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Dream First Bank Assumes All of the Deposits of Heartland Tri-State Bank

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Re: Dream First Bank Assumes All of the Deposits of Heartland Tri-State Bank

#21

Post by pard68 »

kasey_junk wrote: post #19

Worth noting this bank is an order of magnitude off of the 250th biggest bank in the US. It’s actually small enough that it’s hard to figure out where in the ~4K US banks it is, but it’s in the backend. Also, this year is still small on the “number of failed banks” list. Banks fail fairly often and this one failing would be no news normally.

For this reason, this is actually big news. Small banks are the back bone of the US financial system. They are conservative where big ones are not. They are historically the ones that keep afloat.

Too early to call, but this might be a signal of things to come.

Re: Dream First Bank Assumes All of the Deposits of Heartland Tri-State Bank

#22

Post by landemva »

LapsangGuzzler wrote: post #5
petarb wrote: post #2

What caused this bank to go under?

> The FDIC and Dream First Bank, National Association, are also entering into a commercial shared-loss agreement on the loans it purchased of the former Heartland Tri-State Bank. Sounds like they had some bad loans on the books, smaller banks in rural communities often struggle to adequately assess loan risk because talent is hard to find.

Rural people, whatever that means, can be smart and crafty. And there should be a risk management committee and there are services to help provide insights. I was on a rural BoD and don't recall ever seeing a crop loan.

Re: Dream First Bank Assumes All of the Deposits of Heartland Tri-State Bank

#23

Post by landemva »

SoftTalker wrote: post #12
LapsangGuzzler wrote: post #5

Earlier quoted context omitted.

> The FDIC and Dream First Bank, National Association, are also entering into a commercial shared-loss agreement on the loans it purchased of the former Heartland Tri-State Bank. Sounds like they had some bad loans on the books, smaller banks in rural communities often struggle to adequately assess loan risk because talent is hard to find.

Crop loans that went bad due to storm damage? Seems possible in that part of the country. Though I'd presume those are insured?

Rural does not mean crop loans, and that does not seem to be in the press release. Loans against property is different than a planting loan.

Re: Dream First Bank Assumes All of the Deposits of Heartland Tri-State Bank

#24

Post by landemva »

kikokikokiko wrote: post #8
toomuchtodo wrote: post #7

Earlier quoted context omitted.

FDIC can surcharge remaining banks through their assessments (FDIC insurance premiums). It’s a broadly distributed tax on bank customers in aggregate. So long as US banking exists, there will be banks to charge to keep the fund solvent. They just need to kick the can long enough to give impairments caused by rapid rate increases time to burn off.

And what happens if these impairments start to gradually become more and more realized losses, as their due dates come? I can't see the FED making a 180 anytime soon, in fact I've been buying treasuries for the most part. Everybody in the world may want (and need) lower rates, but it's like fighting against the sunrise, if it's time for it it's time and that's it. What will happen when it's not Heartland Bank from Bu…

Silicon Valley Bank marked their debt to maturity, until they ran out of liquidity and were shut down. But rising rates does not affect fixed rate loans.

Re: Dream First Bank Assumes All of the Deposits of Heartland Tri-State Bank

#25

Post by kasey_junk »

pard68 wrote: post #21
kasey_junk wrote: post #19

Worth noting this bank is an order of magnitude off of the 250th biggest bank in the US. It’s actually small enough that it’s hard to figure out where in the ~4K US banks it is, but it’s in the backend. Also, this year is still small on the “number of failed banks” list. Banks fail fairly often and this one failing would be no news normally.

For this reason, this is actually big news. Small banks are the back bone of the US financial system. They are conservative where big ones are not. They are historically the ones that keep afloat. Too early to call, but this might be a signal of things to come.

That’s literally the opposite of the truth.

Look at the failed bank list: https://www.fdic.gov/resources/resolutions/bank-failures/fai...

Small banks fail. Big banks don’t. If anything this year is abnormal in that big banks have failed.

