Polonia Bankcorp (PBCP) Appointed to Assume Deposits and Assets From Earthstar Bank

The Street is reporting that state regulators appointed Polonia Bancorp to assume the deposits and assets of Earthstar Bank. The Pennsylvania bank brought the total number of bank failures in 2010 to 151.

Pennsylvania regulators closed Earthstar Bank of Southampton, Pa., which had $112.6 million in assets and $104.5 million in deposits. The FDIC was appointed receiver and arranged for Polonia Bank of Huntington Valley, Pa. to assume all of the deposits and $77.1 million in assets from the failed institution, with the agency agreeing to cover 80% of losses on $45.8 million. Polonia Bank is the main subsidiary of Polonia Bancorp (PBCP).

However, Polonia did not agree to assume certain out-of-state CDs. Earthstar marketed CDs nationwide through online applications.

Earthstar Bank had entered into a cease and desist order with the FDIC in May 2008, after an examination by the agency and the Commonwealth of Pennsylvania Department of Banking determined that the bank had “engaged in unsafe or unsound banking practices and had committed violations of law and regulation.”

The bank was ordered to engage a third party to assess the qualifications and effectiveness of its senior management and board of directors, follow through with recommendations to replace board members and members of senior management with better-qualified personnel and essentially write or improve procedures for every facet of running the bank.

After net losses of $6.8 million in 2009, the bank was undercapitalized as of December 31 with a total risk-based capital ratio of 5.23%. The cease and desist order was amended in April, noting that the bank was found during a June 2009 examination to be “Operating with inadequate staff to perform present and anticipated duties, including lack of a Chief Executive Officer, Chief Financial Officer, and Chief Risk Officer.”

Earthstar Bank was ordered to retain qualified management and improve its board of directors supervision, and raise sufficient capital to bring its total risk-based capital ratio to 12% by June 30.

As of September 30, the total risk-based capital ratio had dropped to 4.06% and the bank’s nonperforming assets – including loans past due 90 days, nonaccrual loans and repossessed assets – made up 8.17% of total assets.

Earthstar Bank’s four offices were scheduled to reopen Saturday as branches of Polonia Bank. The FDIC estimated the cost of the failure to the deposit insurance fund would be $22.9 million.

In related news, the Michigan Office of Financial and Insurance Regulation shuttered Paramount Bank of Farmington Hills, Mich. and appointed the Federal Deposit Insurance Corp. as receiver. The failed bank had $257.2 million in total assets, which the FDIC sold to Level One Bank, which is also headquartered in Farmington Hills.