BankNotes ...

Paranoid CUNA Requests Documents of Banker Involvement in Blueprint ...

NCUA Unable to Sell Distressed Florida Loans
ALEXANDRIA, Va. - NCUA removed from the market a $26 million package of distressed Florida real estate loans originated by failed Huron River Area CU due to a lack of adequate offers. As a result, NCUA is left holding more than 1,000 Florida loans worth about $210 million from Huron River Area CU and Norlarco CU, which both failed last year because of their involvement in speculative south Florida real estate developments.

Kansas Legislature Clears Bill to Limit Credit Union Membership
TOPEKA, Kan. - A bill limiting the fields of membership and establishing a public notification standard for state chartered credit unions in Kansas passed the state senate by a 35-2 vote and the state house 115-8. The bill, which contains compromise language agreed to by the Kansas Bankers Association, Community Bankers Association of Kansas, Heartland Community Bankers Association and Kansas Credit Union Association, now goes to the governor for her signature. The bill would allow credit unions in a major metropolitan area to expand to adjoining counties, but limits the population to no more than 1 million and limits credit union operations to a single metropolitan area. The legislation also creates new regulatory standards for branching, mergers and field of membership changes. Once enacted, the law would force nine credit unions to scale back their fields of membership.

Texas Legislature to Review Credit Union Department
AUSTIN - The Texas Sunset Commission, composed of legislators and the public, will evaluate the Texas Credit Union Department. In 1977, the Texas Legislature created the Sunset Advisory Commission to identify and eliminate waste, duplication, and inefficiency in government agencies. The Sunset Commission, based upon public input and the Sunset staff report, will make recommendations about the Texas Credit Union Department for the full Legislature to consider when it convenes in January 2009. Information on the Sunset Commission process can be found at http://www.sunset.state.tx.us/.

Merger of Equals to Create $1.85 Billion CU in San Diego
SAN DIEGO - Two large credit unions in the San Diego market have announced their intentions to merge - $944 million First Future Credit Union and $907 million California Coast Credit Union. Membership of the two state-charted credit unions is scheduled to vote on the merger in late April and regulatory approval is expected by June 30.

Treasury Blueprint Would Abolish NCUA and NCUSIF

WASHINGTON - Among the long-term recommendations of the Treasury Blueprint would be the creation of a new federally-insured depository institution (FIDI) charter. The FIDI charter would consolidate the national bank, federal savings association, and federal credit union charters and would be available to all corporate forms, including stock, mutual, and cooperative ownership structures. A new prudential regulator, the Prudential Financial Regulatory Agency ("PFRA"), would be responsible for the financial regulation of all FIDIs. In explaining its rationale for a single charter, Treasury wrote "[t]he goal of establishing a FIDI charter is to create a level playing field where competition among financial institutions can take place on an economic basis, rather than on the basis of regulatory differences." The operation of the credit union insurance fund would be assumed by the FDIC, which would be reconstituted as the Federal Insurance Guarantee Corporation.  "Some credit unions have arguably moved away from their original mission of making credit available to people of small means, and in many cases they provide services which are difficult to distinguish from other depository institutions." Treasury Department's Blueprint for a Modernized Financial Regulatory Structure.

http://www.treas.gov/press/releases/reports/Blueprint.pdf

By: Keith Leggett, American Bankers Association 

Recently Ms. Sheila Blair presented the FDIC's 2008 Annual Performance Plan. Ms. Blair's published introduction to the Plan discusses the historical mission of the FDIC as well as the current economic environment. This year, the FDIC will celebrate its 75th year of insuring the nation's bank deposits. And the organization is perhaps finding itself in one of the most demanding years since its founding. Indeed, the FDIC plays a critical role in "maintaining public confidence in the nation's financial system." The challenges associated with this role, given the current financial difficulties, are broad and deep.

The maintenance of public confidence requires the FDIC to manage many different aspects of our nation's financial system. The organization currently administers approximately 250 programs to help keep the banks operating in a safe and sound manner; the FDIC is tasked with insuring deposits, keeping the public informed, helping the banks manage risks, as well as many other action items associated with our banking and financial system.

When problems arise, the goal is to address them promptly, solving them before they become issues that can cause serious financial problems. This requires the FDIC to be prepared to handle failures of insured institutions, "regardless of their number and size." Yes, this means that the FDIC is expecting some bank failures this year and perhaps even some large banks. There have already been two to date; see BankNotes for the press releases on these events. Both failed entities were small banks in Missouri, not much in the overall financial market, but still important nonetheless. In preparation for more extreme events, the FDIC is finalizing a "claims process to manage large/complex bank failures, including a new automated system to support this process."

