Friday, November 18, 2011

This Week in Bank Failures

With the success of Move Your Money and Bank Transfer Day, will the large banks start closing branches? In fact, bank branches close every week, and most of the large banks have quietly closed branches a few at a time over the last three years. It’s a trend that most industry observers expected to pick up in 2012 even before retail customers started to flee.

In my local area, Citizens Bank announced 7 branch closings today. There were earlier reports of 15 branch closings, but the smaller announcement probably just means the other 8 closings will be announced at a later date. Citizens was already 12 branches less than at its pre-crisis peak. It will have 173 after the new round of closings, and that is probably still more than it can afford.

One reason banks hesitate to close branches is that they lose customers every time they do so. Many bank customers almost automatically close their accounts when the branch they use closes. Large banks will become more eager to close branches as the number of active customers declines.

Tonight, state regulators closed Central Progressive Bank, which had 17 locations in lower Louisiana generally along Interstate 12 north of Lake Pontchartrain. It had $350 million in deposits. First NBC Bank, based across the lake in New Orleans, is taking over the deposits and purchasing 90 percent of the failed bank’s assets. First NBC Bank effectively doubles its footprint with the deal.

The failed bank’s holding company had tried everything to sell the bank, even filing for bankruptcy a month ago in the hope that that might help close the deal. The bank suffered from improper activities of its former management, along with the effects of the real estate slump and, given its location, more than its share of hurricane disruptions. Some observers said it was the only New Orleans area bank in serious financial trouble.

State regulators in Iowa closed Polk County Bank. The FDIC has transferred the $82 million in deposits and the assets to Grinnell State Bank. State regulators blamed the failure on real estate loans.

With tonight’s two bank closings, there have been 90 so far this year. That is a pace that would result in about 96 bank failures for the year, or roughly half the pace of the previous two years.