The Utah Department of Financial Institutions on Friday declared Cottonwood Heights-based MagnetBank insolvent and stepped in to seize the three-year old state-chartered financial institution.
MagnetBank is the first bank failure in Utah since the Bank of Ephraim was shut down by state regulators in June 2004. Its fortunes were tied to the struggling commercial real estate industry.
Ed Leary, commissioner of the Utah Department of Financial Institutions, said the state has been closely monitoring the bank for months and had ordered it to increase its capital to ensure it could continue to safely operate.
"Unfortunately, they were unable to come up with the capital that they needed," Leary said, indicating there was no indication of any financial improprieties at the bank.
MagnetBank officials could not be reached for comment.
The bank was issued a charter by the state Sept. 29, 2005. It primarily funded commercial real estate loans. As of Dec. 2, 2008, it had assets of about $293 million and deposits of about $283 million.
Leary said it appears there are no uninsured depositors and very few, if any, deposits from Utah residents. Also, it doesn't appear the bank held deposits from any cities, towns or other public entities. There were no checking accounts at the bank.
Using rating companies suggested by the Federal Deposit Insurance Corp., The Salt Lake Tribune in late September identified MagnetBank as the weakest bank then operating in the state.
Once Leary made the decision Friday to shut down MagnetBank, he hurried to Utah's 3rd District Court to secure an order giving the state permission to seize the bank. He served that order on MagnetBank's management in the early afternoon and immediately appointed the Federal Deposit Insurance Corp. as receiver to liquidate the bank's assets.
"We would have much preferred finding someone to purchase MagnetBank," said David Barr, spokesman for the FDIC. "But over the past weeks we had contacted more than 320 potential bidders and didn't find anyone who was interested."
The last time the FDIC was unable to find someone to take over a failed bank was in 2004, Barr said.
MagnetBank is the fourth FDIC-insured institution to fail this year. The bank primarily operated with what are known as "brokered deposits," which are deposits that typically are purchased from other financial institutions.
Barr said the FDIC will mail checks to the bank's ordinary depositors Monday morning. Brokered deposits will be wired back to their original owners once brokers provide the FDIC with the necessary documents to establish that their clients didn't exceed insurance limits.
With the failure of MagnetBank, it is a good time to remind Utahns they need to make sure their deposits in any one account remain below the recently increased FDIC limit of $250,000, Leary said.
