By Nick Schneider, Assistant Editor
Bloomfield State Bank has entered into a consent order with the Federal Deposit Insurance Corporation and the State of Indiana Department of Financial Institutions after the regulators alleged that the bank was engaged in unsafe and unsound banking practices.
According to the 16-page order issued Sept. 17, Bloomfield State Bank waived a hearing on the allegations and elected to enter into the consent order "without admitting or denying the charges of unsafe or unsound banking practices relating to weakness in capital, asset quality, management and earnings."
Among the directives to management, BSB was mandated to "restore all aspects of the bank to a sound and sound condition, including capital adequacy, asset quality, management effectiveness, earnings, liquidity and sensitivity to interest rate risk."
The bank was further ordered to retain the services of a consultant who has the approval of the FDIC and the State Department of Financial Institutions who will develop a written analysis and assessment of the bank's management.
The order also states that the consultant will conduct an "evaluation of all bank officers and staff members to determine whether these individuals possess the ability, experience and other qualifications required to perform present and anticipated duties, including adherence to the bank's established policies and practices, and restoration and maintenance of the bank in a safe and sound condition."
The board of directors was also ordered to increase its participation in the affairs of the bank and was directed to have in place within 30 days of the order a program that will provide closer monitoring of the bank's operation to ensure compliance with the order.
With regards to capital, the bank was ordered no later than Dec. 31 to have and maintain its level of Tier 1 capital as a percentage of total assets (capital ratio) at a minimum of 9 percent and its level of qualifying total capital as a percentage of risk-weighted assets at a minimum of 12 percent.
Also under the order, the bank is prohibited to extend directly or indirectly any additional credit to any borrower who is already obligated in any manner to the bank on any extensions of credit that has been charged off the books of bank or classified 'loss' in the May 10, 2010 visitation report, so long as the credit remains classified as uncollected, substandard or doubtful.
The order also includes restrictions on the payment of dividends. Prior written consent must be obtained from the FDIC and DFI director before any dividends can be declared and paid.
Within 60 days of the order, the bank was directed to provide a written profit plan and present a realistic, comprehensive budget for the calendar years 2010 and 2011.
FDIC spokesperson LaJuan Williams-Young told the Greene County Daily World that her agency does not comment on specific cases that are under investigation, but she did note that the consent order issued is "an injunctive-type order that may be issued when a banking organization or institution-affiliated party is engaging, has engaged or is about to engage in an unsafe or unsound banking practice, or a violation of law. A banking organization or an institution-affiliated party subject to such an order is required to follow the proscriptions set out in the order and can be directed to take specified actions. 12 U.S.C. § 1818(b)."
Bloomfield State Bank issued a press release that states the bank entered into the agreement to strengthen the financial stability of the bank and position itself to better serve the communities it serves.
The release reads: "Like many other banks over the past three years, Bloomfield State Bank has seen an increase in problem assets during the economic downturn, and the bank is working to address those issues.
"The bank has aggressively and pro-actively moved to meet all requisites set forth in the agreement and has otherwise taken affirmative steps to strengthen all areas of the bank.
"Our employees' primary mission is to continue to support our area, and the local businesses within our communities, by providing excellent customer service with products that have good value.
"Bloomfield State Bank was established in 1873 as a local community bank and we pride ourselves in our unique ability, as a community bank, to assist our friends and neighbors in pursing their dreams, to know them and work with them closely and to be there even when times are difficult."
Mark Barkley, Bloomfield State Bank's Chairman, stated "Our single focus is to make Bloomfield State Bank the strongest bank it can be and to adhere to the core values and principles which are steadfast and time tested in its 135 year history. Our customers should be assured that our services and abilities will remain the same and we are dedicated to our mission to meet today's challenges as well as those of tomorrow."
Bank President/CEO Benny McNeely said much of the bank's problems can be directly linked to a poor local economy with some people struggling to stay out of foreclosure.
He said the bank is required by federal and state regulators when they have either commercial or residential borrower who has some weakness in their credit to get new appraisals on their properties.
"I haven't seen an appraisal in the last two years that came in as high as it was appraised before 2008. When that happens, and whether or not those people are paying us and for the most part they are, we have to set aside reserves for the decline in value of the real estate. We started doing that pretty aggressively in 2009 and continue to do that aggressively to this year. To the extend, that we have nearly $14 million set aside for contingencies on those residential and commercial properties. With a bank our size you can't set aside $14 million over a two year period without it negatively affecting your profitability. That's what has happened to us," McNeely explained. "Those reserves are direct charges against income. Not that we've lost the money, we just had to set it aside to be prepared on those case."
McNeely said this reserve money is set aside in an account called "allowance to loan and lease losses".
"It is there specifically to take care of any issues that we would have in dealing with those real estate properties should those people be unable to pay us and we have to take them back and work with them to sell their property," he said. "Given the economy and the rate of unemployment, we have a fair number of residential customers who are struggling and we have some commercial people who are struggling as well. For the most part they are paying us. But we have had to foreclose on some properties, both residential and commercial. We don't really like to do that, but I to protect the bank and if that is the way to get the bank's money back, that's what I have to do."
McNeely said this the first time in the bank's more than 100 year history that it has faced problems like this.
"We have always maintain roughly 30 percent of our deposits in liquid assets....things that we can always draw on to meet people's needs so we don't have any issues there. You never want to loan out your last dollar," he said. "The Barkley family (who own controlling interest in the bank) have always been ones to reserve capital and never paid out a lot of dividends to themselves. They've always kept the best interest of the bank above the best interest of the family."
A study of Bloomfield State Bank conducted by American University School of Communication shows on June 30, 2010 the bank had assets of $444,033,000 up from $437,640,000 on June 30, 2009.
As of June 30, 2010, deposits amounted to $335,453,00, loans were at $307,951,000 with reserves at $12,753,000.
The study showed that the bank's profit was at minus $2,013,000 for the current term ending June 30. The profit ending June 30,2009 was listed at minus $2,721,000.
Universal Bankcorp, which owns Bloomfield State Bank, received federal TARP funds amounting to $9,900,000 on May 22, 2009
TARP funds are monies utilized by the United States Treasury during the 2008 financial crisis in an attempt to stabilize the American economy. These $700 billion in funds were used to rescue financial institutions which were deemed "too big to fail," out of concern that failure of major financial institutions could plunge the American economy into a depression.
Bloomfield State Bank maintains two offices in Bloomfield and branch locations in Linton, Lyons, Jasonville, Newberry, Eastern Heights, Bloomington, Mitchell, Indianapolis, Greenwood, Oaktown, Columbus and Seymour.
