Fifth Street Bank, a small community bank in operation for a year, said Friday that it was voluntarily preparing to close because of bad economic conditions.
Neither state regulators nor bank CEO Philip LaChapelle knew of any instance in which a bank had voluntarily closed, although bank regulators periodically take over and shut down failing banks.
“This has never taken place in this state to my knowledge,” said Commissioner George Burns of the Financial Institutions Division.
Neither depositors nor borrowers will lose money as a result of the closing, LaChapelle said.
To keep overhead low, the bank operates with six employees and one location at 376 E. Warm Springs Road.
“This is a prudent business decision that has taken into account the unsettled nature of the economy and the shrinking investment options available to ensure our promise of high-yield deposit products to both our customers and our partners,” LaChapelle said in an announcement.
He said the bank was finding it increasingly difficult to find borrowers with good credit.
Fifth Street had no checking accounts but offered savings accounts, money market accounts and certificates of deposit. The bank did not originate loans itself.
It bought loans for owner-occupied, one-to-four unit residences, from the wholesale market, and relied on outside firms to service the loans, LaChapelle said. Most of its loan holdings were fixed-rate or adjustable after 10 years, he said.
Fifth Street was paying an average of 7 percent for deposits and making loans that yielded an average 9.7 percent, extremely high rates compared to those of other banks.
Fifth Street used short-term, variable rate deposits to make long-term fixed-rate loans, according to two other bankers, who spoke anonymously. During the 1980s, S&Ls used short-term deposits to make fixed-rate, long-term rates. Many thrifts failed when short-term rates soared higher than the fixed-rate loan rates.
Yet, Fifth Street had a strong balance sheet and $13.6 million in startup capital. It reported no delinquent loans and no loan losses. A large part of its $582,000 loss last year stemmed from setting aside money in a loan loss reserve, however.
The new institution reached $47 million in assets. At the end of the year, Fifth Street reported $38 million in assets, including $20 million in deposits. LaChapelle declined to identify the bank owners.
Contact reporter John G. Edwards at email@example.com or 702-383-0420.