Jeff Bank Bound By 'Big Bank' Rules

By Jeanne Sager
JEFFERSONVILLE — January 2, 2007 — The “Everybody Bank” is being forced to let go of some of its hometown ideals.
Last month, The First National Bank of Jeffersonville got a slap on the wrist from the federal Office of the Comptroller of Currency (OCC), the bank administration arm of the United States Treasury.
Banks with the word “national” in their title can only open with a charter from the OCC.
The OCC, in turn, regulates and supervises some 1,900 “national” banks throughout the country.
As part of the agencies’ annual review, “Jeff Bank” President Ray Walter said the OCC determined the bank isn’t implementing policies and procedures as fast as they’d like them to.
“They didn’t find anything wrong with the loans and things like that… financially, we’re obviously very sound,” he said.
But Walter said the 10-branch Jeff Bank is being put on a level with larger banks because of its size – and the OCC is expecting more of a corporate attitude toward banking.
Last year, Jeff Bank had to begin complying with the new Sarbanes Oxley (SOX) Act, the Public Company Accounting Reform and Investor Protection Act of 2002 signed into law in response to the Enron and Tyco accounting scandals.
The act called for public companies (such a Jeff Bank, which is traded on the New York Stock Exchange as Jeffersonville Bancorp) to evaluate and disclose the effectiveness of their internal controls as they relate to financial reporting, and that independent auditors for such companies attest to such disclosure.
That took up a lot of Jeff Bank’s attentions, Walter said, and they concentrated on full compliance.
“Being a small bank, you only have so many resources,” he said.
But the OCC’s yearly review determined there are more pressing policy changes that need to be put in place.
The OCC called for Jeff Bank’s board to sign a “formal agreement” vowing to put the changes called for into effect.
There were no fines or penalties, Walter said.
“Basically, the board signed this saying, ‘yes, I promise we will do it this time around’,” he said. “And now we’re going to address the different policies they came up with.”
Broken down into several subsections, the agreement calls for changes to the way the bank’s loan department is set up, including the clear definition of the job of the senior lending officer.
“She was doing a lot of underwriting of loans in addition to monitoring the department,” Walter explained. “They felt she was spread a little too thin.
“Unfortunately – or fortunately, depending on which way you look at it – they want us to be a little more like the big banks.”
That means taking familiar faces like that senior lending officer out of the public eye, where she meets with potential customers as she has for years, and putting her back into an office.
The bank is also in the process – according to the agreement – of developing written plans to analyze risks in its loan portfolio and more rigorously follow the federal Bank Secrecy Act and its dealings with the Office of Foreign Assets Control.
That means the bank will have to demand more information from its customers – especially those deemed “high risk.”
Gone are the days of “banking with the personal touch, where your hometown spirit means so much.”
“That’s always been the special thing about us,” Walter said. “We knew the people and could deal with the local situations, probably better than the big banks could.
“But they think we’re a big bank now, and they want us to play by the same rules.
“It’s not our style of banking,” he continued. “It’s going to make it a lot more difficult to serve the community… we’ll have to follow more strict rules.”
“We can’t blow this off,” he said of the formal agreement. “It is serious.”
But Jeff Bank is still holding steady, he said.
Compared to other banks of similar size, the Jeff Bank’s earnings are significantly higher, their losses significantly lower.
For the quarter ending September 30, 2006 the bank increased its assets $19,186,000 (or 5 percent) to just under $400 million.
Net income in the same quarter was $1.358 million.