FDIC Report

The Federal Deposit Insurance Corporation (FDIC) recently released its third quarter of 2009 Quarterly Banking Profile detailing a host of statistics on the banks under its jurisdiction. This report has been well covered, but one part I wanted to highlight was the section on the number of employees at the FDIC.

The number of employees has moved up from 4,476 in September 2006 to 6,298 as of September 2009. While this might seem like a lot, the total number of employees peaked at 22,586 in September 1991, during our previous banking crisis.

The point is that either current employees are much more efficient than they used to be back in the early 1990's, or the FDIC may be one of the few agencies to be adding jobs to the economy over the next few years. Just something to think about.

FDIC Quarterly Banking Profile - Q1-2009

The Federal Deposit Insurance Corporation (FDIC) just released its quarterly banking profile for the first quarter of 2009. Highlights include:

1) FDIC-insured institutions post an aggregate net profit of $7.6 billion in the first quarter of 2009. This was down 60.8% year over year, but up from the $36.9 billion net loss reported in the fourth quarter of 2008.

2) Banks set aside $60.9 billion in loan loss provisions.

3) Banks reported an average net interest margin of 3.39%.

4) First-quarter net charge-offs of $37.8 billion.

5) Noncurrent loans and leases increased by $59.2 billion, the largest increase in three years.

6) The percentage of loans and leases that were noncurrent in the quarter was 3.76%, the highest percent since 1991.

7) Total equity capital of insured institutions increased by $82.1 billion in the first quarter, concentrated mostly in large TARP recipients.

8) Twenty one banks failed in the quarter, the most since 1992.

Haven Trust Bank Fails

Haven Trust Bank of Duluth, Georgia, was the second bank to be seized by the Federal Deposit Insurance Corporation (FDIC) on Friday. My post on the first bank is here

Haven Trust bank had total assets of $572 million and total deposits of $515 million as of December 8, 2008. BB & T assumed the operations of the bank.

Haven Trust Bank was relatively new, and was formed in 2000, to ride the wave of real estate prosperity that engulfed the Southeast in the early part of this decade.

Its capital ratios were much lower than Sanderson State Bank, which was the other bank taken over by the FDIC on Friday:

Haven Trust Bank Capital Ratios (9/30/2008)

Equity capital to assets - 4.44%
Core capital (leverage) ratio - 4.42%
Tier 1 risk-based capital ratio - 4.90%
Total risk-based capital ratio - 6.16%

The bank had $437 million in real estate loans, with $260 million in Commercial Real Estate, and $133 million in the toxic construction and land development category.

Sanderson State Bank of Texas Goes Down

We had a doubleheader by the Federal Deposit Insurance Corporation (FDIC) as they seized two banks on Friday evening. The first was the Sanderson State Bank of Texas.

This bank was taken over by the Pecos County Bank. Sanderson State Bank was a small bank and had total assets of $37 million and total deposits of $27.9 million at December 3, 2008.

Sanderson State Bank was first established in 1907, and had only one branch. It was able to survive the Panic of 1907, and the Great Depression in the 1930's, but not the most recent calamity to strike our economy.

The interesting thing to note was how quickly the situation deteriorated for Sanderson State Bank. At 9/30/2008, the bank had a Tier 1 risk-based capital ratio of 12.55%, and a Total risk-based capital ratio of 13.80%.

Ninety percent of its loans were real estate and maybe it was one concentrated loan that did them in. A sad end to a 100 year old bank.

FDIC Triple Header - The Community Bank of Loganville, Georgia

The third bank closed by the FDIC yesterday. From the press release of the FDIC:

"The Community Bank, Loganville, Georgia, was closed today by the Georgia Department of Banking and Finance, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Bank of Essex, to assume all of the deposits of The Community Bank."

"The Community Bank's four branches will open on Monday, November 24, 2008 as Bank of Essex. Depositors of the failed bank will automatically become depositors of Bank of Essex. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage."

