BankNotes ...

Bank failures get the press, but credit unions are struggling too

The banks and the FDIC may be the ones getting all of the attention, but credit unions and their regulating and insuring entity, the NCUA, are also logging their share of problems. So far this year, a full twenty-one credit unions have failed. Compare this to the number of bank failures, just eight, and one has to wonder why the banks are getting a disproportionate share of media coverage.

The easy answer is the difference in the bottom line. Credit unions generally maintain a far smaller asset value relative to their for-profit counterparts. The largest credit union to undergo an NCUA-managed restructure this year was Cal State 9 Credit Union of California, whose asset base totaled $339 million. Next to the $32-billion IndyMac Bancorp. failure, it's almost understandable why Cal State 9's problems weren't worth the air time. This difference is evident in the total figures as well: the combined asset value of all eight failed banks exceeds $38 billion, while the combined assets of twenty-one failed credit unions add up to only $1.8 billion.

A closer look at the numbers, however, indicates that the current economic crisis may be hitting credit unions harder, despite their smaller size. The largest three failed banks, IndyMac, First National Bank of Nevada and ANB, managed assets totaling $32 billion, $3.4 billion and $2.1 billion, respectively. Remove these three entities from the equation and the remaining five failed banks had an average asset size of about $129 million. That $129 million is far more comparable to the average size of the failed credit union, which is roughly $87 million. Evaluating the data in terms of similar-sized operations, the scale tilts in favor of the banks, with only five failures relative to twenty-one credit union failures.

And still, the system works

Even as financial institutions struggle to recover from fractures in the mortgage, real estate and lending sectors, the federal protections have remained reliable. The deposit insurance provided by the FDIC (banks) and the NCUSIF (credit unions) continues to safeguard customer funds: when an entity fails, the FDIC and NCUA give customers immediate access to all insured deposits. Where a customer's deposits exceed insurance limitations, both the FDIC and NCUA work diligently behind the scenes to recover those funds as quickly as possible. In the days following the IndyMac failure, for example, the FDIC offered to advance customers half of their uninsured deposits immediately. The remaining amounts were transferred to customers in the form of receivership certificates, which will be converted to cash as the bank's assets are sold.  

Panic begets panic

While the customers of financial institutions may be inclined to make a run on their bank or credit union at even a whisper of instability, those panicky actions actually work against the system. The demise of IndyMac is a case in point. Prior to the bank's closure, U.S. Senator Charles Schumer wrote a letter stating his concerns about IndyMac's financial condition. The bank's customers responded by withdrawing $1.3 billion of deposits in eleven days-a swift and pronounced asset depletion that essentially cemented IndyMac's fate. Subsequently, the OTS had no choice but to step in and ask the FDIC take over IndyMac. 

The future may be bright, for some

Unfortunately, the bank and credit union failures are going to continue. Years of enthusiastic underwriting practices combined with troubled economic times are not easily overcome. In the wake of a lending crisis, the future may be brightest for de novo banks that are just now launching operations-nascent entities that aren't weighted down with a legacy portfolio that is marred by bad loans. Also, considering the current real estate market, a new bank enjoys the advantage of writing loans against lower property values. When values start heading back up, those banks will have stronger equity positions. With careful planning and thoughtful underwriting practices, today's de novo banks could be enjoying greater financial stability than most of their competitors for years to come. Given those dynamics, now may be the right time to add a de novo bank investment to your portfolio.

The Federal Reserve System today announced the nationwide launch of Partnership for Progress, an innovative outreach and technical assistance program for minority-owned and de novo institutions.  The program seeks to help these institutions confront their unique challenges, cultivate safe and sound practices, and compete more effectively in today's marketplace through a combination of one-on-one guidance, workshops, and an extensive interactive web-based resource and information center (http://www.fedpartnership.gov/).

"The program's overarching mission is to preserve and promote minority-owned institutions and to enhance their vital role in providing access to credit and financial services in communities that have been historically underserved," said Federal Reserve Board Chairman Ben S. Bernanke. "The Federal Reserve is committed to helping minority-owned and de novo banks achieve long-term success."

