Chicago's ShoreBank Fails

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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.

The FDIC sold all of Imperial's $10.1 million in deposits to River Community Bank of Martinsville, Va., at par. The $92 million-asset River Community also agreed to buy essentially all of Imperial's $9.4 million in assets. That failure is expected to cost the FDIC $3.5 million.

The 2010 tally of bank failures in Florida hit 22, with the closures of the $68 million-asset Community National Bank at Bartow and the $156 million-asset Independent National Bank in Ocala. The $900 million-asset CenterState Bank of Florida in Winter Haven agreed to buy take over both, with loss-sharing agreements covering $51.9 million of Community National's assets and $119.7 million of Independent National's assets. CenterState also assumed all of the two banks' deposits without paying a premium.

Community National's failure will cost the FDIC $10.3 million and Independent National's will cost $23.2 million.

Rabobank National Association, the U.S. operations of Rabobank Group, picked up two failed California banks: the $500 million-asset Butte Community Bank in Chico and $312 million-asset Pacific State Bank in Stockton. Rabobank paid a 4.05% premium of Butte's deposits and entered into a loss-sharing agreement on $425.4 million of the bank's assets. It paid no premium for Pacific State's deposits and entered into a loss-sharing agreement on $249.7 million of its assets.

Butte's failure is expected to cost the FDIC $17.4 million and Pacific State's is expected to cost $32.6 million.

The OTS also closed Los Padres Bank in Solvang, Calif., with the FDIC selling essentially all of the bank's $870.4 million of assets to the $5.2 billion-asset PacificWestern Bank of San Diego. PacificWestern paid a 0.45% premium on the bank's deposits and entered into a loss-sharing agreement on $580 million of the bank's assets.

Los Padres' failure is expected to cost $8.7 million.

Lastly, the $337 million-asset Sonoma Valley Bank in Sonoma, Calif. was closed, with the FDIC selling it to the $3.9 billion-asset Westamerica Bank in San Rafael, Calif. Westamerica bought essentially all of the bank's assets and paid a 2% premium on its $255.5 million in deposits.

Its failure is expected to cost $10.1 million. The four California failures raised that state's tally of failed banks to nine in 2010. Nationwide, 118 banks have failed so far this year.

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