Columbia bank still needs millions to meet FDIC mandate

Struggling Maury County lender Community First posted a small profit in the second quarter after booking a $529,000 gain on the sale of investment securities.

The Q2 profit of $351,000 helped Community First, which is laboring under enforcement actions from both the Federal Deposit Insurance Corp. and the Federal Reserve, lift its capital levels above the thresholds required by the FDIC to avoid so-called prompt corrective action. But bank executives said this week in a filing that the bank still needs $16.8 million in Tier I capital — essentially common stock and retained earnings — in order to meet the FDIC’s mandate.

As said before, Community First President and CEO Louis Holloway and his team are looking at a number of different options to get there. Those include a very dilutive stock sale and branch dispositions — after unloading their Murfreesboro site, a deal to sell their Cool Springs location to CapStar fell through this summer — as well as an outright sale of their company. (The Cool Springs branch is still on the market.)

Another way to raise capital ratios is to shrink the bank, something Holloway and his team also have been doing by selling loans and shedding deposits. The company’s assets ended June 30 at $574 million, down from $617 million at the end of 2011. As a result, net interest income in the second quarter was $4.2 million, down from $5 million last year.

It's unlikely either the dispositions or the shrinking strategy will close the $16.8 million gap anytime soon. And while helping the bank’s ratios in one way, the latter also hurts in another way.

“The reduction in loans contributes to the excess liquidity that the Bank is currently carrying,” reads the company’s quarterly filing with the Securities and Exchange Commission. “Current market rates for new investments in securities are very low, which also contributes to compressed net interest margin as the Bank is forced to reinvest funds received from higher rate securities when they mature or are called. Management anticipates that this trend will continue through the remainder of 2012 or until there is a significant economic change in the Bank’s market that results in increased loan demand.”