11:11 am Regulators close 2 Tenn. banks
FRANKLIN (AP) — Regulators closed Tennessee Commerce Bank in Franklin and BankEast in Knoxville on Friday, the state’s first bank closures in a decade.
Both were purchased immediately and will be open for business today.
The Tennessean reports that Republic Bancorp Inc. of Louisville, Ky., will take over $900 million to $1 billion of the deposits at Tennessee Commerce and buy $122 million of its loans and other real estate owned for a bargain rate of $65 million.
The deal gives Republic a lot of wiggle room if it finds more bad loans on the books.
This will be the first Tennessee bank branch for Republic, which has $3.4 billion in assets and operations in four other states.
Deposits are protected up to legal limits by the Federal Deposit Insurance Corp., but stockholders shouldn’t expect to be made whole financially. And taxpayers probably won’t recover the $30 million that Tennessee Commerce got under the U.S. Treasury’s Troubled Asset Relief Program.
Eric Raines, a senior ombudsman for the FDIC, said ill-advised specialty lending in niches such as equipment loans, credit linked to insurance premiums, and accounts receivable financing were among the bank’s serious problems. Tennessee Commerce also made loans to commercial businesses that suffered in the recession.
Closing a bank is a last resort for regulators. The sale comes after eight months of pressure by regulators to improve Tennessee Commerce’s capital position.
In Knoxville, U.S. Bank National Association announced it had purchased BankEast for an asset discount of approximately $67.5 million, while the FDIC estimated the cost to the federal Deposit Insurance Fund would be $75.6 million, according to the Knoxville News Sentinel.
In a statement, the FDIC said all BankEast deposits, regardless of the amount, were transferred to U.S. Bank and that ATM and debit cards will work as usual over the weekend.
BankEast was weighed down by bad loans in recent years.
In December 2010, the Federal Reserve issued a corrective action directive that ordered BankEast to increase its equity; to be acquired or to merge with another lender; or to take other measures to make the bank adequately capitalized. BankEast lost more than $5.8 million in 2011, according to FDIC reports.
For U.S. Bank, the purchase of BankEast is an opportunity to expand its presence in Tennessee, where it already has 81 branches.
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