San Luis Obispo County banks feel pinch of FDIC fee

Like all FDIC-insured institutions nationwide, San Luis Obispo County banks and thrifts are being asked to pony up their share of money to support the agency’s insurance fund.

The Federal Deposit Insurance Corp. voted in May to levy a special assessment to prevent the level of its reserves from falling to near zero or below. The increasing number of bank failures nationwide has resulted in less money in its insurance fund. Bank closures can cost the agency billions of dollars. The 120 bank closures so far this year have cost the FDIC an estimated $31.5 billion, and there are more to come.

But some local banking officials say the special assessment — a total of $5.6 billion was collected in premiums nationwide Sept. 30 — came at a tough economic time.

“For many of us, FDIC insurance fees quadrupled at a time when we’re already trying to manage overhead expenses and the cost of doing business,’’ said Anita Robinson, president and CEO of Mission Community Bank. It posted a net loss of $719,000 in the third quarter of this year.

Robinson declined to disclose how much the San Luis Obispo-based bank was assessed, saying only that the bank’s cost quadrupled.

The amount assessed each bank is confidential. Banks pay based on the amount of deposits and are assessed more depending on their perceived risk, according to the FDIC. The vast majority pay between 12 and 16 basis points — 12 to 16 cents per $100 of deposits — and can go as high as about 75 cents per $100 of deposits for the riskiest.

Brad Lyon, president of San Luis Trust Bank, said the San Luis Obispo thrift paid a $170,000 special assessment. San Luis Trust, which posted a $583,000 loss in the third quarter of this year, was recently hit with a cease-and-desist order by the Office of Thrift Supervision. The federal regulator of savings associations wants the thrift to raise more capital.

“The bottom line is that it hurts,’’ Lyon said. “But that’s part of being a bank.”

The FDIC acknowledged that the special assessment — which is on top of regular assessments paid by banks — had a direct impact on banks and their ability to help revitalize the economy. The assessments “are a significant expense, particularly during a financial crisis and recession when bank earnings are under pressure,” FDIC Chairwoman Sheila Bair said in May.

That’s why the agency decided not to levy another special assessment this year. Rather, banks will be required by the end of the year to pay their regular quarterly risk-based assessments for the fourth quarter of this year and for all of 2010, 2011 and 2012 in advance.

The agency expects to collect about $45 billion in prepayments by Dec. 30. The FDIC now has about $22 billion in its reserve to cover losses over the next 12 months.

Banks can apply for an exemption.

“It’s not going to really have an impact on a bank’s bottom line or their ability to make loans,’’ said spokesman David Barr. Barr noted that the money will come out of banks’ excess reserves.

“There’s about $1.3 trillion of these reserves sitting on the sidelines,’’ he said.

The agency’s move also prevents it from asking the U.S. Treasury for a loan.

“We’re looking to add to our resources, but we want to do that through the industry,’’ Barr said. “Consumers may be looking at this, scratching their heads and wondering what’s going on. It won’t impact our ability to protect depositors.”

Some local bankers chalk up the special assessment and prepayments as ordinary expenses.

Heritage Oaks Bank, based in Paso Robles, paid the one-time assessment of $388,000. The bank reported a net loss of $5.6 million for the third quarter of 2009.

Margaret Torres, the bank’s executive vice president and chief financial officer, said it does not impact the bank’s ability to lend.

“The FDIC fund is critical to the stability of the banking system and peace of mind to the bank’s customer base,’’ she wrote in an e-mail.

Tom Beene, president and CEO of American Principle Bank in San Luis Obispo, said the main concern for banks is the impact on profitability.

American Principle, which posted a net loss of $2.2 million during the third quarter of this year, paid a $67,000 FDIC special assessment fee.

“We’re hearing of more banks being criticized because profitability is down, but then they say, ‘By the way, give me a lot more money,’ ’’ he said.

It also can have an effect on the cost of borrowing to businesses and the amount banks can pay on products such as savings accounts as they “have to make it up in some fashion.”

However, Beene, who had the opportunity last summer to sit face-to-face with the FDIC’s Bair, said it’s something banks must “learn to deal with.”

The FDIC, he said, went full speed ahead last year, doing whatever it could to stabilize the industry and to prevent having to ask the U.S. Treasury for money.

“If they’re choosing between the profitability of banks versus the stability of banks … the most important thing is to provide the assurance that the system is stable and depositors don’t have to worry about their money,’’ he said.