Partnership for Progress provides insight on key issues in three distinct stages of a bank's life cycle: "Start a Bank," "Manage Transition," and "Grow Shareholder Value." Topics covered include credit and interest rate risk, capital and liquidity, and banking regulations. To ensure broad access to the program, all aspects of the training will be available through workshops, online courses, and the program's interactive website.

"This cutting-edge program, which draws on insights from economics, accounting, finance, and regulatory compliance, will become a valuable resource for institutions at different stages of their development," said Federal Reserve Board Governor Randall S. Kroszner.

In developing the program, Federal Reserve officials met with minority-owned and de novo banks across the country as well as trade groups, bank consultants, and state and federal banking agencies to better understand the challenges these institutions face in raising capital, growing their institutions, and attracting talent. This process provided valuable insight and contributed significantly to the design of the program, which was spearheaded by the Federal Reserve Bank of Philadelphia. Key concepts from the program will be incorporated into the Federal Reserve System's examiner training to provide a deeper understanding of the issues unique to minority-owned institutions.

The nationwide launch of Partnership for Progress follows a successful pilot for the program that began last fall. Questions and comments regarding the program should be directed to Marilyn Wimp at the Federal Reserve Bank of Philadelphia, 215-574-4197.

Note:  While at the Minority Depository Institutions National Conference we received a preview to this program.  This will be a great help to all de novo and emerging banks.  Take a few minutes to view some of the information on the site.

FOR IMMEDIATE RELEASE August 1, 2008

Media Contacts: Andrew Gray (Cell: 202-494-1049) David Barr (Cell: 703-622-4790; Office: 202-898-6992)

First Priority Bank, Bradenton, Florida, was closed today by the Commissioner of the Florida Office of Financial Regulation, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with SunTrust Bank, Atlanta, Georgia, to assume the insured deposits of First Priority.

The six branches of First Priority will reopen on Monday as branches of SunTrust Bank. Depositors of the failed bank will automatically become depositors of SunTrust. 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. For the time being, however, customers of both banks should use their existing branches until SunTrust can fully integrate the deposit records of First Priority.

Over the weekend, customers of First Priority can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of June 30 2008, First Priority had total assets of $259 million and total deposits of $227 million. At the time of closing, there were approximately $13 million in uninsured deposits held in approximately 840 accounts that potentially exceeded the insurance limits. This amount is an estimate that is likely to change once the FDIC obtains additional information from these customers.

Customers with accounts in excess of $100,000 should contact the FDIC toll free at 1-800-837-0215 to set up an appointment to discuss their deposits. This phone number will be operational this evening until 9:00 p.m. EDT; on Saturday from 8:00 a.m. to 8:00 p.m. EDT; and on Sunday and thereafter from 8:00 a.m. to 6:00 p.m. EDT.

In addition to continued access to their insured deposits, depositors of First Priority with amounts exceeding the insurance limits will receive a payment of 50 percent of their uninsured balance from the FDIC as receiver. The FDIC will mail these payments directly to the customers early next week; the amounts will not appear in their account balances at SunTrust Bank.

Customers who would like more information on today's transaction should visit the FDIC's Web site at http://www.fdic.gov/bank/individual/failed/firstprioritybank.html. Beginning Monday, depositors of First Priority with more than $100,000 at the bank may visit the FDIC's Web page, "Is My Account Fully Insured?" at http://www2.fdic.gov/dip/Index.asp to determine their insurance coverage

SunTrust agreed to assume the insured deposits for no premium. In addition to assuming the failed bank's insured deposits, SunTrust Bank will purchase approximately $42 million of the failed bank's assets. The assets are comprised mainly of cash, cash equivalents and securities. The FDIC, however, entered into a separate agreement with LNV Corporation, Plano, Texas, to purchase $14 million in First Priority's assets. LNV Corporation is a subsidiary of Beal Bank Nevada, Las Vegas, Nevada. The FDIC will retain the remaining assets for later disposition.

The cost to the FDIC's Deposit Insurance Fund is estimated to be $72 million. First Priority is the first bank to fail in Florida since Guaranty National Bank, Tallahassee, on March 12, 2004. This year, a total of eight FDIC-insured institutions have been closed.

