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5 Financial Institutions Fail Friday

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Including the seizure of three financial institutions already reported on Friday, banking regulators closed down a total of five firms Friday. The Federal Deposit Insurance Corporation expects to lose nearly $700 million from the failures.

The slaughter started with Eastern Financial Florida Credit Union, which was closed down by the Florida Office of Financial Regulation. That was followed by the seizure of American Southern Bank by the Georgia Department of Banking and Finance and the closing of Michigan Heritage Bank by the Michigan Office of Financial and Insurance Regulation.

After the story about those three institutions was published, the California Department of Financial Institutions announced it closed First Bank of Beverly Hills in Calabasas, Calif., citing inadequate capital.

The department said it “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.”

The FDIC, which was appointed receiver, had issued a cease-and-desist order against the bank on Feb. 19. Deposits stood at $1 billion as of Dec. 31, 2008, and the FDIC said insured depositors will be paid out.

First Bank held $1.5 billion in assets — though it employed only 35 people. Residential loans accounted for $15 million of its assets, while commercial mortgage holdings were $678 million and construction-and-land-development loans were $148 million.

Losses from First Bank’s failure are expected to cost the FDIC $394 million.

First Bank, established in 1979, was the 28th FDIC-insured failure this year.

No. 29 was First Bank of Idaho, FSB — which was closed by the Office of Thrift Supervision.

“The bank … was in unsound condition and unable to continue operating due to severe liquidity strains, deteriorating asset quality, negative earnings and declining capital,” the OTS explained in a statement. “The bank focused its business in resort communities where eroding economic conditions in the last year caused rising loan delinquencies and the need to significantly increase loan loss provisions.”

U.S. Bank will assume $374 million of the Ketchum, Idaho-based institution’s deposits for an 0.55 percent premium. But U.S. Bank isn’t acquiring another $113 million in brokered deposits.

Assets ended last year at $489 million, and U.S. Bank only agreed to purchase $18 million of the assets. Residential holdings were $116 million, commercial mortgage holdings were $112 million and construction-and-land-development loans holdings were $166 million.

The failure of First Bank of Idaho is expected to deplete the Deposit Insurance Fund by $191 million.

In all, the expected hit to the FDIC for all of Friday’s failures is $698 million.

First Bank of Idaho was founded in 1997, operated eight branches and employed 116 employees.

As part of research tied to the FraudBlogger Index, MortgageDaily.com identified last year’s bankruptcy and failure of Financial Mortgage Inc. The company’s owner, Vijay K. Taneja, was sentenced to 84 months in prison over $33 million in mortgage fraud losses at Franklin Bank, First Tennessee Bank, Wells Fargo Bank and EMC Mortgage Co.

Another failed company identified during research for the index was Triduanum Financial Inc. The owner of the company, Christopher Warren, claims he has originated $1 billion in fraudulent loans. Warren was captured at the Canadian border with $70,000 stuffed in his boots.

So far during 2009, MortgageDaily.com has tracked 62 mortgage-related closings and failures.

Related:
3 Fail, Big Commercial Lender on the Rocks
Three federally insured financial institutions failed today, and the third largest commercial mortgage servicer is on the verge of failing.

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