State regulators shut down small Missouri bank

Kansas City Star

March 07, 2008

State banking regulators seized a tiny bank in Hume, Mo., after discovering management had been lying to hide the bank's frail condition.

'The books were being cooked by former management,' said D. Eric McClure, commissioner of finance in Missouri, who ordered the Hume Bank closed Friday.

McClure's office banned the bank's former president, Jeffrey W. Thompson, from the banking industry on Aug. 21.

The bank, in western Bates County about 80 miles south of Kansas City, will reopen Monday as a branch of nearby Security Bank in Rich Hill. Depositors' insured account balances transferred automatically to the new bank and remain available this weekend through checks, ATMs and debit cards.

Hume Bank became the second in the nation to fail this year, closing six weeks after national regulators seized Douglass National Bank in Kansas City. Three Douglass locations reopened as branches of Liberty Bank and Trust Co. of New Orleans.

'The demise of the (Hume) bank is a direct result of alleged improprieties by former bank management, which resulted in past due loans not being reported and the true condition of the bank being misrepresented,' said a statement from the Missouri Division of Finance.

It added that the loans had been 'poorly conceived' and that the bank had not collected payments.

McClure said the extent of the bank's problems had been hidden by false records that showed loans were being repaid when they were not. Because of that deception, current management was unable to tell how seriously weakened the bank had become, he said.

The falsifications also meant the bank's most recent public report on its financial condition was not accurate, McClure said. The report, dated Dec. 31, showed an increase in loan problems but significant levels of capital to indicate its problems were manageable.

McClure said the extent of the misrepresentations and problems at the bank became evident only as examiners dug through its records.

'Like peeling back an onion, the more you peel it back, sometimes the more it stinks,' he said.

McClure said the discoveries 'should in no way indict' the bank's current management and board of directors.

Federal officials have said they expect a surge in the number of bank failures.

About one in 11 banks nationally failed between 1980 and 1994. Three banks failed last year, the first since 2004.

McClure called Hume Bank's failure an 'isolated incident.'

Copyright © 2008 Kansas City Star, All Rights Reserved.