 
All Insured and Uninsured Deposits Transferred to Acquiring Bank

FOR IMMEDIATE RELEASE July 25, 2008

Media Contact: In Washington: Andrew Gray (202) 898-7192 angray@fdic.gov In Arizona: David Barr Cell: (703) 622-4790 dbarr@fdic.gov

First National Bank of Nevada, Reno, Nevada, and First Heritage Bank, N.A., Newport Beach, California (owned by First National Bank Holding Company, Scottsdale, Arizona), were closed today by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation (FDIC) was named receiver. The FDIC entered into purchase and assumption agreements with Mutual of Omaha Bank, Omaha, Nebraska, to take over all of the deposits and certain assets of the First National Bank of Nevada, Reno (also operating as First National Bank of Arizona, which recently merged into it), and First Heritage Bank, N.A., Newport Beach, California.

The 28 offices of the two banks will reopen on Monday as branches of Mutual of Omaha Bank. All depositors, including those with deposits in excess of the FDIC's insurance limits, will automatically become depositors of Mutual of Omaha Bank for the full amount of their deposits. Depositors will continue to be insured with Mutual of Omaha Bank so there is no need for customers to change their banking relationship to retain their deposit insurance.

Over the weekend, customers of the banks can access their money by writing checks or using ATM or debit cards. Checks drawn on the banks will be processed normally. Loan customers should continue to make loan payments as usual.

Of the 10 institutions that have failed over the past two years, this is the second time in which another bank acquired all of the failing banks' insured and uninsured deposits. Mutual of Omaha Bank's acquisition of all deposits was the "least costly" resolution for the Deposit Insurance Fund compared to all alternatives because the expected losses to uninsured depositors were fully covered by the premium paid for the banks' franchises.

As of June 30, 2008, First National of Nevada had total assets of $3.4 billion and total deposits of $3.0 billion. First Heritage Bank had total assets of $254 million and total deposits of $233 million.

Customers who would like more information on today's transactions should visit the FDIC's Web site at http://www.fdic.gov/bank/individual/failed/fnbnv.html (for First National Bank of Nevada) and http://www.fdic.gov/bank/individual/failed/heritage.html (for First Heritage Bank, N.A.). They may also call the FDIC toll free about both institutions at 1-866-674-8944 and 1-800-523-8089 until 9:00 p.m. Pacific time this evening, and then 8:00 a.m. to 8:00 p.m. daily, thereafter.

In addition to assuming all of the deposits of the banks, Mutual of Omaha Bank will purchase approximately $200 million of assets from the receiverships. Mutual of Omaha Bank will pay the FDIC a premium of 4.41 percent to assume all the deposits. The FDIC will retain the remaining assets for later disposition.

First Heritage Bank, N.A., Newport Beach, California, had three branches; its clientele was comprised primarily of corporations. First National Bank of Nevada, with 25 branches, also operated as First National Bank of Arizona. It is not affiliated with National Bank of Arizona, Zions Bancorporation or its affiliates.

The cost of the transactions to the Deposit Insurance Fund is estimated to be $862 million. The failed banks had combined assets of $3.6 billion, .03 percent of the $13.4 trillion in assets held by the 8,494 institutions insured by the FDIC.

First National Bank of Nevada is the first bank to be closed in Nevada since Frontier Savings Association, Las Vegas, on December 14, 1990. The bank closed most recently in California was IndyMac Bank, F.S.B., Pasadena, on July 11, 2008. This year, a total of seven FDIC-insured banks have been closed.

On July 16, 2008, DCI, De Novo Strategy and CREED hosted a BarCampBank in Chicago at the Drake Hotel - it was a great success! All who attended enjoyed a lively discussion on the current affairs of several banking topics, such as de novo banking, enterprise zone marketing, Islamic finance, bank loyalty, and market trends. Read on for an overview of the information shared at the meeting.

De novo banking is always a topic of interest. Industry folks want to know how many new banks are being started and what the consensus is on whether it's wise, in the current environment, to start a new bank. In the first quarter of this year, 38 new banks received permission to open. Annualizing that number indicates a run-rate of 152 for 2008. However, as the financial crisis has deepened, I suspect that the latter half of the year will slow down, such that 2008 will possibly close out with about 100 new bank openings nationwide.

