Illinois has most banks, and failures, in ’09

By Tim Landis

THE STATE JOURNAL-REGISTER

Illinois leads the nation in bank failures this year, though regulators say it is primarily because it has more banks than any other state.

The number doubled to 12 with the shutdown of six banks in two days two weeks ago. State and federal regulators said the Campbell Group, a family-operated holding company for the six, invested in the kind of risky mortgage-backed securities that brought down much larger financial institutions.

All the banks, which were spread from central to northern Illinois, were open the following Monday with new owners.

“They are a family-owned company. Six of their eight banks made some bad investments, while the other two made community loans, and they are doing fine. It’s the same type of loans that shut down American International Group,” said Sue Hofer, spokeswoman for the Illinois Department of Finance and Professional Regulation.

The Federal Deposit Insurance Corp. estimated the failure of the banks — based in Winchester, Clinton, Danville, Worth, Oregon and Elizabeth — would cost the deposit-insurance fund $267 million.

“They all followed a similar business model with a concentrated exposure in the same (investment) instruments,” FDIC spokesman Andrew Gray said Monday.

According to regulatory filings, the banks lost heavily on collateralized debt obligations — pools of mortgage-backed or other securities that led to the collapse of Wall Street stalwarts like Bear Stearns, AIG and Lehman Brothers.

“The common thread in these banks, and not only in Illinois, but in Georgia, Texas and California, is the problems in their investment portfolio. They are the same problems we saw in the big banks,” said Todd Wise, president of United Community Bank of Chatham.

In many cases, Wise said, banks merely invested in the mortgage-backed products and were not directly involved in the loans.

His company is awaiting final regulatory approval to take over former Citizens National Bank branches in Carlinville and Bunker Hill. State regulators shut down Citizens National of Macomb in May.

Morton Community Bank, near Peoria, took over Citizens National and agreed to sell the Carlinville and Bunker Hill branches to UCB.

Word that First State Bank of Winchester had gone under spread quickly through the community 50 miles west of Springfield, said lifelong resident and Deputy Clerk Barb Hoots.

According to the bank’s Web site, the bank was founded in 1867. The bank now is part of The First National Bank of Beardstown.

“This is not the first in the area, but it kind of hits home,” Hoots said.

Illinois Bankers Association President and CEO Linda Koch said additional bank failures are likely, including in Illinois, as a result of the financial crisis that hit the country last fall.

But she pointed out the 52 bank failures nationwide compared with 745 institutions that failed during the savings and loan crisis in the late 1980s.

“To people in the industry, it’s remarkable that there are just a little over 50 banks that have failed,” Koch said.

“It’s also important to remember no one has lost a penny of their insured deposits, and the transitions (to new owners) have gone very smoothly. The majority of banks are well-capitalized, and banks are certainly working very hard and taking appropriate steps to address all the challenges.”

Illinois is home to 650 banks, twice as many as in the second-place state, Georgia. That’s because Illinois was among the last to be allowed unrestricted branch banking in the early 1990s, she said.

Reach Tim Landis at 788-1536 or tim.landis@sj-r.com.