The Daily Times

The closures by federal regulators of Knoxville-based BankEast and Franklin-based Tennessee Commerce Bank on Friday marked the first Tennessee bank failures in a decade.

Both banks were purchased immediately and will reopen Monday.

“It is important to note that (Friday’s) action shows that the system is working to protect the deposits of customers of Tennessee Commerce Bank and BankEast, which will open up for business on Monday as Republic Bank & Trust and U.S. Bank, respectively,” the statement reads. “... These are the first bank closures in Tennessee since 2002, and the fact it’s been more than three-and-a-half years since the economic crisis of 2008 began in earnest is a reflection of the general strength of the industry here.”

BankEast had 10 branches, three in Blount County located at 417 Foothills Mall Drive and 502 E. Lamar Alexander Parkway, both in Maryville, and at 7971 E. Lamar Alexander Parkway in Townsend.

U.S. Bank National Association, of Cincinnati, agreed to purchase essentially all of the bank’s assets and is assuming all the deposits, the FDIC said in a statement.

As of Sept. 30, 2011, BankEast had approximately $272.6 million in total assets and $268.8 million in total deposits.

BankEast Chairman Fred Lawson, a lifelong Blount Countian, founded the BankEast in 2004.

He has an extensive history in the banking industry in Tennessee, having served as president of Blount National Bank, Tennessee National Bankshares, Bank of East Tennessee and BankFirst.

In 2001, Lawson sold BankFirst to BB&T, the same year he was appointed banking commissioner under Gov. Don Sundquist.

In Knoxville, U.S. Bank announced it had purchased BankEast for an asset discount of about $67.5 million, while the FDIC estimated the cost to the federal Deposit Insurance Fund would be $75.6 million, according to the Knoxville News Sentinel.

In a statement, the FDIC said deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship in order to retain their deposit insurance coverage up to applicable limits.

Customers of BankEast should continue to use their existing branch until they receive notice from U.S. Bank National Association that it has completed systems changes to allow other U.S. Bank branches to process their accounts as well.

Over the weekend, depositors of BankEast can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

For more information

Customers with questions about the transaction should call the FDIC toll-free at 1-800-517-1839. The phone number will be operational today from noon to 6 p.m. EST; on Monday from 8 a.m. to 8 p.m.; and thereafter from 9 a.m. to 5 p.m.

Interested parties can visit the FDIC’s Web site at http://www.fdic.gov .html.

BankEast was weighed down by bad loans in recent years.

In December 2010, the Federal Reserve issued a corrective action directive that ordered BankEast to increase its equity; to be acquired or to merge with another lender; or to take other measures to make the bank adequately capitalized. BankEast lost more than $5.8 million in 2011, according to FDIC reports.

For U.S. Bank, the purchase of BankEast is an opportunity to expand its presence in Tennessee, where it already has 81 branches.

Tennessee Bankers Association President Brad Barrett issued comments late Friday saying that Tennessee’s banking industry generally is in good shape. Before Friday, it had been one of only 11 states with no bank failure since 2008.

Republic Bancorp

The Nashville Tennessean reported that Republic Bancorp Inc. of Louisville, Ky., will take over $900 million to $1 billion of the deposits at Tennessee Commerce and buy $122 million of its loans and other real estate owned for a bargain rate of $65 million.

The deal gives Republic a lot of wiggle room if it finds more bad loans on the books.

This will be the first Tennessee bank branch for Republic, which has $3.4 billion in assets and operations in four other states.

Deposits are protected up to legal limits by the Federal Deposit Insurance Corp., but Tennessee Commerce stockholders shouldn’t expect to be made whole financially. And taxpayers probably won’t recover the $30 million that Tennessee Commerce got under the U.S. Treasury’s Troubled Asset Relief Program.

Eric Raines, a senior ombudsman for the FDIC, said ill-advised specialty lending in niches such as equipment loans, credit linked to insurance premiums, and accounts receivable financing were among the bank’s serious problems. Tennessee Commerce also made loans to commercial businesses that suffered in the recession.

Closing a bank is a last resort for regulators. The sale comes after eight months of pressure by regulators to improve Tennessee Commerce’s capital position.

The Associated Press contributed to this report.

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