Attendees also discussed the wisdom of starting a new bank in these difficult times. As the question was turned over and thoughtfully discussed, the general opinion was that while capital would be difficult to obtain, starting a bank now would be a good thing. After all, the bottom of a market is normally the right time to enter. And, since it takes 14-24 months to actually open the doors, the economic environment is likely to be much different by the time a bank started today is ready to begin doing business. These factors may be contributing to the encouraging market trends for DCI thus far this year; trends have been up and DCI has seen an increase in its activity.

Islamic Finance was perhaps the most interesting topic discussed. While there are approximately 7 million people in the United States of Muslim heritage, there are very few sources of Sharia compliant banking. A few banks have started offering Sharia compliant residential mortgage loans, but this is a small subset of a larger market. Most Muslims are small business owners and need other sources of small business loans and commercial real estate loans. If a bank is interested in labeling its loans and deposits as Sharia compliant, it must employ an Islamic Scholar to research all the terms of the transactions and compare them with Islamic law to make sure they are valid. Once this is done, the bank can offer its banking products to the Muslim public as "Sharia Compliant." The average Muslim in the U.S. is educated with a bachelor's degree and earns an average income of $67,500. This places this demographic in the highest income bracket of the immigrant population, along with other Southeast Asians. Within this group, the default rate is relatively low, so the opportunity for a bank to place good, profitable financial transactions on the books is strong.

Another topic discussed was how to increase bank loyalty. There were several ideas put forth and one was to offer better financial education, specifically with the goal of matching bank products to customer needs. This ultimately means providing customers with easy-to-understand information about how specific products will help their businesses and what options are available to enhance those products to the customer's advantage. The philosophy of ‘helping someone else get what he truly needs and he will help you' comes to mind here. Banks might consider adding more customized products to the portfolio of customer solutions. Then, give customers the information and ability to pick and choose product features that will contribute to their own success. Ultimately, this is where the community bank will flourish - by building success through its customers. This is easy to talk about and more difficult to implement, but the banks and core providers will have to figure it out.

This leads to the Enterprise Zone marketing ideas. Forty-three states have enterprise zones, each with different tax credits for businesses that operate within these zones. Approximately 95 percent of the tax credits every year go unclaimed, mostly because businesses are unaware that the benefits are available or unaware of how to do the accounting so the credits can be claimed. Often it is a matter of education, on the part of the business owner and its accountant. The bottom line is that there are billions of dollars available and bankers - if they learn how to help their customers - can capitalize on this great opportunity.

There are many workshops, seminars, and conferences that people attend, but the discussions at a BarCampBank are amazingly insightful for all who attend. We want to thank our attendees and wish them the best of success in their endeavors. A sincere thanks also to our sponsors as we greatly appreciate their support; we at De Novo Strategy will certainly plan to sponsor more of these events in the future.

By Wendell Brock, MBA, ChFC

 FDIC Establishes IndyMac Federal Bank, FSB as Successor to IndyMac Bank, F.S.B., Pasadena, California

FOR IMMEDIATE RELEASE July 11, 2008

Media Contact: In Washington: Andrew Gray (202) 898-7192, Cell: 202-494-1049 angray@fdic.gov In California: David Barr Cell: 703-622-4790 dbarr@fdic.gov

IndyMac Bank, F.S.B., Pasadena, CA, was closed today by the Office of Thrift Supervision. The Federal Deposit Insurance Corporation (FDIC) was named conservator. The FDIC will transfer insured deposits and substantially all the assets of IndyMac Bank, F.S.B., Pasadena, CA, to IndyMac Federal Bank, FSB. Brokered deposits will be held by the FDIC and those insured deposits will be paid off when the insurance determination is complete. IndyMac Bank, FSB had total assets of $32.01 billion and total deposits of $19.06 billion as of March 31, 2008. As conservator, the FDIC will operate IndyMac Federal Bank, FSB to maximize the value of the institution for a future sale and to maintain banking services in the communities formerly served by IndyMac Bank, F.S.B.

