When state and federal regulators closed Louisa Community Bank on Oct. 25, it was something rare in this part of the country — a bank failure.

Sometimes when a bank is closed, it’s because regulators find irregularities on a scale that lead to criminal charges. That happened here in Huntington in 1980 with Metro Bank and in the McDowell County community of Keystone in 1999 with the First National Bank of Keystone.

But Louisa Community Bank’s demise was something more mundane: Years of operating losses caught up with it.

In a telephone interview last week, Charles Vice, commissioner of the Kentucky Department of Financial Institutions, said Louisa Community Bank was shut down because it had become critically undercapitalized. What that means in banking terms is that its tangible equity was less than 2% of its total assets.

“Operating losses had started to erode capital,” Vice said.

According to information on the Federal Deposit Insurance Corp. website, Louisa Community Bank had not earned a profit in a full year since 2014. That year, the bank reported a net profit of $656,000. After that, it reported losses of $90,000 in 2015, $347,000 in 2016, $775,000 in 2017 and $1,218,000 last year. In the first half of this year, it reported a net loss of $368,000.

That’s nearly $2.8 million in losses over a 4 1/2-year period for a bank that ended its short life with assets of less than $32.4 million. And there was a problem with the quality of the bank’s assets, Vice said.

State regulators noticed the problem earlier this year and on July 31 notified bank officials they had 90 days to increase the bank’s capital or to find a buyer. Those efforts failed, so the state regulators and the FDIC took over the bank on Oct. 25.

The same day, an agreement was signed with Kentucky Farmers Bank of Catlettsburg, Kentucky, to take over Louisa Community Bank. From depositors’ perspective, the takeover was good because Kentucky Farmers Bank agreed to take all deposits at Louisa, not just those under the FDIC limit of $250,000 per account holder, Vice said.

In something that doesn’t happen often in a bank failure, Louisa Community Bank was shut down on a Friday and reopened the next day for normal business hours as a Kentucky Farmers Bank branch, Vice said. Direct deposits were processed and checks and debit cards drawn on Louisa Community Bank accounts were honored, Vice said.

The only big change is that back-room operations are now done in Catlettsburg, he said.

“Customers should see little to no disruption in services,” Vice said.

Bank failures in the United States have been rare in recent years. There were none last year, eight in 2017 and five in 2016. A bank in Cooper, Texas, failed on May 31. Then in what appears to be a coincidence, three banks failed in the span of seven days. The same day Louisa Community Bank closed, so did Resolute Bank of Maumee, Ohio. City National Bank of Newark, New Jersey, closed on Nov. 1.

The last bank failure in West Virginia was Ameribank in Northfork in 2008. The only two failures in Kentucky since 2000, other than in Louisa, were a bank in Lexington in 2013 and one in Louisville in 2009.

Vice said the Louisa bank failure was the first of a state-chartered bank in Kentucky since 1987.

Jim Ross is Opinion Page editor of The Herald-Dispatch. He can be contacted by email at jross@hdmediallc.com. He is on Twitter @JimRoss9.

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