Washington Federal Bank for Savings, a $166 million-asset institution that on paper was a simple mortgage lender, was closed Dec. 15 by the U.S. Office of the Comptroller of the Currency. The thrift was extremely well-capitalized and showed no signs of liquidity issues.
In a terse statement, the OCC said it "acted after finding the bank had experienced substantial dissipation of assets due to unsafe or unsound practices, and that the bank's assets were less than its obligations to its creditors and others."
A spokesman declined to elaborate.
Adding to the mystery: The bank's chairman, CEO and president, John Gembara, hanged himself on Dec. 3, according to a spokeswoman for the Cook County Medical Examiner's office. That was just 12 days before the feds moved in.
Gembara's grandfather started the bank in 1913, and his father, Emil Gembara, ran it from 1980 to 1997 and remained chairman until his death in 2005. Emil Gembara was a deacon in his church and assisted in a Mass said by Pope John Paul II during the pope's 1979 visit to Chicago.
Efforts to reach Gembara's widow and other family members were unsuccessful.
The bank's sudden collapse apparently will leave some depositors holding the bag—a rarity when a bank fails and another lender assumes the branches and deposits.
The parent of Chicago-based Royal Savings Bank agreed to acquire only the insured deposits of Washington Federal from the Federal Deposit Insurance Corp. That left about $11.6 million that were above the FDIC's $250,000 threshold for insuring deposits when a bank fails. That amounted to 8 percent of Washington Federal's total $144 million in deposits, according to the FDIC.
The last time a Chicago bank's uninsured depositors weren't made whole in similar circumstances was in 2002 when Chicago-based Universal Federal Savings Bank failed, an FDIC spokesman said. Before that, the failure of Superior Bank & Trust, co-owned by the billionaire Pritzker family, led to losses for some depositors and then years of litigation to try to recover some of that shortfall.
More recently, the FDIC was unable to find a buyer for the deposits and assets of Chicago's New City Bank. Depositors in that case received checks for just the insured portion of their deposits.
The FDIC estimated the bank's failure would cost the agency's insurance fund more than $60 million. That was the most solid hint from the regulators that Washington Federal's filings bore no resemblance to the thrift's true financial condition.
In addition to Washington Federal's insured deposits, Royal agreed to purchase just $23.7 million of the thrift's $166 million in assets, according to the FDIC. The remainder will stay with the FDIC, which will attempt to sell or collect them to reimburse uninsured depositors for at least some of their losses.
The two locations of Washington Federal, in Bridgeport and Little Italy, now are branches of Royal Savings. Royal, which has $324 million in assets and seven local branches, has the option to purchase the buildings, it said in a release.
As of Sept. 30, Washington Federal's FDIC's filings showed virtually no delinquent loans. It posted $1.7 million in net income year to date, an annualized return on equity of 10.7 percent—quite healthy for a bank that small.
Last year, the bank generated $2.3 million in net income, a market it was on pace to hit in 2017 as well.
The failure appeared to be so sudden that Washington Federal's website still was up as of this afternoon. A note from the now-deceased Gembara read, "We know that many banks have more branches than we do, but few, if any, can offer the legacy of service to the community and to our customers that we can. It is how my grandfather began in the banking business 100 years ago, and it is how we continue to operate today."
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