SCB Bank in Shelbyville, Ind., is running low on capital after its management opted to set aside more than $11 million to cover problem loans made during the tenure of its former chief executive.
The bank's parent company, the $247 million-asset Blue River Bancshares Inc., revealed late Friday that SCB Bank's capital levels have fallen below regulatory minimums and that it is now under a directive from the Office of Thrift Supervision to significantly boost its key capital ratios. SCB's Tier 1 leverage capital ratio was 3.75% and its total risk-based capital ratio was 6.31% at March 31. Under a cease-and-desist order issued by the OTS, the thrift must maintain a leverage ratio of 8.75%, after adequately allowing for loan losses, and a total risk-based ratio of 12.25%.
The company also said that SCB also is likely to receive a prompt corrective action directive from the OTS, which will subject it to increased reporting requirements and heightened regulatory scrutiny.
In a news release, Blue River said that the severity of the thrift's problems came to light after its former CEO, Randy Collier, resigned in January. After his resignation, the board ordered a review of loans made while Collier was at the helm and wound up reclassifying certain loans as nonperforming, charging off others and significantly increasing its loan-loss reserves. The result is that the company now says it lost more than $13.7 million in 2010 after initially reporting a loss of $1.4 million. For the quarter that ended March 31, it is reporting a loss of nearly $1.4 million, nearly 10 times what it reported for the same quarter a year earlier.
The company has restructured its management team since Collier's resignation and said it has hired an outside consultant to help it plot its future. It also said that to restore capital levels it is pursuing a two-pronged strategy of shrinking the thrift's balance sheet and raising additional capital from outside sources.
