The Story of First Bank of Idaho - Small Banks … or Big Government?

(REPRINTED BY PERMISSION OF "Save Community Banks" savecommunitybanks@gmail.com)

UPDATE 4/29/2009: The following sources should now be willing to confirm the details of the story:

• Wilson McElhinny, Chair, First Bank of Idaho Board of Directors
• Nancy Shauer, Director, First Bank of Idaho Board of Directors
• Karl Bick, Director, First Bank of Idaho Board of Directors
• Author still prefers to remain anonymous.
  
  By Save Community Banks
  Monday, April 27, 2009

Small Banks … or Big Government?The Story of First Bank of Idaho The following information tells the story of how an excellent locally-owned community bank was intentionally destroyed by government agencies who – through inappropriate use of their powers – used technicalities to seize valuable bank assets and – in effect – give them to a large, TARP-funded bank. In 1997, a group of Sun Valley/Ketchum business leaders and bankers determined that the large regional and national banks operating in the community were not able to adequately respond to the challenging nature of the community’s unique mountain resort environment. As is typical of all resort communities, activity fluctuates significantly with the seasons. Approximately 90 shareholders invested $8 million, 10 staff members were hired, and First Bank of Idaho was opened. Within the first year, the bank had $20 million in assets. Since that first year, the bank has accomplished the following:
* Grew from one branch to three in the Sun Valley/Ketchum area;* Expanded into the Jackson Hole, Wyoming area with three branches in Jackson Hole, a branch in Driggs, Idaho, and a branch in Victor, Idaho;* Increased assets to $480 million;* Raised approximately an additional $30 million in capital;* Generated $8 million in net profits;* Became the market leader in the Sun Valley/Ketchum area (38% market share);* Created over 140 new jobs.As important, the bank became a vital community partner, donating over $500,000 to Sun Valley/Ketchum non-profit organizations, supporting local events with employee volunteers, and providing leadership to a number of organizations including Rotary, the Chamber of Commerce, and many non-profits. First Bank of Idaho represents the true essence of a “community bank” – one that is able to help community members achieve their dreams and become active participants in creating a vibrant economy. At no time did the bank participate in the sub-prime mortgage market or invest in risky real estate loans or securities. Unfortunately, due to the national economic downturn, which has affected the communities in which it operates, the bank experienced the same challenges as most American banks. At the time this document was drafted, First Bank of Idaho was threatened with being sold to another bank by the Federal Deposit Insurance Corporation (FDIC) and the Office of Thrift Supervision (OTS). This is the story of a board of directors that did not act quickly enough to raise capital during the precipitous downturn in the national and local economy, and of good loans that were made to responsible people based on the most accurate data available at the time. It is, however, also the story of big government agencies that claimed to be protecting bank customers and taxpayers, but who in fact have aggressively destroyed an organization that was only committed to protecting the interests of its customers, its shareholders and its communities. While it is undeniable that the bank was suffering from liquidity issues, the actions taken by the government agencies were not necessary to protect customers or taxpayers and purposely impeded the bank’s ability to recover its sound footing. The decline started last fall, when dropping real estate values affected the viability of a number of large loans. The bank aggressively identified these problem loans (unlike most large banks nationwide) and shared their concerns and their management plans for these loans with the OTS (also unlike most large banks nationwide). This proactive approach, in a good faith attempt to comply with mark to market accounting requirements and “subsequent transaction” rules established by the Financial Account Standards Board (FASB), resulted in the bank reporting a loss of $4.5 million in 2008. This was the first loss for the bank in nine years. As part of its efforts to bring its capital ratios back into balance, the bank set a goal to shrink its loan portfolio by $50 million. In general, a 10% capital ratio is required to maintain a bank’s rating as “well capitalized”. When (in early 2009) the loss for 2008 was accounted for, the bank’s ratio fell to 9.83% - hardly a draconian situation. At that time, the OTS presented a memo of understanding to the bank that offered the bank time - through June 30, 2009 - to raise an additional $10 million in capital to bring its capital ratio up to 12%. The OTS also informed the bank that it could qualify for a matching amount in TARP funds should it raise that equity. Had the bank been given until June 30, 2009, to raise this capital (as promised by the OTS), the new equity and TARP funds would have resulted in its having a capital ratio in the 14% range, well in excess of the OTS requirement. The additional capital also would have been sufficient to help the bank weather the