Its work done, FDIC packs up, heads out of town

GREELEY – Next week, the virtual black cloud that has hung over Greeley for more than a year could be lifted, at least somewhat.

The Federal Deposit Insurance Corp., which came to town to liquidate the failed New Frontier Bank, expects to pack its proverbial bags and be out of the building on Oct. 15, having sold 4,200 active loans worth $1.54 billion.

FDIC employees have been in the New Frontier Bank buildings on 35th Avenue since April 10, 2009, the day state regulators shut it down for a host of issues, including bad lending practices. The bank had been under a cease-and-desist order since December 2008, and it continued to lose millions as borrowers defaulted until the ultimate closure.

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Time has marched on since that day. Borrowers worked feverishly to find new lenders to assume their loans, many to no avail. They dealt with their loans being sold at auction by the FDIC, then new noteholders demanding immediate payment in full. Businesses have closed, and city leaders have tried to move on to the new industries coming in with the promise of jobs.

Other bankers happily took in millions in depositors who had to find a new home.

Two of the bank’s branch buildings, in Windsor and Longmont, sold this year, with some prospective users now peeking through the windows of the main branch.

The FDIC’s moving day would lead some to breathe a sigh of relief. Still others say, “Not so fast.”

“By virtue of our very short collective memory as a society, and the New Frontier situation not garnering the headlines, people have made the assumption that the situation has resolved itself by virtue of the FDIC auction,´ said Mike Flesher, senior vice president and corporate secretary for Mountain Plains Farm Credit Services in Greeley. “The story is far from over and the final chapters are yet to be written.”

Clearing out the dust

Most area bankers agree that the cloud left by the New Frontier crash will take years to clear up. The bank had touched so many aspects of the Northern Colorado community and beyond.

New Frontier Bank skyrocketed to the top of the local market share in its short 10 years, ending with $2 billion in assets. It was the largest dairy lender in the state and financed several out-of-state dairies as well.

“Just having a player of that magnitude, it just rippled through our economy,´ said Byron Bateman, CEO and president of Cache Bank and Trust in Greeley. “If they had a customer that sold widgets, somewhere down the road, one of our customers was impacted.”

But by far, borrowers with New Frontier-originated loans that were poorly set up, researched and managed may suffer the worst. Bankers say their futures have yet to unfold.

Few banks could take on many of those displaced borrowers. Bateman said he took about three loans worth about $1 million after looking at about $20 million to $25 million.

Bank of Choice spent about $15 million on a $50 million loan package at an FDIC auction, and took about a dozen to two dozen smaller loans off of New Frontier’s books, in addition to gaining about 2,000 deposit accounts, said CEO Darrell McAllister.

“We looked at over 60 (loans) and took about three,´ said Fred Bauer at Farmer’s Bank in Ault. “Some were just too big, but by and large, they weren’t creditworthy.”

Farm Credit Services, which only takes on faming and ranching loans, felt just as hamstrung as other banks trying to help the displaced New Frontier borrowers. Most of the loans were just structured too poorly, many times with multiple years of losses being rolled back into their original loans.

“So that hole just got deeper and deeper,” Flesher said. “When those folks came to us, we saw situations, where, in fact, if you forgave half of their debt, they still weren’t financeable. We’ve got employees who’ve been doing this for 20 to 30 years in the business working with agriculture (lending) and we have just never seen anything like this.”

Cleaning house

The FDIC auctioned the loans to various private bidders – some for a fraction of their original value – but that still left empty branch buildings serving as daily reminders to their communities of the enormity of the failure.

The last of the FDIC-held buildings sold in early September. The former Windsor branch of the bank at 1130 Main St. is set to become an office rental. Two anonymous investors bought the former bank property to lease potentially to a user in the financial services industry, said listing agent Steve Kawulok, managing director of Sperry Van Ness in Fort Collins. The Longmont branch sold earlier this year to be converted into an educational institution.

The last bit of business is to get rid of the main bank buildings on 35th Avenue in Greeley, which are still under the ownership of former bank directors including Robert Brunner, Tim Thissen, Larry Seastrom, John Kammeier and Jack Renfroe.

Kawulok, whose firm acted as the listing agent for all of the New Frontier buildings, said there is an interested buyer in one of the 35th Avenue properties. The “tower” property, or the addition New Frontier had built onto the existing building in 2006, has had many interested lookers, but it’s unlikely the buildings will be sold as one unit.

“The tower was administrative services,” Kawulok said. “It’s a beautiful property, really a class-A corporate headquarters type of property with a lot of atrium space and large conference rooms. So it doesn’t fit the small user very well. It’s probably better suited for a single user, but probably someone with more of a corporate presence.”

Those interested in the properties, he said, have been in the financial services industry, as well as the oil and gas industry, which is experiencing a new boom with the discoveries in northern Weld County in the Niobrara formation.

The rest of the story

The FDIC chapter may be closing, but the New Frontier saga continues.

“The truth of the matter is, a lot of those involved in the FDIC auction, and who were the winners and took control of the assets of some of these operations, they have yet to really do anything in terms of moving forward to liquidate their interests in this collateral they bought,” Flesher said.

If the noteholders liquidate, they could end up dumping a lot of farm real estate, buildings, and equipment on the market and depress values, with not enough buyers to soak it up, Flesher said.

The question will best be answered at the end of this year, now that the harvest is wrapping up, and when farmers and their new “lenders” begin making their financial decisions for 2011.

“Will they want to continue to finance and allow them to farm, or will they say, we’re not in this for the long haul?” Flesher said. “If in fact there are large numbers of investors who decided to liquidate and the assets go on the market, that will force down asset values – and that hurts everyone.”