Report: Failed Chicago bank had nearly $21 million in missing deposits

Chicago-based Pulaski Savings Bank was missing nearly $21 million of deposits from its core before it failed earlier this year, according to a June 4 report from the FDIC Office of Inspector General. .The FDIC and Illinois Department of Financial and Professional Regulation also discovered “significant unresolved and unexplained discrepancies” in holding accounts kept to manage discrepancies or uncertainties in transactions, according to the report.“Since assets corresponding with these deposits were not identified, the recording of these deposits exceeded the bank’s equity capital, at which point, the bank became critically undercapitalized,” according to the report. The Office of Inspector General called for a more in-depth review of the failure. Pulaski Savings Bank allegedly did not have positive core earnings from 2005 until it failed in January. The bank reportedly received a CAMELS Composite rating of 3 from 2017-23 due to poor board and management oversight, insufficient management depth and succession, lackluster earnings and “unacceptable rate risk exposure,” according to the FDIC. The Earnings component was rated 3 or worse since 2006, and the Management part rated 3 or worse since 2011. Pulaski Savings Bank agreed to address management oversight and succession, strategic planning and profit planning in a 2017 memorandum of understanding with the FDIC and Illinois state banking regulator. In 2020, the bank increased its multifamily lending and started purchasing commercial real estate loans both to increase its earnings and cut down on interest rate exposure, according to the report. Seven examinations of Pulaski Savings Bank between 2018-24 involving the FDIC and Illinois Department of Financial and Professional Regulation identified unaddressed financial and managerial issues. Late last year, a contractor the bank hired to update its general ledger reported some certificates of deposit had not been posted to the core banking system. On Dec. 27, the FDIC informed the bank it was “critically undercapitalized” while downgrading its interim CAMELS rating to nearly the lowest possible. On Jan. 17, the Illinois Division of Banking closed Pulaski Savings Bank and appointed the FDIC as the receiver. A state-chartered mutual savings company, Pulaski Savings Bank was a CDFI and had a single branch. Pulaski Savings Bank focused on one-four single-family residential loans originated internally or purchased from another local savings bank. The failure of Pulaski Savings Bank is estimated to have cost the Deposit Insurance Fund $28.4 million or 62 percent of the bank’s $45.9 million in total assets.