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Bank's lending practices come into question

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Town & Country Bank agrees to 24-page consent order issued by federal regulators

By Frank Johnson

Federal regulators have released the details of a consent order mandating that Town & Country Bank change some of its banking practices and strengthen its financial position.

The regulatory action, finalized Oct. 8 and made public Nov. 26, followed a routine exam of the institution’s books by the Federal Deposit Insurance Corporation and the Kentucky Department of Financial Institutions that found the bank had a significant level of bad commercial real estate and development loans.

The release of the order closely follows the announcement of several changes to some of Town & Country’s senior executive positions. CEO John Shropshire announced his retirement effective Dec. 31 while Chief Operating Officer Ben Wathen was no longer with the bank as of Nov. 17.

As part of the order, Town & Country was required to hire a third-party to do a management study. According to the order, such a study would “develop a written analysis and assessment of the bank’s management needs,” including an evaluation of all bank officers and senior staff members.

Two individuals have been posted as interim replacements while the board searches for new candidates to lead the company. Former CEO and past board chairman H. Lynn Ledford will serve as interim president and CEO while Denise Van Steenlandt will be COO.

Town & Country Bank was one of 16 banks brought under regulatory consent orders nationwide last month and joins the ranks of three other Kentucky banks with such agreements. KDFI spokesperson Kelly May said the down economy has affected the ability of banks to receive payments on loans from businesses and developers.

“It is a recession right now. Many banks are facing tough economic times and working with regulatory agencies to improve their circumstances,” May said.

The 24-page order includes 22 specific directives, including that the bank reduce the concentration of such loans and shore up its capital reserves. The document is particularly concerned with “classified” borrowers — those whose loans have been termed “substandard” or “doubtful.”

 “What we have learned is that when our customers suffer due to economic times, we can also suffer,” Board Chairman Bill Conway said. “We had some construction and development loans and some commercial real estate loans and some of those customers are hurting.”

In banking terms, these loans were assets that became “non-performing.” Conway said this translates to people who are unable to make the payments to which they agreed. He pegged such loans as approximately 6 percent of all the loans made by the bank.

The challenge ahead for the bank is to comply with the order’s requirements to reduce these assets so that they represent a smaller chunk of Town & Country’s business.

 “[The FDIC] likes you to have a certain mix. We were probably a little heavy, but that is just the nature of being a community bank,” Conway said.

May emphasized the order does not indicate the bank is failing or in danger of becoming insolvent. Instead, she likened it to receiving instructions from a doctor to eat less and exercise more after registering a high blood pressure reading.

 “It’s a plan to improve the overall health of the bank,” she said.

Concerning the management study and consent order, Conway said the bank’s board anticipated the order would include recommendations for a management study and was already in the process of hiring a company to conduct it when the board sat down with the FDIC.

Conway said the board has also created a new executive position, Chief Credit Officer, which will be filled by Barry Bray in an interim capacity. Citing the growth of the bank in recent years, Conway said its credit operations were now large enough to require direct executive oversight.

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