State hands MagnetBank over to FDIC

MagnetBank, a commercial bank involved mostly in commercial real estate loans, was taken over by the state on Friday.

The Utah Department of Financial Institutions took possession of the bank and appointed the Federal Deposit Insurance Corp. as receiver. The FDIC said it had approved the payout of the insured deposits of the bank, after MagnetBank had been unable to find another financial institution to take over its operations.

It was Utah's first bank failure since June 25, 2004, when state regulators took over the Bank of Ephraim.

In announcing the state's actions Friday, the department's commissioner, Ed Leary, said the department took possession to "protect depositors and the public." Leary said the Utah Department of Financial Institutions found that MagnetBank was "insolvent and not in a safe or sound condition to transact business."

Federal regulators also closed two other banks on Friday: Ocala National Bank of Ocala, Fla., and Suburban Federal Savings Bank in Crofton, Md.

Twenty-five U.S. banks failed last year, far more than the previous five years combined. The trio of failures announced Friday matched the total for all of 2007.

The Utah department and the FDIC had ordered MagnetBank to increase its capital to a safe and sound level, Leary said. "Efforts by the bank to raise capital to an acceptable level were unsuccessful," the department said in a news release.

MagnetBank was based at an office at 2825 E. Cottonwood Parkway, Suite 180, in Salt Lake City. The bank was chartered Sept. 29, 2005, and primarily funded commercial real estate loans. It did not offer checking accounts.

As of Dec. 2, MagnetBank's assets totaled about $293 million, and total deposits were about $283 million. The department said it estimated the bank had no uninsured depositors and no public funds.

A phone call to MagnetBank on Friday was answered by a recorded message about the closure that directed customers to the FDIC's Web site and gave the agency's phone number.

Paul Allred, deputy commissioner of the Utah department, said he did not know how many accounts or real estate loans MagnetBank held or the number of people the company employed.

"This was a somewhat unique bank," he said. "It was a wholesale operation focused on real estate loans. They did not have any retail deposits. They didn't have customers who are regular citizens. They have depositors all over the country because they're brokered deposits. They are usually commercial entities placing a deposit with a broker, and they're spread all over the country. There's no local impact here in Utah. They wouldn't have had local customers, like a community bank would."