Exchange Bank raises capital, complies with FDIC order

Officials of Skiatook-based Exchange Bank say the institution has been working to correct issues that prompted the Federal Deposit Insurance Corp. and the Oklahoma State Banking Department to issue a so-called cease-and-desist order against the bank.
Bank President A.B. Bayouth Jr. cited repercussions from securities losses realized by the bank in 2008 and a decrease in asset quality for triggering the order to halt alleged “unsafe or unsound banking practices.”
The FDIC told Exchange Bank to stop operating with not enough capital, insufficient earnings and too many delinquent loans. The order dates from Nov. 5 but was not made public until Dec. 28.
“We understand what is in the order, and we are taking all the steps that are necessary to ensure compliance with it,” Bayouth said. “Our board and management have been, and will continue to be, aggressive.”
Bayouth said the loss that compromised the bank’s capital health happened more than a year ago.
“If you pull up the call report information for Oklahoma as of Sept. 30, 2008, you will see there was almost $4 million in securities losses for the quarter in the state,” he said. “Whittle that down a little bit more, and you will find out that that was our bank. We had some Freddie and Fannie preferred stock, 20-percent, risk-weighted assets, that went to zero overnight.”
He said the bank has taken steps to increase capital.
“We are now a well-capitalized institution, and as of the end of the year, I expect our Tier 1 will be over 7 percent,” Bayouth said. “Our stockholders have been very good at coming to the plate and putting forward more capital.”
The bank has also taken steps to remedy FDIC and OSBD criticism of the bank’s board and management, he said.
“We have had changes in management responsibilities,” he said. “We have added an outside consultant to our board of directors. We have every confidence in our management team and believe this will soon be an historical document.”
Exchange Bank, which has branches in Sperry and Owasso, had nearly $96 million in assets as of Sept. 30. It’s total nonperforming assets accounted for nearly 8.3 percent of its total assets as of Sept. 30, according to regulatory reports.
The bank lost $313,000 during the first nine months of this year, after a $2.4 million net loss in 2008. More than $2.5 million of that loss was recorded in the third quarter of 2008.
The action against Exchange Bank was one of 34 cease-and-desist orders issued in November.
According to the FDIC’s order, Exchange Bank must rid its books of some bad assets, reduce loan delinquencies, maintain certain capital levels and develop a plan to improve earnings and take other steps.
The bank was ordered to submit a capital plan that would bring its Tier 1 leverage capital ratio equal to or greater than 8 percent of the bank’s average total assets; its Tier 1 risk-based capital ratio equal to or greater than 10 percent of the bank’s total risk-weighted assets; and its total risk-based capital ratio equal to or greater than 12 percent of the bank’s total risk weighted assets.
As of Sept. 30, the Tier 1 leverage capital ratio was 5.86 percent, the Tier 1 risk-based capital ratio was 8.48 percent and the total risk-based capital ratio was 9.74 percent.
Jennifer Hallum, previously an advisory director for the bank with a long-time family ownership in the institution, was named chairman in February with the retirement of Bayouth’s father, A.B. Bayouth Sr., now chairman emeritus.
“Every bank has been challenged with asset quality in their loan portfolios and we’re not immune to that,” Hullum said. “At the last exam, the regulators said our loan to loss provision was adequate. We do have a large portion of classified assets that we are working on and making progress.”
She said the bank has brought in a consultant to take a harder look at its loan portfolio.
“We think that is going to contribute to our success in the coming months,” Hullum said.
Bayouth praised the attitude of state and federal regulators in dealing with the bank’s issues.
“We appreciate the consideration they have given us during this matter. I think they understand it was a difficult place for us to be put in and they have been very good to work with,” he said. “Ultimately they want the banks they are regulating to be successful.”

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