Metcalf Bank’s assurances after ASB takeover not very assuring

By Linda Bentley | May 5, 2009

‘It has been determined that according to regulation Metcalf Bank
cannot operate as a thrift bank’

CAREFREE – American Sterling Bank (ASB) of Sugar Creek, Mo., with a branch located in Carefree at 11 Sundial Circle, reopened on Monday, April 20 as Metcalf Bank of Lee’s Summit, Mo. after the Office of Thrift Supervision (OTS) ordered ASB to “cease and desist” on Friday, April 17, citing the bank kept “inaccurate books” and failed to comply with banking regulations as well as its own policies and procedures.

When an ASB customer called the Carefree branch that Monday, Bank Manager Deidre Decious assured him the branch would remain open, all accounts would remain the same and the only noticeable change to customers would be the name change from ASB to Metcalf.

However, something apparently changed between Decious’ statement on April 20 and when Metcalf’s newly acquired Carefree branch customers received a certified letter last week, dated April 21, from Metcalf Bank’s Sr. Vice President Jay Cloakley.

Cloakley wrote, “It has been determined that according to regulation Metcalf Bank cannot operate as a thrift bank,” and stated, effective May 15, the Carefree branch would be closed permanently.

It gave former ASB customers 30 days from the date of the letter (May 21, 2009) to vacate their safety deposit boxes and said if customers needed to do so after the branch closes on May 15, they would need to call and make an appointment with the manager.

Cloakley recommended, however, that customers vacate their safe deposit boxes as soon as possible and said if their belongings were not removed by May 21, they could be removed and determined “unclaimed property.”

By definition, a “thrift bank” is a financial institution that focuses on taking deposits and originating home mortgages, and is often referred to as a “savings and loan association.”
No one at the FDIC was able to explain what designated the Carefree branch of ASB or Metcalf a thrift bank and provided a phone number for Metcalf Bank’s main office in Missouri, where Paige Scott said, on Monday, it would be better to speak to Cloakley, since he was at the Carefree branch on Friday, April 17, when the bank was shut down, through the following Wednesday following Metcalf’s takeover. After a brief hold, Scott returned to say Cloakley was unavailable and would return my call, which he had not done by press time.

ASB was the 24th bank to fail this year as a result of bad real estate loans, despite its owners and co-CEOs Larry Dodge and Michael Thompson infusing the bank with $20.5 million in additional capital last year.

The FDIC said all $171.9 million in deposits at ASB would transfer to Metcalf, which also agreed to purchase $173.6 million of ASB’s assets from the FDIC, which will try to sell the remaining assets, although it still expects a $42 million loss as a result of ASB’s failure.

In October 2008, Thompson said the bank was seeking buyers for some of its loans, including the federal government, providing the U.S. Treasury Department’s proposed $700 billion banking bailout plan was approved by Congress.

He asked, “Why not?” indicating the federal government had “essentially become the market for mortgage loans.”

Last June, when the OTS issued its order to cease and desist against ASB, it entered into a stipulation agreement stating ASB must have and maintain a leveraged ration of 4 percent and a total risk-based capital ratio of 8 percent by August 15, 2008.

As of June 30, 2008, ASB’s ratios were 1.55 percent and 6.01 percent, respectively.

By Sept. 12, 2008, ASB was required to have and maintain a leveraged ratio of 7.5 percent and a total risk-based capital ratio of 10 percent.

If those stipulations were not met, the ASB Board of Directors had to establish a Merger and Sales Committee to oversee the sale or merger of the Savings and Loan to/with an FDIC-insured institution or sell substantially all of its assets and liabilities, entered into a binding contract by Sept. 30, 2008.

ASB has been downsizing its sales and operations force since April 2008, closing branches in California, Chicago and Minnesota along with its fulfillment center in San Diego, while eliminating all account executive positions in its Sacramento branch.

In January, The Phoenix Cos., based in Hartford, Conn., filed a nonbinding letter of intent with the Securities and Exchange Commission to purchase ASB. However, the letter stated the purchase agreement was contingent on receiving TARP (Troubled Assets Relief Program) funds. That deal eventually fell through.

As of March 20, 2009, ASB had assets totaling around $181 million and deposits totaling $171.9 million.

The FDIC and Metcalf entered into a loss-sharing arrangement on approximately $100 million of ASB’s assets.

While the FDIC estimates the cost to the Deposit Insurance Fund to be $42 million, it said Metcalf’s acquisition of all the deposits was the “least costly” resolution compared to the alternatives, is projected to maximize the return on assets by keeping them in the private sector and should minimize disruptions for loan customers.

The FDIC, which receives no federal tax dollars, was created by Congress in 1933 to restore public confidence in the nation’s banking system by identifying, monitoring and addressing risks to which over 8,300 insured banks and savings institutions are exposed.

The FDIC’s arrangement with Metcalf to take over ASB and Metcalf’s assurances to Carefree customers the branch would remain open, immediately followed by Cloakley’s abrupt announcement the branch would be permanently closed, has done little to restore public confidence, at least not in Carefree.