As a former banker, Norm Andreen knew his certificates of deposit were safe when regulators shut down Silver Falls Bank.

But he was disappointed to learn this week that Citizens Bank of Corvallis, which took over his deposits, was slashing interest rates from as much as 4 percent to 1 percent or less.

"I've gone through three different mergers when I was in banking," said Andreen, a former branch manager and internal auditor living near Oregon City. "We never did anything like that." Normally, banks don't change the terms of CDs midstream. But when banks fail -- as 22 have nationwide this year -- the institutions that take over are free to reset interest rates, regulators say, because they're essentially pulling the assets out of bankruptcy.

Depositors might experience that risk more often as the country endures a wave of bank failures that has yet to crest, regulators say. Wilmington, N.C.-based Cape Fear Bank was closed Friday, the 49th U.S. bank failure in two years.

Oregon bank regulators declared Silverton-based Silver Falls insolvent in February and chose the Federal Deposit Insurance Corp. as receiver, which then transferred deposits to Citizens.

"In receiverships or bankruptcies, all prior contracts are null and void unless they're reaffirmed," said Richard Renken, program manager for banks and trust at the Oregon Division of Finance and Corporate Securities.

However, Citizens was required to notify Silver Falls customers of any rate change and give them time to cancel their CD agreements without penalty, Renken said. The bank did so.

Neither Spokane-based Washington Trust Bank nor Portland-based Umpqua Holdings Corp. changed rates when they acquired Beaverton-based Pinnacle Bank of Oregon and Bank of Clark County in Vancouver, respectively.

"Their boats have been rocked enough," Umpqua spokeswoman Lani Hayward said of the bank's newly acquired Clark County customers.

Wells Fargo & Co. and JPMorgan Chase & Co. also are honoring rates paid by the banks they took over from Wachovia Corp.and Washington Mutual Inc., respectively, until the CDs mature.

Citizens Bank president and CEO William Humphreys Sr. said he's cutting rates partly to be fair to existing customers and partly because he doesn't want Silver Falls depositors who chased high interest rates.

Silver Falls opened seven years ago with a fast-growth strategy, luring deposits from all over the state with higher rates than their competitors offered, Humphreys said. That required the bank to make higher-risk construction and development loans. Those loans went bad during the downturn, which ultimately led to the bank's failure.

Citizens has a much more conservative strategy, he said.

"We don't want to do business with people in Seaside," Humphreys said. "We'll take deposits from the community and make loans to the community. We're going to be there to stay. The previous bank wasn't a lasting institution."

Andreen said he deposited money with Silver Falls four years ago when it opened its Oregon City branch. He held three CDs totaling $150,000. His mother deposited two CDs totaling $250,000. Most recently, the interest rates on his one-year deposits were 3 to 4 percent.

Now, Citizens Bank is offering him rates of 1 to 1.25 percent, he said. The average rate for a one-year CD nationwide was 2.35percent Friday, according to www.bankrate.com.

Citizens offered customers with less of a banking relationship with Silver Falls even lower rates -- .65percent, in some cases, Humphreys said.

"I don't see how you build a loyal customer base if you're going to break contracts with them," said Andreen, who now owns Subtle Surfaces, an interior-wall-making business. "My wife and I are going to be fine. I'll find someplace else to put those funds. What concerns me is what they've done probably to some older people on fixed incomes who were counting on those funds based on contracts entered into a year ago."

Humphreys acknowledged that concern, but said higher-interest CDs also carry higher risks.

"This is the risk of doing business with an unsafe and unsound bank," he said. "The customer is the loser."

-- Brent Hunsberger,

brenthunsberger@news.oregonian.com,

www.oregonlive.com/itsonlymoney