http://www.omaha.com/article/20110317/MONEY/703179847
Published Thursday March 17, 2011
By Steve Jordon
WORLD-HERALD STAFF WRITER
Mid City Bank’s capital has dropped below minimums required by the Federal Deposit Insurance Corp., and directors of the 46-year-old Omaha bank are working on a plan to rebuild its financial position.
“It’s business as usual as far as the bank’s concerned,” said Bob Hearron, executive vice president and chief financial officer, and bank deposits continue to be insured by the FDIC up to $250,000 per account.
Hearron said problem commercial loans and other troubled assets — including a vacant, 15-story office building in Omaha — had built up over time, and the bank reported the decline in capital to the FDIC.
Bank officers are discussing a recovery plan with FDIC officials, Hearron said.
The bank’s range of options includes adding investments to seeking a merger partner or buyer.
According to its filings with the FDIC, Mid City Bank posted a $24.6 million loss in 2010, including a $12 million loss in the fourth quarter of the year. The bank’s capital fell from $28.9 million at the end of 2009 to $5.6 million at the end of 2010.
FDIC spokesman David Barr declined to comment, saying the agency does not make public comments about functioning banks.
Nebraska Banking and Finance Director John Munn also said he couldn’t comment on individual banks. But he said his department works with the FDIC when problems arise with state-chartered banks of Mid City’s size. Federal deposit insurance has prevented any loss or interruption of service in the few cases where regulators have closed Nebraska banks in recent years, he said.
Owners of a troubled bank must decide how to increase the bank’s capital and also may consider a sale, Munn said. “The best outcome would be to return a bank to a safe and sound condition.”
For any bank to operate properly, it must have adequate capital to support its lending. Government regulators such as the FDIC establish capital requirements for banks.
In general, the FDIC often allows a troubled bank to resolve problems on its own, said Gordon Karels, a banking professor at the University of Nebraska-Lincoln. He said he is not familiar with Mid City’s situation.
A bank can improve its finances, Karels said, if existing shareholders put in more money, if new shareholders invest in the bank, if the bank shrinks by reducing its lending or if it generates profit. A bank also could find a partner to purchase the bank or merge it into another bank, he said.
If a bank cannot resolve the problems on its own, Karels said, the FDIC can step in and force a sale.
In any case, he said, the FDIC’s main priority is to protect depositors. If a bank successfully restores its capital to an adequate amount, Karels said, it can continue operating as an independent bank.
Mid City Bank is headquartered at 304 S. 42nd St. and has eight offices in the Omaha area.
James Fitl, the bank’s president since 1971, said he retired in September because of his age, 79, not because of the bank’s condition. The bank hired Greg Stine, former CEO of United Nebraska Bank of Grand Island, as a consultant to fill the top executive function.
According to its filings with the FDIC, Mid City Bank was profitable from 2000 through 2007 but lost $2 million in 2008 and $8.8 million in 2009, then had the $24.6 million loss in 2010.
Hearron said the 2010 loss happened largely because the bank put $18.5 million into its reserves for possible loan losses during 2010.
“The bank and the board of directors decided to recognize these potential losses in 2010 and reserve for them properly, so hopefully there won’t be these losses going forward,” said Hearron, who joined the bank in January 2010.
Mid City Bank had $76.5 million in loans at the end of 2010, down from $102.5 million a year earlier. Deposits totaled $172.2 million on Dec. 31, down from $194.4 million a year before.
Hearron said the vacant building is the former Northern Natural Gas office building at 2223 Dodge St. The bank had loaned the previous owner money to buy the 225,000-square-foot building while it had tenants but ended up owning the building in a foreclosure. Appraised at $19 million at one time, the building now is for sale for $7.95 million.
Hearron said maintenance expenses for the building contributed to the 2010 loss and are continuing. The 2008-09 recession hurt the commercial real estate market, and the 15-story building’s size limits the number of potential buyers.
Ownership of the vacant office building was one reason the FDIC issued a November 2009 consent order, since the bank reported the building as a major asset that was not producing revenue. Mid City agreed to the order, which requires extra reports and management steps and sets out procedures if the bank does not meet minimum capital levels.
Mid City’s reports to the FDIC show that it met the capital requirements through Sept. 30 but not on Dec. 31, after the bank increased its reserves for possible loan losses. The FDIC’s order requires the bank to notify the FDIC about the capital deficiency, to develop an approved capital plan and to put the plan into effect — the process now under way.
“We’re working as hard as we can to correct the problems,” Hearron said.
Contact the writer:
402-444-1080, steve.jordon@owh.com
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