First Heritage Bank in Snohomish closed

First Heritage Bank in Snohomish was closed late Friday by the state Department of Financial Institutions, citing inadequate capital and severe loan losses.

Tacoma-based Columbia State Bank will assume all of the deposits of First Heritage and will buy nearly all of its assets under a loss-sharing agreement with the Federal Deposit Insurance Corp (FDIC).

It's the second Washington bank to fail this year. Last week, Summit Bank was closed, with all of its assets and deposits also assumed by Columbia State Bank

First Heritage has five locations that will reopen Tuesday as branches of Columbia Bank.

The FDIC said First Heritage's failure will cost the insurance fund an estimated $34.9 million. "Compared to other alternatives, Columbia State Bank's acquisition was the least costly resolution," an FDIC statement said.

The bank's capital was depleted by large losses on loans for land development and construction, said Gloria McVey, acting director of the state's Division of Banks. "Bank management was unable to raise sufficient capital to remain viable."

As of March 31, First Heritage had total assets of $173 million and total deposits of $163 million. The bank was founded in 1982 by Snohomish County business people, according to its website, and remained privately owned.

First Heritage is the 44th FDIC-insured institution to fail in the nation this year, and the only one shuttered this week.