remainder of the economic downturn. An investment banking firm was hired in January, 2009, to solicit capital. In late March, meetings were held with eight potential investors. However, during the time that the board was soliciting additional capital, the government agencies took two unexpected and unnecessary actions that severely restricted the bank’s liquidity: 1. The Federal Reserve reduced the bank’s line of credit from $140 million to $86 million, which was the amount the bank had outstanding at the time. In other words, this action effectively prevented the bank from making further loans of any kind. The bank’s advance rate also was reduced from 70% - 80% to 20% - 40%. This also impaired the amount of funds available to make loans and support operations.2. The OTS and FDIC downgraded the bank’s rating and eliminated its access to brokered CD markets including the Certificate of Deposit Account Registry (CDARS) program. This significantly limited the bank’s ability to borrow funds or to accept deposits for the program.These two actions by the government agencies put a severe strain on the bank’s liquidity as it no longer had access to traditional sources of money to fund the shortfall between deposits and loans. In an effort to provide insurance to as many of its clients as possible, the bank had moved approximately $13 million into the CDARS program. These funds comprised core deposits that had been held by the bank for years. In early/mid April, the bank was forced to send at least $9 million in its CDARS deposits that had matured to other lbanks because they were no longer insured by the FDIC. In addition, it had to turn away another $5 million which customers wanted to deposit. Just as the bank was expecting offers from potential investors, the FDIC/OTS placed the bank under a Cease and Desist order. This effectively meant that the bank could not increase or grow its loan portfolio. Simultaneously, local newspapers learned of the Cease and Desist order and announced it to the community (the bank did not release this information, which means that government agencies probably “leaked” the news of their own actions). The only possible result of leaking this information would be to prevent the bank from saving itself. In response to the local news articles, a number of bank clients have understandably pulled deposits, further affecting liquidity. On April 15, the bank received an offer from potential investors that would put it back into a “well capitalized” position in return for controlling interest. This, with FDIC approval, would allow the bank to once again participate in the brokered CD market and the CDARS program and effectively solve its liquidity issues. But instead of helping the bank, the OTS indicated that it would be unlikely that TARP funds would be provided. There was no explanation to the bank of why the OTS might renege on its earlier promise of $10 million in TARP matching funds if the bank found $10 million in additional investments. It then informed the bank that an OTS marketing team was being sent to Ketchum to prepare the bank for an assisted sale to another bank. OTS refused to identify the purchasing bank. Sources have indicated that this recommendation for the assisted sale was sitting on FDIC Chairman Sheila Baer’s desk as the bank was working to obtain the necessary capital, proving that the government never intended to allow the bank to save itself. The OTS indicated that an assisted sale would “protect” customers of the bank, even though those customers were largely already protected by FDIC insurance. The alarming alacrity with which the OTS moved toward the assisted sale virtually guaranteed the destruction of this once highly successful, and still potentially viable, community-based institution. Jobs will be lost, businesses that were supported by the bank during down times will suffer, and strong independent community spirit will be compromised. In addition, all 284 investors who believed in establishing a local community bank will lose almost all of their investments. So, while it is undeniable that the bank board might not have acted quickly enough to bring in capital, it also is clear that the OTS targeted this bank for sale to a larger bank and had no intention of allowing it to save itself, an action that would save taxpayers tens of millions of dollars. In effect, government agencies have used banking technicalities to take over an essentially viable community bank and effectively sell its assets to a large bank for far less than they are worth. Worse, these same government agencies have used their powers to prevent this community bank from saving itself through outside private investment that was willing and ready to come to the rescue. We believe that First Bank is not the only community bank suffering this fate. In fact, some community bankers are predicting that the regulatory agencies’ current actions will lead to the dissolution of hundreds – if not thousands – of community banks. It appears that the government agencies are targeting banks that have potential future strength, while others that have been under Cease and Desist Orders for months are being left alone. Examples of banks in that are perhaps in worse condition than First Bank of Idaho that are being left alone include Syringa Bank in Boise, West Sound Bank in Seattle, and