Insured depositors and borrowers will automatically become customers of IndyMac Federal, FSB and will continue to have uninterrupted customer service and access to their funds by ATM, debit cards and writing checks in the same manner as before. Depositors of IndyMac Federal Bank, FSB will have no access to on-line and phone banking services this weekend. These services will be operational again on Monday. Loan customers should continue making loan payments as usual.

Beginning on Monday, July 14, IndyMac Federal Bank, FSB's 33 branches will observe normal operating hours and will continue to offer full banking services, including on-line banking. For additional information, the FDIC has established a toll-free number for customers of IndyMac Federal Bank, FSB. The toll-free number is 1-866-806-5919 and will operate today from 3:00 p.m. to 9:00 p.m. (PDT), and then daily from 8:00 a.m. to 8:00 p.m. thereafter, except Sunday, July 13, when the hours will be 8:00 a.m. to 6:00 p.m. Customers also may visit the FDIC's Web site at http://www.fdic.gov/bank/individual/failed/IndyMac.html for further information.

At the time of closing, IndyMac Bank, F.S.B. had about $1 billion of potentially uninsured deposits held by approximately 10,000 depositors. The FDIC will begin contacting customers with uninsured deposits to arrange an appointment with an FDIC claims agent by Monday. Customers can contact the FDIC for an appointment using the toll-free number above. The FDIC will pay uninsured depositors an advance dividend equal to 50 percent of the uninsured amount.

Based on preliminary analysis, the estimated cost of the resolution to the Deposit Insurance Fund is between $4 and $8 billion. IndyMac Bank, F.S.B. is the fifth FDIC-insured failure of the year. The last FDIC-insured failure in California was the Southern Pacific Bank, Torrance, on February 7, 2003.

BarCamp?

A BarCamp is a unique and engaging

conference, where the attendees actually

drive the agenda topics and lead discussions.

Visit barcamp.org to get up to speed.

 

We at De Novo Strategy recently attended a

BarCampBank in Dallas. It was engaging and

enlightening. A great experience.

 

Because we believe in building smarter

banks we thought it would be smart to hold

a BarCampBank during the Interagency

Minority Depository Institution National

Conference on July 16 - 18. It only made

sense with all the bankers in town.

 

Topics can include new banking products,

customer retention, web 2.0 your bank,

enterprise zone banking, ROI marketing,

etc.... and other topics you may want to add.

July 16, 2008, 9:00 am - 4:00 pm

The Drake Hotel

140 East Walton Place

Chicago, IL 60611

312-787-2200

$69.00

- Includes a light lunch.

Participate. Present. Sponsor. Visit.

http://barcamp.pbwiki.com/BarCampBankChicago

BarCampBankChicago

Contact

Wendell Brock

De Novo Strategy

wwbrock@denovostrategy.com

This is important news regarding a new level of opportunity and regulations for all financial instutions, including allowing banks to pay interest on commercial checking accounts.  This will spark a wave of intense comptition for deposits! 

WASHINGTON - The House passed by voice vote a bill (H.R. 6312) combining a substantially revised credit union bill with regulatory relief for banks and savings associations. ABA and the banking industry opposed the original credit union bill -- the Credit Union Regulatory Relief Act, or CURRA -- because it would have allowed any federal credit union to branch into entire cities and counties by claiming they are underserved. The association successfully worked with Financial Services Committee Chairman Barney Frank (D-Mass.) to address its concerns in a meaningful way, and ABA did not oppose the revised credit union provisions when the House considered the legislation.

The revised credit union bill, among other things, would narrow the definition of "underserved area" to census tracts that meet a low-income test; eliminate the grandfathering of cities, counties and other areas currently deemed underserved by the National Credit Union Administration; and require the NCUA to publish annual reports on how the credit unions are meeting the needs of those in the underserved areas they enter. The legislation also would limit the kinds of underserved business loans that can be excluded from the credit unions' business lending cap, and limit credit unions' ability to offer short-term payday loans to nonmembers within a credit union's field of membership.

