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The Mortgage Graveyard
Failed, closed and a c q u i r e d mortgage-related entities.

Tragic Week for Banks

Recent bank failure activity

April 28, 2012

By staff

It's been a while since this many banks were closed down in a single week. Federal losses forecasted for the latest round of failures exceed $270 million.

The first bank to go down was Bank of the Eastern Shore, which was closed by the Maryland Commissioner of Financial Regulation. The bank had entered a formal agreement in August 2010 with the state regulator and the Federal Reserve Bank of Richmond.

The 26-year-old institution employed 30 people as of the end of last year. Its $167 in total assets included residential holdings of $43 million, while it owned another $74 million in commercial real estate loans and $2 million in construction-and-land-development loans. Deposits were $155 million.

The Federal Deposit Insurance Corp., which is named receiver of all federally insured failed banks, couldn't locate a buyer and placed the Cambridge, Md.-based bank in liquidation at an estimated cost of $42 million to the Deposit Insurance Fund.

After that, the state went in and seized Gaithersburg-based HarVest Bank of Maryland. The failed bank was founded in 2004 and had a staff of only 24. Total assets of $164 million included $26 million in home loans, $44 million in CRE assets and $14 million in C&D holdings.

"Unfortunately, both institutions were significantly impacted by the economic and real estate downturn and were unable to find additional capital to restore themselves to sound condition," Maryland Commissioner of Financial Regulation Mark Kaufman said in a statement.

Sonabank won a secret bidding process to acquire all of HarVest's assets and deposits at an estimated cost of $17 million to the FDIC.

Next, the Office of the Comptroller of the Currency jumped in to shutter last week's most costly failure: Inter Savings Bank in Maple Grove, Minn. The 47-year-old company had a staff sized of 41 people and had been hit with an Office of Thrift Supervision prompt corrective action in March 2010.

Total deposits of $473 million were assumed by Great Southern Bank, which also acquired the $482 million in total assets with the FDIC agreeing to share in losses on $413 million of the assets. A majority of Inter Savings' assets, $303 million, were one-to-four-family residential loans. Another $94 million in commercial mortgages were owned, while C&D assets were just $1 million.

The FDIC expects to lose $118 million on the failure of Inter Savings, which does business as InterBank, fsb.

The OCC followed that up with its closing of 26-year old Plantation Federal Bank. The Pawleys Island, S.C., bank was the recipient of an OTS cease-and-desist order in June 2010.

Total deposits at 76-employee Plantation of $441 million were assumed by First Federal Bank. With a $222 million FDIC loss-sharing agreement in hand, First Federal also picked up all of the $486 million in total assets including $129 million in residential loans, $117 million in CRE loans and $71 million in C&D assets. But the loss-sharing arrangement is expected to eat into the Deposit Insurance Fund by $76 million.

The bloodshed came to an end in Palm Desert Calif., where the OCC closed Palm Desert National Bank, a 31-year-old institution with 34 employees. The OCC entered a formal agreement with the bank in 208.

In all three cases, the OCC said that it only acted after the banks had experienced substantial dissipation of their assets and earnings as a result of unsafe or unsound practices and had no prospect of survival without a government bailout.

Pacific Premier Bank agreed to assume off of Palm Desert's $123 million in deposits. It also agreed to acquire the $126 million in total assets including just $7 million in home loans, $53 million in commercial mortgages and $15 million in C&D loans. The FDIC predicted that cost to clean up Palm Desert would be just $20 million.

The five failures came just days after the American Bankers Association issued a statement saying that the FDIC's "rapid recapitalization" of its Deposit Insurance Fund indicates a noticeable slowdown in bank failures.

"The FDIC has been overly conservative in setting aside reserves for possible failures that did not occur," the trade group stated. "These excessive reserves mean the fund is even healthier than expected."

After all was said and done, the five bank failures brought the 2012 toll to 22 banks. All mortgage-related casualties tracked so far this year by Mortgage Daily total 37.

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