The FDIC is also working closely with consumer protection groups to help with the current foreclosure issues facing many Americans. While we as Americans pride ourselves in our education system (for all its faults, it is still very good), our financial literacy is quite low-a statement that can be supported by our low savings rate. The FDIC is working to improve that by finalizing plans to distribute 10,000 booklets addressing financial literacy.

An additional challenge the FDIC is facing is the attrition of its workforce. Nearly 40 percent of the FDIC workforce will be retiring within the next ten years. This will create a large demand for new employees to be trained to take over and manage this critical institution. The FDIC expects to be regarded as an "outstanding employer." It will be looking to secure well-educated people with advanced technical and analytical skills, who can effectively support and carry out the FDIC mission. The plan has many more discussion points, which will be addressed in future articles.

By Wendell Brock, MBA, ChFC

Today the FDIC issued the Fourth Quarter 2007 banking profile, which contained very mixed results on a slippery slope. The industry as a whole is struggling through the latest national economic tidal wave of debt problems from the sub-prime termoil to an over leveraged derivative market. So the banks are squeezed between tougher regulation enforcement, higher deposit rates, lower net interest margins, larger loan loss reserves, higher charge off and noncurrent accounts, growth in deposits, etc. The following are some key highlights.

Widespread earnings weakness occurred in more than half the institutions - "51.2% reported lower net income than in the 4th quarter of 2006. One out of four institutions with assets greater than $10 billion reported a net loss for the fourth quarter." During the 4th quarter interest rates fell, which increased downward pressure on Net Interest Margins (NIM), making it the lowest quarterly NIM since 1989.

Total earnings for banks were off by 27.4% for all of 2007, which was a decline of $39.8 billion to $105.5 billion. This is the first time since 1999-2000 that annual net income declined. Only 49.2% of insured institutions reported improved earnings in 2007 - the lowest level in 23 years. Unprofitable institutions reached a 26 year high of 11.6% at the same time the ROA was the lowest in 26 years at 0.86%. This is the first time since the mid 1970's that noninterest income has declined - it fell by 2.9% to $233.4 billion.

2007 fourth quarter net charge offs spiked nearly 100% to $16.2 billion over the same quarter in 2006 which had $8.5 billion. This increase has regulators very worried. In mid 2006 the amount of noncurrent loans (loans which are 90 days past due) began an upward movement, this loan pool continued to swell by $26.9 billion, a increase of 32.5% during the 4th quarter of 2007. "The percentage of loans that were noncurrent at year-end was 1.39%, the highest level since the third quarter of 2002." This has prompted banks to put more away in their Allowance for Loan and Lease Losses (ALLL). The ALLL reserve ratio rose from 1.13% to 1.29% during the quarter; however it was not enough to cover the increase in noncurrent loans. "At year end, one in three institutions had noncurrent loans that exceeded reserves, compared to fewer than one in four institutions a year earlier."

Equity capital increased by $25.1 billion or 1.9%; at the same time the leverage ratio fell to 7.98% down from 8.14%. "In contrast, the industry's total risk-based capital ratio, which includes loss reserves, increased from 12.74% to 12.79%." In the end 99% of all insured institutions, which represents more than 99% of industry assets, met or exceeded the highest regulatory capital requirements. During this same time, banks were lending money - asset growth continued strong - assets increased by $331.8 billion or 2.6% during the quarter. Because of the high increase in noncurrent loans, examiners have been watching closely the concentrations of bank portfolios in commercial real estate. In spite of the construction slow down, the number of banks that have a high concentration of construction lending increased from 2,348 to 2,368. A high concentration of commercial real estate loans in a bank's loan portfolio is defined when that part of the loan portfolio exceeds the bank's total capital.

Deposits grew to record levels during the 4th quarter. Institutions saw an increase of $170.6 billion or 2.5%, the largest quarterly increase ever reported. "The industry's ratio of deposits to total assets, which hit an all time low of 64.4% at the end of the 3rd quarter, rose slightly to 64.5% at year end."

For the year, Trust Assets increased an amazing $2.6 trillion or 13.4% for managed accounts and $68.6 billion or 1.6% for non-managed accounts. "Five institutions accounted for 53% of the industry's net trust income in 2007."

