The Tennessee Department of Financial Institutions took possession of The Farmers Bank of Lynchburg at 5 p.m. Friday, state officials announced.
The bank is the 31st in the nation to fail this year, and the third in Tennessee. The last institution closed in the state was Tennessee Commerce Bank, Franklin, on January 27.
The department also appointed the Federal Deposit Insurance Corporation (FDIC) as receiver of the bank.
“The bank has failed,” Greg Hernandez, public affairs specialist with the FDIC, told The News Friday afternoon following the announcement.
According to the state, the department took possession of The Farmers Bank of Lynchburg due to the bank’s impaired capital, unsound condition and the bank’s inability to continue normal operations.
To protect the depositors, the FDIC entered into a purchase and assumption agreement with Clayton Bank and Trust, Knoxville, Tennessee, to assume all of the deposits of The Farmers Bank of Lynchburg.
Clayton Bank and Trust is the owner of American City Bank, with branches in Tullahoma, Manchester and Winchester.
The four branches of The Farmers Bank of Lynchburg reopened during normal business hours Saturday as branches of Clayton Bank and Trust, including one branch that operates as First State Bank, Chapel Hill, Tennessee, and the two branches that operate as Oakland Deposit Bank, Oakland, Tennessee.
According to the FDIC, depositors automatically become depositors of Clayton Bank and Trust, and should continue to use their existing branch until they receive notice from Clayton Bank and Trust that it has completed systems changes to allow other Clayton Bank and Trust branches to process their accounts as well.
The FDIC has established a website and a toll-free phone number to answer questions from depositors, creditors and other interested parties regarding the receivership of The Farmers Bank of Lynchburg.
“An important thing to remember is that customers of Farmers Bank are now subject to the guidelines of the new bank, including interest rates on loans and deposits,” said Hernandez.
According to Hernandez, customers can refer to the FDIC’s website for further information regarding the details of the transaction. The toll-free number is (800) 774-8035.
Depositors of The Farmers Bank of Lynchburg can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.
As of March 31, 2012, The Farmers Bank of Lynchburg had approximately $163.9 million in total assets and $156.4 million in total deposits.
According to the FDIC, Clayton Bank and Trust will pay the FDIC a premium of 0.10 percent to assume all of the deposits of The Farmers Bank of Lynchburg. In addition to assuming all of the deposits of the failed bank, Clayton Bank and Trust agreed to purchase essentially all of the assets.
The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $28.3 million. Compared to other alternatives, Clayton Bank and Trust’s acquisition was the least costly resolution for the FDIC’s DIF.
Congress created the Federal Deposit Insurance Corporation in 1933 to restore public confidence in the nation’s banking system. The FDIC insures deposits at the nation’s 7,309 banks and savings associations, and it promotes the safety and soundness of these institutions by identifying, monitoring and addressing risks to which they are exposed. The FDIC receives no federal tax dollars — insured financial institutions fund its operations.
Hernandez said the decision to close a particular bank is not made by the FDIC. Rather, that decision is made by the state or federal regulator responsible for the institution’s charter. The primary regulator for the Farmers Bank of Lynchburg is the Tennessee Department of Financial Institutions.
The FDIC gets involved in bank closures when the regulator appoints the FDIC to serve as a receiver, Hernandez said, comparing the FDIC’s role as receiver to that of the conservator of an estate.
Once the regulator has determined a bank has failed and appoints the FDIC as receiver, the FDIC spends 90 to 100 days before the closure date confidentially marketing the bank for sale to other financial institutions, Hernandez continued. Once the bids have been received the FDIC is charged with selecting the winning bidder, which must, by law, be the bidder with the lowest cost to the insurance fund.
he process of physically shuttering a bank begins with the regulator notifying the bank that its charter has been pulled and the FDIC appointed as receiver. Then, Hernandez said, FDIC employees visit the financial institution, pair up with employees and complete the process of closing the books and transferring the operation to the new owner. This part of the process happens quickly, Hernandez said. If FDIC employees arrive at a bank on a Friday and the bank has regular Saturday hours, it will open on schedule the following day. In the event that the bank is closed on weekends, it will resume business as usual come Monday morning.
“The changeover happens in hours,” Hernandez said, adding that since the start of the current financial crisis, the FDIC has served as receiver for more than 440 failed banks, and has the process down to a science.
“The FDIC tries to make the change seamless to depositors,” he continued. Customers will notice that the bank suddenly has a new name, and anyone using online banking services will see a notice informing them of the change, but otherwise, Hernandez said, transactions will be processed as they always had been.”
Although the process of closing down a bank and reopening it under a new name happens quickly, that is not the end of the FDIC’s role as receiver. Hernandez said the receivership is not closed until the FDIC has liquidated all the assets the purchaser of a failed bank did not buy, a process which could take anywhere from three to five years to complete.
The FDIC insures individual and retirement account deposits up to $250,000 and joint account deposits up to $500,000. Before 2008, Hernandez said, the deposit insurance topped out at $100,000, but the higher limits became permanent with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law by President Barack Obama on July 21, 2010.
“We are delighted to welcome the clients and staff of The Farmers Bank of Lynchburg to our team,” said Eric Hamilton, President and CEO of Clayton Bank and Trust. Troy Martin, President of American City Bank, a sister bank of Clayton Bank and Trust located in Tullahoma, Manchester, and Winchester, Tennessee added, “It is exciting to be able to partner with Farmers Bank in offering additional deposit, investment, and ancillary products.
“Kay and I are thrilled to have this opportunity to expand our circle of friends and clients in west and southern middle Tennessee. The experience in working with our fine staff at American City Bank for the past eight years makes us extremely optimistic about this opportunity,” said Jim Clayton, Chairman of Clayton Bank and Trust.
The Clayton Family established the Clayton Family Foundation in 2003 with a $125 million gift following Warren Buffett’s Berkshire Hathaway’s purchase of Clayton Homes, Inc. for $1.7 billion. The family, through the Clayton Family Foundation, contributes currently $6 Million annually to the communities where the family and staff live and work. See more at www.ClaytonBank.com and www.Clayton.org.•