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2 Banks in Florida and Illinois and a Texas Credit Union Closed by Regulators

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2 Banks in Florida and Illinois and a Texas Credit Union Closed by Regulators

Two community banks failed this Friday in Florida and Illinois which brings the total number of bank failures for the year to 49. There was also a liquidation this week of a small Texas credit union. At this time last year there had been 87 bank failures, and by this time in 2010 there had been 143 bank failures.

The Florida bank that failed was Heritage Bank of Florida in Lutz. This was the 8th bank failure this year in Florida. The failed Illinois bank was Citizens First National Bank in Princeton. This was also the 8th bank failure this year for the state. The only state with more bank failures this year is Georgia which has 9 failures.

For the two bank failures the FDIC arranged for other banks to assume all deposits. In both cases, the FDIC had the following message in its Q&As:

No one lost any money on deposit as a result of the closure of this bank. All deposits, regardless of dollar amount, were transferred to [the new bank].

CD customers at the failed banks will have to wait to see what happens with the rates. The FDIC provided its typical paragraph on interest rates in all of the Q&As:

Interest on deposits accrued through close of business on November 2, 2012 will be paid at your same rate. [The failed bank's] rates will be reviewed by [the new bank] and may be lowered; however, you will be notified in writing of any changes. You may withdraw funds from any transferred account, regardless of whether your interest rate changes, without early withdrawal penalty until you enter into a new deposit agreement with [the new bank].

One tiny credit union was liquidated this week. NCUA liquidated the Women’s Southwest Federal Credit Union. The total number of credit union failures is now 11. One of those 11 was privately insured by the ASI.

Below is the summary of this week's bank and credit union failures:

48th Bank Failure of 2012 (8th in Florida)

  • Closed Bank: Heritage Bank of Florida, Lutz, FL
  • FDIC Press Release
  • Size: 3 branches, $225.5 million in assets and $223.3 million in deposits
  • Acquiring Bank: Centennial Bank, Conway, AR
  • Possible Uninsured Deposits: all deposit accounts, including brokered deposits, have been assumed by Centennial Bank (FDIC Q&A)
  • Rate Changes: Heritage Bank of Florida's rates will be reviewed by Centennial Bank and may be lowered (FDIC Q&A)
  • Estimated Cost to Deposit Insurance Fund: $65.5 million
  • Enforcement Action: FDIC 12/9/10 Consent Order
  • Financial Ratings: 1 star at Bankrate.com, 0 star at BauerFinancial, 1 star & Texas Ratio of 154.34% at DepositAccounts.com (see financial rating note)

49th Bank Failure of 2012 (8th in Illinois)

  • Closed Bank: Citizens First National Bank, Princeton, IL
  • FDIC Press Release
  • Size: 21 branches, $924.0 million in assets and $869.4 million in deposits
  • Acquiring Bank: Heartland Bank and Trust Company, Bloomington, IL
  • Possible Uninsured Deposits: all deposit accounts, including brokered deposits, have been assumed by Heartland Bank and Trust Company (FDIC Q&A)
  • Rate Changes: Citizens First National Bank's rates will be reviewed by Heartland Bank and Trust Company and may be lowered (FDIC Q&A)
  • Estimated Cost to Deposit Insurance Fund: $45.2 million
  • Enforcement Action: OCC 9/20/11 Consent Order, OCC 3/29/12 PCA
  • Financial Ratings: 1 star at Bankrate.com, 0 star at BauerFinancial, 1 star & Texas Ratio of 185.89% at DepositAccounts.com (see financial rating note)

11th Credit Union (10th Federally Insured) Liquidation of 2012 (Oct 31)

  • Liquidated CU: Women’s Southwest Federal Credit Union (WSFCU) of Dallas, Texas
  • NCUA Press Release
  • Size: 743 members and had deposits of approximately $2 million
  • Acquiring CU: Certain share accounts transferred to City Credit Union, NCUA will issue checks for other accounts

Financial Ratings Notes: 0 star is lowest at BauerFinancial, 1 star is lowest at DepositAccounts.com & Bankrate.com, Texas Ratios over 100% is considered at risk. Ratings are based on June 30, 2012 data.

References:



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Comments
13 Comments.
Comment #1 by Truthseeker (anonymous) posted on
Truthseeker
Why are banks are allowed to so dramatically falsify the value of their assets, as reported to the FDIC, while they are allowed to operate?

