More than 100 branches of a bank went poof in the last few days, disrupting financial services for lower-income customers in major cities such as Detroit and Atlanta and leaving more questions than answers about the state of retail banking.

When regulators closed the $1 billion-asset Guaranty Bank in Milwaukee on Friday, all its deposits and most of its assets were taken over by the $33 billion-asset First Citizens Bancshares in Raleigh, N.C. — except for 107 branches in supermarkets or other retail outlets in Georgia, Illinois, Michigan, Minnesota and Wisconsin.

As a result they became the largest-ever group of branches not to reopen on the first business day after a bank failure, according to the Federal Deposit Insurance Corp. The fallout from the closures highlights the societal gaps in the financial services system, the trade-offs between customer service and costs in running branches, and the fickle nature of in-store branching.

Guaranty’s in-store branches made up the bulk of its retail network, and many of them were located nowhere near a First Citizens branch, creating a problem for many customers this week. The in-store branches catered to low- and moderate-income consumers who get paid electronically and need access to automated teller machines, said former CEO Doug Levy and his father, ex-Chairman Jerry Levy.

Detroit customers are lacking services unless they switch banks or rely on mobile or online banking because First Citizens has no freestanding branches in Michigan, even after the Guaranty deal, the Levys said. In Atlanta, the bulk of the customers are in low-income pockets far from the ritzier northern suburbs where most of First Citizens branches are, the executives said.

“I don’t know how they are getting their money,” Doug Levy said.

First Citizens does not operate in-store branches and thus was not interested in taking over the leases, company spokeswoman Barbara Thompson said.

Considering the shrinking number of in-store branches in the United States and the skepticism about them from many quarters, First Citizens seems justified in rejecting the tiny offices.

In Georgia, for example, where Guaranty’s 35 in-store branches operated under the name BestBank, each one held less than $6 million of deposits. Another four in-store branches, in Detroit and Chicago, had less than $1 million of deposits each. Most banks are consolidating in-store branches and packing more deposits in each one.

The number of branches located inside supermarkets or other retail outlets declined 21% from its peak between 2006 and 2016, but the surviving branches’ average deposit holdings grew 33% from their low point during the same period, according to S&P Global Market Intelligence.

It is unclear what will happen to Guaranty’s former in-store sites. The bank leased the spaces from the retailers, which will keep the leases.

Many of the branches were in either Kroger grocery stores, or in supermarket chains owned by Kroger, such as Pick ‘n Save and Food 4 Less.

Kroger declined to say if it has made a final decision whether to use the spaces as bank branches. Its “facility engineering teams are working to determine how the former bank locations can be adapted into the store’s operations,” said Felix Turner, a company spokesman.

Shuttering of a BestBank grocery-store branch.
Gone for now
This BestBank branch inside a Kroger grocery store in Decatur, Ga., was one of 107 in-store branches that were closed in five states after the failure of Guaranty Bank. It is unclear how many of the spaces, if any of them, will be taken over by other financial institutions.

Another large group of Guaranty branches were located inside Walmart stores. Walmart did not respond to a request for comment.

Guaranty also operated branches inside smaller supermarket chains, such as Piggly Wiggly and Cub Foods.

The supermarket chains will almost certainly try to find other banks or credit unions to take over the leases, predicted Dave Martin, the founder of bankmechanics, a retail bank performance company.

“The knee-jerk response when you see closings like this is to say that it’s an indictment of in-store banking,” Martin said. “But these branches won’t stay dark for long. In-store branches see a staggering number of customers in-person in any given day” and provide banks with a significant amount of new-household growth.

He noted that U.S. Bancorp, one of his clients, successfully runs a large network of branches in Safeway supermarkets and other chains. S&P Global Market Intelligence puts the number at 734 branches.

"To me, that's evidence that these things work, if you run them properly," Martin said.

If the retailers want to find other bank tenants, the supermarket chains will likely hire a real estate consulting firm to help market the vacant spaces to other financial institutions, Martin said.

Guaranty’s failure stemmed in large part from the company’s inability to recover from the financial crisis. In recent years it had become dependent on small-dollar, deposit-advance products, which were later the subject of a crackdown by regulators. In 2015, Guaranty’s noninterest income fell $18 million from the previous year, in part because of reduced income from deposit advances, according to the company’s yearly shareholder letter.

Perhaps an opportunistic community or regional bank seeking affordable inroads into some of the affected markets might take a chance on reopening the closed branches. But given their locations predominantly lower-income areas, it is unclear whether they would be attractive enough.

Meanwhile, Guaranty’s customers who held deposits at the now-closed locations have a decision to make. They can do nothing and automatically have their accounts switched to First Citizens without paying any fees normally tied to account openings.

Former Guaranty depositors can also switch their accounts to another bank at no fee, although they typically have only about 60 days to make the switch, depending on state law.

Alan Kline contributed to this story.

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Andy Peters

Andy Peters

Andy Peters writes about regional banks, consumer finance and debt collections for American Banker.