The Wisconsin Department of Financial Institutions closed the Legacy Bank of Milwaukee, WI, today and appointed the FDIC as receiver. The FDIC was able to sell the bank to Seaway Bank and Trust Company, Chicago, IL, which assumed all deposits of the failed bank.
Depositors of Legacy have full access to their money over the weekend and will automatically become depositors of Seaway Bank.
Although in business only since 1999, one branch Legacy Bank had total assets of $190.4 million. Legacy Bank was “mission centered” as described in the Bank’s Annual Report.
Legacy Bank got its start in 1999 when three women with a mission joined forces. By that time, Milwaukee had long been plagued by statistics showing it led the country in denial of mortgages to African-Americans and trailed most other cities in small business lending. Margaret Henningsen, Deloris Sims and Shirley Lanier – each of whom came from successful careers in banking and business – recognized the staggering numbers of underserved and under-banked individuals and businesses within the city. They set out to do something different; to form a financial organization that gave extra attention and creative solutions to this market, knowing it could spark a renaissance within the central city.
Legacy Bank also prided itself on serving “unbanked and under-served” individuals who previously had no place to turn for credit except with payday lenders. Many observers classify payday lenders as predators who charge extortionate rates of interest. The payday lenders claim that their rates are justified by the high risk and costs of administering millions of small loans. The failure of Legacy Bank shows the difficulty of balancing “mission centered” vs profit centered lending. As defaults on Legacy’s loan portfolio skyrocketed, regulators had no choice but to close the Bank.
Legacy Bank had total assets of $190.4 million and total deposits of $183.3 million at December 31, 2010. Seaway Bank agreed to acquire only $165.9 million of failed Legacy’s assets, leaving the FDIC stuck with the balance of $24.5 million. In addition, to induce the purchase of failed Legacy assets by Seaway, the FDIC and Seaway Bank entered into a loss-share transaction covering $120 million of the failed assets purchased. The loss-share transaction protects Seaway from losses. According to the FDIC, a loss-share transaction minimizes losses by keeping failed banking assets in the private sector.
Seaway Bank had previously acquired failed First Suburban National Bank of Illinois in October 2010. Seaway Bank was established in 1965 and is the largest Black-owned bank in the Midwest, according to the Bank’s website.
The estimated loss on the failure of Legacy Bank is $43.5 million. Legacy Bank is the nation’s 25th banking failure and the third in Wisconsin.