Chicago : Washington Federal Bank for Savings fails after CEO's suicide

A low-profile, 104-year-old thrift in Chicago's Bridgeport neighborhood became the city's second bank failure of 2017 with no warning that the lender was troubled.

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."

Chicago: Midwest Bank is on the FDIC's failure clock

(Crain's) Just days after banking regulators closed seven Chicago-area banks, the Federal Deposit Insurance Corp. has begun the bidding process for one of the largest troubled local lenders: Elmwood Park-based Midwest Bank & Trust Co.

Bids from banks and other investors wanting to acquire the $3.4-billion-asset bank once it’s seized by the FDIC are due May 10, according to people familiar with the matter.

That puts Midwest Bank on course to fail as early as May 14.

The bank, whose publicly traded parent, Midwest Banc Holdings Inc., is based in Melrose Park, is trying to raise $125 million in fresh capital to stave off receivership and has made strides under CEO Roberto Herencia in winning concessions from debt holders to shore up capital. But if it’s unable to do so within the next few weeks, it will be the country’s third bank to fail after receiving federal bailout help during the financial crisis.

In December 2008, Midwest Banc sold $85 million in preferred shares to the Treasury Department under the Troubled Asset Relief Program. The federal government agreed earlier this year to convert the investment to a form of preferred stock convertible into common stock to help the bank with its capital plan.

A bank spokesman declined to comment Tuesday.

Midwest Bank is under a “prompt corrective action” order from the U.S. Office of the Comptroller of the Currency, its principal regulator, requiring it to raise capital within 45 days. That order expires in mid-May, corresponding with the FDIC’s bidding schedule.

Interest in an FDIC-assisted deal for Midwest Bank is expected to be more intense than for any of the 21 Chicago-area banks that have failed since the beginning of 2009, sources say. Likely bidders include mid-sized local players MB Financial Inc. of Chicago and Wintrust Financial Corp.of Lake Forest.

Akron, Ohio-based FirstMerit Corp., parent of First Merit Bank, which has established a substantial Chicago presence through two recent deals and wants to grow here, also is expected to bid.

And larger lenders like Minneapolis-based U.S. Bancorp Inc. are expected to join the fray, too, along with private investment pools that have been formed around the nation to buy failed banks.

With 26 city and suburban branches and a team of respected business bankers, Midwest Bank has a stronger core franchise than most of the local banks that have succumbed to the worst recession since the Great Depression. Its capital has been depleted by heavy losses from preferred stock investments in Fannie Mae and Freddie Mac that were rendered worthless when the federal government seized those mortgage giants. Real estate loan woes also have contributed to Midwest Bank’s bleak outlook.

The bank hired Mr. Herencia, former CEO of Rosemont-based Banco Popular North America, about a year ago to save it.

Observers expect the FDIC to be able to drive a harder bargain for Midwest Bank than it was able to with the seven banks that failed last Friday, including Broadway Bank, owned by the family of Democratic U.S. Senate candidate Alexi Giannoulias, and Amcore Bank, which was slightly larger than Midwest Bank but is centered in Rockford, one of the Illinois cities hardest hit by the recession.

Chicago : Broadway Bank fails, MB Financial is the buyer; Harris buys Amcore

(Crain's) — Banking regulators seized seven Chicago-area banks late Friday, including Rockford-based Amcore Bank and Chicago’s Broadway Bank, owned by the family of Democratic U.S. Senate candidate Alexi Giannoulias.

Buyers of the seven failed lenders included Harris N.A., which obtained the biggest prize in Amcore, with $3.8 billion in assets and $3.4 billion in deposits housed in 52 branches in Illinois and Wisconsin, including 24 in suburban Chicago.

Acquiring the $1.1 billion in deposits and $1.2 billion in assets of Broadway Bank was Chicago-based MB Financial Inc. MB Financial also obtained the $486 million in assets and $492 million in deposits of Chicago’s New Century Bank, which was also closed by state regulators.

