In light of today’s turbulent banking
environment and news of bank failures, business owners are wise to reevaluate the nature of their deposits and
their bank’s financial health. Many banks
have been negatively impacted by the
economic climate caused in part by
issues in the housing market.
What does this mean for the banking
public and business owners who rely on
financial institutions for capital to help
grow their businesses?
“It’s critical to find out how your bank
is performing, make sure its regulatory
ratios are above well-capitalized and that
it is in a position to continue serving as
your partner as you rely on it for important banking products,” says Craig
Johnson, president and CEO, Franklin
Bank, Southfield, Mich.
Smart Business asked Johnson for
advice on how you can ensure your bank
is safe and your liquid money protected.
How much of an individual’s money is protected?
The Federal Deposit Insurance Corp.
insures deposits of up to $100,000 per
depositor per bank and $250,000 for most
retirement accounts, including accrued
interest. If your deposits are less than
these limits, your money is safe. If not,
there are no guarantees. It’s hard to pick
up a newspaper or watch TV today without hearing about problems in the banking industry. The fact is, the vast majority of the banks around the country are
well-capitalized and will survive this current economic cycle. If your deposits are
less than $100,000, you’re safe with any
bank. But many individuals and businesses do carry much higher balances. If
this describes your accounts, you should
make sure to do your homework on the
financial institution and take precaution-ary measures if deemed necessary.
What should those with deposits that
exceed $100,000 do to spread their risk, so
to speak?
Don’t overact; do your due diligence.
Discuss with your banker alternative ways to maximize FDIC insurance coverage. Do some research on your own by
checking the bank’s Security and
Exchange Commission (SEC) filings.
Review their online press releases. Make
sure the bank is well-capitalized — any
quarterly press releases or public statements will spell this out clearly for you.
You can also check into private rating
agencies, such as Bauer Financial
(www.bauerfinancial.com), where you
can search your bank and find out how it
rates based on quarterly call reports and
SEC filings. You can find this information
on the FDIC Web site. All banks are marketing heavily now to earn your trust and
your business. Before you open an
account anywhere, find out if their message matches their true financial position.
What red flags should business owners look
for to determine the financial health of a
bank?
While an individual quarterly write-down isn’t necessarily a sign of trouble, a
series of write-downs and consecutive
quarterly losses tell a different story.
Look at the bank’s core earnings. Those
are earnings outside of any extraordinary income or expensed line items. If the
core of your bank’s business is not producing consistent quarterly profits, that’s
a potential red flag. Be frank with your
banker and ask him or her, ‘What is the
nature of your bank’s business?’ Ask
your banker about loan delinquency and
charge-offs. Has the bank remained profitable? All of this is public information.
What sort of business loan environment can
an owner expect as a result of all this?
Because of the current economic cycle
added on to the pressures on deposit
growth, it’s not unrealistic in today’s market that banks will be more conservative
in how they underwrite business loans.
As a business owner, you need to be
aware of this and have ongoing conversations with your banker, so he or she
understands your future needs and you
can understand where the bank stands
from a lending perspective and whether
it is in a position to meet your future
needs.
At what point should a business owner consider reallocating deposits or coming up
with a ‘Plan B’ for liquid money?
First, talk to your banker. Ask him or
her pointedly, ‘What do you think?’ There
is no enterprise in sugarcoating the situation, so you can expect an honest
assessment of where the bank stands.
Next, take a look at your deposits and
retirement accounts. Do they exceed the
FDIC-insured limit? If so, makes sure you
are comfortable with the financial condition of the financial institution and if not,
diversify the deposit among several institutions. There are programs in the marketplace that provide increased FDIC
insurance coverage. Ask your personal
banker for more details. Essentially, you
need to follow the rules of investing: Be
prudent and do your homework.
CRAIG JOHNSON is president and CEO of Franklin Bank in Southfield, Mich. Reach him at [email protected] or (248) 358-6459.
