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Officials Say Bad Farming Loans Caused Wave Of Bank Closings

June 1, 1985

Undated (AP) _ Federal banking officials blame unpaid agricultural loans for a wave of bank closings that they said was the largest number of failures in one day in more than half a century.

Seven banks in four states - Nebraska, Minnesota, Oregon and Arkansas - closed their doors Friday, bringing to 40 the number of failed banks so far this year, officials said.

Ken Gorham, a Federal Deposit Insurance Corp., official brought in from Dallas to handle the affairs of one of the failed banks, the Bank of Lockesburg, in Lockesburg, Ark., said the office’s 10-state region ″has averaged almost two bank closings a week.″

He said FDIC employees will put in 20-hour days over the weekend sorting out the affairs of the bank.

″Then they’ll go back to the office and I’ll go back and plan our next bank closing. We figured it out, our staff is logging more than a million air miles″ a year, Gorham said.

Alan Whitney, an FDIC spokesman in Washington, said, ″It was a rather strange set of circumstances that resulted in us having seven in one day.″

The Nebraska Department of Banking and Finance closed four banks in that state; the federal government shut down the Lockesburg bank; the state shut down a bank in Lakefield, Minn.; and the financially troubled Bank of Oregon in Woodburn was taken over by an out-of-state bank.

″It was an acquisition, but it counts as a closure,″ Whitney said of the Bank of Oregon’s takeover by the Alaska Pacific Bancorp.

″It’s the largest number of banks to fail in one day since the FDIC began operations in 1934,″ he said. ″Several involved small agricultural banks, which has been the pattern recently.″

In Nebraska, the Bank of Taylor was closed late Friday morning.

A few hours later, the state Banking Department closed three banks owned by Roger Voorhees of Omaha: Fairfield State Bank in Fairfield, Scroggin and Co. Bank in Oak and Security State Bank of Edgar.

All six banks were insured by the FDIC, which insures deposits up to $100,000 per customer.

Roger Beverage, Nebraska banking director, said: ″All of these situations are related directly to agricultural loan problems.″

The Lockesburg bank was being taken over by a newly chartered state bank, also to be called Bank of Lockesburg, and will begin with an infusion of $14.8 million from the FDIC’s more than $16 billion insurance fund, contributed to by all FDIC member banks nationwide.

It was ordered closed Friday after Arkansas state Bank Commissioner Marlon Jackson said huge loan losses resulted from ″extraordinarily irregular, as well as imprudent, decisions on the part of former management.″

A new bank under a new name will reopen Monday, Jackson said.

Whitney said the new operation would assume about $24.5 million in 3,000 deposit accounts and has agreed to pay the FDIC $150,000 for the right to take over the bank. It also will purchase the failed bank’s installment loans, real estate loans and certain other assets for $9.7 million.

In St. Paul, Minn., state Commerce Commissioner Michael Hatch announced the failure of First Trust Bank of Lakefield and said about $7 million of its $17 million in outstanding loans, mostly agricultural, were in jeopardy of not being repaid.

FDIC spokesman Bill Olcheski said the bank’s only office would reopen Monday as a branch of Fulda State Bank of Fulda, Minn.

News of the bank failure in Lakefield came one day after the town of 1,845 people was hit by a tornado that did extensive damage to a hotel, bowling alley and a score of homes.

In Nebraska, Bank of Taylor is to reopen Monday as a branch of Union Bank and Trust Co. of Lincoln, the FDIC said. The Lincoln bank will assume about $12.2 million in Taylor’s deposits and receive $9.6 million from the FDIC.

Whitney said the FDIC will try to arrange a buyer or buyers for the three Vorhees banks over the weekend.

He had no financial details on the banks.

Beverage said the three Voorhees banks ″are within 10 miles of one another, and we knew if we closed one, it would start a run on the others and given the situation at all three banks, it was clear that this action was warranted.″

In Oregon, the financially troubled Bank of Oregon in Woodburn was sold to Alaska Pacific Bancorporation and will reopen Monday as Key Bank of Oregon, officials said. Key Banks Inc. of Albany, N.Y. recently bought Alaska Pacific.

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