The final bill includes regulatory relief provisions for banks and savings associations that would provide exceptions to annual privacy notice requirements under the Gramm-Leach-Bliley Act; permission to offer interest on business checking accounts two years after enactment; and increased ability for savings associations to invest in small-business investment companies and make commercial real estate loans, while also removing limits on small-business and auto loans.

WASHINGTON - A credit union regulatory relief bill that bankers blocked earlier this year has been significantly revised to address ABA's concerns and will come up for a House vote next week. Because ABA's concerns have been addressed in the revised language, the association will not oppose the measure -- which was combined with ABA-backed bank regulatory relief legislation to form a new legislative package (H.R. 6312) that was introduced yesterday.

The original credit union bill, the Credit Union Regulatory Relief Act (H.R. 5519), would have allowed any federal credit union to branch into entire cities and counties by claiming they are underserved. (Current law allows only multiple-common-bond credit unions to expand into "underserved" areas. When the National Credit Union Administration illegally extended that authority to other credit unions, ABA, the Utah Bankers Association and Utah banks successfully sued.)

House Financial Services Committee Chairman Barney Frank (D-Mass.) made substantive changes to the bill after bankers strenuously objected to an attempt in April to slip the bill through the House using a parliamentary procedure reserved for noncontroversial bills. The changes respond to the specific concerns ABA's banker leadership had identified with the original bill.  The reworked bill, among other things, would:

• Narrow the definition of "underserved area" to census tracts that meet a low-income test and in which fewer than 50 percent of the families earn more than $75,000 annually.
• Eliminate grandfathering of areas currently deemed underserved by the NCUA.
• Require the NCUA to publish meaningful annual reports assessing how well credit unions are meeting the needs of those in their underserved areas. Such reporting requirements have been a long-time goal for ABA.
• Limit the kinds of underserved business loans that can be excluded from credit unions' business lending cap.
• Limit the ability to offer short-term payday loans and prevent the use of this section to expand consumer lending.

Because many of the bill's provisions go further than current law to ensure credit unions focus on people of modest means, ABA decided not to oppose the legislation. And while Chairman Frank's support for the bill virtually ensures its passage by the House, the prospects in the Senate, where no companion bill exists, are less certain.

  BarCamp Bank - Chicago

July 16, 2008 @ 9am - 4pm

A BarCamp is an ad-hoc gathering born from the desire for people to share and learn in an open environment.  It is an intense event with discussions, demos, and interaction from attendees. This BarCamp will focus on banking in the 21^st century - and how to do it better.  How can banks relate more effectively with their clients?  How are banks growing and improving their clients' business or lives? How are new and community banks creatively competing and getting results? These and many other topics will be discussed at the BarCamp Bank - Chicago.

Because a BarCamp is not intended to "make a profit" we are using CREED a registered 501(c)3 non-profit to accept the money and pay the bills.  CREED, which focuses on Economic Education and Development has an interest in improving financial education among the general population as well as bankers.

The BarCamp Bank - Chicago location will be at the Drake Hotel, a Hilton Property, and within one block of the Interagency Minority Depository Institutions National Conference (MDI Conference), being held July 16 - 18, 2008.  The MDI Conference will start with an evening cocktail party at 5:00 p.m.; there would be enough time for attendees to walk over to the MDI Conference.

BarCamp Bank - Chicago:

Site:                            The Drake Hotel

140 East Walton Place, Chicago, IL 60611, 312.787.2200

Spot:                                     $69.00 per person, (limited to 30 people)

Sponsor:                              $500.00 (limited to 3 sponsors)

Other Stuff:                        A light lunch will be served.

Current Sponsors:    De Novo Strategy, Inc.; CREED;

Topics: BarCamp Bank - Chicago will cover six topics total. 12pm - 1:00 p.m. is for sponsors to facilitate short discussions.  Sponsors may discuss recent trends in their markets, ask questions, or drive ideas by the group. Sponsors may also provide topics for the general session and assist in those discussions.  This is an open forum requiring participation from all attendees. You should expect to enjoy the engagement with your peers.

Contact: Wendell Brock, Principal

De Novo Strategy, Inc.

469-424-2888

wwbrock@denovostrategy.com

http://barcamp.pbwiki.com/BarCampBankChicago