Iowa bank failure tied to bad trucking loans
As everyone in and associated with the trucking industry knows, most of the last two years have been very difficult ones for the industry.
Trucking companies large and small have gone out of business. There are too many trucks chasing too little freight. Rates on most lanes are at or below 2019 levels — another bad year for the industry.
In addition, brokerages have also been hurt. As widely reported by FreightWaves and other media, Convoy, a very high-profile brokerage, recently shut down for financial reasons. Other brokerages have also gone out of business, and layoffs have become relatively commonplace.
There are hiring freezes and other belt-tightening moves in effect throughout the freight industry.
Citizens Bank goes under
Now the trucking bloodbath has taken down a bank.
Citizens Bank of Sac City, Iowa, has failed, and it appears that its exposure to commercial trucking is the cause.
Citizens Bank was a small state-chartered bank. Its loan portfolio was focused on “commercial and industrial loans,” according to Bank Reg Blog.
The blog reported on Nov. 3 that the Federal Deposit Insurance Corporation (FDIC) “announced that Citizens Bank, a $66 million asset nonmember bank … had failed.”
Supervised by the FDIC and the Iowa Department of Insurance and Financial Services, all of the deposits of Citizens Bank were assumed by Iowa Trust & Savings Bank, the blog reported.
Because Citizens Bank was a state-chartered bank and not a member of FDIC, the bank’s estimated losses of $14.8 million will be the responsibility of the Iowa Department of Insurance and Financial Services.
Bad trucking industry loans?
The superintendent of the Iowa Division of Banking (IDOB), which is part of the department, also issued a statement, according to the blog, saying that in the course of a joint FDIC/IDOB examination, “examiners identified significant loan losses that had not previously been identified by the bank.”
In addition, the superintendent’s statement included information that Citizens Bank’s loan portfolio was concentrated in “out-of-territory and out-of-state loans to one industry.” The blog noted that “some of those loans had incurred heavy losses.” In the statement, the industry in question was not identified.
However, prior to the failure of Citizens Bank, the FDIC and IDOB entered into a consent order with it in August, the blog reported.
As part of the consent order, according to Bank Reg Blog, Citizens Bank was required to engage an “independent third-party loan consultant” with “requisite knowledge, skills, ability and workout experience.”
Additionally, the consent order focused on one loan portfolio, the blog reported. The consultant had “full authority and discretion to administer and service the Bank’s commercial trucking loan portfolio.”
Sac City’s population is just over 2,000 people; the population of Iowa is only about 3.2 million people. Citizen Bank’s assets were only $66 million.
Prices for new Class 8 trucks in 2023 vary by brand, as well as by the number and type of features and equipment. However, they are expensive; prices range between $150,000 for basic models to over $220,000 for models with custom features.
How or why a small state-chartered bank in the very small town of Sac City, Iowa, was making loans on expensive trucks is unknown, but doing so seems highly speculative.
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