Apr. 18--American Sterling Bank in Sugar Creek failed Friday, ending hopes that a Connecticut-based insurance company would rescue it with help from the federal government.

The Phoenix Companies Inc. had gained federal approval to buy the ailing $181 million savings bank in January but said publicly it wanted capital under the U.S. Treasury's Troubled Asset Relief Program program to complete the purchase.

Recently, the Treasury declared insurance companies eligible for TARP funding, but regulators said Friday that efforts to save American Sterling failed.

The bank's Kansas City area branches will reopen today as part of Metcalf Bank, which is based in Lee's Summit but has offices on both sides of the state line. Branches in California and Arizona will reopen Monday as part of Metcalf Bank.

American Sterling's collapse follows the March 20 failure of TeamBank and last year's failures of Columbian Bank and Trust Co. and Douglass National Bank.

The failure was the 24th failure nationwide this year -- including a failure Friday in Colorado and another in North Carolina.

American Sterling suffered from mounting real estate loan problems that had wiped out its capital and more than $20 million in fresh capital its owners had injected.

The Federal Deposit Insurance Corp. said all $171.9 million in deposits at American Sterling would transfer to Metcalf Bank, which means even uninsured accounts would be fully available to customers.

Metcalf Bank also agreed to buy $173.6 million of American Sterling's assets from the FDIC, protected by a $100 million loss-sharing agreement with the FDIC.

Borrowers are expected to continue making payments as usual.

The FDIC will try to sell the remaining assets but still expects to lose $42 million on the failure.

In addition to serving local customers, American Sterling had built a 32-state network of mortgage brokers that at one point generated $350 million of new home loans a month. It sold the loans to investors even after the crash of subprime lending because its loans were to credit-worthy conventional borrowers.

Its difficulties began as buyers of the loans sent them back to the bank, citing appraisal and documentation problems. The setbacks quickly put American Sterling in jeopardy from which its owners tried to recover.

Led by California businessman Lawrence Dodge, owners borrowed money against properties they own in California and injected $20.5 million of capital into American Sterling. Loan problems, however, consumed the fresh funds as quickly as owners injected them.

Regulators slapped the bank with a cease and desist order that charged in part that American Sterling had maintained "inaccurate books," failed to follow its own policies and procedures, and failed to comply with several laws and regulations.

Bank officials had consented to the order without admitting or denying wrongdoing.

The bank was owned by American Sterling Corp., based in Foothill Ranch, Calif., in the Los Angeles area. It also owns an independent film company that produced the 1999 release "The Annihilation of Fish," which starred James Earl Jones, as Fish, and Lynn Redgrave in a strangely comical romance, according to online reviews.

Questions?

Bank patrons with questions about the closing of American Sterling can call the FDIC toll free at 1-866-954-9528. The FDIC says the line will be answered from 9 a.m. to 6 p.m. Central time Saturday, from noon to 6 p.m. Sunday, and from 8 a.m. to 8 p.m. during the week.

To reach Mark Davis, call 816-234-4372 or send e-mail to mdavis@kcstar.com.

-----

To see more of The Kansas City Star, or to subscribe to the newspaper, go to http://www.kansascity.com.

Copyright (c) 2009, The Kansas City Star, Mo.

Distributed by McClatchy-Tribune Information Services.

For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

Nigeria:STERLNBAN, NYSE:PNX, Australia:TRU,

A service of YellowBrix, Inc.