Second Bank to Fail in Year Reopened as Branch

A failed Boulder, Colo., bank reopened Monday after regulators sold its insured deposits and some assets to Pueblo (Colo.) Bank and Trust.

Pueblo Bank paid $1.1 million for $225.3 million of insured deposits and $47.2 million of assets.

The former BestBank is now operating as a branch of $324 million-asset Pueblo Bank.

Colorado bank regulators closed BestBank July 23 after concluding the bank's $23 million in capital could not support its $135 million of classified loans.

The Federal Deposit Insurance Corp. has not said how much the second failure of 1998 will cost the Bank Insurance Fund. However, the agency will have to dispose of $267 million, or 85%, of BestBank's assets.

The bank was closed as a result of a joint exam by Colorado regulators and the FDIC.

However, neither agency would say how long it had been since BestBank had had an on-site examination.

State regulators blamed BestBank's problems on a risky product line and aggressive asset growth.

BestBank specialized in subprime credit cards, which it offered to customers nationwide through advertisements on the Internet. BestBank also used the Internet to draw deposits from around the country. Its one-year certificate-of-deposit rate advertised last week was about 90 basis points higher than the national average.

BestBank tripled its assets to $314 million between April 1, 1997, and March 31, 1998. Its return on assets and equity were well above national averages.

Richard Fulkerson, Colorado state banking commissioner, said his office monitored BestBank's growth through its quarterly call reports and examined the bank regularly.

In hindsight, Mr. Fulkerson said he wished his department had closed the bank earlier, but examiners did not have adequate evidence of insolvency until last week.

Still, Mr. Fulkerson said BestBank's failure will force regulators to reconsider whether they have become too hands-off when it comes to fast- growing banks.

"You're always a little concerned that you've streamlined too far," he said. "If you have a BestBank-type of problem, it raises some concerns, but you have to look at what's best for public policy."

Colorado regulators said BestBank paid two key executives $9 million this year as reward for the growth in the credit card program. The state agency refused to name the executives.

The state agency also said BestBank hired a third party to manage the credit card loans. While the agency would not identify the third party, regulators said the firm overstated the number of performing accounts.

BestBank's directors did not correct problems in the credit card portfolio "despite warnings from internal auditors and regulators," the state agency said.

BestBank was owned by friends and business associates of Edward P. Mattar 3d, the bank's chief executive officer.

Mr. Mattar did not return messages left at his homes in Boulder and Deerfield Beach, Fla. T. Alan Boyd, BestBank's president, and Jack Grace, chief financial officer, also could not be reached for comment.

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