed institution. Since each failing bank situation is different, P&A transactions are structured to create the highest value for the failed institution. Depending on the P&A transaction, the acquirer may either acquire all or only the insured portion of the deposits.

Deposit payoffs are only executed if a bid for a P&A transaction is not the least costly to the fund or if no bids are received, in which case the FDIC in its corporate capacity as deposit insurer, makes sure that the customers of the failed institution receive the full amount of their insured deposits.

The receivership process involves performing the closing functions at the failed institution, liquidating any remaining failed institution assets, and distributing any proceeds of the liquidation to the FDIC and other creditors of the receivership. In its role as receiver, the FDIC has used a wide variety of strategies and tools to manage and sell retained assets. These include but are not limited to asset sale and/or management agreements, partnership agreements, and securitizations.

Financial Institution Failures
Due to the economic environment, the FDIC experienced a significant increase in the number and size of institution failures as compared to previous years. For the institutions that failed in 2008, the FDIC successfully contacted all known qualified and interested bidders to market these institutions. Additionally, the FDIC marketed approximately 90 percent of the marketable assets of these institutions at the time of failure and made insured funds available to all depositors within one business day of the failure. There were no losses on insured deposits and no appropriated funds were required to pay insured deposits.

The chart below provides a comparison of failure activity over the last three years.

During 2008, 25 financial institutions failed. They are discussed below.

Douglass National Bank, Kansas City, Missouri, was closed by the Office of the Comptroller of the Currency (OCC) on January 25, 2008. At the time of closure, Douglass National had $52.8 million in total assets and $50.2 million in total deposits. Liberty Bank and Trust Company, New Orleans, Louisiana, assumed all deposits of Douglass National and purchased $50.0 million in assets. The estimated loss to the DIF is approximately $6.5 million.

Hume Bank, Hume, Missouri, was closed by the Commissioner of Missouri’s Division of Finance on March 7, 2008. At the time of closure, Hume Bank had $18.7 million in total assets and $13.6 million in total deposits. Security Bank, Rich Hill, Missouri, assumed the insured deposits of Hume Bank and purchased $3.4 million in assets. The estimated loss to the DIF is approximately $4.0 million.

ANB Financial, National Association, Bentonville, Arkansas, was closed by the OCC on May 9, 2008. At the time of closure, ANB Financial had approximately $1.9 billion in total assets and $1.8 billion in total deposits. Pulaski Bank and Trust Company, Little Rock, Arkansas, assumed the insured deposits of ANB Financial and purchased $228.5 million in assets. The estimated loss to the DIF is approximately $819.4 million.

First Integrity, National Association, Staples, Minnesota, was closed by the OCC on May 30, 2008. At the time of closure, First Integrity had $52.9 million in total assets and $50.2 million in total deposits. First International Bank and Trust, Watford City, North Dakota, assumed all deposits of First Integrity and purchased $34.9 million in assets. The estimated loss to the DIF is approximately $10.1 million.

IndyMac Federal CEO John Bovenzi at a press conference promoting “Home Preservation Day.”

IndyMac Bank, F.S.B., Pasadena, California, was closed by the Office of Thrift Supervision (OTS) on July 11, 2008, and the FDIC was named conservator. As conservator, the FDIC operated IndyMac Bank as IndyMac Federal Bank, F.S.B. All the insured deposits and substantially all the assets of IndyMac Bank were transferred to IndyMac Federal. At the time of closure, IndyMac Bank had total assets of $30.7 billion and total deposits of $18.9 billion. The estimated loss to the DIF is approximately $10.7 billion.

First National Bank of Nevada, Reno, Nevada, and First Heritage Bank, N.A., Newport Beach, California, were closed by the OCC on July 25, 2008. At the time of closure, First National of Nevada had $3.4 billion in total assets and $3.0 billion in total deposits. First Heritage Bank had $255.4 million in total assets and $256.7 million in total deposits. Mutual of Omaha Bank, Omaha, Nebraska, assumed all the deposits of both institutions and purchased $246.0 million in assets. The estimated loss to the DIF for these two institutions is approximately $739.2 million.

First Priority Bank, Bradenton, Florida, was closed by the Commissioner of the Florida Office of Financial Regulation on August 1, 2008. At the time of closure, First Priority had $258.6 million in total assets and $226.7 million in total deposits. SunTrust Bank, Atlanta, Georgia, assumed the insured deposits of First Priority and purchased $47.2 million in assets. The estimated loss to the DIF is approximately $81.1 million.

The Columbian Bank and Trust Company, Topeka, Kansas, was closed by the Kansas Bank Commissioner on August 22, 2008. At the time of closure, The Columbian Bank and Trust Company had $735.1 million in total assets and $620.3 million in total deposits. Citizens Bank and Trust, Chillicothe, Missouri, assumed the insured deposits of The Columbian Bank and Trust Company and purchased $53.4 million in assets. The estimated loss to the DIF is approximately $232.1 million.

