A 104-year-old Bridgeport-based savings association closed by federal regulators Friday reopened its two branches Saturday with a new owner — and $11.6 million in uninsured customer deposits at risk.
Washington Federal Bank for Savings, which had been cited for “unsafe or unsound practices” by regulators, had total deposits of $144 million at the time of its closing. Royal Savings Bank of Chicago bought only the $132.4 million in insured deposits.
Royal Savings Bank sought to buy all of the deposits in an auction, but the Federal Deposit Insurance Corp. rejected the bid for the uninsured portion as too low, said Leonard Szwajkowski, president and CEO of Royal Savings Bank.
The FDIC began recruiting new owners for Washington Federal on Dec. 1, Szwajkowski said. Royal was one of seven bidders.
Its winning bid was the least costly for the FDIC, which expects to take a $60.5 million loss on the sale of its assets, FDIC spokesman David Barr said.
Washington Federal was a family-run bank throughout its history.
John Gembara, 56, CEO and president of Washington Federal, whose grandfather launched the Bridegport institution in 1913, died Dec. 3. The cause of death was suicide, according to the Cook County medical examiner’s office.
His family did not respond Monday to a request for comment.
The FDIC insures deposits up to $250,000 per customer. It is the first time since 2009 that an acquiring bank did not take on all of the deposits of a failed bank, including the uninsured deposits, according to the FDIC.
That leaves customers with more than $250,000 in savings at Washington Federal forced to file as creditors when the FDIC attempts to sell the bank’s assets. Customers with accounts in excess of $250,000 should contact the FDIC at 877-367-2718 to discuss their deposits and file a claim.
“It’s something that customers need to be aware of that anytime a bank fails, only the insured deposits could be protected,” Barr said. “It’s a lesson for anybody that’s looking to put more than $250,000 in a bank, to make sure that they structure it properly to take full advantage of deposit insurance limits.”
Barr said the depositors will be the first creditors to be made whole by any asset sales. But there is no guarantee they will recoup any or all of their savings.
“That is an unfortunate situation that I have no control over,” Szwajkowski said.
Washington Federal was closed by the Office of the Comptroller of the Currency, which regulates national banks and federal savings associations, and then taken over by the FDIC.
It is the eighth bank to fail in 2017, according to the FDIC. There have been 544 bank failures since 2007, peaking at 157 during the financial meltdown in 2010.
Washington Federal had $166.3 million in assets, mostly loans, according to the FDIC, at the time of its closing. As part of the deal, Royal bought $23.7 million of the assets — cash at the Federal Reserve Bank of Chicago — but none of the loans were offered, Szwajkowski said.
Royal also took over Washington’s two locations — in Bridgeport and Little Italy — which are both operating under the new owner’s name.
Founded in 1887, Royal is a state-chartered savings bank with nine locations, including the two Washington Federal branches. Its main office is “under the Chicago Skyway bridge” on the city’s South Side, Szwajkowski said.
The Washington Federal acquisition increases Royal Savings Bank’s asset size to $450 million.
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