Landmark Fires Loan Officer, Adds to Loss Reserves

Landmark Bank has dismissed a loan officer after the bank discovered at least $4.5 million in unauthorized loans, bank officials said Tuesday.

The bank’s holding company said it will add $3.2 million to its loan loss reserves to cover potential losses, which will erase most of the company’s profit for the year.

The small bank, which has never had an annual loss, still expects to post a small net profit for 1991, said Craig Collette, president of the 13-year-old bank.

Collette said Landmark was publicizing the situation because “word has gotten around that we had such a good year and we didn’t want anyone buying stock” based on the assumption that Landmark would post a larger profit.

For the nine months ending Sept. 30, Landmark Bancorp’s earnings fell 7% to $1.4 million, or 93 cents per share, from $1.5 million, or $1.02 per share.

Over-the-counter trading in Landmark shares was halted on news of the unauthorized loans.

Collette said that Landmark’s financial stability has not been damaged. The bank’s $17.7 million in capital remains well above the minimum regulatory requirements.

Landmark had assets of $245 million on Dec. 31 and has posted an annual profit each year since it opened in January, 1979.

The unauthorized loans were made by the former employee over a period of several months, Collette said, and were discovered during a routine internal audit.

The loan officer was terminated Dec. 13 when an internal audit uncovered the improper loans to a dozen small businesses. Collette said the bank’s lawyers have advised him not to publicly identify the loan officer, whom he described as one of several vice presidents in the bank’s middle-management team.

Landmark has not yet discovered what link, if any, existed between the loan officer and the borrowers, he said.

The loans, which averaged $375,000 each, were made to Southland businesses that Collette described as “newer and less established than we like to do business with.”

He would not identify any of the borrowers.

The loan officer approved the loans in violation of internal regulations that required them to be reviewed by the bank’s lending committee, Collette said.

He said the matter has been reported to local law enforcement officials as well as to state and federal bank regulators.

After discovering the improper loans, the bank tried to determine “whether we had true borrowers” or were the victim of a loan scam, Collette said.

“We have determined that we do have real borrowers,” he said, “and now we are looking at their collateral and financial condition. In some cases, things are fine, but in some we are not sure yet.”

He said as of Tuesday bank officials had determined that at least $1.3 million of the unauthorized loans were secured by adequate collateral.

Because 1991 ended before the collateral for the remaining $3.2 million in loans could be determined, Landmark added that sum to its loss reserves for the year.

“We may recover some, even most, of that money” in 1992, Collette said.