Integrity Bank, Alpharetta, Georgia, was closed by the Georgia Department of Banking and Finance on August 29, 2008. At the time of closure, Integrity Bank had $1.1 billion in total assets and $962.4 million in total deposits. Regions Bank, Birmingham, Alabama, assumed all the deposits of Integrity Bank and purchased $58 million in assets. The estimated loss to the DIF is approximately $210.8 million.

Silver State Bank, Henderson, Nevada, was closed by the Nevada Financial Institutions Division on September 5, 2008. At the time of closure, Silver State Bank had $1.9 billion in total assets and $1.7 billion in total deposits. Nevada State Bank, Las Vegas, Nevada, assumed the insured deposits of Silver State Bank and purchased $66.7 million in assets. The estimated loss to the DIF is approximately $553.1 million.

Ameribank, Inc., Northfork, West Virginia, was closed by the OTS on September 19, 2008. At the time of closure, Ameribank, Inc. had $103.9 million in total assets and $100.9 million in total deposits. Pioneer Community Bank, Inc., Iaeger, West Virginia, assumed all the deposits for five branches located in West Virginia. The Citizens Savings Bank, Martins Ferry, Ohio, assumed all deposits of the three branches in Ohio. The acquiring institutions purchased $18.7 million in assets. The estimated loss to the DIF is approximately $33.4 million.

Washington Mutual Bank, the largest failure in history, was closed by the OTS on September 25, 2008. At the time of closure, Washington Mutual Bank had $307.0 billion in total assets and $188.3 billion in total deposits. JPMorgan Chase acquired the banking operations of Washington Mutual Bank in a facilitated transaction that fully protected all depositors and caused no loss to the DIF.

Main Street Bank, Northville, Michigan, was closed by the Michigan Office of Financial and Insurance Regulation on October 10, 2008. At the time of closure, Main Street Bank had $112.4 million in total assets and $98.9 million in total deposits. Monroe Bank & Trust, Monroe, Michigan, assumed all the deposits of Main Street Bank and purchased $15.0 million in assets. The estimated loss to the DIF is approximately $32.0 million.

Meridian Bank, Eldred, Illinois, was closed by the Illinois Department of Financial Professional Regulation-Division of Banking on October 10, 2008. At the time of closure, Meridian Bank had $38.2 million in total assets and $36.1 million in total deposits. National Bank, Hillsboro, Illinois, assumed all the deposits of Meridian Bank and purchased $7.2 million in assets. The estimated loss to the DIF is approximately $14.5 million.

Alpha Bank and Trust, Alpharetta, Georgia, was closed by the Georgia Department of Banking and Finance on October 24, 2008. At the time of closure, Alpha Bank had $351.4 million in total assets and $344.2 million in total deposits. Stearns Bank, National Association, St. Cloud, Minnesota, assumed the insured deposits of Alpha Bank and purchased $16.8 million in assets. The estimated loss to the DIF is approximately $159.9 million.

Freedom Bank, Bradenton, Florida, was closed by the Commissioner of the Florida Office of Financial Regulation on October 31, 2008. As of October 31, 2008, Freedom Bank had $270.8 million in total assets and $256.8 million in total deposits. Fifth Third Bank, Grand Rapids, Michigan, assumed all the deposits of Freedom Bank and purchased $36 million in assets. The estimated loss to the DIF is approximately $92.9 million.

Security Pacific Bank, Los Angeles, California, was closed by the Commissioner of the California Department of Financial Institutions on November 7, 2008. At the time of closure, Security Pacific had $528.0 million in total assets and $456.5 million in total deposits. Pacific Western Bank, Los Angeles, California, assumed all the deposits of Security Pacific and purchased $36 million in assets. The estimated loss to the DIF is approximately $175.5 million.

Franklin Bank, S.S.B., Houston, Texas, was closed by the Texas Department of Savings and Mortgage Lending on November 7, 2008. At the time of closure, Franklin Bank had $5.1 billion in total assets and $3.7 billion in total deposits. Prosperity Bank, El Campo, Texas, assumed all the deposits of Franklin Bank and purchased $724.3 million in assets. The estimated loss to the DIF is approximately $1.4 billion.

The Community Bank, Loganville, Georgia, was closed by the Georgia Department of Banking and Finance on November 21, 2008. At the time of closure, The Community Bank had $634.9 million in total assets and $603.7 million in total deposits. Bank of Essex, Tappahannock, Virginia, assumed all the deposits of The Community Bank and purchased $87.5 million in assets. The estimated loss to the DIF is approximately $247.3 million.