Four other Chicago-area lenders — Lincoln Park Savings Bank, Citizens Bank & Trust of Chicago, Wheatland Bank of Naperville and Peotone Bank — also failed Friday evening.

For Harris, the Amcore purchase is its first foray into buying failed banks in the two years since banks began suffering casualties in the financial crisis.

Harris is acquiring 52 branches of Amcore, which will open as Harris branches on Saturday. It also agreed to purchase the vast majority of Amcore's $3.8 billion in assets, with the FDIC agreeing to share losses on $2 billion of those.

Harris has held discussions with Amcore periodically over the years before getting the chance to get the franchise for virtually nothing.

"This fits us strategically," Harris CEO Ellen Costello said in an interview Friday night.

She said Harris will continue looking for opportunities in Illinois, Wisconsin and Indiana as more banks fail. "We're easily able to take this on and others as well," she said.

Broadway Bank ran aground after suffering heavy losses on commercial real estate loans and was unable to raise $85 million needed to keep it solvent.

Alexi Giannoulias was the bank's chief lender and vice-president from 2002 to 2006. He has come under fire recently for working for the bank when it loaned money to several organized crime figures, and his family has been criticized for taking $70 million in dividends in 2007 and 2008 just as loans were staring to sour.

In a statement, Broadway CEO Demetris Giannoulias, older brother of Alexi, said, "This is a difficult day for bank employees, for my family, for this community and for all those who built businesses and protected their savings with the help of this bank. . . .We fought to carry out the vision my father had when he founded Broadway Bank 30 years ago, but our bank — like many businesses — has struggled during these challenging times."

Among the other failures:

• Privately held Republic Bank of Chicago took over the deposits and assets of tiny Citizens Bank & Trust of Chicago, a Northwest Side lender.
• Acquiring Lincoln Park Savings Bank is Northbrook Bank & Trust Co., with $899 million in assets. It will take on $200 million in Lincoln Park Savings' assets and $172 million in deposits, housed in four branches.
• A unit of Lake Forest-based Wintrust Financial Corp. acquired Wheatland Bank of Naperville and its $437 million in assets and $439 million in deposits.
• And Itasca-based First Midwest Bank acquired Peotone Bank, taking on $130 million in assets and $127 million in deposits.

The depth of Broadway Bank's loan problems was underscored by the FDIC's estimates of the losses its insurance fund will incur from each of the failures. Despite the fact that Broadway is less than one-third the size of Amcore, the FDIC estimated its failure would cost the fund $394 million, while Amcore's would cost $220 million.

MB Financial paid no premium for Broadway's deposits, and the FDIC agreed to share in losses on virtually all of the bank's loans. The same was true of New Century, which, like Broadway, focused almost exclusively on commercial real estate lending.

New Century CEO Faye Pantazelos, who founded the institution in 1999, had said earlier in the week she was considering resigning before regulators closed it down. But sources said she was at the bank on Friday. Ms. Pantazelos didn't respond to requests for comment.

First Chicago Bank ordered to raise capital

(Crain's) — The Federal Reserve Bank of Chicago has entered into a written agreement with First Chicago Bank & Trust requiring the commercial lender to boost capital, only months after the California private-equity firm that owns the bank injected $43 million into it.

The March 8 agreement, which was reached jointly with the Fed and the Illinois Division of Banking and released Monday, also bars the bank or holding company from paying dividends or interest on subordinated debt or trust-preferred securities without prior approval from the regulators.

The $1.2-billion-asset Chicago bank also is ordered to reduce its concentrations of commercial real estate loans and stop accepting brokered deposits.
The agreement is the latest setback for First Chicago Bank & Trust, which is run by well-known Chicago banker J. Mikesell “Mike” Thomas and owned by Castle Creek Capital LLC, a California private-equity firm managed by First Chicago vets John Eggemeyer and William Ruh.