Re: Dream First Bank Assumes All of the Deposits of Heartland Tri-State Bank

#26

Post by AYBABTME »

pard68 wrote: post #21
kasey_junk wrote: post #19

Worth noting this bank is an order of magnitude off of the 250th biggest bank in the US. It’s actually small enough that it’s hard to figure out where in the ~4K US banks it is, but it’s in the backend. Also, this year is still small on the “number of failed banks” list. Banks fail fairly often and this one failing would be no news normally.

For this reason, this is actually big news. Small banks are the back bone of the US financial system. They are conservative where big ones are not. They are historically the ones that keep afloat. Too early to call, but this might be a signal of things to come.

Small banks are less regulated than large ones, as a result of lobby from them to loosen the rules so that they can eek out some profits using less-conservative strategies. They also tend to serve localized and correlated customers, so local events can have an outsized impact on them, versus big banks that are widely diversified.

Re: Dream First Bank Assumes All of the Deposits of Heartland Tri-State Bank

#27

Post by LapsangGuzzler »

landemva wrote: post #22
LapsangGuzzler wrote: post #5

Earlier quoted context omitted.

> The FDIC and Dream First Bank, National Association, are also entering into a commercial shared-loss agreement on the loans it purchased of the former Heartland Tri-State Bank. Sounds like they had some bad loans on the books, smaller banks in rural communities often struggle to adequately assess loan risk because talent is hard to find.

Rural people, whatever that means, can be smart and crafty. And there should be a risk management committee and there are services to help provide insights. I was on a rural BoD and don't recall ever seeing a crop loan.

I have a relative who was an FDIC auditor and spent the last 10 years assessing commercial loan portfolios as a consultant for hundreds of small banks across the south and Midwest. Most banks had at least a few loans that were poorly underwritten (insufficient income verification, collateral declaration, improper property comps, etc.) She had some crazy stories though.

A rural bank gave out one of its largest loans, a few million, to a guy to build a crypto farm 3-4 years ago. She called me up during the crypto crash asking for advice on how to price all of these GPUs he bought at the top of the market since he was facing liquidation. The bank took a bath on it. And that was just one of many. Tons of PPP fraud, small Town corruption, etc.

Re: Dream First Bank Assumes All of the Deposits of Heartland Tri-State Bank

#28

Post by taeric »

wbl wrote: post #14
taeric wrote: post #9

Would love to see how these numbers square up. 139 million in assets over 130 million in deposits. And costing the insurance 54 million. Naive read is that the bank just had 54 million in withdrawals that it couldn't cover? Guessing that isn't correct. Curious on details. Was this a surprise?

The bank that acquires does so with a haircut and a hit to the balance sheet from the overall entity having all the liabilities of the combination and the assets. So the insurer throws in some money to recapitalize. Remember everyone needs this deal to be smooth and the new entity toppling is not smooth.

Right, but that is only needed if the assets don't cover the liabilities. Numbers given were covered.

Naive reading of that is that they were not liquid?

Re: Dream First Bank Assumes All of the Deposits of Heartland Tri-State Bank

#29

Post by wbl »

taeric wrote: post #28
wbl wrote: post #14

Earlier quoted context omitted.

The bank that acquires does so with a haircut and a hit to the balance sheet from the overall entity having all the liabilities of the combination and the assets. So the insurer throws in some money to recapitalize. Remember everyone needs this deal to be smooth and the new entity toppling is not smooth.

Right, but that is only needed if the assets don't cover the liabilities. Numbers given were covered. Naive reading of that is that they were not liquid?

The ratio of assets to liabilities has to be greater than one, and generally quite a bit greater for regulators to be happy.

Re: Dream First Bank Assumes All of the Deposits of Heartland Tri-State Bank

#30

Post by taeric »

wbl wrote: post #29
taeric wrote: post #28

Earlier quoted context omitted.

Right, but that is only needed if the assets don't cover the liabilities. Numbers given were covered. Naive reading of that is that they were not liquid?

The ratio of assets to liabilities has to be greater than one, and generally quite a bit greater for regulators to be happy.

It was greater, per story? That is why I quoted them.
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