Signs of stabilization and a shift in assessments point to lower premium payments for smaller banks under the Federal Deposit Insurance Corp.’s fund to cover depositor losses on failures.
But not everyone in Orange County is counting on a break.
“I’m not expecting any relief for the next year or so,” said Glenn Gray, chief executive of Tustin-based Sunwest Bank. “Do temporary taxes really ever go away?”
The cost of shutting down some 300 banks across the U.S. in the last two years has put a strain on FDIC finances and left the agency struggling to sell off seized loans and assets.
As of the third quarter, its insurance fund was running a deficit of $8 billion despite collecting $7.2 billion in premiums from banks during the period.
The FDIC insures deposits at more than 7,700 banks and thrifts nationwide, covering up to $250,000 per account.
The agency projects total losses of $52 billion stemming from the financial meltdown of 2008 and 2009. The vast majority of that already has been covered, and officials expect $7.5 billion in future expenses.
This month the FDIC approved a change that will base insurance premiums on banks’ assets rather than deposits. The shift is expected to increase premiums for larger banks and cuts costs for smaller and mid-tier institutions, including a number of homegrown banks here.
The change will mean that banks with assets of more than $10 billion will shoulder 78% of total premiums, up from 70% under the deposit-based formula, according to FDIC officials.
The change was mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act enacted last year.
The new formula means that smaller banks will account for a smaller share of insurance premiums on a percentage basis.
There are some indicators that the FDIC is making progress in clearing obligations on bank failures.
Last week the agency announced plans to close a temporary Irvine office, which opened in 2009 to manage receiverships and liquidate assets from failed financial institutions primarily based in the western U.S.
Still, it remains to be seen whether the agency’s actual premium charges will go down.
“I don’t think the FDIC has necessarily accurately built in estimated losses,” Gray said.
Other local bankers said they don’t expect an increase but don’t see a significant cut in premiums, either.
“We hope to get a little relief,” said Kevin Dunigan, regional manager for Los Angeles-based City National Bank. “But I don’t think it will have any impact.”
Holding Steady
Holding steady would keep significant costs on the books of smaller banks for now. City National paid $29 million in insurance fees in 2010, up from $1.5 million in 2007.
The increase in premium payments equals about 20% of the $131.2 million profit City National posted last year.
Costa Mesa’s Pacific Mercantile Bank, the county’s largest homegrown bank by assets, saw insurance premiums rise to more than $4 million annually in the past few years.
“That’s a big part of your cost,” said Chief Executive Ray Dellerba.
Before the recession, the bank was paying around $1.2 million annually, he said.
Dellerba hopes to see fees return to a more “normalized insurance rate.”
Pacific Mercantile could use the money it pays in FDIC premiums elsewhere these days. State regulators recently ordered the bank to raise money, shed bad loans and increase its equity-to-tangible assets ratio.
The bank was unable to reach those agreed upon benchmarks by an original deadline of Jan. 31. Regulators cited significant pro-gress in giving more time to meet the goals.
Pacific Mercantile expects to take a loss of around $11.1 million in 2010. That would be cut by about 20% without the FDIC’s increased premiums.
Pacific Premier Bank, also based in Costa Mesa, has seen its FDIC premiums shoot up as well.
The bank paid more than $1.5 million last year, up 40% from 2009. The bank didn’t break out insurance premiums as a separate cost prior to the recent recession because the charges were so small.
Pacific Premier Chief Executive Steve Gardner expects a decrease this year.
“We are very much looking forward to the benefit,” he said.
The bank reported net income of $4.2 million in 2001, reversing a $460,000 loss a year earlier.
Capital Bank in San Juan Capistrano has been paying “six figures” for insurance fees since opening its doors in March 2008, according to Chief Executive J. Michael Justice.
That’s more than the bank’s first yearly profit of $92,000 last year.
“The burden has been quite high,” Justice said.
The community bank, which targets the professional services sector, has had only one nonperforming loan in its portfolio and no charge-offs to date.