"The Community Bank had total assets of $681.0 million and total deposits of $611.4 million. Bank of Essex purchased approximately $84.4 million of The Community Bank's assets, and did pay the FDIC a premium of $3.2 million for the right to assume the failed bank's deposits. The FDIC will retain the remaining assets for later disposition."

"The transaction is the least costly resolution option, and the FDIC estimates that the cost to its Deposit Insurance Fund will be between $200 million and $240 million. The Community Bank is the twentieth FDIC-insured institution to be closed nationwide, and the third in Georgia, this year."

FDIC Triple Header - Downey Savings and PFF Bank

The FDIC did a triple header Friday night with three banks going down. From the FDIC press release:

"U.S. Bank, National Association, Minneapolis, MN, acquired the banking operations, including all the deposits, of Downey Savings and Loan Association, F.A., Newport Beach, CA, and PFF Bank & Trust, Pomona, CA, in a transaction facilitated by the Federal Deposit Insurance Corporation."

"The combined 213 branches of the two organizations will reopen as branches of U.S. Bank under their normal business hours, including those with Saturday hours. Depositors will automatically become depositors of U.S. Bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage."

"Customers of both banks should continue to use their existing branches until U.S. Bank can fully integrate the deposit records of the organizations. Over the weekend, depositors can access their money by writing checks or using ATM or debit cards.
As of September 30, 2008, Downey Savings had total assets of $12.8 billion and total deposits of $9.7 billion. PFF Bank had total assets of $3.7 billion and total deposits of $2.4 billion. Besides assuming all the deposits from the two California banks, U.S. Bank will purchase virtually all their assets. The FDIC will retain any remaining assets for later disposition."

"The FDIC and U.S. Bank entered into a loss share transaction. U.S. Bank will assume the first $1.6 billion of losses on the asset pools covered under the loss share agreement, equal to the net asset position at close. The FDIC will then share in any further losses. Under the agreement, U.S. Bank will implement a loan modification program similar to the one the FDIC announced in August stemming from the failure of IndyMac Bank, F.S.B., Pasadena, CA."

FDIC Seizes Security Pacific Bank

Security Pacific Bank of Los Angeles, California was closed by the FDIC last Friday. The agency had a busy weekend as this was the second bank seized by the government on Friday. Pacific Western Bank assumed the deposits of the failed bank.

Final Stats (9/30/08):

Tier 1 leverage ratio - 3.14%
Tier 1 risk-based capital ratio - 3.71%
Total risk-based capital ratio - 5.00%

Noncurrent loans to loans - 19.94% at 6/30/2008.

News reports say that the bank was done in by loans to Homebuilders in the Inland Empire area of California.

Franklin Bank, S.S.B., Houston, Texas Closed By The FDIC

Franklin Bank, S.S.B., Houston, Texas was closed by the FDIC on Friday.

Prosperity Bank of El Campo, Texas, assumed all of the deposits of Franklin Bank. Franklin Bank had total assets of $5.1 billion and total deposits of $3.7 billion. The bank was relatively new and was founded in 1987 as the Bowie State Bank.

It looks like Construction, land development, and other land loans did them in. The bank had $1.2 billion of these loans at 9/30/08, and $400 million were 30 days past due or in non accrual status.

Final stats on the failed bank:

Tier 1 leverage ratio - 2.11%
Tier 1 risk-based capital ratio - 3.37%
Total risk-based capital ratio - 5.11%

Noncurrent loans to loans - 11.06% (6/30/2008)

Capital ratios as of 9/30/2008.

Just to demonstrate how quickly capital can erode. The bank had a total risk-based capital ratio of 10.16% at 6/30/08.

Bank Death Watch - Freedom Bank of Bradenton, Florida

The Freedom Bank of Bradenton, Florida failed last Friday. Its deposits were taken over by Fifth Third Bank. The bank was publicly traded on the OTC bulletin board under the symbol FBBF.

