U.S. regulators close seven banks

Fri Jul 3, 2009

By JoAnne Allen

WASHINGTON (Reuters) - U.S. bank regulators closed seven institutions on Thursday, including six banks in Illinois controlled by one family and a small bank in Dallas, bringing the total number of U.S. bank failures to 52 so far this year.

Founders Bank, of Worth, Illinois, was the largest of the financial institutions seized. The Federal Deposit Insurance Corp said Founders had $962.5 million in assets and approximately $848.9 million in deposits.

The PrivateBank and Trust Co of Chicago (PVTB.O) will assume all of the deposits of Founders Bank.

The failure is expected to cost the FDIC deposit insurance fund an estimated $188.5 million.

The six failed Illinois banks were all controlled by one family and followed a similar business model, the FDIC said. The failures were related to losses that included soured investments in collateralized debt obligations.

According to a website of one of the Illinois banks, they were part of the Campbell Group of privately owned banks.

Also on Thursday, the FDIC ordered City Bank (CTBK.O), of Lynnwood, Washington, to cease and desist "operating with management whose policies and practices are detrimental" to the bank and "jeopardize" deposits.

The FDIC said the community bank operated with inadequate capital, inadequate loan valuation reserve and a large volume of poor quality loans.

Under the cease and desist agreement signed with the regulator and the state of Washington, City Bank must produce a plan to reduce its nonperforming loans and foreclosed real estate. The bank is also required to reduce the level of brokered deposits, City Bank said.

The Federal Deposit Insurance Corp said the other bank closings in Illinois on Thursday were:

-- First National Bank of Danville, with assets of $166 million and total deposits of approximately $147 million. First Financial Bank, of Terre Haute, Indiana will assume all the deposits of First National. The estimated cost of the failure to the FDIC is $24 million.

-- Elizabeth State Bank in Elizabeth. It had total assets of $55.5 million and total deposits of approximately $50.4 million. Galena State Bank and Trust of Illinois, a unit of Heartland Financial (HTLF.O) assumes all of the deposits of Elizabeth State Bank. Cost of the failure to the FDIC estimated to be $11.2 million.

-- Rock River Bank in Oregon, Illinois. Rock River had total assets of $77 million and total deposits of approximately $75.8 million. The Harvard State Bank, of Harvard, Illinois, will assume all of the deposits. The failure will cost the FDIC an estimated $27.6 million.

-- John Warner Bank of Clinton. John Warner had total assets of $70 million and total deposits of about $64 million. State Bank of Lincoln is assuming all of the John Warner deposits. The cost to the FDIC is estimated to be $10 million.

-- First State Bank of Winchester. It had total assets of $36 million and total deposits of about $34 million. The First National Bank of Beardstown, Illinois, will assume the First State Deposits. The FDIC estimates the cost to the agency will be $6 million.

Regulators also closed Millennium State Bank of Texas in Dallas. Millennium had total assets of approximately $118 million and total deposits of $115 million, the FDIC said.

State Bank of Texas will assume all of the deposits of Millennium. The failure of Millennium will cost the FDIC an estimated $47 million.

The FDIC insures up to $250,000 per account at member institutions.

The agency has a running tally of problem banks that its examiners closely monitor. At the end of the first quarter, 305 unidentified financial institutions were on that list.

The FDIC has faced a sharp uptick in failed banks as loan portfolios continue to deteriorate following the bursting of the housing bubble. In 2008 there were 25 bank failures, and just three in 2007.

(Additional reporting by Karey Wutkowski; Editing by Richard Chang, Tim Dobbyn, Gary Hill and Eric Walsh)