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Utah Bank Failure to Cost $0.3 Billion

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Mortgage Daily

                                                 January 18, 2010

Two of last week’s bank failures are expected to result in nominal losses to the country’s deposit insurance reserve. But projected losses from a third failed institution, which was heavily invested in development financing, exceed $270 million.

The Illinois Department of Financial Professional Regulation, Division of Banking, closed down 10-year-old Town Community Bank and Trust and handed it over to the Federal Deposit Insurance Corporation as receiver — as is done when any federally insured bank fails.

First American Bank assumed all of the Antioch, Ill., bank’s $67 million in deposits as of Sept., 30, 2009, at par. It also acquired $68 million of its $70 million in assets — which included $16 million in home loans, $10 million in commercial mortgages and $4 million in construction-and-land-development loans.

With the FDIC sharing in losses on $56 million of the assets, the cost for the failure of the 12-employee institution to the Deposit Insurance Fund is pegged at $18 million.

A little North, the Minnesota Department of Commerce seized 90-year-old St. Stephen State Bank — which faced an FDIC cease-and-desist order in July 2009. First State Bank of St. Joseph assumed all of the St. Stephen, Minn.-based bank’s $23 million in deposits as of Sept. 30 and acquired all of its $25 million in assets including $7 million in residential loans, $7 million in commercial mortgages and $1 million in construction-and-land-development assets. After agreeing to a loss-share arrangement on $20 million of the assets, the FDIC projected losses of $7 million from the failure of the 12-employee firm.

Before it was appointed receiver by the Utah Department of Financial Institutions, the FDIC was unable to find a buyer for Barnes Banking Co., which employed 112 people.

So the nation’s bank insurer created the Deposit Insurance National Bank of Kaysville to wind down the Kaysville, Utah-based institution’s $787 million in deposits as of Sept. 30, 2009. Barnes had $828 million in assets, including $69 million in one- to four-unit loans, $163 million in loans backed by commercial real estate and $287 million in construction-and-land-development loans.

“The commissioner took possession of Barnes Banking Co. in order to protect depositors and the public, finding, among other things, that Barnes Banking Co. was insolvent and not in a safe and sound condition to transact business,” Utah said in a statement. “Efforts by Barnes Banking Co. to raise capital to an acceptable level were unsuccessful.”

The Deposit Insurance National Bank will remain open until Feb. 12.

Losses from the failure of 119-year-old Barnes, the fourth FDIC-insured failure this year, are projected to reach $271 million.

All of the $285 in deposits of Independent Bankers’ Bank Bridge Bank, National Association — which was created by the FDIC on Dec. 18, 2009, to wind down failed Independent Bankers’ Bank — were assumed by The Independent BankersBank for an 0.32 percent premium. In addition, The Independent BankersBank will acquire $112 million of the interim institution’s $269 million ins assets.

Financial institutions concerned about heightened scrutiny in the wake of 140 FDIC-insured bank failures last year can turn to Applied Facts, which on Jan. 11 announced that it had expanded its global investigations services from corporate and entertainment specialties to new services to assist financial institutions with regulation compliance and risk mitigation. Among the Los Angeles-based firm’s offerings are senior management consulting, forensic accounting investigative services and litigation intelligence. It also handles computer forensics and asset search and recovery.

The National Credit Union Administration announced on Jan. 8 the failure of Kern Central Credit Union in Bakersfield, Calif. The 8,400 members of Kern, which had $35 million in assets, will be served by Self-Help Federal Credit Union — which assumed the assets and liabilities of the failed credit union.

Kern was the second credit union failure this year tracked by MortgageDaily.com and the sixth mortgage-related closing.

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