The bank started the year with $25 million in Equity capital, but by the end of the third quarter, capital was only $10 million. The capital ratios in the last call report (9/30/2008) were fairly gruesome:

Tier One Leverage - 2.0%.
Tier 1 risk-based capital ratio - 2.2%.
Total risk-based capital ratio - 3.45%.

The bank had $211 million in loans outstanding at 9/30/08, most of which were Real Estate loans.

Construction and Land Development - $176 million.
Commercial and Industrial - $32 million.

Noncurrent loans to loans - 15.49% (as of 6/30/2008)

In July, a private equity fund called Community Bank Investors of America LP, agreed to invest $5 million in the bank subject to it raising more capital elsewhere. I can't find any record of the fund completing the deal.

Alpha Bank & Trust - Another Bank Failure

The Alpha Bank & Trust, of Alpharetta, GA was closed by the FDIC today. The deposits were assumed by Stearns Bank, of St. Cloud, Minnesota.

Press Release

Final Stats

Assets in nonaccrual status - 15.39%
Noncurrent loans to loans - 18.36%
Noncurrent assets plus other real estate owned to assets - 19.78%
Construction and land development loans - 61.02%
Core (Retail) deposits - 77.40%

Equity capital to assets - 5.20%
Core capital (leverage) ratio - 5.27%
Tier 1 risk-based capital ratio - 5.67%
Total risk-based capital ratio - 6.96%

(All data as of 6/30/08)

The FDIC Rips Into Bloomberg

It seems that Bloomberg has angered the powers that be at the Federal Deposit Insurance Corporation (FDIC) with its recent article suggesting that the FDIC may need more money to bail out banks than is currently in its fund. Here is the Bloomberg article and the FDIC response is printed below:

Bloomberg reporter David Evans' piece ("FDIC May Need $150 Billion Bailout as Local Bank Failures Mount," Sept. 25) does a serious disservice to your organization and your readers by painting a skewed picture of the FDIC insurance fund. Let me be clear: The insurance fund is in a strong financial position to weather a significant upsurge in bank failures.

The FDIC has all the tools and resources necessary to meet our commitment to insured depositors, which we view as sacred. I do not foresee – as Mr. Evans suggests – that taxpayers may have to foot the bill for a "bailout."

Let's look at the real facts about the FDIC insurance fund. The fund's current balance is $45 billion – but that figure is not static. The fund will continue to incur the cost of protecting insured depositors as more banks may fail, but we continually bring in more premium income.

We will propose raising bank premiums in the coming weeks to ensure that the fund remains strong. And, at the same time, we will propose higher premiums on higher risk activity to create economic incentives for poorly managed banks to change their risk profiles. The fund is 100 percent industry-backed. Our ability to raise premiums essentially means that the capital of the entire banking industry – that's $1.3 trillion – is available for support.

Moreover, if needed, the FDIC has longstanding lines of credit with the Treasury Department. Congress, understanding the need to ensure that working capital is available to the FDIC to provide bridge funding between the time a bank fails and when its assets are sold, provided broad authority for us to borrow from Treasury's Federal Financing Bank. If necessary, we can potentially raise very large sums of working capital, which would be paid back as the FDIC liquidates assets of failed banks. As per our authorizing statute, any money we might borrow from the Treasury must be paid back from industry assessments. Only once in the FDIC's history have we had to borrow from the Treasury – in the early 1990s – and that money was paid back with interest in less than two years.

Finally, Mr. Evans' suggestion that the "government" could ever be "on the hook for uninsured deposits" demonstrates a misunderstanding of FDIC insurance. To protect taxpayers, we are required to follow the "least cost" resolution, which means that uninsured depositors are paid in full only if this is the least costly option for the FDIC. This usually occurs when a bidder for the failed bank is willing to pay a higher price for the entire deposit franchise. We are authorized to deviate from the "least cost" resolution only where a so-called "systemic risk" exception is made. This is an extraordinary procedure which we have never invoked. And again, any money we borrow from the Treasury Department must be repaid through industry assessments.