America West in Spokane. We share this story not in an effort to save First Bank of Idaho; it is already too late for that. We share this story because we believe it is a much larger story and that the impact is severe for the future of our communities, and our country. This is, in reality, the story of big government pursuing the destruction of small institutions to benefit the larger institutions that contributed to the start of the economic decline. Is this what our new administration supports? Is this what President Obama meant is his State of the Union address when he said, “It’s not about helping banks – it’s about helping people. Because when credit is available again, that young family can finally buy a new home. And then some company will hire workers to build it. And then those workers will have money to spend, and if they can get a loan too, maybe they’ll finally buy that car, or open their own business. Investors will return to the market, and American families will see their retirement secured once more. Slowly, but surely, confidence will return, and our economy will recover.” Is sacrificing small banks for the benefit of larger, government-supported banks really in the best interests in our communities? Will the banks who wouldn’t, and couldn’t, help our community 12 years ago really supply the financial support necessary to help our unique communities thrive? While the regulators may not have technically done anything outside of their authority, the spirit of the power they are granted by law has unquestionably been violated in this situation.(postscript)This story does not have a happy ending.On Friday, April 24, the OTS sold off First Bank of Idaho to US Bank, even though the board and management had viable options to support the continued operations of the bank. The shareholders have lost millions of dollars of their investments, the community has lost an important advocate for its economy, and also lost a source of pride. Employees who gave their all to save the bank are devastated, and possibly unemployed. Potential investors who were working steadfastly to save the bank will direct their money elsewhere.The FDIC’s press release stated: “The FDIC estimates that the cost to the Deposit Insurance Fund will be $191.2 million.” (No one at First Bank of Idaho knows anything about a $191.2 million FDIC loss. Indeed, if the OTS had waited three or four more days to allow outside investors to bail out the bank, taxpayers would not have lost a dime! The OTS was well aware that such an investor was ready and willing to act.)According to the press release, “U.S. Bank's acquisition of the deposits of First Bank of Idaho was the ‘least costly’ resolution for the FDIC's Deposit Insurance Fund compared to alternatives. Was it really the least costly resolution given that the bank was within days of regaining liquidity?A review of the FDIC’s Failed Bank List indicates that three other small community banks were closed on the 24th: First Bank of Beverly Hills in Calabasas, California; Heritage Bank in Farmington Hills, Michigan; and American Southern Bank in Kennesaw, Georgia.
QUESTIONS: The most obvious questions the public should have answered about their government’s actions in regard to First Bank of Idaho are the following:
1. Why did the FDIC and the OTS aggressively come after a small community bank that was experiencing far less dangerous problems than many other banks and dishonestly report to the public that they were taking over and selling the bank in order to save taxpayers money? After all, there were hundreds of banks around the country (and some in Idaho) that were in far worse shape. Is it because First Bank of Idaho had tens of millions of dollars in assets that could be virtually given to TARP-supported super banks that are controlled by the government?
2. Why did FDIC/OTS repeatedly assure First Bank of Idaho that it could get TARP funds if it could find $10 million in private investment and then renege on this assurance when the bank actually found the investors? Is it because FDIC/OTS had already targeted the bank’s assets on behalf of TARP-supported, government-controlled banks? If so, is the government literally stealing private assets from American citizens?
3. Why did FDIC/OTS refuse to allow First Bank of Idaho to receive some $17 million in private investment that would have completely solved the bank’s problems at no cost to the taxpayer and instead – upon learning that the investors were prepared to act – suddenly ignore the June 30, 2009, deadline it had given the bank and immediately fly 40 people into Sun Valley from around the country, take over the bank, sell its assets for an undisclosed price to US Bank, and put out a press release stating that the closure of this bank would cost taxpayers over $191 million? If FDIC/OTS knew (they did) that private investors were ready to act and that this action would both save the bank and save the taxpayers $191 million, why did they seize the bank?

Internet Link :
http://sunvalleyonline.com/information/linkexchange_view.asp?I=&LinkName=

On Sheep, Sheepdogs, and Wolves

The murder rate in our country is about six people per 100,000 per year, and the aggravated assault rate is four per 1,000 per year. What this means is that the vast majority of Americans are not inclined to hurt one another.
