Bloomberg News
WASHINGTON — The Federal Deposit Insurance Corp.’s Office of Inspector General found lax lending and poor risk management led to the downfall of the Sac City, Iowa based Citizens Bank in November 2023 and caused a $14.8 million loss to the regulator’s Deposit Insurance Fund.
As early as 2014, the report says the $65 million asset bank — 100% owned by the family of Thomas Lange, the bank’s Chairman and President — made ill-informed commercial loans to trucking companies without adequate risk mitigation, Board oversight or business expertise. Those loans were heavily strained as supply-chain snags during the pandemic imposed increased fuel, insurance and repair costs, making it increasingly hard for borrowers to repay.
“Citizens Bank compounded these issues by advancing additional funds to problem borrowers through overdrafts, often in excess of the State’s lending limit, and without first obtaining current financial information or conducting proper collateral analysis,” the OIG wrote. “The significant deterioration in the bank’s loan portfolio and operating losses led to a serious depletion of the bank’s capital and stressed its liquidity, ultimately resulting in its failure.”
Citizens Bank was the
According to the OIG, bank regulators caught wind of trouble at Citizens around the same time as the supply chain issues began to emerge. At that time, bank management ramped up trucking loans outside of the bank’s primary trade area, and the bank’s corresponding poor credit underwriting and administrative weaknesses raised red flags to FDIC examiners.
From 2020 onward, the FDIC took a string of regulatory actions, including filing a Matters Requiring Board Attention report in a March 2020 examination. Both the FDIC and the Iowa state bank regulator identified credit administration and loan underwriting deficiencies in their respective April 2021 and July 2022 examination reports. The regulators also found the bank had violated Iowa’s ban on state banks granting loans and extensions of credit that exceed 15% of the firm’s aggregate capital to a single borrower.
In May 2023, a joint review by the FDIC and Iowa Division of Banking revealed serious issues at Citizens Bank, leading to a downgrade in its rating. Despite a Consent Order issued in August 2023, the bank’s financial condition deteriorated further by October. Consequently, the FDIC declared Citizens Bank “Critically Undercapitalized” and took over as receiver on November 3, 2023.
The report also said Citizens’ impact on the FDIC’s Deposit Insurance Fund was average relative to losses over the last 5 years, and thus not sufficient to warrant a more comprehensive review by the agency’s watchdog. The OIG did, however, find Thomas Lange had a multitude of conflicts of interest in loans administered by the bank, which they say has been communicated to the appropriate authorities. These conflicts were not contributing factors to the bank’s failure however, which was the main concern for the report.
The FDIC OIG is mandated by law to investigate the state bank regulator’s stated cause for the failures when the DIF suffers a loss of less than $50 million and decide whether further investigation is needed. The OIG also found the FDIC’s supervision itself did not contribute to the failure. In fact the agency repeatedly pinpointed the problems, issued notices, and took steps to address the concerns.
“Ultimately,” the OIG wrote, “the bank’s inaction to address these supervisory recommendations resulted in its failure.”
