About 500 employees have been laid off in the Friday closure of Guaranty Bank, which an investor says could have been avoided if he had been able to follow-through on his plan to inject $100 million into the struggling bank.
Guaranty had 1,000 employees, about 600 of which were based in Wisconsin. About 300 of those worked at the company’s corporate headquarters in Glendale, said former chief executive officer Doug Levy.
In late March, Guaranty hired Hovde Group, an Inverness, Illinois-based investment banking firm experienced in recapitalizing banks, to raise $100 million from investors, said Steve Hovde, an investment banker at Hovde Group.
Hovde had secured $50 million from two investors, and was speaking with five other interested lead investors to raise the funds. Hovde was confident the funds would have been raised by June.
“All seven were interested and we were in various stages of discussions with them,” he said. “We were scheduled to have three investors come in on-site this Thursday and Friday, and everything was going along promptly and smoothly.”
Hovde, who was in weekly contact with the Office of the Comptroller of the Currency about the capital raise, described his reaction to the OCC’s decision to shut down Guaranty Bank on Friday as “shocked.”
“There was no reason for it. It made no sense,” Hovde said. “Why should all those people lose their jobs when they didn’t need to?”
Doug Levy, who was chief executive officer of Guaranty Bank and the fourth generation of his family to lead the organization, said he sometimes spoke with the OCC several times per day and kept them in the loop about the $100 million capital raise. He was not aware the bank would be closed Friday, and pointed out it had $2.2 million in profit over the past six months and its net charge offs were very low.
“We really weren’t posing any risk. We were making money,” Levy said. “What’s really upsetting is the impact on all of our customers and employees.”
About 60 percent of Guaranty’s employees were minorities, and many of its customers came from low-income areas, he said. It could disproportionately affect those communities.
“Our customers were very different from other banks,” Levy said. “We were servicing customers that came from low- to moderate-income areas – the unbanked and the underbanked – and we had special products and services just for them. We had an internal saying in the bank: If not us, then who?”
According to the OCC’s statement on Friday, “The OCC acted after finding that the bank had experienced substantial dissipation of assets or earnings due to unsafe or unsound practices. The OCC also found that the bank was significantly undercapitalized and failed to submit a capital restoration plan acceptable to the OCC.”
Both Levy and Hovde pointed out Guaranty was profitable for 10 of the past 13 months, and it was above the threshold at which Hovde said most banks are considered critically undercapitalized, 2 percent of capital to total assets. Classified assets and non-performing loans had decreased by about $9 million over the past three quarters, while the capital at the bank went up by about $2 million, Hovde said.
An OCC spokesman declined to comment about Guaranty, or about the threshold at which it decides to shutter a bank.
“Since the in-store branches, 107 didn’t reopen, we have been employing those folks to help interact with customers. Not to do banking, but just to talk to folks and help them out. But that will be just for a limited time,” the spokesman said.
Two banks made four bids to acquire Guaranty, and the FDIC was statutorily mandated to choose the option that posed the least cost to its Deposit Insurance Fund. That ended up meaning 107 branch closures with an acquisition of 12 branches and assumption of loans and deposits by Raleigh, N.C.-based First-Citizens Bank. The FDIC would not comment about the decision.
Guaranty Bank will keep its name in the transaction, and will become a division of First-Citizens, said Barbara Thompson, spokeswoman for First-Citizens Bank.
As for employees at Guaranty’s Glendale headquarters, where Guaranty operated a call center, check processing and other back office functions, she would not comment on whether they will keep their jobs.
“Currently they are all being onboarded as part of our company,” Thompson said. “Right now, we’re still evaluating the operations of the bank. (There are) no changes that we can speak of at this time.”
The systems and product integration for the banks will occur at the end of this year or early in 2018. First-Citizens has completed 14 bank acquisitions since 2009, so it is experienced in integrating banks and blending organizations, she said.
“(The key is) communicating,” Thompson said. “Of course, when regulators close a failed bank, there’s no advance notice, so it’s really communicating with customers. Every customer, for example, from Guaranty Bank will receive a letter from us this week with all the information they need to know.”
First-Citizens also put an FAQ on its website to help Guaranty Bank customers through the process.
“We make sure that that first night, there’s a lot of information online that they can read about concerning their accounts and banking with us,” Thompsons aid.
But some customers, especially those in states such as Georgia and Michigan (where it operates as BestBank), were left with no physical branch or ATM locations nearby. And at the remaining branches in southeastern Wisconsin, lines were out the door at several locations as customers filed in with questions or to close their accounts this week.
Thompson said customers without a physical branch location in their state can bank online or at an ATM in the Allpoint network. First-Citizens brought in additional staff at the Guaranty branches that remained open Monday, but that there were lines at several offices.
“We had staffed up, but again we just had a lot of people that had just heard the news of the Guaranty closing and they were concerned and came in,” she said. “If people wanted to leave with a large sum of money, we were recommending a cashier’s check for their safety.”
Levy is calling for a Congressional investigation of the OCC’s decision to close Guaranty Bank.