February 4, 2011 – Community First Bank, Chicago, Illinois, was closed today by the Department of Financial and Professional Regulation, which appointed the FDIC as receiver. The FDIC sold the failed bank to Northbrook Bank and Trust Company, Northbrook, Illinois, which will assume all deposits of Community First.
Community First was a small one branch bank with only $51.1 million in total assets and $49.5 million in deposits. The failed bank will reopen on Saturday as a branch of Northbrook Bank.
The Bank was in business for only a short period of time, having opened in November 2005. According to Community First Bank’s web site, the bank’s philosophy to banking was a “no hassle, high personal touch approach to banking”. This soft touch banking concept apparently failed as Community’s customers defaulted in droves. The Bank’s troubled asset ratio was 207%, twice the level that banks usually fail at.
Northbrook Bank agreed to pay the FDIC a premium of 0.5% to assume Community’s deposits. In addition, Northbrook agreed to purchase essentially all of the failed bank’s assets, subject to a loss-share transaction with the FDIC on $42.8 million of the purchased assets. According to the FDIC, loss-share transactions minimize losses by keeping the assets in the private sector.
Northbrook Bank is a wholly-owned subsidiary of Wintrust Financial Corp, a financial holding company with over $13 billion in assets. Wintrust is a major bank in the Chicago area operating 78 banking facilities. Wintrust also has non-bank subsidiaries operating in commercial insurance, accounts receivable financing and wealth management services. Wintrust had previously acquired failed Lincoln Park Savings in April 2010 and failed Ravenswood Bank of Chicago in August 2010.
For the latest quarter ended December 31, 2010, Wintrust reported a loss of $2 million, after making a $3 million dividend payment to the U.S. Treasury on preferred stock issued under the TARP program. Wintrust exited the Troubled Asset Relief Program in December 2010, making a full repurchase of the $250 million of preferred stock held by the Treasury.
The Wintrust press release revealed that Community’s assets were acquired at an 8% discount. In addition, Wintrust provided the FDIC with a Value Appreciation Instrument under which 62,500 units were awarded at an exercise price of $34 per unit. The FDIC can exercise the units anytime after February 4, 2011 and receive a cash payment based on the value of Wintrust’s share price over $34, subject to a cap of $8 per unit. If Wintrust’s stock price continues to climb, the FDIC could reap a profit of up to $500,000. The FDIC’s units expire after 180 days. Wintrust’s stock price closed on Friday at $33.30.
The estimated loss to the FDIC Deposit Insurance Fund for the failure of Community First is $11.7 million. Community First is the nation’s 14th banking failure this year and the first in Illinois.