I am confident in the strength of the FDIC's resources to make good on our sacred pledge to insured depositors. And, remember, no depositor has ever lost a penny of insured deposits, and never will.

Andrew Gray
Director
Office of Public Affairs
Federal Deposit Insurance Corporation

Bank Death Watch

It's Friday afternoon which means it's time for the Federal Deposit Insurance Corporation (FDIC) to take over another bank. I keep refreshing the page at the FDIC site. I admit it's a little morbid, but what the heck.

FDIC Home Page

Silver State Bank - Postmortem

Here are some final stats on the bank seized Friday by the Federal Deposit Insurance Corporation (FDIC) as of 6/30/08.

Equity capital to assets - 6.87%
Core capital (leverage) ratio - 6.56%
Tier 1 risk-based capital ratio - 7.57%
Total risk-based capital ratio - 8.86%

Noncurrent loans to loans - 15.38% (Total noncurrent loans and leases, Loans and leases 90 days or more past due plus loans in nonaccrual status, as a percent of gross loans and leases.

Time deposits of $100,000 or more - 21.23%

Another One Bites The Dust

Silver State Bank of Henderson, NV was seized early this evening by the Federal Deposit Insurance Corporation (FDIC).

The Nevada State Bank, of Las Vegas, has assumed the insured deposits of Silver State Bank.

Silver State Bank had total assets of $2.0 billion and total deposits of $1.7 billion. Nevada State Bank agreed to purchase the insured deposits for a premium of 1.3%.

From the web site of the seized bank:

Silver State Bancorp, through its wholly-owned subsidiary, Silver State Bank, currently operates thirteen full service branches in southern Nevada and four full service branches in the Phoenix/Scottsdale market area. Silver State Bank also operates loan production offices located in Nevada, California, Washington, Oregon, Utah, Colorado and Florida.

Silver State Bancorp is headquartered in Henderson, Nevada and listed on the Nasdaq Global Market under the symbol SSBX.

The FDIC Realty Company

The Federal Deposit Insurance Corporation (FDIC) has already shut down 8 banks this year:

First Priority Bank, Bradenton, FL - August 1, 2008
First Heritage Bank, NA, Newport Beach, CA - July 25, 2008
First National Bank of Nevada, Reno, NV - July 25, 2008
IndyMac Bank, Pasadena, CA - July 11, 2008
First Integrity Bank, NA, Staples, MN - May 30, 2008
ANB Financial, NA, Bentonville, AR - May 9, 2008
Hume Bank, Hume, MO - March 7, 2008
Douglass National Bank, Kansas City, MO - January 25, 2008

As part of the process of closing these institutions and finding stronger banks to take them over, the FDIC becomes receiver for some of the assets of these banks. The deposits and performing loans go to the stronger bank, but it seems that it is up to the FDIC to get rid of the non performing loans and other real estate owned (OREO) of these institutions.

The listing are on the FDIC web site.

If you search under FDIC Real Estate for Sale, you will find that the FDIC owns 68 properties ranging from dilapidated housing selling for $4,900 in Flint, Michigan; all the way to a mansion in the Detroit suburb of Grosse Pointe Farms selling for $1.2 million.


View Larger Map

The FDIC is also the proud owner of about 100 unfinished or partially finished lots courtesy of ANB Financial, the Arkansas bank it closed in May. It is selling these in a Special Real Estate Sales Event on August 29.

It also owns another three pages of houses that it took from ANB Financial.

Last, if you really want to roll the dice, you can buy a portfolio of $145 million in performing and nonperforming commercial, residential and consumer loans.

There are sure to be some great bargains on this site as the FDIC inventory grows.

Two More Banks Go Down

Last Friday, the Federal Deposit Insurance Corporation (FDIC), issued its usual late afternoon press release announcing the seizure of two more banks. This Friday afternoon watch is starting to become a popular blogging sport for many of us. There is not much to add to this story since it has been well covered, but I will publish the final stats for the banks from 3/31/2008.

