Bank failure Friday

February 20, 2010

Reader note: As always, this post will be updated as bank failures are announced. One large one so far tonight…and it was acquired by OneWest, the former IndyMac, which was the subject of a controversial web video a week ago. The video went viral and FDIC was forced to respond. Though the video was badly misguided, the episode highlighted the fact that FDIC doesn’t provide as much disclosure as it could about loss-share agreements. But before getting to bank failures, a note on upcoming FDIC news.

The quarterly banking profile is due out next Tuesday the 23rd. Key information to look for will include the updated problem bank list, the number of banks on it as well as their total assets and deposits.

Also the funded status of the DIF will be updated. Be careful here. The fund’s balance will likely fall deeper into negative territory, but in fact it will be in better position than last quarter.

Why? Last quarter banks prepaid 3 years worth of regular assessments all at once….should work out to about $45 billion in cash that went to FDIC. But on the DIF’s balance sheet the cash all counts as deferred revenue, not capital.

The flip side of the coin is that the banking system doesn’t have to write down $45 billion worth of capital. Instead they get to treat the $45 billion payment as a “prepaid asset,” to be drawn down in equal parts over the next twelve quarters as payments come due.

This accounting treatment is the reason banks supported prepaying $45 billion worth of “regular” assessments even though they screamed bloody murder about paying a one-time $5.6 billion “special” assessment last June 30. The special assessment counted as a hit to capital….

It’s hard to explain how this works without a lesson in accrual accounting. Imagine prepaying 12 months of your cable bill in January. On your personal income statement, which is designed to match up expenses and income for a given period, you would recognize your monthly bill as it comes due even though you paid the bill in advance.

For more, check out this September story from Reuters’ Karey Wutkowski.

#17

  • Failed bank: Marco Community Bank, Marco Island FL
  • Acquiring bank: Mutual of Omaha Bank, Omaha NE
  • Vitals: at 12/31/09, assets of $119.6 million, deposits of $117.1 million
  • Estimated DIF damage: $38.1 million

#18

  • Failed bank: La Coste National Bank, La Coste TX
  • Acquiring bank: Community National Bank, Hondo TX
  • Vitals: at 12/31/09, assets of $53.9 million, deposits of $49.3 million
  • Estimated DIF damage: $3.7 million

#19

  • Failed bank: George Washington Savings Bank, Oak Park IL
  • Acquiring bank: FirstMerit Bank NA, Akron OH
  • Vitals: at 12/31/09, assets of $412.8 million, deposits of $397 million
  • Estimated DIF damage: $141.4 million

#20

  • Failed bank: La Jolla Bank, FSB, La Jolla CA
  • Acquiring bank: OneWest Bank, FSB, Pasadena CA
  • Vitals: at 12/31/09, assets of $3.6 billion, deposits of $2.8 billion
  • Estimated DIF damage: $882.3 million

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