Freedom Bank gets in trouble with feds: Institution corrected issue, its president says

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STERLING – Despite a hard slap on the wrist from federal regulators, Freedom Bank is in no danger of closing and customers’ money is safe, officials there said Wednesday. 

Well before September’s order from the Federal Deposit Insurance Corp. to “cease and desist  from engaging in unsafe and unsound business practices,” Freedom Bank made necessary adjustments to meet FDIC requirements, bank President Dave Barajas Jr. said Wednesday.

The bank lost its well-capitalized rating, the highest possible from the FDIC, in February, after some mortgage-backed investments went bad.

When the bank made the investments 3 years ago, it had a AAA rating, the highest possible. After the downturn in the economy brought on by so-called toxic mortgages, the investments lost that AAA rating. Freedom Bank, along with sister banks in Moline and Florida, had $12 million invested in those securities.

To meet regulatory demands from the FDIC, Freedom Bank had to get rid of those investments, Barajas said. The bank sold them at a loss of about $500,000.

The bank then reinvested the money into other AAA-rated investments and regained its “well-capitalized rating” in June.

“We are above the top tier, and that’s where we’ll stay,” Barajas said.

Capitalization ratings are based on how much capital, or money, a bank has to cover any financial liabilities. Banks also can be rated “adequately capitalized” or “undercapitalized.”

As of the end of June, Freedom Bank had about $86.2 million in assets.

Barajas wants to reassure customers that their money is safe.

“People shouldn’t have any concerns in regard to the bank: We’re strong, we’re stable and moving ahead,” Barajas said.

The cease-and-desist order was issued in September. In it, the FDIC required the bank to write profit, budget and liquidity plans, and provide quarterly reports.

Barajas expects to have fulfilled all of the FDIC requirements by the end of March.

“We just had our best month of the year, and we’re going to finish off with our best quarter of the year,” he said. “Things are going in a positive direction; we feel very strong, very confident about it.”

The bank, which has about a dozen employees at branches in Sterling, Rock Falls and Seaton, chose not to accept federal bailout, or Troubled Asset Relief Program, money.

“We decided this was a small challenge that we have to deal with, and we’re going to do it the old-fashioned way – we’re going to deal with it in-house.

“We didn’t ask for any help, and I’m proud of that.”

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