First National Bank of Nevada - Reno, NV

Noncurrent assets plus other real estate owned to assets - 4.28%
Percent of loans noncurrent - 8.35%
Total risk-based capital ratio - 9.67%
Tier 1 risk-based capital ratio - 8.40%
Core capital (leverage) ratio - 6.24%
Equity capital to assets - 7.37%

First Heritage Bank - Newport Beach, CA

Noncurrent assets plus other real estate owned to assets - 1.26%
Noncurrent loans to loans - 1.89%
Equity capital to assets - 11.89%
Core capital (leverage) ratio - 12.16%
Tier 1 risk-based capital ratio - 14.40%
Total risk-based capital ratio - 15.66%

This bank has very high capital ratios, and fairly low rates of non current loans, which begs the question of what did them in. The OCC said it closed the bank because it was undercapitalized, which is not reflected in the numbers above so a lot must have happened since the end of March 2008.

Read my post on the failure of Hume Bank and First Integrity Bank

What About the FDIC?

If you think Fannie Mae or Freddie Mac are under capitalized, then how about this very rough, and very non analytical back of the envelope capitalization for the Federal Deposit Insurance Corporation (FDIC) insurance deposit fund.

Combined Deposit Insurance Fund Balance - $ 52.8 billion (before Indy Mac failure).
Insured Deposits $4.4 trillion.
Reserve Ratio - 1.19%.

Of course I am sure there is more to it than that. The FDIC can raise premiums, and ultimately, the U.S. Government is there.

Here are some historical nuggets that I gleaned from the same page:

1) The chart goes back to 1990, which is the year that failed assets peaked at $145.339 billion. Indy Mac has $32 billion in assets so we are already at 20% of the 1990 peak.

2) The fund balance went negative in 1991, at $6.9 billion.

3) The current reserve ratio of 1.19%, is the lowest since 1995, when it was 1.08%. This is calculated before the latest bank failure. If we use the mid point of the estimated losses of $4-8 billion, then the fund balance falls to $46 billion, and the reserve ratio falls to approximately 1.04%.

I don't understand why the FDIC let the reserve ratio run down from a high of 1.38% in 1999, considering that everyone and their mother saw this storm coming. During the good times is when they should have over assessed the banks to prepare for this.

Hume Bank Bites the Dust

The Federal Deposit Insurance Corporation (FDIC) announced very quietly the failure of a bank in Missouri:

Hume Bank Fails

As I have said before, this will be the first of many failures over the next year. The Hume Bank was founded in 1909, and survived the Great Depression, but apparently not the “Great Deleveraging.”

So let’s look at Hume and see where they went wrong. Hume is a small bank and its failure will not directly affect the financial system, except to the extent that it may go down in history as one of the first banks to fail this cycle. All the data is as of 12/31/2007.

Hume had only one branch and $13 million in deposits.

Total loans and leases 90 days or more past due plus loans in nonaccrual status, as a percent of gross loans and leases, was 6.99%.

The bank had total charge offs as a percent of loans at 1.28%.

Hume had total equity capital of $2.7 million.

Hume had total net loans of $13.6 million, with half of them in Real Estate. One interesting point about the loan portfolio is that the bank had $2.5 million in loans for “farmland,” and $ 4 million in “farm loans.” I would assume that these loans would be in great shape due to the bubble prices beginning to form for many agricultural commodities, and the strong increase in prices for farm land the last few years.

Here are the capital ratios for Hume Bank

Equity capital to assets - 14.96%
Core capital (leverage) ratio - 7.63%
Tier 1 risk-based capital ratio - 10.28%
Total risk-based capital ratio - 11.57%

All these ratios are well in excess of regulatory limits for being well capitalized. In fact, the terrifying thing is that Hume had a larger capital cushion than Citicorp, which reported the following ratios at year-end:

Tier 1 Capital - 7.12%
Total Capital (Tier 1 and Tier 2) - 10.70%
Leverage - 4.03%

So what killed Hume Bank? It’s hard to say. The FDIC press release did not go into too much detail. If I had to guess, I would say that it was a large loan that went bad, and may have wiped out much of its capital of $2.7 million. After deducting $1.4 million in good will, Hume only had $1.3 million in tier one capital, not much of a cushion.

