The number of bank failures had been trending down, but this year, we’re seeing an uptick in failures. Another bank failed on Friday which brings the total number of bank failures in 2017 to four, which is just one fewer than the total number that failed in 2016.
On Friday, First NBC Bank of New Orleans was closed by Louisiana regulators, and the FDIC entered into a purchase and assumption agreement with Whitney Bank, Gulfport, Mississippi. The purchase and assumption agreement was a little different than the agreements of past closures. Not all deposits were assumed by Whitney Bank. Only transactional accounts were assumed. These include checking, savings, NOW, and money market accounts. CDs and IRAs were not assumed by Whitney Bank.
For the vast majority of past closures in the last nine years, the FDIC arranged for the acquiring banks to assume all deposits (both transactional and CDs) of the failed banks. Often the assumption didn’t include brokered CDs, but all direct CDs were included in the agreement. This is one of the rare times in which the agreement excluded direct CDs.
In the past, when the FDIC wasn’t able to get a purchase and assumption agreement with another bank, it paid all depositors, but only the insured deposits. Deposits that were over the insured limits were not immediately paid out, and they were at risk of loss. That’s not the case with the closure of First NBC Bank. According to the FDIC’s Q&As:
YOUR MONEY IS SAFE! No one lost any money on deposit as a result of the closure of this bank. All transactional deposits, regardless of dollar amount, were transferred to Whitney Bank. The acquired branch locations will re-open during normal business hours as Whitney Bank in Louisiana and Hancock Bank in Florida.
CD AND IRA ACCOUNTS: Please note the FDIC will mail checks for the total balance of your CDs and IRAs no later than Monday, May 1, 2017, to your address of record with the bank, unless your CD secures a loan. There will be no early withdrawal penalty.
Note, the Q&A clearly states that the FDIC will mail checks for the total balance of the CDs and IRAs at First NBC Bank. Thus, depositors with uninsured amounts won’t have to worry.
Another atypical aspect of Friday’s closure was the size of the failed bank. First NBC Bank wasn’t small. It had 29 branches with $4.74 billion in total assets. This is the largest bank to fail since two years ago when Doral Bank of Puerto Rico failed on February 2015. Out of the five banks that failed in 2015, the largest had assets of only $103 million.
The Times-Picayune newspaper has an overview of the bank’s history and the issues that led to the bank’s downfall:
First NBC also became heavily involved in the state and federal tax credits that fueled much of the [Katrina] recovery construction. [...]
[...] Troubles started to mount when federal rules changed affecting how banks could classify tax credits when calculating their assets.
The third bank failure of 2017 occurred in early March. Unlike Friday’s failure, this March failure was typical. The failed institution, Proficio Bank of Utah, was small with only one branch and only $68 million in assets. The FDIC arranged for another bank to assume all deposits, including brokered deposits. According to the FDIC’s 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 Cache Valley Bank.”
Credit Union Liquidations and Conservatorships
So far this year, two credit unions have been liquidated. Both of the liquidations occurred in March.
The first to fail was FCAMEC Federal Credit Union in Tallahassee, Florida. This was a tiny credit union with only 560 members and assets of only $1.8 million. The NCUA did not arrange for another credit union to assume share accounts.
The second to fail was Valley State Credit Union of Saginaw, Michigan. This was a small credit union, but it wasn’t tiny with almost $20 million in assets. The NCUA was able to find another credit union to assume all share accounts. According to the NCUA, “ELGA Credit Union of Burton, Michigan, immediately assumed Valley State Credit Union’s members, assets, shares, and loans.”
In addition to the two liquidations, three credit unions have been placed into conservatorship in 2017 under the NCUA. These aren’t closures. The NCUA takes over the credit unions in an attempt to fix the problems. The first credit union to be placed into conservatorship in 2017 was Melrose Credit Union. I have more details in this blog post. I haven’t seen any more news about Melrose since it was placed into conservatorship in February.
In April, two other credit unions were placed into conservatorship. Shreveport Federal Credit Union, in Shreveport, Louisiana was conserved on April 13th, and Community United Federal Credit Union, in Waycross, Georgia was conserved on April 20th.
It’s important for members of conserved credit unions to realize that one possible outcome of a conservatorship is liquidation of the credit union, and when a liquidation occurs, members may lose uninsured deposits. Thus, members of conserved credit unions should ensure all of their deposits are under the NCUA coverage limits.
Below is the summary of the recent bank and credit union failures:
4th Bank Failure of 2017 (1st in Louisiana) (April 28)
- Closed Bank: First NBC Bank, New Orleans, LA
- FDIC Press Release
- Size: 29 branches, $4.74 billion in assets and $3.54 billion in deposits
- Acquiring Bank: Whitney Bank, Gulfport, MS
- Possible Uninsured Deposits: No one lost any money on deposit as a result of the closure of this bank. All transactional deposits, regardless of dollar amount, were transferred to Whitney Bank. [...] FDIC will mail checks for the total balance of your CDs and IRAs no later than Monday, May 1, 2017. [...] Brokered deposits will be paid by the FDIC. (FDIC Q&A)
- Rate Changes: First NBC Bank's rates will be reviewed by Whitney Bank and may be adjusted (FDIC Q&A)
- Estimated Cost to Deposit Insurance Fund: $996.9 million
3rd Bank Failure of 2017 (1st in Utah) (March 3)
- Closed Bank: Proficio Bank, Cottonwood Heights, UT
- FDIC Press Release
- Size: 1 branch, $68.2 million in assets and $65.0 million in deposits
- Acquiring Bank: Cache Valley Bank, Logan, UT
- Possible Uninsured Deposits: The total of all deposit accounts, including any brokered deposits, has been assumed by Cache Valley Bank (FDIC Q&A)
- Rate Changes: Proficio Bank’s rates will be reviewed by Cache Valley Bank and may be lowered (FDIC Q&A)
- Estimated Cost to Deposit Insurance Fund: $11.0 million
Previous Post: 2nd and 1st Bank Failures of 2017
2nd Credit Union Liquidation of 2017 (March 31)
- Liquidated CU: Valley State Credit Union, Saginaw, MI
- NCUA Press Release
- Size: assets of $19,817,961 and served 2,715 members
- Acquiring CU: ELGA Credit Union of Burton, MI
1st Credit Union Liquidation of 2017 (March 17)
- Liquidated CU: Florida Conference AME Church Federal Credit Union, Tallahassee, FL
- NCUA Press Release
- Size: assets of $1,760,664 and served 560 members
- Acquiring CU: None
- FDIC list of failed banks
- NCUA list of failed and conserved 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 2016 bank and credit union failures
- 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