First-Citizens Bank & Trust, a North Carolina-based lender with offices in Folsom, Delaware County and in 18 Southern and Western states, has entered New Jersey, acquiring money-losing Harvest Community Bank's four Salem County offices, and $124 million in the shrunken bank's customer accounts, from the Federal Deposit Insurance Corp. (Update at bottom)
The switch followed Harvest's seizure Friday by New Jersey state bank regulators, who turned its assets over FDIC. FDIC statement and contact information here.
The FDIC estimates it will lose $22.3 million protecting Harvest customers with accounts at its Pennsville headquarters and Salem, Woodstown and Elmer branches. FDIC is funded by bank fees. Harvest was the first New Jersey bank to fail since 2012.
The bank's regulatory filings show Harvest has suffered losses that ate up $13 million of its $15 million capital since the end of 2013, leaving it without enough money to meet federal lending standards.
Investors funded a string of local banks in and around Philadelphia after the city's dominant lenders all sold to out-of-state companies in the 1980s and 1990s. Investors hoped to profit by attracting small-business borrowers and consumers put off by corporate banks.
But low interest rates, stricter government capital and compliance regulations after the bank failures of the late 2000s, and competition from those big multistate lenders and their digital and mobile services have made it tough for small banks to make money and reward their investors, obliging those who could find buyers to sell to larger companies.
In 2014, Harvest chief executive and cofounder Dennis Engle resigned and the bank was slapped with consent orders to raise more capital by the Federal Deposit Insurance Corp. and the New Jersey Department of Banking and Insurance.
The bank reported its loan loss rate rose from 12% of total loans, to 19%, during that year, and has since remained close to that high level.
An effort to raise new capital in 2015 failed to bring in enough. That April, the bank warned shareholders it faced "some doubt as to our ability to continue as a going concern."
Last October, FDIC gave the bank 90 days "to resolve its issues," the South Jersey Times reported.
According to data from Bloomberg LP, the bank's largest shareholder is Salem County businessman Michael A. Williams, head of the area investors' group that founded and funded Harvest in the early 2000s.
Total Harvest loans -- including home mortgages, business and development loans, and a small proportion of farm loans -- fell to $98 million as of Sept. 30, from $131 million at the end of 2013, while deposits declined to $124 million, from $166 million.
UPDATE 1/17: Some community banks have prospered not far from Harvest. 1st Colonial Community Bank of Collingswood, Camden County, founded in 2000, has since accumulated more than $480 million in loans and other assets, and has been profitable every year since 2001.
Even in rural and factory counties like Salem, there are profitable loans to be made, Jerry Banmiller, 1st Colonial's president, told me, citing other banks in that area that have done well. "It's not demographics" that determines a bank's fate, Banmiller concluded. "It's management."