Volatile Banking Sector Reshapes

As capital continued to be wiped out and dozens of small banks were hit with regulatory orders, some financial institutions have been approved to participate in the government’s capital purchase plan. One mortgage company is shedding its real estate investment trust status, another is shutting down its commercial operations and a third will be acquired by a bank.

Franklin Credit Management Corp. said last week that the NASDAQ Stock Market has notified the New York-based company that its stock will be delisted today because it could not maintain a minimum $2.5 million in shareholder equity. Its common shares are expected to be quoted on the Pink Sheets, though it will seek to be quoted on the OTC Bulletin Board.

Huntington Bancshares Inc., which took a $500 million credit-loss charge last year tied to its relationship with Franklin Credit, said its application to participate in the capital purchase program has been approved by the U.S. Treasury Department. The injection calls for the Treasury to purchase $1.4 billion in newly issued preferred equity stock at a 5 percent coupon during the first five years and 9 percent thereafter.

SunTrust Banks Inc. said it was approved to sell $3.5 billion in preferred stock and related warrants to the Treasury under the capital purchase program. SunTrust will cut its dividend by 30 percent.

Columbia Bancorp reported a $23 million third-quarter loss and indicated it increased loan-loss provisions by $14 million to $25 million. The charges reflect falling values in Portland and central Oregon as well as Vancouver. Columbia obtained appraisals on many of its residential construction and development loans in response to unprecedented economic events and market conditions.

Columbia President and Chief Executive Officer Terry Cochran said the company has taken needed steps to address unique economic conditions. He also suggested that the U.S. Treasury’s planned purchases of troubled assets will help banks like its subsidiary Columbia River Bank, which shut down its mortgage unit in September.

Fannie Mae said last week that it will write down substantially all of the value of its deferred tax asset as of Sept. 30. As of June 30, Fannie carried $21 billion in deferred tax assets on its books. With just $41 billion in total stockholders’ equity at the end of June, the move wiped out around half of the company’s equity.

Riverside Gulf Coast Banking Co. and subsidiary Riverside Bank of the Gulf Coast entered a written agreement with the Federal Reserve Bank of Atlanta and the State of Florida Office of Financial Regulation, the Federal Reserve Board announced today. The Cape Coral, Fla., bank is required to take steps to improve its board oversight of management; strengthen its credit risk management practices; and improve its capital position.

Remo DuQuoin LLC, Privee LLC and Republic Federal Bancorp Inc. entered a written agreement with the Federal Reserve Bank of Atlanta, the Federal Reserve Board reported last week. The agreement calls for conservation of capital and a subsequent report back to the board.

State Holding Co. entered an agreement with the Federal Reserve Bank of Kansas City to conserve capital. The Thermopolis, Wyo.-based company will be required to report back on its progress.

The Federal Deposit Insurance Corporation reported Friday final cease-and-desist orders issued against:

• Freedom Bank, Bradenton, Fla.;
• BankCherokee, St. Paul, Minn.;
• First Asian Bank, Las Vegas;
• Citizens Community Bank, Ridgewood, N.J.;
• America West Bank, Layton, Utah;
• Lehman Brothers Commercial Bank, Salt Lake City; and
• Peoples Bank, Elkhorn, Wis.

At the same time, orders were issued by the FDIC terminating cease-and-desist orders against:

• The Columbian Bank and Trust Company, Topeka, Kan.;
• Richton Bank & Trust, Richton, Miss; and
• Doral Bank, Catano, Puerto Rico.

The FDIC issued final removal-and-prohibition orders against:

• Amerika Samoa Bank, Pago Pago, American Samoa;
• State Bank of Illinois, West Chicago, Ill;
• Burlington Bank and Trust, Burlington, Iowa;
• Maryland Financial Bank, Towson, Md.;
• Commercial Bank, St. Louis;
• Citizens Bank of Pennsylvania, Philadelphia;
• North Fork Bank, Mattituck, N.Y.; and
• State Bank of Cross Plains, Cross Plains, Wis.

Final orders for civil money penalties were issued by the FDIC against:

• Union State Bank, Pell City, Ala.;
• The Mahopac National Bank, Mahopac, N.Y.; and
• Banco Popular North America, New York.
• The Bank of Commerce, Ammon, Idaho;
• Iroquois Farmers State Bank, Iroquois, Ill.;
• The Security State Bank, Wellington, Kan.;
• Independence Bank of Kentucky, Owensboro, Ky.;
• Pacific Continental Bank, Eugene, Ore.;
• Umpqua Bank, Roseburg, Ore.; and
• TSB Bank, Lomira, Wis.

An FDIC final order granted permission for Samuel I. Nemirovsky to file application and approving application for consent to participate in the affairs of any insured depository institution.

A class-action lawsuit was filed in U.S. District Court for the District of New Mexico on behalf of investors who tendered shares of Thornburg Series C, D, E or F preferred stock of Thornburg Mortgage Inc., Glancy Binkow & Goldberg LLP announced last week. In addition to Thornburg, directors and MatlinPatterson LLC are accused of violating federal securities laws.

CapitalSource Inc. said Thursday that its board of directors has decided to revoke its election to operate as a real estate investment trust in 2009. Despite the tax advantages of being a REIT, unprecedented credit market conditions — which are expected to continue through next year — make it imprudent or impossible to maintain a large compliance portfolio of residential investment assets next year.

CapitalSource subsidiary CapitalSource Bank acquired around $5 billion in retail deposits and $5 billion in assets from troubled Fremont Investment & Loan during July.

Struggling Franklin Bank Corp. said Sunday that it is considered significantly undercapitalized by the Federal Deposit Insurance Corporation. But it has received multiple proposals for transactions that would strengthen the capital position for subsidiary Franklin Bank, S.S.B. Should it agree to any of the non-binding proposals, the bank’s well capitalized standing would be restored.

Equity One Commercial stopped accepting new loan submissions as of Oct. 22, a notice on its Web site said. Existing commitments will be honored until expiration. The company is a subsidiary of Banco Popular North America Inc. — which is laying off 147 employees at a New Jersey office of Equity one; laid off 160 Popular Inc. servicing employees; and shut down E-LOAN Inc. last month.

Amerihome Mortgage Company LLC has agreed to be acquired by Generations Bancorp Inc., an announcement last month said. After the sale, the acquired business will operate as American Foundations MortgageBanc Inc. The Pewaukee, Wis.-based mortgage company hopes to benefit from being a subsidiary of a financial holding company.

CURTIS W. RONEY, JR., on behalf of himself and all others similarly situated, Plaintiff, vs. GARRETT THORNBURG, LARRY A. GOLDSTONE, ANN-DRUE M. ANDERSON, DAVID A. ATER, JOSEPH H. BADAL, ELIOT R. CUTLER, MICHAEL B. JEFFERS, IKE KALANGIS, FRANCIS I. MULLIN, III, STUART C. SHERMAN, DAVID J. MATLIN, MARK R. PATTERSON, THOMAS COOLEY, MP TMAC LLC, MP TMA (CAYMAN) LLC, MATLIN PATTERSON LLC (d/b/a MATLINPATTERSON GLOBAL ADVISERS LLC) and THORNBURG MORTGAGE, INC., Defendants.