Deal to save Centennial Bank didn't go through

Deal to save bank didn't go through
Banking » Merger was designed to infuse Ogden lender Centennial with capital before seizure.

By Paul Beebe
Salt Lake Tribune

A deal to rescue Centennial Bank apparently fell through shortly before Utah regulators closed the Ogden lender last week.

Centennial announced in September that Orem-based Vision Bankcard had agreed to acquire controlling interest and infuse new capital into the bank, which was collapsing under a mountain of overdue or defaulted real estate loans.

"Efforts by the investors weren't successful," Paul Allred, deputy commissioner of the Utah Department of Financial Institutions, said Monday.

Allred refused to elaborate. Attempts to contact Vision Bankcard, a card processor, were unsuccessful.

The merger apparently was still alive a few weeks ago. Mildred Bruce, one of Centennial's 3,000 depositors, said she received a letter with her February bank statement saying the bank was waiting for regulators to approve the deal.

But Bruce, 87, of South Ogden, did not realize Centennial was in trouble until she opened her newspaper Saturday morning.

"It was a shock," said Bruce, who along with the other depositors were sent checks for their insured deposits Saturday.

"Of course, it was a shock when they closed Barnes Bank. My son had his account at Barnes Bank. My goodness, what's happening?"

Allred's department closed Kaysville-based Barnes in January, and like Centennial, appointed the Federal Deposit Insurance Corp. as the receiver. Also like Centennial, regulators were unable to find another financial institution to take over Barnes' deposits and operations.

Both banks failed because of bets on construction and land development loans, which are considered to be riskier than home mortgages.

Centennial "is just an example of the economic situation that the customers were in and the bank was in," Allred said.

With real estate values off as much as 50 percent in some areas, Centennial and Barnes aren't the only lenders that have struggled with sour loans during the recession. Federal regulators closed Salt Lake City-based Magnet Bank in January 2009. The state Department of Financial Institutions shut America West Bank in Layton in May. Cache Valley Bank of Logan took over its deposits.

HeritageWest Federal Credit Union in Tooele was liquidated two months ago by the National Credit Union Administration. Its assets were bought by Virginia-based Chartway Federal Credit Union, which has said it hopes to buy other distressed Utah credit unions.

Numerous other Utah financial institutions are struggling with real estate loans.

On Saturday, Ed Leary, commissioner of the state Department of Financial Institutions Department, acknowledged other lenders might fail in the future.

Centennial was in particularly bad shape. It's Tier 1 leverage capital had plunged to zero, as of Dec. 31, compared with a healthy 10 percent a year earlier. Tier 1 capital is a core measure of a bank's health from a regulator's point of view. It consists of core capital -- common stock and other reserves.

Loans as a percentage of Centennial's capital totaled nearly 377,000 percent, according to the FDIC.

"Needless to say, that's not good," Allred said.

Almost 30 percent of its deposits were brokered, or raised by a third party. An unknown percentage were deposits Centennial solicited through the Internet.

Both deposit types are considered to be relatively risky, because they belong to people in other parts of the country who aren't necessarily loyal customers.

Centennial used brokered and Internet deposits to make loans. Together, they amounted to a dangerously high percentage of total deposits, but FDIC ombudsman Richard Schmalzer couldn't be specific.

"Let's just say it was a substantial amount," Schmalzer said outside Centennial's main office Monday, where FDIC officials and bank employees were winding down the lender's affairs.

pbeebe@sltrib.com