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Britton & Koontz Bank has signed a written agreement with a federal bank regulator to reduce the high level of credit risk at the bank.
The Natchez, Miss., bank signed the order with the Office of Comptroller of Currency on Feb. 21, according to a stock filing by holding company Britton & Koontz Capital Corp.
In stock filings, the bank says it's having increasing trouble collecting on loans, especially those made from its branches in Baton Rouge, La. Britton & Koontz, with $375 million in assets, also has branches in Vicksburg, Miss.
The Office of Comptroller of Currency, the federal agency that regulates national banks including Britton & Koontz, said in its report that the bank wasn't doing enough to make sure borrowers could repay loans, according to stock filings. The OCC said the bank also wasn't doing enough to monitor the status of large loans it had already made, and was too frequently making exceptions.
The bank agreed in the order to strengthen loan underwriting and to better monitor credit risks of loans made previously. It also agreed to come up with a three-year plan to rebuild capital. The holding company stopped paying its customary 18-cent-per share dividend, and can't start again without regulatory permission.
"We have a good working relationship with our regulators," President and CEO W. Page Ogden said in a statement at the time of the order. "We intend to proceed promptly with the steps set forth in the agreement."
In 2011's July-to-September quarter, Britton & Koontz lost $721,000 after it had to set aside $3.4 million to cover future expected loan losses. During that third quarter, the bank placed a $4.2 million loan for a multi-family residential complex on non-accrual status.
For all of 2011, Britton & Koontz posted profit of $394,000, or 18 cents per share. That was down sharply from a profit of $1.9 million, or 90 cents per share, in 2010.
The company's loan portfolio fell by 14 percent in 2011. Interest paid on loans is the primary source of profit for most banks.
Britton & Koontz agreed in the order to hold more capital to absorb loan losses than is normally required. At Dec. 31, its Tier I loan loss reserve, one measure of the capital cushion, was 10.9 percent. The order required the bank to maintain an 8 percent reserve, above the 6 percent regulators normally call "well-capitalized."
Only two Mississippi banks, Heritage Bank of Carthage and First National Bank of Rosedale have been taken over by regulators since the current wave of bank failures gathered strength in 2008. At least six other Mississippi banks have been put under orders by the FDIC only to come into compliance and get freed from additional oversight.
Overall, Mississippi banks have withstood the financial crisis better than institutions in some states, where falling real estate values caused major losses.