Auditor: Levee district bank balance not at risk of loss (pdf attached)

In response to Tuesday’s article on the St. Mary Levee District’s audit, the auditor who performed the audit says the district’s bank balance is not at risk of loss.
The market value of securities pledged by the St. Mary Levee District’s fiscal agent financial institution to collateralize the district’s deposit balances was $4,038,201 as of Dec. 31, 2013, said Blaine Crochet of Darnall, Sikes, Gardes & Frederick, the firm which performed the audit.
In compliance with state law, the pledged securities, in addition to Federal Deposit Insurance Corporation, or FDIC, insurance in the amount of $250,000, provided adequate coverage of the district’s bank balance of $3,608,830 as of Dec. 31, 2013, Crochet said.
As disclosed in the audit, state law requires the custodian of the pledged securities to sell those securities for a sufficient amount to cover the deposits and accrued interest of a depositor government upon failure or suspension of a depository bank, Crochet said.
The $4,038,201 in pledged securities and $250,000 in FDIC insurance were not listed in the audit, Crochet said. “It’s indirectly referenced in the fact that those deposits are uninsured, but we don’t actually specify the coverage,” Crochet said.
The $3,358,830 was listed in the audit as uninsured and collateral held by pledging bank’s agent not in the levee district’s name. That amount, which is calculated by taking the district’s bank balance of $3,608,830 and subtracting the $250,000 in FDIC insurance, is the portion of the bank balance that is not covered by FDIC insurance but is covered by pledged securities, Crochet said.
The balance of the pledged securities of $4,038,201 is well in excess of the bank balance of $3,608,830, he said. Because the total pledged securities and FDIC insurance exceed the bank balance, the district’s deposit balance is not at risk of loss, he said.
Crochet also noted that the St. Mary Levee District received an unmodified opinion, or clean opinion, on its financial statements as of and for the year ended Dec. 31, 2013.
“We have noted no evidence that indicates that the Board of Commissioners and management of the St. Mary Levee District are being anything other than good stewards of the public funds with which they are entrusted,” Crochet said in an email.
In another email, Patterson State Bank Chief Financial Officer Jason Watson said the reason banks pledge funds to municipalities is due to state law requiring them to secure governmental entities’ deposits. In the event of a default of the bank, FDIC coverage would kick in and be paid to the governmental entity, he said. Then the governmental entity would have rights to the securities held in their pledge name, Watson said.
They are secured creditors unlike other bank depositors that are unsecured, Watson said. Securities that have been pledged are controlled by the district, he said.
Once pledged, the bank cannot get the securities released or even allow a payoff by the federal government without the consent of the governmental entity, Watson said. “In other words, I can’t remove a pledge without the municipals signed authority to do so,” he said.
Even bank failure would not pose any risk of loss to public funds with proper FDIC coverage and pledged securities, Watson said.
“The only way the municipality would have anything at risk is if the FDIC corporation was insolvent and not supported by the federal government or if the underlying security, backed by the federal government, became worthless,” Watson said. “All of this would have to happen after a bank failure for there to be risk to a governmental entity of financial loss.”