Friday morning saw Guaranty Bank customers, many wanting assurances their deposits were safe, lined up waiting for branches to open after its parent company warned regulators it was critically undercapitalized and likely to fail.
“It’s never been like this before,” said Ruth Poncik, pointing to the crowded parking lot at the island’s Guaranty Bank, 6306 Broadway, about 10 a.m. Parking spaces were scarce. Minutes before the bank opened at 9 a.m., a rare line had formed outside the door.
Poncik and her husband, John, both retired, weren’t panicking. But they wanted to know how much of their money was insured after Guaranty Bank’s parent company said in a securities filing it expected to be taken over by the government as it faces more than $1.4 billion in write-downs mostly related to mortgage-backed securities.
Guaranty Financial Group, based in Austin, told regulators Thursday it probably would not be able to “continue as a going concern.”
“We’re here to ask questions; we don’t know whether we should be concerned or not,” John Poncik said.
Working With Regulators
As of Friday evening, regulators had not seized Guaranty Bank, which operates at least seven branches in Galveston County and some in Seabrook and Webster.
It is the second largest bank in Galveston County based on deposits, with $320 million and 10.65 percent of the marketshare, according an FDIC report from June 2008, the most recent available.
The Office of Thrift Supervision had advised Guaranty’s board of directors to consent to appointing the FDIC as receiver or conservator of the bank.
“We continue to work with our regulators,” John Wessman, executive vice president of Guaranty, said in a prepared statement. “We are focused on providing the best customer service possible and believe we can avoid any disruptions to our customers. As a member of the FDIC, Guaranty depositors enjoy the same coverage as customers of other FDIC member banks.”
Insured Limits
Federal officials, who would not comment specifically about Guaranty Bank, said customers of failed banks have no reason for alarm.
“As long as their deposits are within the insured limits, there’s absolutely nothing to worry about,” David Barr, a spokesman with the Federal Insurance Deposit Corp, said.
The FDIC insures interest-bearing accounts up to $250,000. Deposit insurance is based on how much money a customer has in different “ownership categories” — single, joint, revocable trust and certain retirement accounts — that are separately insured from each other at the same institution, according to the FDIC.
“So, if you have deposits in three different ownership categories at the same bank, you can qualify for up to $750,000 of insurance coverage,” according to the FDIC.
Avoiding A Run
To avoid panic and a stampede of customers withdrawing their money from banks, regulators rarely give advance notice before an institution is seized.
It was Guaranty that warned of a public takeover in securities filings Thursday.
“Regulators usually like to be ahead of the public filing if they’re worried there might be a run on the bank,” said Julie Hill, assistant professor at the University of Houston Law Center, where she specializes in banking.
But SEC rules require companies to be upfront with their shareholders, Hill said.
When the federal government steps in, it typically tries to find another bank to take over, Hill said.
In almost all federal banks takeovers, the institution is seized on a Friday and reopens under a new name and ownership the following Monday. Customers rarely notice changes, Hill said.
‘They’re Like My Family’
If a new owner doesn’t take over, the FDIC could sell off assets and pay out the deposits in an orderly fashion, Hill said. Customers with insured limits likely would get paid immediately, Hill said. But those with more than the insured limit are at risk of losses, or of being paid after some delay, she said.
Dr. C. Glen Mayhall, who works at the University of Texas Medical Branch, was not worried Friday about his deposits at Guaranty Bank, he said. Should a federal takeover occur, he expected business to run smoothly.
Island resident Mary Lou Kelso has banked at Guaranty for years, she said.
She also had confidence her money was safe at Guaranty, she said.
Kelso likes the service she gets at Guaranty, she said.
“I’m confident the issue will be resolved,” Kelso said. “They’re like my family.”
All About Trust
The biggest thing a bank has going for it is consumer confidence, said Latha Ramchand, associate dean and professor of finance at the C.T. Bauer College of Business at the University of Houston.
Without trust, deposits dwindle, Ramchand said.
“If they lose that trust, it’s a big problem for the bank,” Ramchand said.
If too many customers move their deposits out of the bank, it might make the institution less appealing to a potential buyer, Ramchand said.
Guaranty, with 160 branches in Texas and California, hasn’t reported financial losses since the third quarter of last year, when it posted a $162 million loss. In April, regulators gave the company until May 21 to raise enough money to meet capital ratios hurt by its mortgage-backed securities portfolio.
Because of the write downs, the bank’s total risk-based capital ratio was negative 5.52 percent as of March 31, resulting in the bank being “critically under-capitalized,” according to the filing.
Guaranty Bank has about $9 billion in deposits and assets of $16 billion, according to reports.
