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

$1.7 Billion Bank Fails

Recent bank failure activity

Aug. 21, 2011

By staff

A $1.7 billion bank with more than half of its assets tied up in residential loans was among a quartet of bank failures last week.

On Friday, three federally insured banks were shut down and handed to the Federal Deposit Insurance Corp. as receiver.

The first to go was Lydian Private Bank.

The Palm Beach, Fla.-based bank was closed by the Office of the Comptroller of the currency.

"The OCC acted after finding that the institution had experienced substantial dissipation of assets and earnings due to unsafe and unsound practices," the regulator said in a standard announcement. "The OCC also found that the institution incurred losses that depleted its capital, is critically undercapitalized, and there is no reasonable prospect that the institution will become adequately capitalized without federal assistance."

Lydian was 11 years old. It had a staff of 160 as of March 31.

Included among Lydian's $1.7 billion in assets as of June 30 were a whopping $928 million in home loans. The bank also owned $104 million in commercial real estate loans and $40 million in construction-and-development loans.

The $1.24 billion in deposits of the failed bank were assumed by Sabadell United Bank, N.A. All of Lydian's assets were acquired by Sabadell, but the deal calls for the FDIC to share in losses on $907 million of the assets.

The Deposit Insurance Fund will be drained by an estimated $293 million as a result of Lydian's demise.

The OCC followed that up with the seizure of First Southern National Bank. Virtually the same explanation was given for the bank's failure.

But that's where the similarities ended.

Statesboro, Ga.-based First Southern had just $160 million in deposits and $165 million in assets, including $35 million in one- to four-family mortgages, $33 million in CRE assets and $19 million in C&D holdings. Heritage Bank of the South scooped up the assets of the fallen bank, with the FDIC agreeing to a loss-sharing arrangement on $115 million of the assets, and picked up the deposits for a 1 percent premium.

The FDIC estimated related losses at $40 million.

On Nov. 30, 2010, the OCC issued a cease-and-desist order against nine-year-old First Southern and entered a formal agreement with the 38-employee company in May 2009.

First Choice Bank was the final bank to fail Friday. The decade-old bank was closed down by the Illinois Department of Financial and Professional Regulation - Division of Banking and acquired by Inland Bank & Trust. Just 30 people were employed at the Geneva, Ill.-based company -- which was hit with an FDIC cease-and-desist order in July 2010.

Assets at First Choice totaled $141 million and included $41 million in residential loans, $43 million in commercial mortgages and $12 million in construction-and-land-development assets. Deposits were $147 million. 

The FDIC made no mention of a loss-sharing agreement, suggesting the $31 million loss expected from First Choice's failure was also Inland's discount on the asset purchase.

On Thursday, Mortgage Daily reported that the Pennsylvania Department of Banking closed Public Savings Bank in Huntingdon Valley, Pa.

Including all of last week's casualties, 68 FDIC-insured banks have failed this year. Mortgage Daily has tracked the closing or failure of 96 banks, credit unions or non-bank mortgage firms so far in 2011.

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