Federal and state regulators have ordered a struggling Oklahoma banking company to collect its overdue loans and stop lending to anyone classified as a "substandard" borrower.

The chairman of Cleveland, Okla.-based Heritage Bancorp says he has no choice but to sell the company, which has been in his family since the 1920s, because many of the customers in the town of 3,200 don't meet the new standard.

"Most of these rural little banks serve subprime borrowers, because that's what the clientele is in our towns," said Tom R. Lunsford 2d, Heritage's chairman.

Though regulators say they did not demand that the company be sold, Mr. Lunsford says the order will force him to sell Heritage and its sole subsidiary, $24 million-asset First Bank of Cleveland, by yearend. The regulatory agreement was reached Oct. 21 with the Federal Reserve Bank of Kansas City and the Oklahoma State Banking Department.

Oklahoma Banking Department Commissioner Mick Thompson said his office would have been satisfied with a change in management.

The bank did hire a new president in August but has not replaced its loan officer, which the regulatory agreement requires.

Mr. Lunsford said the bank's problems started last November after its primary regulator changed to the Federal Reserve from the Federal Deposit Insurance Corp.

About that time petroleum prices collapsed, hurting 20% of the bank's loan portfolio, Mr. Lunsford said. He said the new examiners were overly concerned about the bank's liquidity because they were unfamiliar with the widely fluctuating petroleum market.

Mr. Thompson said that the price drop was responsible for most of the regulators' concerns, but he said the bank is required to clean up other loans, too.

"The oil prices had a major impact on the bank, but that was not the only problem," Mr. Thompson said.

Energy prices have rebounded; two weeks ago, crude oil futures reached their highest prices since 1991.

But the order prevents the bank from lending to many energy customers, Mr. Lunsford said.

By mid-January, the company must draft a plan to improve its position on past-due loans of $75,000 or more and must stop lending to past-due customers - many of which are in the energy sector.

"Our customers are worried," Mr. Lunsford said. "If we can't serve the people who live here, it will kill the town. This is probably going to force some of our customers out of business."

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