Downey Savings and Loan Association, F.A., Newport Beach, California, was closed by the OTS on November 21, 2008. At the time of closure, Downey Savings and Loan had $12.8 billion in total assets and $9.6 billion in total deposits. U.S. Bank, National Association, Minneapolis, MN, assumed all the deposits and purchased $12.3 billion in assets. The estimated loss to the DIF is approximately $1.4 billion.

PFF Bank & Trust, Pomona, California, was closed by the OTS on November 21, 2008. At the time of closure, PFF Bank had $3.7 billion in total assets and $2.4 billion in total deposits. U.S. Bank, National Association, Minneapolis, MN, assumed all the deposits and purchased $3.5 billion in assets. The estimated loss to the DIF is approximately $729.6 million.

First Georgia Community Bank, Jackson, Georgia, was closed by the Georgia Department of Banking and Finance on December 5, 2008. At the time of closure, First Georgia Community Bank had $256.3 million in total assets and $215.3 million in total deposits. United Bank, Zebulon, Georgia, assumed all the deposits of First Georgia Community Bank and purchased $37.3 million in assets. The estimated loss to the DIF is approximately $52.0 million.

Sanderson State Bank, Sanderson, Texas, was closed by the Texas Department of Banking on December 12, 2008. At the time of closure, Sanderson State Bank had $38.2 million in total assets and $32.0 million in total deposits. Pecos County State Bank, Fort Stockton, Texas assumed all deposits and purchased $13.0 million in assets. The estimated loss to the DIF is approximately $9.6 million.

Haven Trust Bank, Duluth, Georgia, was closed by the Georgia Department of Banking and Finance on December 12, 2008. At the time of closure, Haven Trust had $559.6 million in total assets and $498.7 million in total deposits. Branch Banking & Trust (BB&T), Winston-Salem, NC, assumed all deposits and purchased $69.0 million in assets. The estimated loss to the DIF is approximately $208.0 million.

Asset Management and Sales
As part of its resolution process, the FDIC makes every effort to sell as many assets as possible to an assuming institution and is generally successful. Assets that do remain in the receivership are evaluated and those that are determined to be marketable are marketed to be sold within 90 days of an institution’s failure.

In 2008, the book value of assets under management increased from $907.0 million to $15.1 billion.

The following chart shows beginning and ending balances of assets by asset type.

Receivership Management Activities
The FDIC, as receiver, manages the failed banks and their subsidiaries with the goal of expeditiously winding up their affairs. The oversight and prompt termination of receiverships help to preserve value for the uninsured depositors and other creditors by reducing overhead and other holding costs. Once the assets of a failed institution have been sold and the final distribution of any proceeds is made, the FDIC terminates the receivership estate. The FDIC terminated all 11 institutions for which all impediments were resolved within prescribed timeframes. In 2008, the number of receiverships under management increased by 40 percent due to the increase in failure activity.

The following chart shows overall receivership activity for the FDIC in 2008.

Protecting Insured Depositors
With the increase in failure activity in 2008, the FDIC’s focus on protecting deposits in institutions that fail was of critical importance. Confidence in the banking system hinges on deposit insurance and no depositor experienced a loss on their insured deposit in 2008.

The FDIC’s ability to attract healthy institutions to assume deposits and purchase assets of failed banks and savings associations at the time of failure minimizes the disruption to customers and allows some assets to be returned to the private sector immediately. Assets remaining after resolution are liquidated by the FDIC in an orderly manner and the proceeds are used to pay creditors, including depositors whose accounts exceeded the insurance limit. During 2008, the FDIC paid dividends of $302 million to depositors whose accounts exceeded the insured limit(s). Effective October 3, 2008, through December 31, 2009, the standard maximum deposit insurance amount increased from $100,000 to $250,000.

Professional Liability Recoveries
The FDIC staff works to identify potential claims against directors, officers, accountants, appraisers, attorneys and other professionals who may have contributed to the failure of an insured financial institution. Once a claim is deemed meritorious and cost effective to pursue, the FDIC initiates legal action against the appropriate parties. During the year, the FDIC recovered approximately $31 million from these professional liability claims/settlements. In addition, as part of the sentencing process for those convicted of criminal wrongdoing against institutions that later failed, a court may order a defendant to pay restitution or to forfeit funds or property to the receivership. The FDIC, working in conjunction with the U.S. Department of Justice, collected more than $1.3 million in criminal ­restitutions during the year. At the end of 2008, the FDIC’s caseload was comprised of 77 professional liability lawsuits (down from 84 at year-end 2007) and 248 open investigations (up from 34). At year-end, there were 638 active restitutions and ­forfeiture orders (down from 687). This includes 261 Resolution Trust Corporation orders that the FDIC inherited on January 1, 1996.