The parent of Bank of Indiana, which at one time was among the biggest U.S. Small Business Administration lenders in the state, has filed for Chapter 11 bankruptcy reorganization and plans to sell its four branches to Converse-based First Farmers Bank & Trust.
Indiana Bank Corp., which has executive offices in downtown Indianapolis and until recently ran a branch here, listed assets and liabilities of less than $10 million in a filing Tuesday afternoon in U.S. Bankruptcy Court in Indianapolis.
First Farmers Bank & Trust, which is based near Marion and has $1.1 billion in assets, expects to receive regulatory approval by the end of the third quarter to buy Bank of Indiana’s offices in Dana, Bargersville, North Judson and Hamlet.
“The operational focus and service market areas of Bank of Indiana fit very well into the market footprint of First Farmers Bank & Trust,” First Farmers CEO Gene Miles said in a statement.
The bankruptcy and planned branch sale bring to a close Bank of Indiana management's quest to turn around an institution buffeted by borrower defaults during the financial crisis.
Bank of Indiana grew explosively after a group of mostly Indiana investors bought and renamed the tiny First National Bank of Dana in Vermillion County in 2006, then broadened its focus to include central Indiana.
As of last April, Bank of Indiana had $90 million in deposits, $55 million in loans and assets of $108 million.
The investors who funded the expansion by plowing $10.5 million into Indiana Bank Corp.have suffered steep losses. However, more detailed information on Indiana Bank Corp.'s finances won't be filed until late this week or early next week, said Jeffrey Hokanson, an attorney at Frost Brown Todd LLC representing Indiana Bank Corp.
A letter sent to shareholders of privately held Indiana Bank Corp. said First Farmers will buy a significant portion of Bank of Indiana’s assets and assume deposit liabilities.
The value of the deposit liabilities First Farmers is assuming likely will exceed the value of the assets the bank is acquiring, Indiana Bank Corp. CEO Joseph Montel said in the letter. As a result, he said, “the Bank will therefore need to sell additional Bank assets to fund [Farmers’] assumption of Bank deposit liabilities to the close the transaction."
The letter did not specify the nature of those assets, and Montel could not be reached for comment Wednesday morning.
In the shareholder letter, Montel wrote, “While Indiana Bank Corp. cannot meet its obligations to creditors, your bank deposits remain safe and the bank is adequately capitalized."
Jeff Dutton, a spokesman for Bank of Indiana, said the bank “did not fail” and emphasized that it is the holding company that landed in bankruptcy.
“This filing had nothing to do with Bank of Indiana, which is in excellent shape and poised for even more success once the [acquisition by Farmers] is approved,” Dutton said.
Bank officials have said that a series of borrower defaults hurt the institution just as the overall economic climate turned bleak. It also fell victim to fraud involving an Illinois loan broker who now is in federal prison.
The 40-employee bank also had its share of legal battles. In 2010, Bank of Indiana sued Estridge Cos., alleging it committed securities fraud by failing to repay the bank’s $1 million investment.
Since 2009, Bank of Indiana operated under a formal agreement with the Office of the Comptroller of the Currency that required it maintain a specified level of capital.
In 2011 the bank hired Indianapolis attorney Montel as CEO and to lead a review of the bank’s entire loan portfolio. The bank allocated about $5 million for loan-loss provisions, a large amount relative to its modest $108 million in assets.
The cleanup underway by Montel helped improve the strength of the bank, although the holding company took a hit to its reserves. It couldn’t muster $166,000 in interest due in the first quarter of 2012 on more than $12 million in convertible notes issued in 2007.
The buyer of Bank of Indiana's branches, First Farmers Bank & Trust, has 24 locations in Indiana. It focuses on agricultural and small business lending.
“We are excited about the opportunity to incorporate these locations, employees and customers into our organization,” Farmers’ President Miles said.