The Iowa Division of Banking closed Sac City, Iowa-based Citizens Bank on Friday. Iowa Superintendent of Banking Jeff Plagge said the bank incurred significant unrealized losses to its commercial trucking lending program, which he attributed to a lack of risk recognition. As of Sept. 30, Citizens Bank had approximately $66 million in total assets and $59 million in total deposits.
“During a joint and ongoing examination of the bank, examiners identified significant loan losses that had not previously been identified by the bank,” IDOB stated. “The bank was declared insolvent.”
Loan losses at the bank were especially high in the third quarter. Citizens Bank reported $4.43 million in charge-offs through the third quarter of this year, up from $518,000 at the end of the second quarter. The bank also reported $4.81 million in loan and lease loss provisions through the third quarter, up from $220,000 the previous quarter.
Following the failure, the FDIC entered into a purchase and assumption agreement with Emmetsburg-based Iowa Trust & Savings Bank to assume all Citizens Bank loans along with consumer, business and public deposits. Citizens Bank’s main branch and drive-up facility opened as Iowa Trust & Savings Bank branches on Monday.
Plagge said the failure is an isolated incident as the vast majority of Iowa banks remain on solid financial footing. Citizens Bank is the first Iowa bank to fail since Johnston, Iowa-based Polk County Bank in 2011.
The estimated cost to the FDIC’s Deposit Insurance Fund is $14.8 million.
The failure came approximately three months after the FDIC and IDOB issued a consent order against the bank. Issued Aug. 2, the order required Citizens Bank to “engage an independent third-party loan consultant” with the necessary ability and workout experience regarding problem loans. The consultant had the authority to administer and service the bank’s commercial trucking loan portfolio, including the development of a credit risk reduction plan.
Regulators also required Citizens Bank to have 10 percent of total assets be classified as highly liquid, establish contingency funding sources and maintain leverage ratios and capital ratios much higher than standard regulatory minimums.
Citizens Bank is the fifth bank to fail this year, following Santa Clara, Calif.-based Silicon Valley Bank, San Francisco-based First Republic Bank and New York City-based Signature Bank this spring and Elkhart, Kan.-based Heartland Tri-State Bank in late July.