Is Your Bank in Trouble?

In this new era of proclaimed government transparency, the Federal Deposit Insurance Corporation (FDIC)  refuses to reveal names of banks on their high risk list. During 2008, a whopping 25 banks failed. Compare this to three bank failures each year during 2003, 2004 and 2007. No banks failed during 2005 or 2006. With the FDIC saying 117 banks are now at risk, many of us could lose operating capital and/or savings because we receive no advance notice of an impending debacle.

Small businesses that serve as agents for shipping, payment of accounts, and other services where large amounts of customer funds pass through your bank account are extremely vulnerable since FDIC insurance only covers $250,000 in deposits for one corporation or one individual. If you do business as a sole proprietor with an S corporation, your business funds are combined with personal funds in computing the total amount covered by FDIC insurance. Married couples, with joint accounts, double the total amount insured. Business funds for legal corporations, partnerships and unincorporated associations (up to $250,000) are computed separately from personal funds if you have both personal and corporate accounts with the same bank.

Upon reading news that Regions Bank – a state chartered institution, not a national commercial bank – posted approximately $6 billion in losses during Q4 of 2008, a red flag went up for me. I set out to determine how we, who are neither CPA nor economist, can determine whether our bank is in trouble before it collapses under the mortgage meltdown burden. After consulting numerous sources, I discovered there is no specific bank closing formula. Basically, if a financial institution cannot pay its bills or deliver deposits to its customers, the federal government seizes control and often arranges for another bank to immediately acquire the closed institution.

Like you, I want to know before bank failure that it’s a good idea to move my money. I will lead you on an adventure into the entrails of FDIC documents. If you can endure the journey, a treasure of illuminating information awaits for both public and privately held financial institutions. The easiest way to use this column may be to print the instructions for easy access after you link to the FDIC website.

• First, we’re going to the FDIC bank look-up page.
• Insert the name of any bank (not credit union) and your state. Ignore the other boxes. Click Find.
• A Bank Find List will open. It might take a couple of attempts to determine your bank’s offices. Click through. 
• Your Bank at a Glance will open. Scroll down, looking for the link: Last financial information. Click on it.
• An Information Gateway table will open. At the top of the table you’ll see ID Report Selections. Open the selection box where you see Assets and Liabilities. Select the last choice, All Summary Information. In the adjacent box, select and the most recent available date. These are quarterly reports. Dates will be March 31, June 30, September 30 and December 31. Click Generate Report.
• Your bank's report will open.
• Here's a helpful feature: When you click a line number, a box containing the definition for the line's contents opens. If you have additional questions, a quick search of Forbes’ Investopedia should provide the answers. On your bank report, look for ten pieces of data, which I’ve listed with their line numbers.

  2. Total Assets
16. Total Liabilities
68. Net Income
17. Total Deposits
  7. Net Loans & Leases
31. NonCurrent Loans & Leases
32. Government Guaranteed Noncurrent Loans
69. Net Charge-Offs
85. Percent of Net Charge-Offs to Loans
94. Percent of Noncurrent Loans to Loans

You can simply list the categories in a vertical column, as they are shown, and create date columns across the top of a page. After you record the data for the most recent reported quarter, go back to the Information Gateway table. When you select All Summary Information, choose the previous three quarters, one at a time. This is a very speedy process. After you set up columns with four quarters of data, you’ll immediately see a trend.

• Are deposits and assets decreasing or increasing? 
• Are noncurrent loans and leases increasing or decreasing?
• Is the amount of charge-offs increasing or decreasing quarter over quarter?

You’d like assets, deposits, and net income to be increasing while liabilities, noncurrent loans & leases, and net charge offs are decreasing. Notice whether the percent of net charge offs and the percent of noncurrent loans is on a rapid upward trend, a clear indicator of the foreclosure fiasco in action. After you record the data for your current bank, you can compare it with other financial institutions in your area. You’ll see performance sometimes varies widely. With this information, you will have insight into the liquidity trend of your bank. You can decide the risk level that is right for you.