Trucking industry loans are at center of Sac City bank failure, regulators say
The failure of a bank in Sac City, Iowa's first such closure in a dozen years, was the result of soured loans made in the commercial trucking industry, regulators say.
Iowa Superintendent of Banking Jeff Plagge on Monday declined to name the specific trucking firm or firms involved. As concern about Citizens Bank of Sac City emerged, his office and the Federal Deposit Insurance Corp. had issued a consent order in August directing the bank to engage an independent third-party consultant to be given “full authority and discretion to administer and service the bank’s commercial trucking loan portfolio.”
In a news release, the Iowa Division of Banking said Citizens was declared insolvent Friday when bank examiners “identified significant loan losses that had not previously been identified by the bank." It said the bank had made "a concentration" of loans to a single industry ― which Plagge acknowledged was trucking ― outside its Sac City territory and outside Iowa, "and incurred heavy losses on some of those loans.”
Iowa Trust & Savings Bank stepped in to purchase all Citizens Bank consumer, business and public deposits, preventing any loss to depositors, the state banking division said. The Emmetsburg bank also purchased all of Citizens' available loans and will operate its facilities in Sac City as a branch office.
Employees at the former Citizens Bank will be retained, Iowa Trust and Savings said in a news release.
“On behalf of Iowa Trust, we appreciate the opportunity to now serve the Sac City community,” Kris Ausborn, CEO of the bank, said in the news release. “We are proud to be able to keep the staff at Citizens Bank intact and appreciate the understanding and patience of our entire team during this time of transition.”
Iowa banking superintendent: Iowa banks stable despite failure
Plagge said the failure, the fifth in the U.S. this year, was isolated and that Iowa’s banking industry is stable. He said that at the end of the second quarter, 96% of Iowa’s banks were rated in the top two tiers of five for rating bank health.
A Time magazine analysis in September said rapid expansion of the trucking industry had resulted in overcapacity, leaving some smaller-scale companies struggling. But Plagge said the bank failure does not signal widespread problems in the trucking industry.
“We aren’t seeing (problems with trucking business portfolios) surface in other bank exams," he said.
He noted, however, that while a single-office bank like Citizens would typically have a territory of about 25 miles surrounding it core community, it had been making loans “outside of that range ... and also out of state.”
Once the bank was taken over by regulators, Plagge said, the transition to the new bank took place quickly. He said there was a lot of interest in acquiring the bank, and Iowa Trust won the bidding.
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“If you notice, bank closures usually happen on Friday and that's to give the resolution team and the new bank the entire weekend to work through the dynamics to be able to open back up Monday morning on a normal schedule,” he said.
Banks can sometimes make a rebound and remain open after getting a consent order, he noted, Citizens had been given that opportunity.
“A lot of times in these problem situations, the existing bank is able to raise more capital and do those kind of things to keep the bank from failing. You want to give them enough time to have that opportunity. But on the other side, you got to call it, you got to call a deadline at some point,” Plagge said.
Banking expert: Citizens Bank lacked capital to cover losses
Curt Hoff, a longtime banker in Iowa who now is a professor of practice in finance at Iowa State University, said the last available report on Citizens, dated Sept. 30, showed it had charged off nearly $4 million in loans while earning just $400,000-$500,000 in income for 2021 and 2022.
“They didn’t have enough capital to cover the losses,” he said.
Hoff said it is possible the bank got caught up in the competition for lending and overextended itself, particularly given that Sac City has three banks in a community with a population of about 2,000.
“People probably aren't tripping over themselves to apply for loans in that area. So here’s this bank that is probably struggling and trying to identify and secure and win the deal on some commercial loans,” he said.
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He also said Citizens Bank’s financial statements showed about half of its deposits were uninsured. FDIC insures deposits up to $250,000.
“I’m going to say that only about 20% to 30% of banks in Iowa have that much in uninsured deposits,” he said.
Consent orders like the one issued for Citizens are uncommon, he said, and are "almost like a last resort." He added that there have been just three against banks in Iowa in the last three years.
But, like the formal regulatory action, the makeup of Iowa's banking industry also is unusual. Plagge said it is comprised of a lot of family-owned or tightly held banks as opposed to large, publicly traded institutions ― the fourth-largest number in any state.
“We have banks here that have really strong ties to their communities and are strong community banks,” he said.
Iowa’s last bank failure was that of Polk County Bank in Johnston in November 2011. Two years earlier, Vantus Bank failed in Sioux City.
In May 2022, regulators issued a consent order to Luana Savings Bank. The order came after concerns that the bank, which expanded into the Des Moines metro from its tiny northwest Iowa hometown, had grown rapidly by taking on large numbers of fixed-rate, long-term loans on real estate. Those lower-interest loans could limit the bank's liquidity if rates rose and it needed to sell the now less-lucrative holdings to raise funds, banking experts said.
Luana denied it had excessive risk, and the order stipulated it had not admitted to "any charges of unsafe or unsound banking practices or violations of law or regulation."
Plagge said even though the relatively small Sac City has three banks, retaining Citizens is "a great thing."
"The community had three banks going into it and they have three banks going out of it because, in this particular case, it (Citizens Banks) was acquired by another bank outside of the community,” he said.
Kevin Baskins covers jobs and the economy for the Des Moines Register. Reach him at kbaskins@registermedia.com.
This article originally appeared on Des Moines Register: Iowa bank's failure caused by trucking industry loans, say regulators