On sad fact is that at the time of closing, Hume Bank had approximately $1.1 million in 33 deposit accounts that exceeded the federal deposit insurance limit. Those depositors need to get in line now with other unsecured creditors of the bank.

FDIC Quarterly Banking Profile

The Federal Deposit Insurance Corporation (FDIC) just released its quarterly banking profile for the 12/31/2007 ending period. The content wasn't all that unexpected, but it is worth it to review the highlights:

1) Fourth-quarter net income of $5.8 billion was the lowest amount reported by the industry since the fourth quarter of 1991.

2) The average return on assets (ROA) in the quarter was 0.18 percent. This is the lowest quarterly ROA since the fourth quarter of 1990.

3) Trading losses totaled $10.6 billion, marking the first time that the industry has posted a quarterly net trading loss.

4) Net charge-offs registered a sharp increase in the fourth quarter, rising to $16.2 billion, compared to $8.5 billion in the fourth quarter of 2006. The annualized net charge-off rate in the fourth quarter was 0.83 percent, the highest since the fourth quarter of 2002.

5) Total noncurrent loans — loans 90 days or more past due or in nonaccrual status — rose by $26.9 billion (32.5 percent) in the last three months of 2007. This is the largest percentage increase in a single quarter in the 24 years for which noncurrent loan data are available.

Some surprises as well:

1) The magnitude of the decline in industry earnings was attributable to a relatively small number of large institutions. In contrast to the steep 102 basis-point drop in the industry’s ROA, the median ROA fell by only 14 basis points as seven large institutions accounted for more than half of the total year-over-year increase in loss provisions. It looks like the "smart money" screwed up more this cycle.

2) Capital Ratios still look fairly good:

The leverage ratio fell from 8.14 percent to 7.98 percent.

Total risk-based capital ratio, which includes loss reserves, increased from 12.74 percent to 12.79 percent.

Dugan Speech

John C. Dugan is the Comptroller of the Currency, and yesterday he gave a speech to the Florida Bankers Association. The Office of the Comptroller of the Currency (OCC) is but one of five regulators of banks in the United States. The five are:

The Office of the Comptroller of the Currency (charters, regulates, and supervises all national banks. It also supervises the federal branches and agencies of foreign banks)

Federal Reserve Board (state chartered banks that are members of the Federal Reserve System and bank holding companies)

Federal Deposit Insurance Corporation (insured state banks that are not members of the Federal Reserve System)

Office of Thrift Supervision (savings and loans)

National Credit Union Administration (credit unions)

Dugan mentioned some interesting information regarding banks and the risks they face.

1) The ratio of commercial real estate loans to capital has nearly doubled in the past six years, to 285 percent.

2) Over a third of the nation’s community banks have commercial real estate concentrations exceeding 300 percent of their capital, and almost 30 percent have construction and development loans exceeding 100 percent of capital.

3) Over 60 percent of Florida banks have CRE loans exceeding 300 percent of capital, and more than half have C&D loans exceeding 100 percent of capital.

4) Indeed, during the past year national community banks have experienced a significant increase in nonperforming C&D loans. As of Sept 30, these loans amounted to 1.96 percent of total C&D loans, a rate that was more than twice that of a year earlier.

5) In Florida, that trend is even more pronounced. While nonperforming loans a year ago were 40 basis points less than the national average, the figure has increased to 3.34 percent of total C&D loans. That’s 70 percent greater than the national average and an almost eight-fold increase in one year.

6) Thus far overall nonperforming CRE loans, even in the area of residential construction and development lending, are a long way from approaching historical peaks.

It should be a fun year for the Banking Industry.