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

Failed Bank's Former President Indicted Last Year

Recent financial institution closures

May 13, 2013

By Mortgage Daily staff

Losses at one of last week's bank failures are expected to exceed 40 percent of its assets. The former president at the bank had been indicted for loan fraud that allegedly occurred while he was at the firm. Two other financial institutions are also no longer in business.

The North Carolina Office of the Commissioner of Banks reported Friday that it closed down Pisgah Community Bank.

The Ashville, N.C.-based company was established in May 2008 and employed only five people as of Dec. 31, 2012. It had just $21 million in deposits and $22 million in assets.

Residential loans owned by Pisgah were $2 million, commercial real estate holdings totaled $9 million, and construction-and-development assets were less than $2 million.

Pizgah's former president, Thomas E. "Ted" Durham Jr., was indicted in April 2012 in a straw borrower scheme. Durham and other defendants allegedly had to recruit new straw borrowers in order to fund the early payments on previous fraudulent transactions, a scheme known as "loan kiting."

"The indictment alleges that when bank officials realized that they had reached their legal lending limits with respect to some of the straw borrowers, additional straw borrowers were recruited to the scheme and more straw borrower loans were made to them," the U.S. Attorney for the Western District of North Carolina said in a statement at the time. "According to the indictment, it became necessary to recruit others to be straw borrowers in order to cure legal lending limit violations with respect to the original straw borrowers."

The Federal Deposit Insurance Corp. was named receiver, and Capital Bank, N.A., was awarded the winning bid, which included all of the deposits and $20 million in assets.

As a share of total assets, the $8.9 million expected FDIC loss on Pisgah's failure is an astounding 41 percent.

The FDIC had issued a consent order against Pisgah in May 2010. Then, in January 2012, the FDIC issued a supervisory prompt corrective action directive requiring the bank to either raise capital or merge with another adequately capitalized institution.

Next, the Superior Court of Lowndes County, Ga., issued an order appointing the FDIC as receiver of Sunrise Bank following the Georgia Department of Banking and Finance's taking possession of the Valdosta, Ga., bank.

The department is empowered to take over financial institutions pursuant to the Official Code of Georgia, Section 7-1-150(a), which authorizes the state to seize troubled banks or banks operating in violation of any court order, statute, rule or regulation. The regulator can also take over a bank when the bank, itself, makes the request.

Sunrise was also a small bank, with just $58 million in deposits and $61 million in assets -- including $15 million in home loans, $20 million in CRE loans and $5 million in C&D loans. It was founded in June 2006 and had a staff only 23 employees.

The FDIC was only able to unload $13 million of Sunrise Bank's assets to Synovus Bank, which picked up all of the deposits.

More than $17 million in charges are expected to the Deposit Insurance Fund as a result of Sunrise Bank's demise. Three of the nation's 12 FDIC-insured bank failures so far this year were in Georgia.

On May 3, Lynrocten Federal Credit Union was liquidated by the National Credit Union Administration.

The Lynchburg, Va., business was insolvent and had no chance of recovery, according to the NCUA.

Just over a thousand depositors were members of Lynrocten, and assets were $14 million. It was chartered in 1936 to serve employees of Rock-Tenn Co. and their family members.

It was the seventh credit union failure tracked this year by Mortgage Daily. In all, the closing or failure of 25 mortgage-related businesses have been chronicled in 2013.

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