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

Brutal Week for Banks

Recent mortgage-related businesses to close

June 9, 2012

By staff

Among Friday's quartet of bank failures were two financial institutions that survived the Great Depression, a bank that had been converted from a credit union and an $0.5 billion entity.

The Oklahoma State Banking Department said that it closed down First Capital Bank. An "exhaustion of capital funds as a result of significant loan losses" was blamed for the failure.

As is the case with all federally insured bank failures, the Federal Deposit Insurance Corp. was named receiver of the Kingfisher, Okla.-based financial institution. F & M Bank submitted the winning bid for First Capital, paying a hefty 7.65 percent premium to assume all of its $45 million in deposits as of March 31 and acquiring $41 million of its $46 million in total assets.

First Capital was established in 1902 and only had 15 employees. Residential loans on its balance sheet totaled $4 million, while commercial real estate assets were $8 million and construction-and-development holdings were $5 million. The FDIC hit it with a cease-and-desist order in June 2009, a final order in October 2010 and a prompt corrective action in November 2011. The Deposit Insurance Fund is expected to be depleted by $6 million as a result of its demise.

In Charleston, S.C., the Office of the Comptroller of the Currency seized Carolina Federal Savings Bank on Friday. The regulator said that the bank had experienced significant dissipation of assets and earnings as a result of unsafe or unsound practices, was undercapitalized and had no hope of becoming adequately capitalized.

All of Carolina Federal's $53 million in deposits were assumed by Bank of North Carolina, which also purchased $41 million of its $54 million in total assets. Included among its assets were $26 million in home loans, $12 million in CRE loans and $3 million in C&D loans.

Carolina Federal was hit with an Office of Thrift Supervision cease-and-desist order in July 2010 and an OTS supervisory agreement in May 2009. It was originally founded in 1960 as a credit union and had just 16 employees at the time of its seizure. The cost of its cleanup was estimated at $15 million.

Farmers and Traders State Bank was shut down by the Illinois Department of Financial and Professional Regulation. The 106-year-old institution had only a dozen employees. Its $43 million in total assets included $7 million in residential mortgages, $6 million in commercial mortgages and $1 million in C&D assets.

First State Bank acquired all of the Shabbona, Ill., bank's assets and assumed all of its $42 million in deposits at a projected cost of $9 million to the FDIC -- which issued cease-and-desist orders against it in August and September 2011.

By far, the most costly failure last week was Waccamaw Bank, which was closed down by the North Carolina Office of the Commissioner of Banks.

It had entered a formal agreement with the state regulator and the Federal Reserve Bank of Richmond along with parent Waccamaw Bankshares Inc. in June 2010. The Fed issued a prompt corrective action against Waccamaw in December 2011.

The Whiteville, N.C.-based business had 16 branches, $533 million in total assets and $473 million in total deposits. It was established in 1997 and employed 124 people. Residential holdings totaled $157 million, while CRE loan assets were $88 million and C&D loans on its balance sheet amounted to $52 million.

First Community Bank acquired $515 of Waccamaw Bank's assets and assumed all of its deposits. The hit to the Deposit Insurance Fund is expected to be $51 million as a result of Waccamaw's failure -- the 28th FDIC-insured failure and the 48th mortgage-related entity closing tracked by Mortgage Daily this year.

Telesis Community Credit Union was thrown into liquidation on June 1 by the California Department of Financial Institutions, and the National Credit Union Administration was appointed as liquidating agent. The Chatsworth, Calif.-based institution, which had $301 million in assets, was originally placed into conservatorship in March. Premier America Credit Union purchased Telesis' consumer loans as well as its core facilities and assumed its 37,600 members and deposits.

"The California Department of Financial Institutions made the decision to liquidate Telesis Community Credit Union and discontinue its operations after determining the credit union was insolvent and had no prospect for restoring viable operations on its own," an NCUA statement said of the 47-year-old credit union's demise.

Franklin Credit Holding Corp. filed a voluntary petition for a pre-packaged bankruptcy relief under Chapter 11 of the U.S. Bankruptcy Code on June 4 in U.S. Bankruptcy Court for the District of New Jersey, according to a filing with the Securities and Exchange Commission. The Jersey City, N.J.-based company said it continues to operate and manage its business and properties as a debtor-in-possession.

The filing followed a plan support agreement Franklin entered on May 30 with The Huntington National Bank and Huntington Finance LLC, two of the three classes of impaired creditors entitled to vote. There are no plans for Franklin Credit Management Corp., a mortgage servicing subsidiary that suspended new loan originations in 2007, to file for bankruptcy.

The bankruptcy will enable Franklin Holding to spin off 80 percent of its interest in the subsidiary to stockholders. In addition to creating value in the parent company, the move will help the subsidiary develop new business opportunities and potentially increase its capital-raising opportunities.

In re: Franklin Credit Holding Corporation.
Chapter 11 Case No. 12-24411(DHS), June 4, 2012 (U.S. Bankruptcy Court for the District of New Jersey).

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