Some estimates say two million Americans are victims of violent crimes every year, a tragic, staggering number, perhaps an all-time record rate of violent crime. But there are almost 300 million Americans, which means that the odds of being a victim of violent crime is considerably less than one in a hundred on any given year. Furthermore, since many violent crimes are committed by repeat offenders, the actual number of violent citizens is considerably less than two million.
Thus there is a paradox, and we must grasp both ends of the situation: We may well be in the most violent times in history, but violence is still remarkably rare. This is because most citizens are kind, decent people who are not capable of hurting each other, except by accident or under extreme provocation. Most of the people in our society are sheep. They are kind, gentle, productive creatures who only hurt one another by accident.
I mean nothing negative by calling them sheep. If you have no capacity for violence then you are a healthy productive citizen, a sheep.
For now, they need protection from the predators, that is, a Sheepdog.
If one has a capacity for violence and no empathy for his fellow citizens, then you have an aggressive sociopath, a wolf.
The wolves feed on the sheep without mercy. There are evil men in this world and they are capable of evil deeds. The moment you forget that or pretend it is not so, you become a sheep. There is no safety in denial.
If you have a capacity for violence, and a deep love for your fellow citizens, what do you have then? You have a sheepdog, a warrior, someone who is walking the hero's path, someone who can walk into the heart of darkness, and walk out unscathed.
The sheepdog lives to protect the flock and confront the wolf. Police officers, soldiers, and other warriors are like the sheepdogs, and hopefully, someday the civilization they protect will grow into something wonderful.

We know that the sheep live in denial. That is what makes them sheep. They do not want to believe that there is evil in the world. They can accept the fact that fires can happen, which is why they want fire extinguishers, fire sprinklers, fire alarms and fire exits throughout their kids' schools.
But many of them are outraged at the idea of putting an armed police officer in their kid's school. Our children are thousands of times more likely to be killed or seriously injured by school violence than fire, but the sheep's only response to the possibility of violence is denial. The idea of someone coming to kill or harm their child is just too hard, and so they choose the path of denial.
The sheep generally do not like the sheepdog. He looks a lot like the wolf.
He has fangs and the capacity for violence. The difference, though, is that the sheepdog must not, cannot and will not ever harm the sheep by his very nature. Any sheep dog that intentionally harms the lowliest little lamb will be punished and removed. The world cannot work any other way in a representative democracy or a republic such as ours.
Still, the sheepdog disturbs the sheep. He is a constant reminder that there are wolves in the land. They would prefer that he didn't tell them where to go, or give them traffic tickets, or stand at the ready in our airports, in camouflage fatigues, holding an M-16. The sheep would much rather have the sheepdog cash in his fangs, spray paint himself white, and go, "Baa" until the wolf shows up. Then the entire flock tries desperately to hide behind one lonely sheepdog.
The students, the victims, at Columbine High School were big, tough high school students, and under ordinary circumstances they would not have had the time of day for a police officer. They were not bad kids; they just had nothing to say to a cop. When the school was under attack, however, and SWAT teams were clearing the rooms and hallways, the officers had to physically peel those clinging, sobbing kids off of them. This is how the little lambs feel about their sheepdog when the wolf is at the door.
Look at what happened after September 11, 2001 when the wolf pounded hard on the door. Remember how America, more than ever before, felt differently about their law enforcement officers and military personnel? Remember how many times you heard the word hero?
Understand that there is nothing morally superior about being a sheepdog; it is just what you choose to be. Also understand that a sheepdog is a funny critter: He is always sniffing around out on the perimeter, checking the breeze, barking at things that go bump in the night, and yearning for a righteous battle. That is, the young sheepdogs yearn for a righteous battle.
The old sheepdogs are a little older and wiser, but they move to the sound of the guns when needed, right along with the young ones.
Here is how the sheep and the sheepdog think differently. The sheep pretend the wolf will never come, but the sheepdog lives for that day. After the attacks on September 11, 2001, most of the sheep, that is, most citizens in America said, "Thank God I wasn't on one of those planes." The sheepdogs, the warriors, said, "Dear God, I wish I could have been on one of those planes. Maybe I could have made a difference." When you are truly transformed into a warrior and have truly vested yourself into warrior hood, you want to be there. You want to be able to make a difference.
