A Lot of Disenfranchised Bank Customers

A Lot of Disenfranchised Bank Customers

Federal regulators closed the fifth ban k of the year last Friday and this one has hit a nerve.

Guaranty Bank, Milwaukee, WI
, which ironically also did business as BestBank in Georgia and Michigan, was closed Friday, May 5, 2017 by the Office of the Comptroller of the Currency (OCC) and the FDIC was named receiver. In its role as receiver, the FDIC is mandated to resolve banks in the manner that is least costly to the Deposit Insurance Fund (DIF).

In this instance, the least costly alternative came from *****First-Citizens B&TC, Raleigh, NC, which agreed to assume all deposits and purchase $892.6 million of Guaranty’s $1 billion in assets. The estimated cost to the DIF for this transaction is $146.4 million.

Guaranty Bank had a Bauer rating of zero-stars dating back to the first quarter of 2012. It had been plagued with bad loans, was bleeding money and was significantly undercapitalized for years. It also was operating under a Prompt Corrective Action Directive (PCA)  since 2014. That directive was terminated when a new one was issued this February that changed the regulatory classification of the bank from “Significantly Undercapitalized” to “Critically Undercapitalized”.

Its closure was no surprise to us. So why is there  public outcry over this one?

Guaranty Bank had 119 branches in five states. Only 12 of them were brick-and-mortar stand-alones. The other 107 were located in grocery and retail stores that served primarily low and moderate income neighborhoods, many of which were in major cities (Atlanta, Chicago, Detroit, Milwaukee). None of the store branches reopened.

While First-Citizens has a sprawling, 550 plus branch network spanning 21 states, it does not have any presence in Illinois or Michigan, and has only two locations in Wisconsin. In Georgia, most First-Citizens branches are located in wealthy neighborhoods far from the shuttered Guaranty branches. That leaves a lot of disenfranchised bank customers with no branch at all.

Perhaps the most difficult part of this equation is that most of the customers at these in-store branches had direct deposit of their: paychecks; social security checks; and/or disability checks. Now they have to find a way to get access to their funds, which won’t be easy as even the ATMs at the shuttered store branches are not operational.

Sophia Choi of WSB-TV 2 Atlanta reported that a crowd of former BestBank customers had gathered Monday morning at a local Kroger trying to get their money but were unable to do so. “They won’t take no checks,”  said Brandi McCall, a BestBank customer.

That could be why it took so long to close Guaranty Bank. After all, its woes began during the housing crisis. It was “Well Capitalized” through 2009 but by the close of 2012 Guaranty Bank had dropped to the lowest regulatory classification: “Critically Undercapitalized”. It had a leverage CR of 1.06% and Bauer’s adjusted CR of –6.70%. While it managed to crawl back up to “Significantly Undercapitalized” for the better part of four years, it would never thrive again.

Below is a list of banks that have failed so far this year (in order of fail date) along with financial highlights as of December 31, 2016. On Page 7 you will find 10 other banks that were financially similar as of that date, along with historical numbers to indicate what direction they are heading.

Fortunately, none of the ten compares to Guaranty Bank with its 107 in-store locations. The largest is Beach Community Bank which has 11 branches in the Florida panhandle. All  are brick and mortar stand alone.  Cecil Bank is the second largest with nine brick and  mortar, stand alone branches in Cecil and Hartford counties in Northeast Maryland.

The other eight range from one branch to four branches. It shouldn’t be difficult to find a buyer for any of them… if needed.