September 17, 2010 – The nation’s 120th banking failure of 2010 occurred today with the closing of ISN Bank, Cherry Hill, New Jersey. ISN Bank was closed by the New Jersey Department of Banking and Insurance, which appointed the FDIC as receiver.
The FDIC sold the failed one branch bank to New Century Bank (doing business as Customers Bank), Phoenixville, PA. New Century Bank agreed to assume all of ISN’s deposits and purchase essentially all of its assets.
ISN Bank was opened in 2001 as interSTATE Net Bank, a New Jersey state-chartered commercial bank. In 2006, the bank changed its name to ISN Bank. Loan quality and capital issues have been a major problem for ISN Bank for several years and the bank was operating under two regulatory orders. “Cease and Desist” orders had been issued by the FDIC in December 2007 and by the New Jersey Department of Banking in March 2008.
ISN Bank’s attempt to raise capital via private investment and/or by acquisition was unsuccessful. In the March 2010 letter to shareholders, management acknowledged the continuing deterioration in the bank’s financial condition. At February 2010, ISN had net loans of $66 million of which $20 million were nonperforming. According to Bank President Karl Towns, “management has made cuts and/or reductions throughout its operations and has reduced assets…Despite these actions, the continued monthly operating losses will eventually result in the Bank becoming “critically” undercapitalized during 2010, at which time the Bank will most likely be taken into regulatory receivership”.
At June 30, 2010, ISN Bank had total assets of $81.6 million and total deposits of $79.7 million. New Century did not pay the FDIC a premium for ISN’s deposits and will be protected from losses on the purchase of ISN’s assets through a loss-share agreement with the FDIC covering $64.8 million of the purchased assets. According to the FDIC, the loss-share agreement minimizes losses by keeping assets in the private sector.
New Century Bank was founded in 1997 and has over $800 million in assets. In February 2010, New Century Bank raised $43 million of capital through the sale of common stock in a private placement offering. According to New Century Chairman Jay Sidhu, “This growth capital will be used for organic growth, FDIC assisted acquisitions and in market acquisitions of small banks.”
The estimated cost to the FDIC Deposit Insurance Fund is $23.9 million for the failure of ISN Bank. ISN Bank is the nation’s 120th banking failure this year and the first in New Jersey.