Another Missouri Bank Fails

The Missouri Division of Finance and the FDIC on Friday announced the closing of Hume Bank, of Hume, Mo., with the FDIC being named receiver. All of the institution's insured deposits were taken over by Security Bank of Rich Hill, Mo.

This is the second bank failure this year. The first was Douglass National Bank, of Kansas City, in late January.

TheStreet.com had downgraded Hume Bank to a D rating (weak financial strength) in December 2007. We now know that our rating was based on false information, the extent of which was only recently discovered by bank examiners.

According to D. Eric McClure, the Missouri Commissioner of Finance, there was "some widespread mismanagement" at Hume Bank, by its former management, which was replaced last summer. Problem loans were under-reported and the bank was even creating false records to indicate that payments were received when they were never collected.

Hume Bank's former president, Jeffrey W. Thompson was banned from the industry by Mr. McClure's office in August 2007.

Mr. McClure stated that the bank's new management had signed its December 31, 2007 call report in good faith, but the extent of the former management's improprieties was not discovered until recently. The losses from problem loans "exhausted the bank's capital and ultimately resulted in its failure."

The institution had $1.1 million in uninsured deposits. While depositors had immediate access to insured funds through Security Bank, they became creditors to the receivership for any uninsured balances. Any money recovered on uninsured balances after a bank failure is termed a "dividend."

In some bank failures, depositors have received immediate dividends for a portion of their uninsured deposits. However, David Barr, the FDIC's assistant director for public affairs confirmed that there would be no advance dividends for Hume Bank's uninsured depositors.

When asked about the likelihood of the depositors recovering a significant portion of uninsured balances, Mr. McClure said he was "not optimistic in this case."

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