Feds close 1st State Bank

Sep 05, 2009 (The Arizona Daily Sun - McClatchy-Tribune Information Services via COMTEX) -- FSCE | Quote | Chart | News | PowerRating -- Financial regulators closed all six branches of First State Bank of Flagstaff on Friday after it failed to meet an order to clean up its delinquent loan portfolio and raise more capital.

A Maricopa County Superior Court judge put the bank into federal receivership because the bank was "in an unsafe and unsound condition" that was "rapidly deteriorating and there is no reasonable likelihood that it will be able to reverse the trend or obtain an infusion of new capital." On Friday, the FDIC entered into an agreement with Sunwest Bank of Tustin, Calif., under which Sunwest will immediately assume all of First State's non-brokered deposits and loans. All six branches will reopen Tuesday as branches of Sunwest Bank.

Deposits will continue to be insured by the Federal Deposit Insurance Corporation, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage, according to an FDIC press release.

Customers should continue to use their existing branches until Sunwest Bank can fully integrate the deposit records of First State Bank, the FDIC said.

Over the weekend, depositors of First State Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

Regulators on Friday also shut down banks in Missouri, Illinois and Iowa, pushing to 89 the number of banks that have failed this year under the weight of the soured economy and rising loan defaults.

According the FDIC, the First State Bank had $105 million in assets and deposits totaling $95 million. The FDIC said on Friday that it expects to lose $47 million on the transaction, almost half the value of First State Bank's loan portfolio.

Sunwest Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's insurance fund compared to alternatives, according to a press release.

First State Bank is the 89th FDIC-insured institution to fail in the nation this year, and the third in Arizona. The last FDIC-insured institution closed in the state was Union Bank, National Association, Gilbert, on Aug. 14.

In June, the FDIC had given the privately held First State Bank 120 days to raise $2 million in new capital to fix problems with its current financial condition.

First State had some $11 million in its loan portfolio that was in some form of delinquency or default as of March 31, according to FDIC data.

The bulk of its loans -- roughly 80 percent -- were in construction and land development.

An FDIC spokesperson said First State Bank had 33 employees among its six branches.

U.S. banks overall lost $3.7 billion in the second quarter, compared with a profit of $7.6 billion in the January-March quarter, according to the FDIC. Surging levels of soured loans at banks dragged down profits in the April-June period.

FDIC Chairman Sheila Bair has said there were no immediate plans to borrow money from the government to replenish the insurance fund by tapping the agency's $500 billion credit line with the Treasury. The FDIC may, however, impose an additional fee on U.S. banks this year to bolster the fund, atop the estimated $5.6 billion from a new emergency premium that took effect June 30.

The Associated Press contributed to this story.

FYI

For more information: First State customers who have questions about the closure can call the FDIC toll-free at (800) 537-4048 on Saturday from 9 a.m. to 6 p.m., MST; on Sunday from noon to 6 p.m.; and thereafter from 8 a.m. to 8 p.m.

Interested parties can also visit the FDIC's Web site at http://www.fdic.gov/bank/individual/failed/firststate-az.html or download a PDF of commonly asked questions at http://tinyurl.com/n7k2f4

To see more of The Arizona Daily Sun, or to subscribe to the newspaper, go to
http://www.azdailysun.com. Copyright (c) 2009, The Arizona Daily Sun, Flagstaff
Distributed by McClatchy-Tribune Information Services. For reprints, email
tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax
to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave.,
Suite 303, Glenview, IL 60025, USA.

More News:   Market Updates | Stock Alerts | All Trading News | Stock Index