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KETCHUM, Idaho — Federal banking officials in late April closed down a bank that had seven offices in resort areas of both Idaho and Wyoming, saying the bank was in unsound condition.
Reports from Jackson, Wyo., and in Ketchum, Idaho, differ slightly on the cause of the distress. However, they agree that loans made in Idaho’s Teton Valley — the area around Driggs and Victor, across the pass from Jackson Hole — were at least a significant part of the problem.
Everett Covington, chief executive of the First Bank of Idaho, said real-estate sales in Victor and Driggs were nearly nonexistent, and foreclosure proceedings had begun on many properties.
The story was much larger than simply one bank’s troubles, said The Express, which is based in Ketchum.
“The bank’s story is entwined with a booming national economy and people investing in vacation homes all over the West. It’s the story of how a banking system became engulfed by a speculative market in which eye-popping growth ultimately could not be sustained,” said the newspaper.
“The phenomenon transformed small towns into bustling boomtowns. It made savers look silly and speculative spenders look like geniuses.
“It went far, it went fast. Then, like a car hitting the proverbial brick wall, it stopped.”
That brick wall was met on April 24, when 50 federal agents arrived at the bank’s headquarters in Ketchum. Formed there in 1997, the bank had three offices in the Wood River Valley plus another four offices in both Jackson Hole and in Teton Valley.
Indications of trouble had been previously reported. The bank’s capital-to-loan ratio had fallen below 10 percent at the end of 2008 due to defaulted loans or loans nearing default. On April 6, First Bank officials had been given until June 30 by the U.S. Treasury Department’s Office of Thrift Supervision to raise sufficient capital to increase the capital-to-loan ratio to 12 percent.
But the news of the agreement had the opposite effect. Worried about the security of their money, customers withdrew deposits. As well, the April 15 tax deadline resulted in a large volume of drafts, as people wrote checks to the IRS to cover their taxes. Wilson McElhinny, chairman of the board for the First Bank of Idaho, estimated that $15 million in deposits had been removed.
Then, because of the federal restrictions imposed in the April 6 agreement, the bank was unable to seek brokered deposits to build its cash reserves. Plus, other banks continued to close their lines of credit to the Idaho-based bank. “Things just kept getting worse,” Covington said.
Covington said he was close to structuring a deal to get a $10 million line of credit as well as a deal to move $15 million in assets off the bank’s books. That, he told the Jackson Hole News & Guide, would have taken care of the bank’s liquidity problems.
The U.S. Treasury Department’s Office of Thrift Supervision said the bank was in “unsound condition and unable to continue operating due to severe liquidity strains, deteriorating asset quality, negative earnings and declining capital with no realistic prospects for raising capital quickly enough to ensure that it can repay all of its liabilities, including deposits.”
After closing the bank, the Treasury Department transferred the bank to the Federal Deposit Insurance Corp., which then sold the deposits and some assets to Minnesota-based U.S. Bank., with 24 hours to make a decision, they agreed to spend $1.47 million to buy $268 million in deposits. Those accounts will remain insured by the FDIC.
The FDIC temporarily froze all lines of credit. In Ketchum, The Express reported something of a panic, as merchants dependent upon financing to get them through the spring shoulder season wondered how they will survive. Randy Hall, the mayor of Ketchum, said at least a half-dozen local businesses, already reeling from a difficult winter, were in dire straits.
Reports from Jackson, Wyo., and in Ketchum, Idaho, differ slightly on the cause of the distress. However, they agree that loans made in Idaho’s Teton Valley — the area around Driggs and Victor, across the pass from Jackson Hole — were at least a significant part of the problem.
Everett Covington, chief executive of the First Bank of Idaho, said real-estate sales in Victor and Driggs were nearly nonexistent, and foreclosure proceedings had begun on many properties.
The story was much larger than simply one bank’s troubles, said The Express, which is based in Ketchum.
“The bank’s story is entwined with a booming national economy and people investing in vacation homes all over the West. It’s the story of how a banking system became engulfed by a speculative market in which eye-popping growth ultimately could not be sustained,” said the newspaper.
“The phenomenon transformed small towns into bustling boomtowns. It made savers look silly and speculative spenders look like geniuses.
“It went far, it went fast. Then, like a car hitting the proverbial brick wall, it stopped.”
That brick wall was met on April 24, when 50 federal agents arrived at the bank’s headquarters in Ketchum. Formed there in 1997, the bank had three offices in the Wood River Valley plus another four offices in both Jackson Hole and in Teton Valley.
Indications of trouble had been previously reported. The bank’s capital-to-loan ratio had fallen below 10 percent at the end of 2008 due to defaulted loans or loans nearing default. On April 6, First Bank officials had been given until June 30 by the U.S. Treasury Department’s Office of Thrift Supervision to raise sufficient capital to increase the capital-to-loan ratio to 12 percent.
But the news of the agreement had the opposite effect. Worried about the security of their money, customers withdrew deposits. As well, the April 15 tax deadline resulted in a large volume of drafts, as people wrote checks to the IRS to cover their taxes. Wilson McElhinny, chairman of the board for the First Bank of Idaho, estimated that $15 million in deposits had been removed.
Then, because of the federal restrictions imposed in the April 6 agreement, the bank was unable to seek brokered deposits to build its cash reserves. Plus, other banks continued to close their lines of credit to the Idaho-based bank. “Things just kept getting worse,” Covington said.
Covington said he was close to structuring a deal to get a $10 million line of credit as well as a deal to move $15 million in assets off the bank’s books. That, he told the Jackson Hole News & Guide, would have taken care of the bank’s liquidity problems.
The U.S. Treasury Department’s Office of Thrift Supervision said the bank was in “unsound condition and unable to continue operating due to severe liquidity strains, deteriorating asset quality, negative earnings and declining capital with no realistic prospects for raising capital quickly enough to ensure that it can repay all of its liabilities, including deposits.”
After closing the bank, the Treasury Department transferred the bank to the Federal Deposit Insurance Corp., which then sold the deposits and some assets to Minnesota-based U.S. Bank., with 24 hours to make a decision, they agreed to spend $1.47 million to buy $268 million in deposits. Those accounts will remain insured by the FDIC.
The FDIC temporarily froze all lines of credit. In Ketchum, The Express reported something of a panic, as merchants dependent upon financing to get them through the spring shoulder season wondered how they will survive. Randy Hall, the mayor of Ketchum, said at least a half-dozen local businesses, already reeling from a difficult winter, were in dire straits.