In 2007, there were only three bank failures, this is the most since 2004 - this ended the unprecedented run of no bank failures (there was only one failure in the 4th quarter). The two-year term was the longest in the FDIC's history. During the quarter, there were 50 de novo banks, which brought the total for the year up to 181 new institutions. Mergers in the 4th quarter slowed down to 74 for an annual total of 321 banks merged out of existence. The regulator's problem bank list grew to 76 banks, up from 65 at the close of the 3rd quarter. The total assets of these problem banks are $22.3 billion, up from $18.5 billion at the end of the 3rd quarter. The total FDIC insured institutions ended the year at 8,533 down, slightly from 8,559.  For a complete copy of the report see request for a white paper.

By:
Wendell Brock, MBA, ChFC
Principal
De Novo Strategy
www.denovostrategy.com

By John Fronza 

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125 Timber Oak Cove
Lawrenceville, GA 30043
678-377-3013
www.fronzadesign.com

FOR IMMEDIATE RELEASE
March 7, 2008
Media Contact:
David Barr (202) 898-6992
cell: (703) 622-4790
e-mail: dbarr@fdic.gov

Hume Bank, Hume, Missouri, was closed today by the Commissioner of Missouri's Division of Finance, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. To protect depositors, the FDIC Board of Directors approved the assumption of Hume Bank's insured deposits by Security Bank, Rich Hill, Missouri.

The failed bank's sole office will reopen Monday as a branch of Security Bank. Depositors of Hume Bank will automatically become depositors of the assuming bank.

As of December 31, 2007, Hume Bank had total assets of $18.7 million and total deposits of $13.6 million. Security Bank has agreed to assume $12.5 million of the failed bank's insured deposits for a premium of 4.26 percent.

At the time of closing, Hume Bank had approximately $1.1 million in 33 deposit accounts that exceeded the federal deposit insurance limit. These customers will have immediate access to their insured deposits, and they will become creditors of the receivership for the amount of their uninsured funds.

Over the weekend, customers can access their money by writing checks, or by using their debit or ATM cards. Checks drawn on the bank that did not clear before today will be honored up to the insured limit.

Customers with questions about how deposit insurance works, or who would like more information about the failure, can either call the FDIC toll-free at 1-866-806-6128 or visit the FDIC's Web site at http://www.fdic.gov/bank/individual/failed/Hume.html. The toll-free number will be operational until 9:00 p.m. (Central time) this evening. Beginning tomorrow and into the following week, the number will operate daily from 9:00 a.m. to 6:00 p.m., Central time.

In addition to assuming the insured deposits of the failed bank, Security Bank will purchase approximately $2.7 million of Hume Bank's assets. The FDIC will retain the remaining assets for later disposition.

At this time, the FDIC does not have an estimate for the cost of this transaction to its Deposit Insurance Fund. Both failures of FDIC-insured banks this year have been in Missouri. The first was Douglass National Bank, Kansas City, Missouri, on January 25, 2008.

The Board of Directors of the Federal Deposit Insurance Corporation (FDIC) today approved the assumption of all the deposits of Douglass National Bank, Kansas City, Missouri, by Liberty Bank and Trust Company, New Orleans, Louisiana.

Douglass National, with $58.5 million in total assets and $53.8 million in total deposits as of October 22, 2007, was closed today by the Office of the Comptroller of the Currency, and the FDIC was named receiver.

Depositors of Douglass National will automatically become depositors of the assuming bank. The failed bank's three offices will reopen on Monday as branches of Liberty Bank and Trust. Over the weekend, customers can access their money by writing checks, or by using their debit or ATM cards.

In addition to assuming all of the deposits of the failed bank, Liberty Bank and Trust will purchase approximately $55.7 million of Douglass National's assets at book value, less a discount of $6.1 million. The FDIC will retain approximately $2.8 million in assets for later disposition.

Customers with questions about today's transaction or who would like more information about the failure of Douglass National can visit the FDIC's Web site at http://www.fdic.gov/bank/individual/failed/Douglas.html or call the FDIC toll-free at 1-888-206-4662.

The transaction is the least costly resolution option, and the FDIC estimates that the cost to its Deposit Insurance Fund is approximately $5.6 million. Douglass National is the first FDIC-insured bank to fail this year, and the first in Missouri since Superior National Bank, Kansas City, was closed on April 14, 1994. Last year, three FDIC-insured institutions failed.

