Business Record: State banking officials close Citizens Bank in Sac City
Citizens Bank, located in Sac City, was closed on Friday by the Iowa Division of Banking after examiners discovered “significant” loan losses not previously reported by the bank, the state agency announced.
The Federal Deposit Insurance Corporation, in a separate release, estimated that covering the losses will cost the Deposit Insurance Fund $14.8 million. Covering Citizens Bank’s losses with money from the fund is the “least costly resolution,” the FDIC said in a release.
Citizens Bank, established in 1929, had a main office and drive-up facility in Sac City at the time of its closure. The two bank offices were expected to reopen today as a branch of Emmetsburg-based Iowa Trust & Savings Bank.
Iowa Trust & Savings Bank bought all of Citizens Banks’ consumer, business and public deposits, according to news releases. Iowa Trust also purchased all of the former Sac City bank’s available loans.
Iowa Trust has locations in Emmetsburg, Panora and Clive.
None of Citizens Bank’s consumer, business or public entity customers lost any money, Jeff Plagge, Iowa’s superintendent of banking, wrote in an email.
Citizens Bank is the fifth bank in the United States to fail this year. It is the first bank failure in Iowa since 2011.
“The vast majority of banks in Iowa do a very good job of identifying and managing the various risk components, managing their asset quality and preventing significant losses,” Plagge wrote in an email.
In its third-quarter call report, Citizens Bank reported over $65.5 million in total assets and over $58.9 million in total deposits, according to a release. The bank also had over $38.2 million in loans and leases, $14.1 million of which were commercial and industrial loans, according to data posted on Bankregblog.substack.com.
Citizens Bank “had a concentration of out-of-territory and out-of-state loans to one industry and incurred heavy losses on some of those loans,” according to the state banking agency’s release. A consent order filed in early August by the FDIC and Iowa Superintendent of Banking identified the industry as commercial trucking.
Plagge, in an email, cautioned that the “losses at this bank to customers in the trucking business should not be construed as an industry-wide problem with that sector. We aren’t seeing it surface in other bank exams.”
Plagge declined to speculate on whether Iowa would experience other bank failures in the coming months.
“The sharp increase in interest rates over the past 18 months have stressed net interest margins and, in some cases, profits at many banks,” Plagge wrote.
At the end of 2023’s second quarter, 95% of Iowa banks were profitable and 96% had ratings of 1 or 2, he wrote. (Banks are rated on a scale of 1 to 5, with 1 being the top rating.)
Most banks do a good job of identifying risks and potential losses, either “reserving for them or actually taking the loss when they downgrade a loan or other assets,” Plagge wrote. “In this case, those risks had not been identified or reserved for in a timely fashion so significant reserves and required charge-offs were required during the exam that had an immediate impact to the bank’s earnings and capital, to the point where the bank became insolvent.”
In a news release, Iowa Trust said that it is “dedicated to maintaining a strong local presence in Sac City, supporting the existing and new customers with exceptional customer service and safeguarding jobs in the area.”
