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Cost of Friday’s Failures: $1.5 Billion

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Five banks with assets of more than $11.5 billion failed Friday and are expected to cost the federal insurance fund for bank deposits more than $1.5 billion. A California-based institution is responsible for most of the cost.

Friday’s first failure was United Security Bank, which was closed by the Georgia Department of Banking and Finance. The Federal Deposit Insurance Corporation — which is appointed receiver of all federally insured U.S. banks that fail — sold all of the Sparta, Ga., bank’s $157 million in assets to Ameris Bank. In addition, Ameris assumed all of United Security’s $150 million in deposits for an 0.36 percent premium.

The 21-employee bank was established in September 1932. Among its assets were $31 million in one- to four-unit residential loans, $36 million in commercial mortgages and $22 million in construction-and-land-development loans.

Factoring in $123 million in assets that the FDIC agreed to share losses on, the cost to the Deposit Insurance Fund from United Security’s demise — the 116th FDIC-insured failure this year — is expected to hit $58 million.

No. 117 was Home Federal Savings Bank, which was closed by the Office of Thrift Supervision. In its announcement, the OTS noted, “Home Federal was critically undercapitalized and in an unsafe and unsound condition to transact business.”

Liberty Bank and Trust Co. acquired all of the Detroit institution’s $15 million in assets as of Sept. 24 — including $7 million in home loans and less than $1 million in commercial mortgages. It assumed all of the 62-year-old bank’s $13 million in deposits at par. The FDIC estimated losses from eight-employee Home Federal at $5 million.

Next, the Minnesota Department of Commerce seized 52-employee Prosperan Bank.

Alerus Financial, National Association, assumed the decade-old firm’s $176 million in deposits for a 1.02 percent premium. It also acquired $174 million of Oakdale, Minn., Prosperan’s $200 million in assets as of Aug. 31 from the FDIC — which expects to lose $60 million after sharing in losses on all the acquired assets. No. 118 had $29 million in residential loans, $62 million in commercial mortgages and $24 million in construction-and-land-development loans.

Moving on, the Missouri Division of Finance reported that it took possession of St. Louis-based Gateway Bank. The seizure of the 17-employee institution followed several unsuccessful attempts by the bank’s ownership and management to sell or find new capital. The bank had been an aggressive lender and faced a $2,500 civil money penalty by the FDIC in June and another in May 2008.

“This bank has operated under close regulatory scrutiny since 2006, when concerns with credit risk and lending practices became evident,” Commissioner of Finance Richard J. Weaver said in the statement. “Many of these loans proved uncollectible and the losses were more than the bank could support.”

The FDIC sold Gateway’s $28 million in assets as of Sept. 2 — including $10 million in home loans, $10 million in commercial mortgages and $7 million in construction-and-land-development loans as of June 30 — to Central Bank of Kansas City, which also assumed $28 million in deposits at par. The failure of 44-year-old bank cost the FDIC an estimated $9 million.

Friday’s fifth and final failure, United Commercial Bank, was closed by the California Department of Financial Institutions in cooperation with the commissioners or superintendents of Georgia, Massachusetts, New York, Texas and Washington. The San Francisco-based bank had 1,502 employees.

“The DFI has been closely monitoring the bank and had ordered it to increase its capital reserves to a safe and sound level, but efforts by the bank to do so were unsuccessful,” California said.

East West Bank paid a 1.1 percent premium to assume $7.5 billion in deposits as of Oct. 23. East West also acquired $10.2 billion of 23-year-old United’s $11.2 billion in assets — which included $656 million in residential mortgages, $3.506 billion in commercial mortgages and $1.583 billion in construction-and-land-development loans as of June 30 — with the FDIC agreeing to share in losses on $7.7 billion of the assets.

The FDIC expects to eat $1.4 billion as a result of United’s failure. It issued a cease-and-desist order against the institution on Sept. 3 and issued a removal-and-prohibition order against bank employee Alex C. Yan in May.

In all, 120 FDIC-insured institutions have failed this year. MortgageDaily.com has tracked a total of 195 mortgage-related operations that closed during 2009.

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