BEIJING, CHINA -- FDIC Chairman Sheila C. Bair held a press conference to discuss a memorandum of understanding (MOU) signed today by the FDIC and the People's Bank of China (PBC). The MOU is designed to forge a formal international working relationship between the two entities, with the purpose of developing expanded methods of interaction on economic and financial issues. The Chairman also discussed her experiences in China after meeting with Chinese financial and political leaders over the past two weeks, including stops in Beijing, Shanghai and the Hunan and Shanxi provinces.
Chairman Bair said: "I'm very pleased and honored to support the work of the PBC and the China Bank Regulatory Commission (CBRC), which have taken the lead in establishing a deposit insurance system in China. The MOU is a very positive and important step toward making a deposit insurance system in China a reality. The FDIC has a proud history of protecting the savings of Americans, while serving an important regulatory function involving more than 5,200 banks. The work of the Chinese to create a deposit insurer is critical for China's continued progress in building the financial infrastructure necessary to sustain economic growth, particularly in rural areas where community-based lending and banking relationships are so critically important.
"The PBC and the FDIC also share many other related areas of common interest, including those of economic inclusion, small-dollar financing and financial literacy. On many fronts, these important issues can be successfully addressed through an established banking sector that includes a deposit insurance system.
"I would also like to note our important discussions with the CBRC, which has made great strides in the supervision of China's banking industry. Our meetings with the Ministry of Finance also provided useful perspectives on China's developing banking sector and the role of deposit insurance.
"Touching on safety and soundness issues, consumer protection, international financial stress and other regulatory issues, our meetings were a productive exchange of common interests and experiences. Given the pace of globalization and the continuing integration of our respective financial systems, we also discussed the importance of preparing for the eventuality of one or more troubled institutions operating in both jurisdictions simultaneously.
"I would like to thank our Chinese hosts, particularly the officials at the People's Bank of China, for accommodating the delegation from the FDIC.
"In addition to the generous hospitality, I deeply appreciate the honest and open dialogue that has been possible throughout our meetings here in China. It is clear that we have much to learn from each other in a number of economic and financial areas. For example, in a discussion on savings, it became clear to me that one of the reasons for the high savings rate among the Chinese is the cultural upbringing of taking responsibility for the education and improved lives of their children. As many American strive to save more and borrow less, we should also be motivated by the betterment and security of our future generations.
"In addition to the MOU, I would like to continue discussions in the area of rural finance in China. I believe there are opportunities that can greatly benefit both countries.
"I look forward to continuing these exchanges and fostering the healthy relationship we have forged between the U.S. and Chinese financial policy officials."

I had the privilege of attending the 6th Annual Minority Depository Institution in Miami Beach this past week. Although that sounds like a mouthful, it was simply an opportunity for regulatory agencies, minority bankers, and supporters to share best practices. It was exciting to see an entrepreneurial spirit, so quintessentially American, alive and well in our industry - and it's growing.

Today there are approximately 240 minority owned banks in the country with an ever-growing list of de novo banks and projects focused on establishing themselves as their community's primary financial catalyst. Their missions often follow a common theme of profitable banking through empowerment of local business and people in their community through the delivery of intelligent and innovative financial services.

These institutions are incubating viable solutions to the tough challenges like predatory lending and the foreclosure calamity, to charting a healthy path for those historically considered un-bankable, to countering the devastating impacts of Katrina. Our agenda was packed with examples of institutions taking a lead in making economic citizenship more attainable throughout the country.

One example presented by Alden McDonald, President of Liberty Bank in New Orleans www.libertybank.net, was his establishment of small dollar loan program focused on countering the crushing fees of payday lenders and check cashiers. These services, commonly used by folks in low-to-moderate income areas, often charge rates 300 - 400% more than your common retail bank. His approach of ‘doing good while well' demonstrated to the audience that a bank could attract customers, improve their financial condition, and convert them into profitable long-term relationships.

Starting any new endeavour can be a challenge. Starting a new bank can be outright daunting. It takes inspiration, courage, and commitment. Something I witnessed time and time again at this conference. It is something I continue to see in the folks I work with in their pursuit of building smart banks. Inevitably the consistent answer to the question I always ask, "Why do you want to start a bank?" is the same, "I want to bring quality banking services to my community where the ‘big box retail banks' are not cutting it. I know I can do a better job of serving my community's banking needs"

According to Thomas Curry, a director of the FDIC, one challenge it appears that all banks have is that net interest margins are at their lowest level in 15 years. This is the same for both minority and non-minority banks. However, where the income differences appear is in non-interest income[1]; for some reason minority banks seem to have less non-interest income. As minority banks focus on increasing their non-interest income, profit levels will raise, thus becoming stronger, more competitive financial institutions.

It is that drive that I look for when an individual or group approaches me and ask me to help them organize a new bank, help them submit their application, or raise capital so they can get their doors open and their communities growing.

[1] This information came from a presentation he delivered at the Minority Depository Institutions Interagency National Conference, held July 31st - August 2nd, 2007 at Miami Beach, FL.