The trucking industry in the United States has faced immense challenges over the past two years. Companies, both large and small, have gone out of business, and the competition for freight has driven rates to historically low levels. Brokerages have suffered, with some even shutting down.
The industry has seen hiring freezes and belt-tightening measures becoming the norm. Now, this trucking bloodbath has claimed an unexpected victim – Citizens Bank of Sac City, Iowa.
According to the Federal Deposit Insurance Corporation (FDIC), Citizens Bank, a state-chartered bank with approximately $66 million in assets, has failed. The Citizens Bank's exposure to commercial trucking appears to be the root cause of its failure. The FDIC, in conjunction with the Iowa Department of Insurance and Financial Services, announced the bank's failure, and all its deposits were assumed by Iowa Trust & Savings Bank.
The Failure of Citizens Bank and its Causes
The FDIC revealed that examiners, during a joint examination with the Iowa Division of Banking (IDOB), identified significant loan losses that had not been previously recognized by Citizens Bank. These loan losses were linked to the bank's concentration on “out-of-territory and out-of-state loans to one industry.” Unfortunately, some of these loans had incurred substantial losses, although the specific industry was not disclosed in the announcement.
Prior to its failure, Citizens Bank had entered into a consent order with the FDIC and IDOB in August. This order required the bank to engage an independent third-party loan consultant with the necessary expertise to manage the bank's commercial trucking loan portfolio.
The Impact of the Failure
It's essential to note that Citizens Bank was a relatively small institution with just $66 million in assets. The town of Sac City, Iowa, where the bank was based, has a population of slightly over 2,000 people, and the entire state of Iowa has a population of approximately 3.2 million people. Given the small scale of the bank and the area it served, questions arise about why a state-chartered bank in a small town was engaging in lending related to expensive commercial trucks, which can cost anywhere from $150,000 for basic models to over $220,000 for customized ones.
This unexpected failure underscores the challenges facing the trucking industry and the businesses associated with it. As the trucking downturn continues to impact various sectors, it serves as a stark reminder of the need for prudent financial management and risk assessment in the banking industry.
The failure of Citizens Bank in Sac City, Iowa, is a stark example of the ripple effects of the trucking industry's woes. While the specific industry responsible for the bank's losses remains undisclosed, the case highlights the importance of proper risk management in financial institutions, even in small communities. It's a lesson that resonates not only with local banks but also with the broader financial sector.
