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April 26, 2003Cease and desist orderedFDIC tells bank to eliminate suspect loansByRecord-Eagle staff writer TRAVERSE CITY - North Country Bank and its parent company North Country Financial Corp. have been ordered by federal and state regulators to cease and desist from "unsafe and unsound" business practices. Those practices include loans to bank directors, their families and their companies, as well as bank officers. Such loans totaled nearly $11 million at the end of 2002, $9.2 million of which were classified "substandard." The corporation, based in Traverse City and Manistique, has been ordered by the Federal Deposit and Insurance Corp. and the state Office of Financial and Insurance Services to eliminate those substandard loans. Meanwhile, the corporation's independent auditors, Plante & Moran, said in its certification of the corporation's annual report that losses are expected to continue in 2003. Because of the limitations and demands put on the bank by regulators and a pressing need to raise more capital, the auditors said they have "substantial doubt about its (North Country's) ability to continue as a going concern." Bank attorney Donald Brandt said North Country executives had no comment beyond what was contained in the official filings. The corporation reported a net loss of $26.7 million for 2002. That compares to a net profit of nearly $5.8 million in 2001. The company said the loss resulted from having to set aside $24.9 million of its capital to cover possible loan losses. Assets dropped 11.2 percent to $565.3 million. Deposits fell 9.3 percent to $437.5 million. Net loans fell 17 percent to $410.1 million in 2002, according to the corporation's annual report. Impaired loans, those not being repaid according to their terms, jumped to $51.6 million from $25.5 million a year earlier, the report said. North Country Bank and Trust has 16 branch offices in the Upper Peninsula and 10 in the northern Lower Peninsula. State and federal regulators have declared North Country Bank is a "troubled" bank. Regulators said the bank must take quick corrective action, including elimination of an over-concentration of loans to the hospitality and gaming industries. Board members Bernard Bouschor, tribal chairman of the Sault Tribe of Chippewa Indians, and Dennis Bittner, owner of Bittner Engineering in Escanaba, did not immediately return telephone calls on Friday. Board member Stanley J. Gerou II, owner of two Alger County hotels and an excavating company, refused comment when asked which board members obtained bank loans and if any board members have delinquent loans. Regulators cited deficiencies in management and board of directors personnel and practices. Regulators also were critical of loan policies and loan administration, according to the North Country report and the cease-and-desist order. Regulators found the bank to have inadequate liquidity, or the ability to get all the cash it needs for short-term needs, and cited deficient management of funds and investments. The bank also must eliminate violations of Federal Reserve Bank rules for insider loans and loans granted to borrowers for certain types of stock purchases. The cease-and-desist order specifically bans board chairman and former chief executive officer Ron Ford from negotiating or making any loans or serving on the bank's loan review committee. The order also requires the corporation to demand repayment of a "golden parachute" package of payments and benefits granted to Ford. The package was granted just before Ford quit as chief executive officer in May 2002. Ford declined comment Friday. Chief Executive Officer Sherry Littlejohn could not be reached for comment. Bank management in its annual report to shareholders filed recently with the federal Security and Exchange Commission said it is considering several options to meet regulators' orders to raise capital - as much as $8.8 million - and deal with its liquidity problems. They include issuing new shares of stock, selling part of its loan portfolio, downsizing through more sales of branches, and the possible sale of the corporation outright, though no offers are on the table. Regulators told North Country it has until June to find the needed capital. The cease and desist order went into effect April 5 and will remain in effect until the bank corrects all deficiencies. Under the order, the bank must hire managers experienced in turning around troubled banks. The bank also must contract with outside consultants to improve operations and create a plan for getting the bank back in good condition. The Associated Press contributed to this report | |
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