Fed hits fast-growing community bank with enforcement action

Bloomberg News

The Federal Reserve Board of Governors issued a cease and desist order against a fast-growing community bank in Indiana.

The Fed announced its enforcement action against United Fidelity Bank — a $6.4 billion bank based in Evansville, Indiana — on Tuesday morning, citing bank management and other concerns. 

The order comes after the Office of the Comptroller of the Currency — the bank's primary regulator — issued a similar citation last October. Following that action, a vice president with the bank told a local newspaper that the issue stemmed from the bank growing faster than regulators were comfortable with. 

"The bank was highly successful in its affordable housing finance activities and as a result, the bank grew very quickly," Angie Peters, United Fidelity vice president of marketing, told Current Publishing. "Over the past two years, the bank has generated approximately $200 million in profits — well in excess of our peer banks. Despite the financial performance, our regulator, the Office of the Comptroller of the Currency, was concerned about the pace of that growth."

The failures of Silicon Valley Bank and Signature Bank in 2023 — and more recent upheaval at New York Community Bank, which acquired Signature, earlier this year — have increased regulatory scrutiny of banks that are growing quickly. In those cases, the pace of the bank's growth often exceeded their ability to keep up with regulatory requirements that are expected of larger banks.

Pedcor, a real estate construction and finance firm affiliated with United Fidelity's parent company, Pedcor Financial, did not immediately respond to a request for comment on Tuesday. 

United Fidelity's rapid growth in recent years is not due to its affordable housing business alone: The bank has also acquired eight banks during the past decade, including Community Banks of Shelby County in Cowden, Illinois, in 2022; City Bank Federal Savings Bank in Long Beach, California, in 2021; and First City Bank of Florida in Fort Walton Beach, Florida, in 2020.

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Five of its acquisitions have been government-assisted mergers of banks failed by the Federal Deposit Insurance Corp., accounting for more than $278 million of deposits. 

Pedcor Financial, a savings and loan holding company, is the upper tier holding company for United Fidelity. It owns Pedcor Financial Bancorp, a registered savings and loan, which owns Fidelity Federal Bancorp, which owns United Fidelity. 

On its website, Pedcor highlights United Fidelity's "regulator knowledge, oversight and approval" as a point of distinction in its business model. It notes that the bank works with financial institutions across the country to expand its investments into affordable housing as well as "traditional community banking activities."

As is customary in enforcement actions, the Fed did not disclose specific issues at the bank. Instead, the agency outlined several criteria that the bank must meet for the cease and desist order to be lifted. The order called for the bank to make changes to its board oversight policies, including those related to risk management and adherence to applicable laws and regulations. 

The bank must put together a strategic plan and budget for meeting these obligations within the next 60 days and is prohibited from making dividend payments and other capital distributions until further notice.