Dedicated to Deposits: Deals, Data, and Discussion

One Small Oklahoma Bank Closed by Regulators

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A small Oklahoma bank was closed by state regulators last Friday. Freedom State Bank was the 12th bank in the nation to fail this year, and the second one to fail in Oklahoma. At this time last year there had been 16 bank failures, and for all of 2013 there had been 24 bank failures. If the second half of 2014 matches the first half, the number of bank failures for 2014 should come close to the total in 2013.

Friday’s bank closure was typical in that the FDIC was able to find a buyer. Consequently, no one lost any money. According to the FDIC FAQs:

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 Alva State Bank & Trust Company.

CD customers of the failed bank will have to wait to see what happens with their rates. According to the FDIC FAQs:

Interest on deposits accrued through close of business on June 27, 2014 will be paid at your same rate. The Freedom State Bank’s rates will be reviewed by Alva State Bank & Trust Company 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 Alva State Bank & Trust Company.

One thing that wasn’t typical with Freedom State Bank and its closure is its health ratings. Ratings were unusually high at both Bankrate.com and DepositAccounts.com. Bankrate.com had given the bank 4 out of 5 stars. We at DepositAccounts.com had given the bank a C+. However, we did note that Freedom State Bank had a small asset base, and in general, banks with a small asset base can represent instability risk beyond what their financial ratios indicate.

Not only did Freedom State Bank have a small asset base, but according to this NewsOK article, it’s "the only bank in this Woods County town of about 289 people."

In addition to the small size, another issue that can cause issues to be missed at banks is the delay in the FDIC’s publishing of its quarterly bank data and the delay of using the latest quarterly bank data in the health grades. We typically have our health grades updated within a few days after an FDIC quarterly release. Bankrate.com typically takes up to two months.

The fall of Freedom State Bank appeared quick. According to that NewsOK article:

Banking regulators recently found that Freedom State Bank was "critically under capitalized" and had determined that its capital position was "rapidly deteriorating,"

Below is the summary of the June 27th bank failure:

12th Bank Failure of 2014 (2nd in Oklahoma)

  • Closed Bank: Freedom State Bank, Freedom, OK
  • FDIC Press Release
  • Size: 1 branch, $22.8 million in assets and $20.9 million in deposits
  • Acquiring Bank: Alva State Bank & Trust Company, Alva, OK
  • Possible Uninsured Deposits: all deposit accounts, including brokered deposits, have been assumed by Alva State Bank & Trust Company (FDIC Q&A)
  • Rate Changes: rates will be reviewed by Alva State Bank & Trust Company and may be lowered (FDIC Q&A)
  • Financial Ratings: 4 stars at Bankrate.com, ? stars at BauerFinancial, C+ & Texas Ratio of 8.78% at DepositAccounts.com (see financial rating note)

Financial Ratings Notes: 0 star is lowest at BauerFinancial, 1 star is lowest at Bankrate.com and an F is lowest at DepositAccounts.com &, Texas Ratios over 100% is considered at risk. Ratings at DepositAccounts.com and BauerFinancial are based on March 31, 2013 data. Ratings at Bankrate.com are based on December 31, 2013 data.

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Comments
3 Comments.
Comment #1 by Anonymous posted on
Anonymous
About time FDIC!

4
Comment #2 by Anonymous posted on
Anonymous
Why did you stop including the cost?
The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $5.8 million.

3
Comment #3 by Anonymous posted on
Anonymous
The FDIC system worked just as we expect it to. Imagine the alternatives.

3