Citizens Bank's demise pushed the annual number of failed banks to a six-year high, while also adding to what is already a record year for failed bank assets.

The Sac City, Iowa-based bank's fall marks the fifth bank failure of 2023, the highest yearly total since eight banks failed in 2017. It also brings the total assets of failed banks to $552.54 billion for the year, compared to $364.72 billion in 2008, the second-largest year by failed bank assets.

However, with just $65.6 million in assets as of Sept. 30, it only contributed marginally to the year's asset total due to the sheer size of other banks that failed this year such as Silicon Valley Bank, First Republic Bank and Signature Bank, which marked the third-, second- and fourth-largest bank failures ever, respectively.

At just under half the size of the last bank that failed, Heartland Tri-State Bank, Citizens Bank is the smallest bank failure since Resolute Bank failed in 2019. It is also the first Iowa bank failure since Johnston-based Polk County Bank failed in 2011.

Trucking troubles

Citizens Bank's failure was a result of "significant loan losses" related to one industry, according to an Iowa Division of Banking (IDOB) news release.

The FDIC and IDOB filed a consent order with Citizens Bank in August requiring the company to engage a third-party loan consultant to manage the company's commercial trucking loan portfolio and develop a credit risk reduction plan. Iowa Superintendent of Banking Jeff Plagge confirmed the failure was related to the bank's trucking portfolio in an interview with Market Intelligence.

The bank's credit quality troubles showed in its nonperforming loans to total loans ratio, which stood at 9.55% at Sept. 30.

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Citizens Bank's other financial metrics also showed signs of struggle. Its tangible equity to tangible asset ratio was negative 4.49% in the third quarter and its leverage ratio was 0.01%.

Its adjusted Texas ratio, which is a good measure of a bank's ability to absorb future losses, was 149.9% in the second quarter, according to an analysis by S&P Global Market Intelligence. A Texas ratio above 100% is generally a sign of less loss absorbing capacity.

The IDOB closed the bank on Nov. 3 and appointed the FDIC as receiver. The FDIC subsequently entered a purchase agreement with Iowa Trust and Savings Bank, which agreed to assume all of Citizens Bank's deposits and purchase essentially all of its assets.

Citizens Bank had $58.9 million in total deposits at Sept. 30. The company's loans totaled $38.2 million at Sept. 30 with real estate loans making up 41.8% of total loans and commercial and industrial loans accounting for another 36.9%.