Take Heritage Bank. $225.5 million in assets and $223.3 million in deposits. Yet, taxpayers are going to lose an estimated $65.5 million from selling the assets, indicating that, aside from some administrative expense, the true value of the assets is $157.8. Divide 65.5 by 157.8 and you get the exact amount of asset value falsification or 41.5%.

Why aren't the officers/directors of this bank being prosecuted?  My conclusion is that if banks were forced to report the true values, rather than the "marked to fantasy" values, the government would be forced to shut down most of the biggest banks in America. That's why the accounting standards were changed, in 2009, to allow this type of value falsification without prosecution. That's also why I have such a gloomy opinion of the US Federal Reserve Note, the banking system that depends on it, and the lack of wisdom inherent in buying long term CDs.

4
Comment #2 by Bancxman (anonymous) posted on
Bancxman
Truthseeker:. First, the FDIC's Bank Insurance Fund is funded by premium assessed against FDIC member banks. Hence, there are no taxpayer funds involved in transferring the deposits of Heritage Bank to Centennial Bank. Anyone with the slightest insight into banking would know that. Second, if you had bothered to read the Consent Order referred to in the summary of Heritage Bank, you would know that Heritage Bank is not only directly supervised by the State of Florida but by the FDIC itself.  In that regard, the FDIC periodically examines the banks under its supervision and, like Heritage Bank, can order them to comply with the capitalization requirements necessary to remain in business. Third, banks such as Heritage Bank are periodically required to submit reports of condition to the FDIC reflecting the adjusted value of their assets and liabilities. Summaries of that information are frequently also reported by private companies such as Banktracker.  For Heritage Bank, kindly refer to:  http://banktracker.investigativereportingworkshop.org/banks/florida/lutz/heritage-bank-of-florida/ Accordingly, in light of the FDIC’s own examination reports and those reports submitted by the bank itself, there is no substance to your assertion that Heritage Bank was falsely reporting its assets. Fourth, the fact that the summary of Heritage Bank on this site refers to the full book value of the Bank’s assets as $225 MM is appropriate so far as accounting rules are concerned. Banktracker.com indicates that Heritage Bank’s assets on June 30, 2012 were $234 MM. At closing, the Bank’s assets had been written down to $225 MM.  This is attributable to continuing defaults in the Bank’s portfolio. In short, once again, there is no basis for any of your assertions. So, in future, I highly recommend that you consider your comments more carefully before submitting them.

5
Comment #3 by Anonymous posted on
Anonymous
Sorry #2, but the 65.5 mil actual loss to the FDIC speaks somewhat louder than your feeble attempt to cover the bankers rears. If truth be known, it might be shocking to know the amount of asset overstatements by the banking industry in general.   

3
Comment #4 by Bancxman (anonymous) posted on
Bancxman
#3  Stop making up facts. The so-called "actual loss" you refer to is listed in the Heritage Bank summary as "estimated cost". That's a significant difference. The $65 MM figure is a worst case estimate. There's no way the FDIC can accurately gauge the exact loss this early.We do know, however, that Heritage reported $21 MM of troubled assets prior to failure, so that weighs heavily in this calculation.

Since we don't know the terms under which Centennial Bank acquired Heritage, it's difficult to assess the overall transaction. However, considering the state of the economy, the relatively small size of Heritage and the substantial number of bank failures in Florida, I suspect that Centennial Bank got quite a deal. One thing, however, is clear: studies have established that assuming bank's typically acquire failed bank assets at minimum discounts of one-third of book value. So, I would assume that a good deal of that $65 MM loss figure not attributable to the aforementioned $21 MM of troubled assets is attributable to the fire sale nature of these failed bank transactions. Since that bears no relation to the pre-failure book value of the assets, I'd say that Heritage was reporting its figures accurately enough.

2
Comment #5 by Anonymous posted on
Anonymous
Bancxman, the total DIF reserve fund of the FDIC is about $15 billion, and dipped into the negative by about $1 billion in the Q1 of 2011. The FDIC also relies on a $100 billion line of credit from the US Treasury, which is backed by TAXPAYERS! 

The $100 billion isn't close to enough to pay for the failure of even one mega-bank. The "accounting rules" you say are being followed were changed in 2009 to no longer require "mark to market" valuations. Instead, bank assets can be marked to fantasy values, and that is what Truthseeker has pointed out.

