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Three Years' Worth of FDIC Premium Payments Due for Banks Today -- in Advance

Source: Omaha World Hearld

Posted on 30 Dec 2009

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In other FDIC news, all financial institutions across the nation covered by the FDIC must make an advance payment today amounting to three years' worth of FDIC insurance assessments, marking the end of a year-long flurry of FDIC assessments.

Payments are based on an individual institution's deposits and risk score. The assessments will replenish the nation’s depleted deposit insurance fund, drained substantially after a run of bank failures throughout the nation recently.

Remarked Larry Marik, chairman of First National Bank in Columbus, Nebraska, "Nebraska banks, specifically, did not create this problem. However, we're going to be part of the solution on the way out."

The payments are "something that you’ve got to do," said Marik, president-elect of the Nebraska Bankers Association. "It's a huge expense not only to our bank, but for every bank."

Some Nebraska bankers continue to question the assessments, which were made necessary largely because of bank failures outside the state. The FDIC’s deposit insurance fund guarantees the safety of deposits, and it has been hit hard recently by the failure of banks involved in subprime lending practices.

"We feel like we have to take the money out of our pockets and hand it to the big banks," said Suzanne Borcher, president of the Bank of Steinauer, located in Pawnee County in southeast Nebraska.

In addition to meeting higher annual premium rates, financial institutions also paid a one-time assessment earlier this fall.

"This year is when it's kind of hitting all the banks when they have to pay in," said Mike Jacobson, the president of NebraskaLand National Bank, based in North Platte.

Some Nebraska banks saw their insurance premiums multiply by four, five or six times in 2009, compared with 2008, said John Munn, the state’s banking director.

Some increases were even bigger. For instance, the Bank of Steinauer's FDIC insurance assessment was more than 10 times larger in 2009 than in 2008, the bank's president said.

"It's affecting our bottom line drastically," Borcher said. "We're not paying out bonuses because of it."

The larger premiums have forced many Nebraska banks to make cuts and raise customer costs. The small southeast Nebraska bank plans to raise checking account and loan fees to cover the costs, Borcher said.

Tri Valley Bank in Talmage plans to cover its higher FDIC premiums by charging higher interest rates.

"You have to manage the margins so you have the profit to pay for it," said TiAnn Allen, president.

Larger institutions, such as NebraskaLand National Bank, have paid hundreds of thousands of dollars more in FDIC insurance premiums in 2009 than in 2008. The North Platte bank, which employs 65 people at its five Nebraska locations and one Wyoming branch, paid $300,000 more in FDIC assessments this year than in 2008. That figure doesn't include this month's prepaid assessment, Jacobson said.

"What it forces us to do is become more efficient," said Jacobson, current president of the state's bankers association.

NebraskaLand National, like a majority of the state's banks, is healthy. In fact, banks in Nebraska earned profits at 14 times the rate of national banks during the first six months of 2009, said Munn, Nebraska's banking director.

But Jacobson said it would have been devastating had FDIC insurance premiums continued to increase at such a rapid rate. That’s why he supports the new three-year prepaid assessment plan, which will have a less immediate impact on banks.

"It only impacts bank earnings in the sense we don't have that money to loan," Jacobson said. Jacobson compared the plan to a magazine subscription: Although the FDIC will immediately receive the payments in full, banks will account for the expense each quarter through 2012.

Matt Williams, president of Gothenburg State Bank, was one of 14 community bankers who helped the FDIC devise the plan.

"From a bank perspective, we'll write the check for the whole amount, but accounting will allow us to spread the payment over a three-year time period," said Williams, who also sits on the American Bankers Association board of directors.

"Banks all unanimously agreed that this was the best solution at this time," Williams said. "It provides the deposit insurance fund with the liquidity it needs."