Founded in September 2005 at the height of the real estate boom, AztecAmerica remained a small bank with assets of only $66 million at the time of its failure. The Bank was founded with the intent of appealing to Chicago’s rapidly growing Hispanic community with the goal of helping them to “seamlessly enter the arena of modern American banking” according to Carlos Montoya, President and CEO of AztecAmerica.
AztecAmerica had good intentions but the Bank’s targeted customer base apparently had little intention and/or ability to repay loans made by the bank. As of December 31, 2013, AztecAmerica had an astronomical troubled asset ratio of 470% compared to a national median of 8.4%. The troubled asset ratio compares total impaired loans with loan loss reserves and Tier 1 capital. Historically, once a bank exceeds a troubled asset ratio of 100%, failure is almost a certainty.
Since shortly after the banking crisis began, there has been ongoing criticism of banking regulators for allowing deeply troubled banks to remain open despite little hope of recovery (see Regulators Let Zombie Banks Remain Open). More than five years after the banking crisis began there are still 467 banks on the FDIC problem bank list, comprising almost 7% of all banking institutions.
According to the AztecAmerica’s website, “the Bank’s key to success will be to continue to create a caring, consultative and convenient service environment where each individual is treated with dignity and respect…regardless of his or her financial standing.” Whatever happened to hard nosed bank lending based on the three c’s of lending – credit, capacity, and collateral?
AztecAmerica was founded with private capital from several banking concerns and a line of credit from JPMorgan Chase. The holding company for AztecAmerica was AztecAmerican Bancorp, Inc., which was not included in the closing or receivership.
To protect depositors the FDIC sold failed AztecAmerica to Republic Bank of Chicago, Oak Brook, Illinois, which will assume all deposits of the failed bank. Both branches of AztecAmerica will reopen as branches of Republic Bank of Chicago with uninterrupted FDIC deposit insurance coverage up to the applicable limits.
Depositors of AztecAmerica will be able to access their money over the weekend through the use of debit cards, checks, and ATMs.
At December 31, 2013, AztecAmerica had total assets of $66.3 million and total deposits of $65.0 million. Republic Bank agreed to pay the FDIC a 1.025% premium on the assumed deposits of AztecAmerica and, in addition, agreed to purchase $58.3 million of the failed bank’s assets. The balance of $8 million of troubled loans will be retained by the FDIC for later disposition.
The cost to the FDIC Deposit Insurance Fund for the failure of AztecAmerica is $18.0 million or almost a third of total assets. For the six previous banking failures of 2014 the FDIC lost $109.4 million on failed banks with total assets of $794.8 million, for a loss ratio of only 13.7%.
AztecAmerica becomes the seventh banking failure of 2014 and the second in Illinois. The last banking failure in Illinois was on January 17, 2014, when regulators closed the DuPage National Bank, West Chicago.