Saturday, May 6, 2017

Bank Failure: Guaranty Bank/BestBank

Last night the O.C.C. closed Milwaukee-based Guaranty Bank. The bank closing ranks as one of the largest single-day branch-closing events ever.

Guaranty Bank had 107 branches embedded in Kroger, Walmart, Pic n Save, Piggly Wiggly, and other supermarkets in five states. The supermarket branches closed at the close of business yesterday and are permanently closed. Half of the supermarket branches were in Wisconsin and nearby areas of Illinois and Minnesota. The others were in Georgia and Michigan and operated under the BestBank name. The ATMs at the closed branches have also been shut down.

Guaranty Bank also operated ten stand-alone branches in Wisconsin and one each in Illinois and Minnesota. First-Citizens Bank & Trust Company is acquiring these 12 separate branches along with the failed bank’s $1 billion in deposits and 90 percent of its assets.

If you were thinking that a network of 107 mini-branches sounds like a large number of locations to operate for a bank with $1 billion in deposits, you would be correct. Narrow operating margins, partly the result of high operating costs, were a major factor in the failure of Guaranty Bank.

Guaranty Bank had been in business for nearly a century after surviving the misfortune of opening shortly before the Great Crash of 1929. It had pursued a growth strategy in recent years, maintaining branches in many locations and seeking out high-visibility advertising opportunities in the hope of building the large customer base that never quite arrived.

All Guaranty Bank accounts have been moved to First-Citizens, but the former Guaranty Bank customers will not be able to bank at other First-Citizens branches for several months. Though customers still have their accounts, with 107 branches closed, most account holders no longer have the support of a branch within driving distance. It is a situation that the FDIC tries to avoid in a bank closing, but there probably wasn’t a viable option to keep a scattered network of 107 mini-branches open. Customers can write checks, but many customers will want to move their accounts to a local bank and will have to go through the time-consuming task of closing old accounts through the mail. Customers will be able to call the bank’s call center for assistance (800-235-4636). A few of the supermarkets involved may be scrambling this morning to arrange to get enough coins and $1 and $5 bills to get through a normal weekend of cash sales.