By Linda Whitmore
President Obama, in his Feb. 24 speech to Congress about the federal stimulus package and the road to economic recovery, noted that banks needed federal support so that they could issue credit, fund building projects and get the economy rolling again.
The speech, four days after the demise of Silverton’s community bank, held a little irony for local investors. It was “a heavy dependence on commercial construction loans, many of which were not performing or being repaid” that felled Silver Falls Bank, according to David Tatman, administrator of the Oregon regulator’s Division of Finance & Corporate Securities.
Defaults on commercial construction loans led to the closing of bank and sale of its assets.
In mid-January, Steve Way, Silver Falls president, told Our Town, “If you could take our construction loans and magically move them off our books, we would have a very low delinquency ratio. It’s construction that’s giving us heartburn right now.”
Way, who was laid off in the takeover, had said, “Many of these builders were profitable and well-established.
They ran out of liquidity when the houses stopped selling” and fell behind in repaying their loans.
Silver Falls Bank – begun in 2000 with local investors and supervision – was closed Friday, Feb. 20 by the Oregon Department of Consumer and Business Services, despite several months’ efforts to stabilize the operation. Doors opened Monday, Feb. 23 as Citizens Bank, which pledges to operate as a community-centered financial institution.
“Relationships are very important to us. We want to know our customers,” said Steve Terjeson, Citizens Bank executive vice president and chief lending officer.
Citizens Bank assumed all deposits, including those in excess of the federally guaranteed maximum of $250,000, but loans were retained by the Federal Deposit Insurance Corporation for disposition.
On first day of operation, Terjeson said, some Silver Falls’ depositors withdrew their money, others “came in to get to know us.”
Citizens Bank began in 1957 in Corvallis, and with the assumption of Silver Falls’ three branches, now has 14 offices throughout the mid-Willamette Valley region. The transaction gives it approximately $500 million in assets.
Terjeson said some of the former bank’s employees have been retained and “we don’t see a lot of physical changes to the branches.”
The process moved quickly after Citizens Bank was informed Feb. 18 that it would be taking over operations. Several other banks had put in purchase bids too, he said.
“Our niche is small deposit accounts – agriculture, commercial real estate, and we do do consumer and residential loans as well,” Terjeson said.
In a Nov. 1, 2008 letter, Bill Humphreys Sr., Citizens Bank president and CEO, had told shareholders and customers: “We did not build the bank on construction and development loans or speculative transactions.”
It was commercial development loans that unsettled Silver Falls Bank. Tatman said in a statement on the Oregon Division of Finance & Corporate Securities’s Web site that many of its commercial construction loans were not performing or being repaid.
When the FDIC and DFCS issued a cease and desist order to Silver Falls Bank in late November, there was a requirement that officers and managers more closely oversee operations to assure there would be no loans based on unsubstantiated qualifications.
This, and other modifications, had been instituted. In mid-January the bank began a stock offering to get back in the black.
Funds raised from new stock sales were put in escrow. Because in the month’s time only $525,000 of the $3.5 million sought had been sold, the money will be returned to investors. Among them are bank officials, board members and employees, who wanted to support the bank.
The bank’s initial stockholders will have to wait until the FDIC settles outstanding debt before their investments will be dealt with.
Other bank services are to continue in a similar fashion, Terjeson said. “We have Visa merchant services, a mortgage department, deposits and loans,” he said, adding that he hopes the bank will soon earn customers’ confidence.
Silver Falls is the 14th bank closed this year. It had $131.4 million in assets and $116.3 million in deposits. Citizens Bank bought $13 million in assets. Regulators closed eight banks in February, the highest number since 1993.
