ShoreBank, the country's first community development bank, failed Friday night after months of struggling to find a way to stay afloat.
However, it will continue in a different form.
The Illinois Department of Financial and Professional Regulation closed the $2.16 billion-asset bank and the Federal Deposit Insurance Corp. sold all of its deposits and nearly all of the assets to Urban Partnership Bank, a newly minted state-chartered bank.
ShoreBank was one of eight banks across the country to fail on Friday, which collectively are expected to cost the deposit insurance fund $473.5 million.
At the helm of Urban Partnership is David Vitale, who has served as ShoreBank's executive chairman since March. The new bank is backed by about $140 million in capital that ShoreBank raised from a consortium of big institutions and foundations including: American Express Co., Bank of America Corp., Citigroup, Ford Foundation, GE Capital Equity Investments Inc., Harris Bank, the John D. and Catherine T. MacArthur Foundation, JPMorgan Chase & Co., Key Community Development Corp., Morgan Stanley, Northern Trust Corp., PNC Investment Corp., State Farm Mutual Automobile, The Goldman Sachs Group Inc., and Wells Fargo & Co., according to the FDIC.
That capital initially was raised to go alongside a $75 million investment from the Treasury that never was approved after ShoreBank had a capital-depleting second quarter.
Urban Partnership will pay a 0.50% premium to assume ShoreBank's $1.54 billion in deposits and entered into a loss-sharing agreement on $1.41 billion of its assets.
Along with the press release announcing the failure, the FDIC Friday night issued a supplemental fact sheet further explaining the resolution.
"ShoreBank is a unique kind of institution — one that is mission-driven and focused on a double bottom line," the fact sheet said. "ShoreBank was the largest CDFI in the country and as such, presented unique marketing challenges."
The FDIC fact sheet also said Urban Partnership plans to continue serving Chicago's low to moderate-income communities and will apply for community development bank status.
David Barr, a spokesman for the FDIC, said ShoreBank did not receive open-bank assistance, as the bank in fact failed. Still, the fact sheet noted that ShoreBank shareholders were wiped out and that the management team responsible for the bank's problems will not be involved in Urban Partnership — two requirements that must be met for open-bank assistance.
"The holding company's investment in ShoreBank is now worthless," the fact sheet said. "The ShoreBank board of directors and executives who presided during the deterioration of the condition of the institution will not be retained. New management leading the efforts to save the institution and that did not contribute to the bank's problems will be retained."
The FDIC also said Urban Partnership's bid was the only one it received for ShoreBank. The failure is expected to cost the FDIC $367.7 million. The FDIC added that had the bank been liquidated, the estimated price tag would have been $250 million to $334 million higher. ShoreBank's failure is the 15th this year in Illinois.
In a press release issued Friday, Mary Cahillane, chairman of ShoreBank Corp., the bank's holding company, said that the company was "delighted" that the new bank will continue to serve Chicago's south and west sides, as well as and Cleveland and Detroit.
The press release added that the bank's failure would not interrupt the operations of ShoreBank Pacific, ShoreBank International or non-profit organizations affiliated with ShoreBank.
Elsewhere Friday night, the Office of Thrift Supervision closed Imperial Savings and Loan Association in Martinsville, Va., a minority-owned mutual. It is the first bank to fail in Virginia this year.