$2 Billion Bank Belly Up

New Frontier Bank collapses in Colorado

The headline $2 Billion Bank Belly Up landed after regulators shut down New Frontier Bank of Greeley, Colorado, a fast-growing community bank whose balance sheet had swelled to roughly $2 billion in assets and about $1.5 billion in deposits by early 2009. The Friday-night failure made New Frontier the 23rd U.S. bank to fail that year and the second in Colorado, underscoring how far the crisis had spread beyond Wall Street giants into smaller regional players.

State regulators closed the bank on 10 April 2009 and appointed the FDIC as receiver after no healthy institution was willing to take it over.

FDIC sets up temporary “insurance bank”

Because no buyer emerged, the FDIC used a relatively rare tool: it chartered the Deposit Insurance National Bank of Greeley (DINB) as a temporary bridge to give customers time to move their money. Insured deposits were transferred into the DINB, which was contracted out to Bank of the West for day-to-day operations during a roughly 30-day transition period.

Branches reopened under the DINB banner so customers could continue writing cheques, using debit cards and arranging new accounts at other banks. Uninsured and brokered funds were handled separately through the receivership process.

The FDIC later estimated that the failure would cost the Deposit Insurance Fund roughly $670 million, making it one of the more expensive community-bank collapses of 2009.

Aggressive growth, risky books

New Frontier had been founded in 1998 and grew rapidly on the back of acquisition, development and construction (ADC) loans and agriculture-related credits. When commercial real estate and land values fell, those concentrations turned into heavy losses.

Supervisory reviews after the fact pointed to:

• High exposure to ADC and speculative construction loans.

• Rapid asset growth that outpaced risk controls.

• Deteriorating credit quality that was not addressed quickly enough.

By the time regulators stepped in, the damage was too severe to attract a buyer, forcing the FDIC to rely on a payout-style resolution.

What $2 Billion Bank Belly Up meant for the market

For MortgageDaily readers, $2 Billion Bank Belly Up was another sign that 2009’s problems weren’t confined to subprime lenders or big securitisers:

• Community banks with concentrated commercial real-estate books were squarely in the firing line.

• The FDIC was being pushed into costly, complex resolutions when no bidders appeared.

• Local borrowers and depositors faced the disruption of losing a hometown institution, even if insured funds remained protected.

New Frontier’s collapse showed how quickly a high-growth, construction-heavy bank could move from local success story to billion-dollar failure once the credit cycle turned.