First State Bank group reaches deal with Federal Reserve
The Federal Reserve Bank of Kansas City, Mo., has signed an agreement with Tonganoxie Bankshares, Inc., which owns First State Bank and Trust, in an effort to maintain the financial soundness of the bank.
Through the agreement, the Federal Reserve requires that First State Bank and Trust request approval to pay out dividends, as well as debt and stock redemptions.
The agreement, released earlier this week, was signed March 8. It requires that the local bank cannot declare or pay any dividends without prior written approval from the Reserve Bank. First State Bank and Trust also cannot directly or indirectly take dividends or payments that represent a reduction in capital without the Federal Reserve Bank’s approval. The requests must be made at least 30 days in advance of the proposed date in which the dividend would be taken.
Jilinda White, executive vice president for First State Bank, called the agreement with the Federal Reserve Bank as “kind of their standard procedure.”
“They’re not doing anything in the agreement we’re not already doing,” White said.
First State Bank has two locations in both Lawrence and Tonganoxie and single branches in Basehor, Kansas City, Kan., and Perry.
The group also has a branch in Clearwater, near Wichita, but the sale of that branch will be final next week, White said.
First State’s assets are nearly $300 million and are to decrease to $250 million with the sale of the Clearwater branch to Emprise Bank.
Other stipulations of the agreement include not incurring, increasing or guaranteeing any debt without the Federal Reserve Bank’s consent, nor purchasing or redeeming any shares or stocks without the Reserve’s written consent.
First State Bank and Trust also is required, within 60 days of the agreement, to submit a written report of its planned uses and sources of cash for debt service, operating expenses and other purposes. And, it must submit progress reports to the Federal Reserve Bank quarterly.
In December, First State entered into a consent order with the Federal Deposit Insurance Corporation and the Kansas Office of the State Bank Commissioner. The latest agreement is aimed at taking steps to ensure the bank complies with that agreement also.
The consent order includes increasing the bank’s “leverage capital ratio” to 8 percent, up from 6.05 percent at the end of 2010, and its “total risk-based capital ratio” to 12 percent, which would be up from 11.25 percent at the end of 2010.
“We’re still well-capitalized,” White said. “We always have been. They’re asking us to increase our capital. With the sale of that (the Clearwater branch), we’ll be very close to levels they want us to be.”
At the end of 2010, First State had $8.44 million in problem loans, just more than 4 percent of its $206.24 million in total loans. In 2010, the bank lost $4.7 million, which compares to $291,000 in 2009. Still, the bank has $22.59 million in equity capital and a $6.8 million provision for loan losses. White likened the provisional money to a savings account the bank has against potential losses, such as loans that can’t be repaid.
“We’ve been working really hard to identify problem assets and working them through the system,” White said. “And this is a real aggressive approach. That’s why you see the loss for last year and such a large provision toward our loan loss.”
Tonganoxie Bankshares Inc. is a single bank holding company owned by local shareholders, White said.