The fifth bank failure of 2016 occurred on Friday. Allied Bank of Mulberry, Arkansas was closed by state regulators, and the FDIC arranged for Today's Bank of Huntsville, Arkansas to assume all of the deposits. Allied Bank was small with five branches and $64.7 million in deposits.
The last bank failure was on August 19th. This year we’ve been averaging just under two bank failures per quarter. So it’s likely we’ll see fewer bank failures this year than last year when eight banks failed. In recent times, 2010 had the most bank failures (157). Each year after 2010, fewer banks have failed.
The closure of Allied Bank was typical in that the FDIC arranged for another bank to assume all of the deposits. According to the FDIC:
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 Today’s Bank.
All deposits were transferred to Today's Bank including brokered deposits. For many past closures, the FDIC mentioned in its Q&A that certain brokered deposits were excluded in the assumption agreement. If brokered deposits are excluded, customers with brokered deposits that exceed deposit insurance limits will be at risk of losing their uninsured deposits.
CD customers of this failed bank will have to wait to see what happens with their rates. According to the FDIC’s Q&A:
Interest on deposits accrued through close of business on September 23, 2016, will be paid at your same rate. Allied 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.
History of Allied Bank
I looked back through my old blog posts, and I found a post that I wrote about Allied Bank in January 2010. The bank was actually operating as a small internet bank called JustBANKit.com. The bank’s “about us” page had the following description:
JustBankIt.com is an Internet branch dedicated to serving consumers and small businesses through the offering of on-line financial services at extremely competitive prices.
My 2010 post highlighted several competitive CD rates. The longest term was 30 months, and that CD had a 2.10% APY. Rates declined after that post, and in 2015, the 30-month CD rate had reached its low of 0.10% where it remained until yesterday. Based on these low rates, I doubt any current CD customer will be disappointed about losing a high rate on their JustBANKit.com CD.
Back in 2009 and 2010, Allied Bank was financially strong. I’m not sure when their health declined. In August, the Federal Reserve issued a Prompt Corrective Action for serious financial health issues. Based on June 30, 2016 financial data, we had given the bank a health grade of “F”.
There have been no credit union liquidations since April. Also, the NCUA hasn’t placed any credit union into conservatorship since February. The credit union which was placed into conservatorship in February was Cory Methodist Church Credit Union of Cleveland, Ohio. On September 1st, that credit union was merged without NCUA assistance into Eaton Family Credit Union of Euclid, Ohio. This kind of merger should not affect members with deposits over the insured limits. Credit unions that are placed into conservatorship are often liquidated. So it behooves members to make sure all of their deposits are under the insurance limits when their credit union is placed into conservatorship.
Regarding the financial condition of Melrose Credit Union, I have seen no new updates on Melrose Credit Union’s financial health since it was reported that the NCUA has designated Melrose Credit Union as undercapitalized. News of growing financial problems at Melrose started last year due to Melrose’s large exposure to the New York City taxi industry. The taxis industry has been hurt by the ridesharing services like Uber.
Below is the summary of Friday’s bank failure:
5th Bank Failure of 2016 (1st in Arkansas) (September 23)
- Closed Bank: Allied Bank of Mulberry, Arkansas
- FDIC Press Release
- Size: 5 branches, $66.3 million in assets and $64.7 million in deposits
- Acquiring Bank: Today's Bank, Huntsville, Arkansas
- Possible Uninsured Deposits: all deposit accounts, including brokered deposits, has been assumed by Today’s Bank (FDIC Q&A)
- Rate Changes: rates will be reviewed by the new bank and may be lowered (FDIC Q&A)
- Estimated Cost to Deposit Insurance Fund: $6.9 million
- Financial Ratings: 1 star at Bankrate.com, 0 star at BauerFinancial, F & Texas Ratio of 380% 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 June 30, 2016 data. Ratings at Bankrate.com are based on December 31, 2015 data.
- FDIC list of failed banks
- NCUA list of failed credit unions
- Evaluate the Financial Health of Your Bank or Credit Union
- Latest FDIC info on deposit insurance
- My bank failure review posts
- Review of the 2015 bank and credit union failures
- Review of the 2014 bank and credit union failures
- Review of the 2013 bank and credit union failures
- Review of the 2012 bank and credit union failures
- Review of the 2011 bank and credit union failures
- Review of the 2010 bank and credit union failures
- 10 Lessons from the 2008 bank failures