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5 Bank Fatalities Friday

Recent bank failures

July 22, 2012

By MortgageDaily.com staff


Friday was a busy day for bank regulators with the failure of five financial institutions from Florida to Kansas. Two of the casualties were based in Georgia -- where more than a fifth of this year's bank failures have occurred. The Federal Bureau of Investigation released photos of a former bank director who is on the lam after being accused in a scheme that helped bring down a Georgia bank earlier this month.

Eleven-year-old The Royal Palm Bank of Florida was seized Friday by the Florida Office of Financial Regulation and -- as was the case with all of last week's bank failures -- handed over to the Federal Deposit Insurance Corp. as receiver.

The winning bidder for the Naples, Fla., bank was First National Bank of the Gulf Coast -- which assumed all of its $85 million in deposits as of March 31 and acquired all of its $87 million in assets including $18 million in home loans, $29 million in commercial real estate loans and $8 million in construction-and-development loans.

An FDIC prompt corrective action directive was issued in June 2011 against the bank, while an FDIC cease-and-desist order was issued in May 2009.

The failure of Royal Palm, which employed only 28 people, is expected to deplete the Deposit Insurance Fund by $14 million.

After that, 20-employee Georgia Trust Bank was closed down by the Georgia Department of Banking and Finance. The Buford, Ga., bank had $117 million in deposits, which were assumed by Community & Southern Bank for an 0.50 percent premium. Around $112 million of its $120 million in assets -- which included $12 million in residential loans, $45 million in CRE loans and $4 million in C&D loans -- were acquired by Community & Southern.

The FDIC expects to take a $21 million hit as a result of seven-year-old Georgia Trust's failure.

Community & Southern additionally picked up for an 0.50 premium the $193 million in deposits of First Cherokee State Bank, which was also closed by the Georgia Department of Banking and Finance. First Cherokee's total assets of $223 million -- including $27 million in residential mortgages, $84 million in commercial mortgages and $25 million in C&D assets -- were all acquired by Community & Southern.

First Cherokee was founded in 1989. At the time of its demise, the Woodstock, Ga.-based bank had around 64 employees. The state and the Federal Reserve Bank of Atlanta entered a written agreement with the bank in December 2009, while the FDIC issued a cease-and-desist order against it in September 2009.

Factoring in a $142 million loss-sharing agreement with the FDIC, the cost of First Cherokee's failure is estimated at $37 million.

The seizure of the two Georgia banks was made pursuant to the Official Code of Georgia, Section 7-1-150, "which authorizes the department in its discretion to take possession of the business and property of any state-chartered financial institution whenever such financial institution is either insolvent or operating in an unsafe or unsound condition to transact its business, is operating in violation of any court order, statute, rule or regulation, or requests the department to take possession of its business and property."

The next bank to go was in Leawood, Kan., where the state's Office of the State Bank Commissioner shut down Heartland Bank. All of the failed bank's $103 million in deposits were assumed for a 1.11 percent premium by Metcalf Bank -- which also picked up all of its $110 million in total assets with the FDIC agreeing to share in losses on $54 million of the assets.

The 108-year-old bank's assets included $11 million in residential holdings, $20 million in CRE assets and $24 million in C&D investments. The FDIC projects just $3 million will be needed to clean up Heartland's mess.

FDIC cease-and-desist orders were issued against Heartland in March 2011 and March 2009, and a prompt corrective action was issued by the FDIC in September 2011. The company had just 14 employees.

Last week's failures came to a conclusion when the Office of the Comptroller of the Currency shuttered Second Federal Savings and Loan Association of Chicago. The bank had faced a cease-and-desist order by the OCC's predecessor, the Office of Thrift Supervision, in October 2009, another OTS cease-and-desist order in March 2009 and an OTS supervisory agreement in May 2005.

"The OCC acted after finding that the institution had experienced substantial dissipation of assets and earnings due to unsafe and unsound practices," the national bank regulator said in a canned statement. "The OCC also found that the institution is likely to incur losses that will deplete its capital, the institution is critically undercapitalized, and there is no reasonable prospect that the institution will become adequately capitalized."

Hinsdale Bank & Trust Bank paid a $100,000 premium to assume all of the 89-year-old bank's $176 million in deposits. But Hinsdale only acquired $14 million of the total $199 million in assets, which included $138 million in home loans and $8 million in CRE holdings.

The failure of Second Federal, which had only 62 employees, brought to 38 the number of FDIC-insured financial institutions to fail so far in 2012. Eight of this year's failures were in Georgia.

The FBI has released photos of Aubrey Lee Price, a former director of Montgomery Bank & Trust who is accused of embezzling around $17 million from the bank before it failed on July 6. The Department of Justice announced on July 2 that Price had disappeared in June and had told acquaintances of plans to commit suicide. The FBI's June 16 photographs were taken from surveillance cameras.

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