Bank providing services to rural community for 136 years will ‘wind down’ after new owner ignores supervisory prohibitions

A Farmington, Wash., bank that served its rural community for more than 136 years is being closed for improperly changing its business plan without receiving prior approval for those changes from its supervisors, the Federal Reserve said Thursday.

In a release, the agency said the operations of Farmington State Bank, of Farmington, Washington, and its holding company, FBH Corp., will “wind down” in a way that protects the Federal Deposit Insurance Corp.’s (FDIC) Bank Insurance Fund.

The $18.5 million in assets, eastern Washington bank, had previously announced it will voluntarily sell its loans and deposits to the Bank of Eastern Oregon of Heppner, Oregon (which holds $853 million in assets). The bank’s holding company (FBH) is in Baltimore, Md. The bank has been in business since 1887.

The bank’s long service to its local community played a role in its ultimate demise. According to the Fed, in 2020, the bank’s holding company was acquired by a resident of The Bahamas. In approving the acquisition, the Fed (and the Washington State Department of Financial Institutions, the local supervisor) imposed certain conditions on the new owner and the company – including that, for three years, the bank and the holding company were prohibited from taking certain actions.

Those included, according to a cease and desist order unveiled Thursday, that the owner and the bank holding company could not “change the Bank’s business plan in any manner, including, without limitation, hiring or replacing senior management, placing new directors on the Bank’s board, or expending material resources to develop the Bank’s digital banking products and customer- facing applications, without first providing notice to and consulting with the Board of Governors or the Reserve Bank to ensure that such changes would not constitute a change in the general character of the Bank’s business under the Board’s Regulation H (12 C.F.R. § 208.3(d)(2)); or (ii) change the Bank’s business plan to pursue a strategy focused on digital banking services or digital assets, or to launch a digital banking application to the general public without receiving prior approval from the Board of Governors or the Reserve Bank for a change in the general character of the Bank’s business under Regulation H.”

The agencies said that, in the most recent exam, the supervisors found that the bank violated the prohibitions outlined in the cease and desist order “by engaging in activities which changed the Bank’s business plan and general character without receiving prior written approval from the Board of Governors, the Reserve Bank, or the WSDFI, including the Bank’s entering into a non-binding memorandum of understanding with a third party whereby the Bank committed to ‘work with’ the third party ‘to design the necessary IT infrastructure’ to facilitate the third party’s issuance of stablecoins to the public in exchange for receipt of 50% of mint and burn fees on certain stablecoins, and took material steps to implement that memorandum of understanding.”

Federal Reserve Board issues enforcement action with Farmington State Bank, and its holding company, FBH Corporation