Wednesday, April 15, 2009

First Bank of Idaho faces capital shortage

Federal agency sets deadline to increase assets

Express Staff Writer

First Bank of Idaho, whose Ketchum branch is shown here, is facing a capital shortage that has led a federal agency to step in. The bank initiated plans to bring in capital by a June 30 deadline. Photo by Willy Cook

Ketchum-based First Bank of Idaho announced Tuesday that low capital levels have resulted in an order from the U.S. Department of the Treasury to raise more money.

The bank voluntarily accepted the cease-and-desist order from the Office of Thrift Supervision, an agency of the Department of the Treasury that regulates federal savings associations. The agreement forestalls a potential order by the government to force the bank to merge with another bank or close its doors.

The order, which went into effect April 6, does not prevent the bank from operating. First Bank of Idaho CEO Everett Covington reassured customers that they should not worry about their deposits.

"We are an FDIC-insured institution and not concerned about failure," Covington said.

First Bank of Idaho is locally owned with branches in Ketchum, Hailey and Bellevue, and also operates under the name First Bank of the Tetons in Jackson, Wyo., and Victor and Driggs, Idaho. Covington said about 115 employees work in all its branches.

The purpose of the Office of Thrift Supervision's order is to bring the bank's capital up to 12 percent of loans. Covington said that capital is now just under 10 percent, and the bank needs to raise about $10 million to reach its target. Under the order, the bank has until June 30 to raise the money.

Covington said the bank's capital fell below the 12 percent threshold at the end of last year as a result of the constricting real estate market.

"A large portion of our business, as in any resort community, is real estate related," Covington said. "The terrible contraction caused us to end up with several non-performing assets."

Covington said the bank has hired a Denver-based investment bank to assist in raising capital and expects to be sufficiently recapitalized by the deadline.

He said the most likely method of recapitalization will be to raise money through private investors, who would take a controlling interest in the bank. Covington said that would likely mean the bank would continue to operate under its current name and retain its employees.

Should that not work, Covington said, First Bank of Idaho could be sold to another bank.

In the meantime, Covington said, the bank has made money during the first quarter of the year by cutting expenses and increasing scrutiny on loans. He said the bank's capital should rise by next month even without an injection of cash.

To further that effort, the order requires the bank not to give or acquire any new loans for construction, land acquisition or land development.

Other requirements include formation of a business plan with strategies for increasing capital, as well as a liquidity plan to ensure liquidity in the event of unanticipated demands. This latter plan must identify alternative sources of liquidity, such as selling assets or bringing in new investors.

Should the bank be unable to meet the capital levels required by the Office of Thrift Supervision, a contingency plan must be devised, which means either a merger with or acquisition by another bank or voluntary dissolution of First Bank of Idaho. Covington said this latter recourse is not likely to occur.

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