After 78 years of serving the local community, First Federal Bank, Lexington, KY, was closed today by the Office of the Comptroller. The FDIC, named as receiver for the failed bank, sold First Federal to Your Community Bank, New Albany, Indiana, which will assume all deposits of the failed bank.
According to First Federal Bank’s website, the Bank was established in 1935 by local citizens as First Federal Savings & Loan Association of Lexington. The Bank expanded slowly over the following decades and at the time of closing had a total of five branches and over $100 million in total assets. First Federal S&L changed their name to First Federal Bank in January 2000 upon converting to a mutual savings bank charter. First Federal Bank was the oldest independent financial institution in Lexington at the time of its failure.
Financial troubles had been growing at First Federal since early 2009 when large amounts of loans started to default. By early 2011, the troubled asset ratio at the Bank had reached 100% and by December 31, 2012, had climbed further to a catastrophic level of 354%. Once a bank’s troubled asset ratio exceeds 100%, capital levels have declined to critically low levels and failure of the bank becomes a very high probability event. Absence the ability to immediately raise additional capital, regulators have no other option than to close the bank.
First Federal Bank signed a Consent Order with the Comptroller of the Currency in November 2011 under which the Bank was ordered to increase capital and was cited for a wide range of financial and managerial deficiencies.
All five branches of First Federal Bank will reopen on Saturday as branches of Your Community Bank and FDIC deposit insurance will continue uninterrupted. Over the weekend depositors of First Federal will have access to their money through the use of checks, debit cards and ATM machines.
At December 31, 2012, First Federal Bank had total assets of $100.1 million and total deposits of $93.9 million. Your Community Bank agreed to purchase essentially all of the assets of First Federal in addition to assuming all deposits.
The cost to the FDIC Deposit Insurance Fund for the failure of First Federal is estimated at $9.7 million. First Federal Bank becomes the sixth banking failure of the year and the first in Kentucky. The last banking failure in Kentucky occurred on September 18, 2009.