The bank posted a net loss of $93 million in 2009, $44 million of which was due to the writeoff of goodwill associated with Castle Creek’s purchase in 2006 of Chicago’s Labe Bank and Bloomingdale Bank & Trust to form what was later named First Chicago.

Following Castle Creek’s $43-million capital injection last fall, the bank has enough to qualify as well-capitalized. But the bank’s holding company, First Chicago Bancorp, was undercapitalized as of Dec. 31, signaling the need for Castle Creek to raise more equity.

The written agreement orders the holding company to submit a plan within 60 days “to maintain sufficient capital at Bancorp.” Among the items the plan must address is “the source and timing of additional funds to fulfill the consolidated organization’s and the bank’s future capital requirements.”

Feds seek bids for up to seven Chicago-area banks

(Crain's) — Federal banking regulators are seeking bidders for as many as seven troubled local banks, including Rockford-based Amcore Bank.

Bids for Amcore are due April 15 to the Federal Deposit Insurance Corp., Crain’s has learned. Amcore, which has been buried under mounting real estate-oriented loan losses, at yearend had $4.1 billion in assets and 66 branches in northern Illinois and Wisconsin, including 24 in Chicago’s suburbs.

If Amcore, which has been trying to raise capital to stave off seizure by the FDIC, can come up with the needed funds before the end of next month, it still could avoid the fate that befell the only other large, publicly traded local bank to fail since the financial crisis erupted in 2008 — Chicago-based Corus Bank, which had $7 billion in assets.

A spokeswoman for Amcore declined to comment.

Sources say that the FDIC has begun the process of auctioning up to six other, smaller local banks, but their identities could not be verified. Numerous local banks are undercapitalized as a result of losses on real estate loans. Many of those are under regulatory orders to raise capital and would likely face seizure if they are unable to do so.

One of those is Broadway Bank in Chicago, owned by the family of Democratic U.S. Senate nominee Alexi Giannoulias. Regulators ordered Broadway to raise $85 million or more by the end of next month. In interviews last week, Mr. Giannoulias, who was a Broadway executive until 2006 when he was elected Illinois treasurer, said the $1.2-billion-asset bank is likely to fail.

A spokesman for Broadway said "We’re getting real interest from investor groups and this is the first we've heard" about any list of local banks the FDIC is auctioning.

Interest in buying Amcore in a failed-bank transaction is expected to be strong. Chicago’s No. 3 bank, Harris N.A., is known to be interested and has talked with Amcore executives in the past about a deal. Private-equity groups that have formed to purchase the assets and deposits of failed banks also are expected to be interested.

A Harris spokesman declined to comment.

Depositors at Amcore and other banks are insured up to $250,000 by the FDIC, so they don’t need to worry about the safety about their deposits. In addition, there have been no instances yet in the Chicago area in which the FDIC was unable to find a bank willing to purchase the deposits of a failed lender, so in most cases depositors at failed institutions merely switched banks without losing any money.

In addition, one local bank — Lake Forest’s Baytree National Bank and Trust Co. — managed to raise capital even after the FDIC had begun the process of auctioning it. A local investor group pumped more than $14 million into Baytree in late January.

416 US banks on FDIC's problem bank list

A total of 416 US banks were on the Federal Deposit Insurance Corporation's (FDIC's) problem list during the second quarter of 2009, the regulatory body has revealed.

The figure, which is a 15-year high, is a sharp rise on the 111 that were included during the first three months of the year.

Shelia Bair, chairman of the FDIC, said that there has been a steady increase in the proportion of financial institutions that are troubled, but added that levels are "still well below" those seen during the previous financial crisis.

"As banks and thrifts continue cleaning up their balance sheets, more are coming on to our problem list," she explained, noting that there have been 81 failures so far this year.

The FDIC stated its deposit insurance fund was down to $10.4 billion during the three-month period - a fall of 20 per cent - but that it will not be asking for further funding from the Treasury.

Colonial BancGroup is one bank to have failed so far this year, with the financial institution filing for bankruptcy recently after its retail banking operations collapsed.

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