Three Banks Close in a Span of Eight Days

The third FDIC-Insured bank in a span of eight days was closed on November 1st. Zero-Star City National Bank of New Jersey was closed by the Office of the Comptroller of the Currency (OCC), which was also the agency that closed Zero-Star Resolute Bank a week earlier.

The other, Zero-Star Louisa Community Bank, was closed by the Kentucky Dept. of Financial Institutions. Louisa Community Bank was the only one of the three that was “Critically Undercapitalized” at June 30th. At that point, regulators have little leeway. It’s do or die time for the bank and this bank’s time ran out.

Resolute Bank was “Significantly Undercapitalized” at June 30th. Its deterioration during the first half of the year was notable, and while third quarter data has not been made public, it entered into a Prompt Corrective Action Directive (PCAD) with the OCC on September 18th.

While undercapitalized in both the first and second quarters of 2019, City NB of NJ actually had improved from “Significantly Undercapitalized” the two quarters prior. It was operating under a PCA since June.

The PCA gave City NB 30 days to submit an acceptable acquisition or combination plan. It failed to do so, so the OCC stepped in and shut it down. The five branch 3-Star Industrial Bank, N.A., Washington, DC, headed north to lend a hand.

We listed all banks that were less than “Adequately Capitalized” at June 30th on page 2. Almost all have been operating under some sort of supervisory agreement, four of them PCAs. The two survivors are Zero-Star Fort Gibson State Bank, OK (PCA issued 1/19/19) and Zero-Star Civis Bank, TN (PCA issued 6/28/18). In fact, the FDIC has been working with Civis Bank since 2015 trying to keep it afloat. It’s been on Bauer’s Troubled and Problematic Bank Report since 2009.

The difference? The regulator. While the FDIC more likely puts banks on life support, the OCC is more apt to pull the plug. For troubled credit unions, the National Credit Union Administration (NCUA) takes another approach. It works pre-emptively to find merger partners. This works most of the time, but there’s not much appetite for troubled financial institutions these days. CUs that could find themselves in that boat are listed on page 7.