Loans negotiated by its former president have forced an Indiana bank company to nearly triple its loan-loss reserve and charge off loans totaling $444,000.

But the new president of $175 million-asset Blue River Bancshares Inc. said it is unlikely that the Shelbyville company will book any further loss and that it might be possible to make recovery on some charged-off loans.

“A substantial portion” of the $1.3 million in loans that are under scrutiny “are not delinquent or on nonaccrual status,” said Larry Toombs, who today assumed the titles of president of Blue River Bancshares and president and chief executive officer of Shelby County Bank, the company’s sole banking subsidiary. Last week, Blue River announced that it has boosted its provision for loan losses by nearly $1.3 million, bringing it to $1.9 million.

“These are additions to our reserves,” Mr. Toombs said. “We’re not going to count them as losses.” The loans were poorly documented and failed to meet the bank’s cash-flow and loan-to-value guidelines, he said.

Blue River chairman and chief executive officer Steven R. Abel blamed the loan troubles on former Shelby County Bank president Robert C. Reed. The board of directors dismissed Mr. Reed, who had been president and CEO of the bank since 1997, in July.

“It was not prudent lending,” said Mr. Abel.

After Mr. Reed’s dismissal, Mr. Abel stepped in as the bank’s acting president and chief executive officer. He announced the appointment of Mr. Toombs last Tuesday. Mr. Abel began seeking the advice of Mr. Toombs, a former community banker who has spent most of the last eight years as a consultant, after Mr. Reed’s departure.

Mr. Toombs said his top priorities will be maintaining customer service and returning Blue River, which lost $396,000 during the first half, to profitability.

“All those things you do in ‘Management 101’ are the things we need to do as we go forward,” he said.


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