There is nothing morally superior about the sheepdog, the warrior, but he does have one real advantage. Only one and that is that he is able to survive and thrive in an environment that destroys 98 percent of the population.
There was research conducted a few years ago with individuals convicted of violent crimes. These cons were in prison for serious, predatory crimes of violence: assaults, murders and killing law enforcement officers. The vast majority said they specifically targeted victims by body language:
Slumped walk, passive behavior and lack of awareness. They chose their victims like big cats do in Africa, when they select one out of the herd that is least able to protect itself.
Some people are destined to be sheep and others might be genetically primed to be wolves or sheepdogs. Most people can choose which one they want to be. More and more Americans are choosing to become sheepdogs.
Seven months after the attack on September 11, 2001, Todd Beamer was honored in his hometown of Cranbury, New Jersey. Todd was the man on Flight 93 over Pennsylvania who called on his cell phone to alert an operator from United Airlines about the hijacking. When he learned of the other three passenger planes that had been used as weapons, Todd dropped his phone and uttered the words, "Let's roll," which authorities believe was a signal to the other passengers to confront the terrorist hijackers. In one hour, a transformation occurred among the passengers - athletes, business people and parents-- from sheep to sheepdogs and together they fought the wolves, ultimately saving an unknown number of lives on the ground.
"There is no safety for honest men except by believing all possible evil of evil men." - Edmund Burke
Here is the point. In nature the sheep, real sheep, are born as sheep. Sheepdogs are born that way, and so are wolves. They didn't have a choice. But you are not an animal. As a human being, you can be whatever you want to be. It is a conscious, moral decision.
If you want to be a sheep, then you can be a sheep and that is okay, but you must understand the price you pay. When the wolf comes, you and your loved ones are going to die if there is not a sheepdog there to protect you. If you want to be a wolf, you can be one, but the sheepdogs are going to hunt you down and you will never have rest, safety, trust or love. But if you want to be a sheepdog and walk the warrior's path, then you must make a conscious and moral decision every day to dedicate, equip and prepare yourself to thrive in that toxic, corrosive moment when the wolf comes knocking at the door.
Some individuals would be horrified if they knew a police officer was carrying a weapon in church. They might call him paranoid and would probably scorn him. Yet these same individuals would be enraged and would call for "heads to roll" if they found out that the airbags in their cars were defective, or that the fire extinguisher and fire sprinklers in their kids' school did not work. They can accept the fact that fires and traffic accidents can happen and that there must be safeguards against them.
Their only response to the wolf, though, is denial, and all too often their response to the sheepdog is scorn and disdain. But the sheepdog quietly asks himself, "Do you have any idea how hard it would be to live with yourself if your loved ones were attacked and killed and you had to stand there helplessly because you were unprepared for that day?"
It is denial that turns people into sheep. Sheep are psychologically destroyed by combat because their only defense is denial, resulting in fear, helplessness and horror when the wolf shows up.
Denial kills you twice. It kills you once, at the moment of truth when you are not physically prepared: you didn't bring your gun, you didn't train.
Your only defense was wishful thinking. Hope is not a strategy. Denial kills you a second time because even if you do physically survive, you are psychologically shattered by your fear, helplessness and horror at your moment of truth.
Gavin de Becker puts it like this: denial can be seductive, but it has an insidious side effect. For all the peace of mind deniers think they get by saying it isn't so, the fall they take when faced with new violence is all the more unsettling."
Denial is a save-now-pay-later scheme, a contract written entirely in small print, for in the long run, the denying person knows the truth on some level. And so the warrior must strive to confront denial in all aspects of his life, and prepare himself for the day when evil comes.
If you are a warrior who is legally authorized to carry a weapon and you step outside without that weapon, then you become a sheep, pretending that the bad man will not come today. No one can be "on" 24/7, for a lifetime.
Everyone needs down time. But if you are authorized to carry a weapon, and you walk outside without it, just take a deep breath, and say this..."Baa."
This business of being a sheep or a sheep dog is not an all-or-nothing, either-or choice. It is a matter of degrees, a continuum. On one end is an abject, head-in-the-sand-sheep and on the other end is the ultimate warrior. Few people exist completely on one end or the other.
