Main Street Banks announces additional charges
By MortgageDaily.com staff
6/10/2005

A former lending officer at an Atlanta-based bank is being blamed for millions of dollars in losses and the closing of a subsidiary.

Main Street Banks Inc. announced Wednesday that it expects its loan loss provision expense to increase by $2.3 million in the second quarter.

The community bank announced late last year it had identified a problem relationship with one of its former loan officers, where loans totaling approximately $2.5 million were originated outside its lending policies. At that time the company anticipated its fourth quarter 2004 income would be reduced by $1.6 million and that its financial results in 2005 would be unaffected.

But higher levels of nonperforming loans due to this problem portfolio late in the first quarter prompted Main Street to begin an extensive internal review of the portfolio, it said.

Based on the review, Main Street concluded it would take a net pretax loss of $1.8 million in addition to $0.5 million it will need in specific reserves for other problem loans it identified, according to the announcement.

"We are extremely disappointed by the additional losses in this problem portfolio and their resulting impact on our operating performance in 2005," said company President and CEO Samuel B. Hay III in a written statement. "However, we are confident that we have identified all material loan problems in this former loan officer's portfolio and that this problem will be behind us after the second quarter of 2005."

To offset the expenses it will incur the second quarter, Main Street said it will close its loan settlement services subsidiary, Piedmont Settlement Services. The subsidiary's staff and systems will be merged into its banking subsidiary "to aid in the centralization of consumer loan document preparation and to improve corporate efficiency."

Including legal expenses, Main Street said the total after-tax impact on second quarter earnings is expected to be $1.5 million.

"To prevent the reoccurrence of similar lending policy violations and problems in the future, we have committed significant resources and taken major steps to strengthen our credit culture and to improve all processes in credit administration," Hay added.

Among those steps are an increase in loan review and problem credit staff, implementation of an automated system to detect the company said related debt among common borrowers, and installation of construction loan software.

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