Marking to fantasy values is dishonest accounting, regardless of whether you provide a "get out of jail free" card for bank executives. If the big banks were not fudging their books using this accounting rule change they would probably have to be closed along with a number of smaller banks, as a matter of law. The FDIC would never come close to having enough money to repay big bank depositors.

Aside from the asset value falsification, the law of bankruptcy gives derivatives counter-parties, and NOT the FDIC, first priority over all assets. Bank of America and JP Morgan Chase, the two largest derivatives writing banks, if closed, would need to deal with about $72 trillion in gross derivatives exposure, and several trillion in net derivatives exposure. All the assets the banks might have, marked accurately or not, would not be available to the FDIC. The FDIC would need to come up with about $2 trillion each in new money. In the end, of course, the taxpayers would pay heaviily because no bank or group of banks could fund that type of exposure.

Does anyone wonder, now, why the mark to market accounting rules were changed to "mark to fantasy"?

3
Comment #7 by Bancxman (anonymous) posted on
Bancxman
Sorry, guys, I forgot to add my name to my response to #5

1
Comment #8 by Anonymous posted on
Anonymous
Hey, Bancxman, you did a "gotcha' on Truthseeker, and, then, #5 did a "gotcha" on you. The true situation is that, while the taxpayer hasn't yet paid for the FDIC, it is the full faith and credit of the US government that stands behind it. Ultimately, taxpayers guaranty FDIC solvency. In the Savings & Loan scandal era in the 1980s, in spite of the existence of two gov. sponsored deposit guarantee funds, for example, the taxpayers ended up paying about $124 billion according to the FDIC itself. See, http://www.fdic.gov/bank/analytical/banking/2000dec/brv13n2_2.pdf

The Crisis, now, is exponentially larger the 1980s, so for you to claim that taxpayer will escape seems rather unlikely. The only other alternative is to stick the bill to everyone holding US dollars through "financial repression" and/or inflation. The latter scenario may provoke our foreign creditors, especially the Chinese, and its never good to have someone with a lot of nukes ****ed at you!

 

2
Comment #10 by Anonymous posted on
Anonymous
So am I to understand that we're going to have this "the banks are all on the edge of failing" conversation every single week now?

1
Comment #11 by Anonymous posted on
Anonymous
How can the banks be on the edge of failing when so much I read says they are flush with free cash from the Fed?   They also aren't doing the lending the Fed expected them to do so "we" the depositors keep getting hit with trash for interest.  The only ones I can see failing is the depositors!

2
Comment #12 by Anonymous posted on
Anonymous
Many smaller banks, which do not get much of the free Fed cash, are on the brink of failing, but not the bigger banks, like BAC or JPM. The reason is that these big banks are "too-big-to-fail". So long as the US government can get away with it, the biggest banks will be given unlimited lines of credit with the Federal Reserve. But, having a loan, even when you don't pay interest on it, is not the same as having equity. If the Fed is ever forced to stop buying mortgage bonds, and thereby artificially boosting the value of one of the largest bank assets, the number of banks, big and small, which would fail, would astonish a lot of folks. That's why the Fed cannot ever exit QE or raise interest rates until it massively debases the US currency by creating a sufficiently high level of inflation so that bank and government debt will be lower compared to their assets/tax revenue.

1
Comment #14 by Maecl posted on
Maecl
I really don't understand most of this, but I think some of what #12 said is what the Fed is doing.  I believe this is a government caused problem that began in the late 70's. It is we the tax payers who will pay.

3
Comment #15 by Anonymous posted on
Anonymous
If $65.5 million is just an "estimated" cost, does anyone know if the FDIC ever releases the ACTUAL cost to fully liquidate a bank?

I'm sure it would have to be years later as these things take a while to unwind, and will take even longer now that the FDIC is doing "loss share" arrangements (AKA push the fire sales down the road as long as possible), but at some point the accounting for a failed bank can be closed. Are these figures publicly available anywhere? 

1
Comment #16 by Bancxman (anonymous) posted on
Bancxman
# 15  See if you can reach the FDIC's "Online Failures and Assistance Transactions"  page using this url:     http://www2.fdic.gov/hsob/SelectRpt.asp?EntryTyp=30    This is a search page leading to all kinds of accounting and other information that may be suitable for your requirements.

2