Most of us live somewhere in between. Since 9/11 almost everyone in America took a step up that continuum, away from denial. The sheep took a few steps toward accepting and appreciating their warriors and the warriors started taking their job more seriously. The degree to which you move up that continuum, away from sheep-hood and denial, is the degree to which you and your loved ones will survive, physically and psychologically at your moment of truth.
The sheepdog must only be careful not to become too much like the wolf. Sheep can be easy prey. Just ask the wolves.
Honor never grows old, but rejoices the heart. It does so because honor is about defending those things that deserve defending, even if it comes at a high cost. In our time, that may mean social disapproval, public scorn, hardship, persecution, or even death itself. The questions remain: What is worth defending? What is worth dying for? What is worth living for?
This is an individual decision each and every one of us must make for himself.

Darrell Scott, the father of Rachel Scott, a victim of the Columbine High School shootings in Littleton , Colorado , was invited to address the House Judiciary Committee's subcommittee. What he said to our national leaders during this special session of Congress was painfully truthful. They were not prepared for what he was to say, nor was it received well. It needs to be heard by every parent, every teacher, every politician, every sociologist, every psychologist, and every so-called expert! These courageous words spoken by Darrell Scott are powerful, penetrating, and deeply personal. There is no doubt that God sent this man as a voice crying in the wilderness. The following is a portion of the transcript:
"Since the dawn of creation there has been both good & evil in the hearts of men and women. We all contain the seeds of kindness or the seeds of violence. The death of my wonderful daughter, Rachel Joy Scott, and the deaths of that heroic teacher, and the other eleven children who died must not be in vain. Their blood cries out f or answers. "The first recorded act of violence was when Cain slew his brother Abel out in the field. The villain was not the club he used.. Neither was it the NCA, the National Club Association. The true killer was Cain, and the reason for the murder could only be found in Cain's heart."In the days that followed the Columbine tragedy, I was amazed at how quickly fingers began to be pointed at groups such as the NRA. I am not a member of the NRA. I am not a hunter. I do not even own a gun. I am not here to represent or defend the NRA - because I don't believe that they are responsible for my daughter's death. Therefore I do not believe that they need to be defended. If I believed they had anything to do with Rachel's murder I would be their strongest opponent. I am here today to declare that Columbine was not just a tragedy -- it was a spiritual event that should be forcing us to look at where the real blame lies! Much of the blame lies here in this room. Much of the blame lies behind the pointing fingers of the accusers themselves. I wrote a poem just four nights ago that expresses my feelings best.
Your laws ignore our deepest needs,Your words are empty air. You've stripped away our heritage, You've outlawed simple prayer. Now gunshots fill our classrooms, And precious children die. You seek for answers everywhere, And ask the question "Why?" You regulate restrictive laws, Through legislative creed. And yet you fail to understand, That God is what we need! " Men and women are three-part beings. We all consist of body, mind, and spirit. When we refuse to acknowledge a third part of our make-up, we create a void that allows evil, prejudice, and hatred to rush in and wreak havoc. Spiritual presences were present within our educational Systems for most of our nation's history. Many of our major colleges began as theological seminaries. This is a historical fact. What has happened to us as a nation? We have refused to honor God, and in so doing, we open the doors to hatred and violence. And when something as terrible as Columbine's tragedy occurs -- politicians immediately look for a scapegoat such as the NRA. They immediately seek to pass more restrictive laws that contribute to erode away our personal and private liberties. We do not need more restrictive laws. Eric and Dylan would not have been stopped by metal detectors.. No amount of gun laws can stop someone who spends months planning this type of massacre. The real villain lies within our own hearts. "As my son Craig lay under that table in the school library and saw his two friends murdered before his very eyes, he did not hesitate to pray in school. I defy any law or politician to deny him that right! I challenge every young person in America , and around the world, to realize that on April 20, 1999, at Columbine High School prayer was brought back to our schools. Do not let the many prayers offered by those students be in vain. Dare to move into the new millennium with a sacred disregard for legislation that violates your God-given right to communicate with Him. To those of you who would point your finger at the NRA -- I give to you a sincere challenge. Dare to examine your Own heart before casting the first stone! My daughter's death will not be in vain! The young people of this country will not allow that to happen!"