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Clarke bank makes improvements after consent order

Officials at Clarke County State Bank are re-examining procedures and making some changes after receiving a consent order from Federal Deposit Insurance Corporation.

FDIC issued the order in January saying the bank needs to raise their capital and cease and desist from unsafe or unsound practices.

The bank was given 90 days to make many changes and is required to report them to the Superintendent of Iowa Division of Banking (IDB) and FDIC.

IDB Banking Bureau Chief Vaughn Noring said it isn't unusual for banks to receive consent orders when improvements need to be made.

"If we go into a bank and feel that there are some issues that need to be addressed, it's common to enter into a written agreement with an institution so both sides are aware of the areas of concern," he said.

Although the order should be taken seriously, Noring said customers should still feel safe when banking with Clarke County State Bank.

"Their money is safe," he said. "So there's no problems that way. There hasn't been a penny lost in an FDIC institution, as long as the people stay within the insured limit of $250,000 per customer."

PROBLEMS

Bank representatives say "problem loans" were causing issues for the bank, and the majority came from the Des Moines metro market.

A Des Moines production loan office established by the bank in 2004 has since been closed. Representatives say this was not a result of the order, but was a decision made by the bank. All other offices in Osceola and Murray remain open.

FDIC's order stipulates that the bank should have more restrictions on giving out additional loans to anyone whose credit has been classified as "substandard" or "doubtful," and the bank's board of directors approves and signs off on the decision.

According to filings with FDIC, more than 33 percent of multifamily residential real estate loans given out by the bank weren't current at the end of 2009, and 4 percent were charged off. Payments behind schedule for construction and development loans were also high, at nearly 15 percent.

Commercial and industrial loans were a problem with more than 12 percent non-current and 21 percent– or $2.43 million– charged off.

Charge offs totaled more than $5 million at the end of 2009.

Bank President Dave Selene said sometimes loans are charged off because the property decreased in value. A charge off can also occur if a period of time has passed since the bank received a payment on the loan and the debt is thought to be uncollectible.

"But there is always an opportunity for recovery of these charge offs," Selene said. "For example when the economy comes back and the house increases in value."

FIXING THE PROBLEM

Selene said a loan committee will now review loans on a monthly basis. Before, the committee looked at loans when it was needed or on a case-by-case basis, he said.

The current six-member board of directors will not only increase its supervision of bank procedures, but will also increase in size. The number of individuals that will be added is currently unknown. The order doesn't stipulate how many more are needed.

Following the order, new management, including a president, was hired.  Selene assumed these duties Feb. 15. The hiring of Selene, and other supervisor positions, fulfilled one of the requirements mandated by the order to "retain qualified management within 90 days."

Marketing Manager Diane Ogbourne said these new faces will join the experienced staff the bank already has in place.

"We feel lucky to have many long-time people here that our customers feel comfortable banking with, and we are also adding people experienced in banking to help take care of customers," said Ogbourne.

Selene, who has nearly 30 years of experience in banking, said the bank is taking the order very seriously, but wants to reassure customers their money is safe and the situation is underway to being fixed.

"If we didn't think it was fixable, we wouldn't be here," Selene said about new management, himself included, taking jobs at the bank.

The bank also received a capital infusion from its holding company, United Bancorporation of Osseo, Wis., to remain above the requirement set by FDIC of 9 percent. Currently, the bank has 9.45 percent.

Selene said didn't want to comment on the amount of the capital infusion.

"It was enough to get the capital above where we need to be, and they are prepared to put more in as we evaluate and identify problem loans," he said

As the bank moves forward with other improvements, officials say it will be "business as usual."

"We'll be celebrating 75th anniversary this year and looking forward to community banking with Osceola and surrounding counties," Selene said.

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