The Bank of Commerce, Wood Dale, IL, Becomes 26th Banking Failure of 2011

The Bank of Commerce, Wood Dale, Illinois was closed today by the Illinois Department of Financial & Professional Regulation, which appointed the FDIC as receiver.  The FDIC sold the failed bank to Advantage National Bank Group, Elk Grove Village, Illinois, which will assume all deposits and purchase all assets of The Bank of Commerce.

The Bank of Commerce was a privately owned commerical bank founded in 1997 and at the time of closing had $163 million in total assets.  It is not very often that any business, much less a bank, would not have an operating web site but this seems to be the case with The Bank of Commerce.  A quick query to www.thebankofcommerce.com simply says “coming soon”.

The Bank of Commerce had been issued a Cease and Desist Order on May 27, 2009 for following unsafe or unsound banking practices and violations of law, rule, or regulation.  Some of the specific actions that the Bank was ordered to cease and desist include the following:

A. Operating with management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits;

B. Operating with a board of directors which has failed to provide adequate supervision over and direction to the management of the Bank

C. Operating with an excessive level of adversely classified assets;

D. Engaging in hazardous lending and lax collection practices;

E. Operating with an inadequate allowance for loans and lease losses (“ALLL”) for the volume, kind, and quality of loans and leases held;

F. Operating with an inadequate level of capital protection for the kind and quality of assets held;

G. Operating in such a manner as to produce low earnings;

H. Operating with an inadequate loan policy;

I. Operating with inadequate liquidity in light of the Bank’s asset and liability mix;

J. Operating with excessive concentrations of credit;

K. Operating with inadequate policies to monitor and control asset growth

The Bank of Commerce had an extraordinarily high troubled asset ratio of 564% compared to a national average of 15%.  The troubled asset ratio represents the percentage of troubled loans to a bank’s capital.  Most failed banks have had a troubled asset ratio of 100% or greater.  Given the extremely poor financial health of The Bank of Commerce and the regulatory violations cited in the Cease and Desist Order, one is correct to wonder what took regulators so long to close this bank.

The Bank of Commerce had only one branch which will reopen on Saturday as a branch of Advantage National.

At December 31, 2010, The Bank of Commerce had total assets of $163.1 million and total deposits of $161.4 million.  Advantage National will pay the FDIC a premium of 0.10% on the deposits assumed and, in addition, purchase all of the failed Bank’s assets.

The FDIC and Advantage National entered into a loss-share transaction on $145.7 million of the purchased assets to protect Advantage National from losses.  The FDIC believes that the use of loss-share transactions minimizes losses by keeping assets in the private sector.

Advantage National is a wholly-owned subsidiary of Wintrust Financial Corp.  Wintrust Financial is a financial holding company with over $14 billion in assets and operates fifteen community banks.  In a press release on the acquisition, Ed Wehmer, President and CEO, said that “We expect this transaction will be accretive to net income and earnings per share”.

Wintrust Financial also disclosed that it provided the FDIC with a Value Appreciation Instrument.  According to the Wintrust press release:

125,000 units were awarded to the FDIC at an exercise price of $34.00 per unit. The units are exercisable at any time for 180 days after March 25, 2011. If the FDIC exercises the units, Wintrust will be required to pay the FDIC an amount in cash equal to the volume weighted average price of Wintrust common stock over the two trading days immediately prior to the exercise date minus the exercise price, but in no case greater than $8.00 per unit.

The loss to the FDIC Deposit Insurance Fund to close Bank of Commerce is $41.9 million.  The Bank of Commerce is the nation’s 26th banking failure of the year and the third in Illinois.