Bankers' investigation questions purpose of Bank of Putnam County
BOISE, Idaho -- A Boise State University graduate student analyzing banking practices in Cookeville and Putnam County says that The Bank of Putnam County is poorly managed and some customers may be using short-term deposits to launder money.
Putnam County is in Tennessee's Thirteenth Judicial District, and that district leads the state in illegal methamphetamine production.
An investigation using public documents on the Internet and the Bank of Putnam County's financial statements suggests poor management and poor use of assets, says student researcher Michelle Bennett, who writes she has spent a dozen years in the banking and mortgage industries. Collaborating with Roger Sorensen, a Boise consultant who the report says brings another two decades of experience to the project, Bennett's study found problems with lending and portfolio management and underdeployment of assets.
Tennessee has 191 state-chartered banks, more per capita than any other state, reports Bennett.
Based upon information obtained from Internet databases and the Tennessee Department of Financial Institutions Annual Report for 1997, her study compared BPC Corporation, the holding company that owns the Bank of Putnam County, with the statistical averages for Tennessee State-Chartered banks, and those National Banks operating within Tennessee.
While there are nine banks that operate 20 branches within Cookeville, only one bank, The Bank of Putnam County, is headquartered there. BPC Corporation also owns Cumberland County Bank, which is based in Crossville.
Banks make profits in two general ways -- leverage of assets and lending margins.
Bank profitability for the Bank of Putnam County is 32.5% lower than that of national banks, and 19.9% lower than the average for other state-chartered banks.
The loan to deposit ratio indicates that assets are not efficiently used. For every dollar on deposit at BPC, only 64.2 cents is in the community as an outstanding loan. Barely half of the total assets, 53.244% represent the bank's loan portfolio. This indicates that a considerable portion of the core assets are held as deposits, and not placed into service as revenue-producing loans. Net profit margins on deposits are minimized when not placed for their highest possible use. Placing these funds into commercial lending and small business lending could produce returns of nine to 10 percent, as opposed to placing these interim funds into treasury and money market operations. Banks can invest in the capital markets and produce nominal returns. It appears this is what BPC does, the report says..
Another indication of poor banking management is reflected in the schedule of Other Real Estate Owned. OREO's, as they are known, are the properties foreclosed by the bank. From 1997 to 1998, the number of foreclosed properties increased from 51 to 170. Of these properties, the number of single family homes increased from 24 to 143, an increase of 495%. This phenomenal number says that the bank made poor loans, and did not anticipate any loan problems. Loan loss provision increased by only 6.3%, meaning that the bank did not set aside funds to cover loan losses. Tax regulations allow banks to set aside a small fund (less than five percent of total income) as a safeguard to compensate for bad debts. It is clearly apparent that the bank was making poor loan decisions, and didn't prepare for the fallout of those non-performing loans.
The report goes on to question what the bank is being used for.
The performance of BPC strongly indicates that this bank is not owned or operated with the basic economic goal of profitability and return on investment in mind. It appears to be a place where good old boys hold deposits for their rich friends.
The report suggests that some depositors may be laundering money by holding it in certificates of deposit and short-term financial instruments and securities.
A mere 12 percent of the securities held are being held to maturity, which indicates that investments assets are not earning what they could if held to maturity, and are not staying on the books for significant periods of time. Of the bank's securities portfolio, an amazing 87.977% is available for sale. This represents an increase of 54.32% for securities available for sale over the previous year.
The report also finds that State of Tennessee regulators tend to follow up on leads from federal sources and do little proactive monitoring.
Click here for the full report.
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