Guided by the old adage that you shouldn’t keep all your eggs in one basket, the Oxford Village Council is looking to spread its approximately $5 million around.
‘All of our funds are in one bank right now,? said village Manager Joe Young.
And that institution is Oxford Bank, which has suffered from falling stock prices and a troubled public image after it was announced in late June that the 124-year-old financial institution is under an agreement with state and federal regulators because of a sharp increase in delinquent mortgages
On Friday, the council convened a special 2 p.m. meeting to discuss the diversification of its deposits and investments.
Council voted 5-0 to authorize Young and the village clerk to provide information, recommendations and the necessary authorization forms at the next meeting with regard to various deposit and investment options.
‘I certainly can’t fault them for being diligent or being concerned only because of what they’ve read,? said Jeff Davidson, president, CEO and chairman of Oxford Bank.
However, Davidson was ‘disappointed? the village didn’t come to him first. The village didn’t even contact the bank about the special meeting. It was informed via a third party.
‘What I would expect, because we’ve had such a long and very mutual relationship, is that they might have given us a buzz or at least given me the opportunity to sit face-to-face with the people that had the questions to see if I could satisfy them,? Davidson said.
Davidson was particularly surprised by Friday’s meeting because he spoke with Young about a week or 10 days ago regarding some council members who had questions. Davidson told him he’d be happy to sit in front of council and answer any questions.
Young told him that wasn’t necessary and there was ‘strong support? for the bank, according to Davidson.
A July 20 letter from the village’s auditing firm, the Flint-based Lewis & Knopf, apparently contributed to council’s decision.
‘In relation to the current banking and finance environment, we are asking clients to review their current policies and procedures in relation to deposits and investments,? the letter read. ‘We believe it is always prudent to regularly meet with your investment advisors to attempt to minimize your risks to the extent (its) practical. During these uncertain times it is even more important.?
Currently, the village has approximately $5 million in Oxford Bank ? $2.5 million in a Certificate of Deposit (CD), which is paying 2.95 percent interest now, and the other $2.5 million is numerous checking accounts, all of which earn just under 2 percent interest.
‘All our funds are earning interest,? the manager noted.
The Downtown Development Authority also has a $250,000 CD at Oxford Bank.
By keeping all of its money in Oxford Bank, the village appears to be contradicting the investment policy council adopted in March 2006, which states, ‘It is the policy of the village to diversify its investment portfolios.?
‘Assets held in the common cash fund and other investment funds should be diversified to eliminate the risk of loss resulting from over concentration of assets in a specific maturity, individual financial institution(s) or a specific class of securities.?
However, Young pointed out Oxford Bank is the only bank on the village’s list of qualified financial institutions approved for the municipality’s investment purposes.
Right now, if something were to happen to Oxford Bank, even though the village has $5 million there in numerous accounts, Young said the most the municipality could receive in insurance compensation from the Federal Deposit Insurance Corp. (FDIC) would be a maximum of $200,000 ? $100,000 for the CD and $100,000 for the checking accounts.
It appears the village’s sudden decision to look into diversification of its funds was prompted by more than just a letter from the auditor and a two-year-old investment policy.
‘What was the urgency of this meeting today?? asked Councilman Tony Albseni.
‘Our attorney advised us to move promptly, to say the least, on this matter,? Young replied.
The whole point of calling a special meeting on Friday was to give Young some direction so council could act at its Aug. 12 meeting or sooner, if necessary.
‘I don’t know what he (the village attorney) would know that I don’t,? Davidson told this reporter.
Davidson noted the bank just filed its first progress report with the FDIC and ‘we’re progressing in a positive way.?
An FDIC representative from Livonia came to Oxford and reviewed the report before it was sent out. ‘He was very excited and encouraging about the progress we had made,? Davidson said.
During Friday’s meeting, council asked Michael Jabour, the Oxford Bank senior vice president and retail banking officer, what he thought of looking into diversification.
‘The strategy of spreading funds, I think, is prudent,? said Jabour, who noted he ‘just found out about the meeting a half-hour ago.?
Davidson said even during good times, CPAs suggest governments and others diversify their funds.
Young gave council a brief description of three options he’ll be exploring.
One is an investment pool offered by Merill Lynch, which consists of 97 different banks. The $2.5 million the village has in a CD at Oxford Bank could be spread over numerous different banks, each receiving up to $98,000 worth of village funds. The idea being each account would be insured by the FDIC for up to $100,000.
Under this option, the village could earn between 2.5 and 3 percent in interest depending on the length of the investment.
Another option is to place village funds in federally-secured investments like treasury bills. Although they are a safe investment, unfortunately, they only pay about 1.3 to 1.4 percent in interest, according to Young.
A third option would be for the village to spread its money over five or six local financial institutions. Young noted the village has been gathering information from Citizen’s Bank, Chase, Comerica, Flagstar and T&C Federal Credit Union.
Davidson offered a word of caution.
‘There’s a lot of banks out there that haven’t been as open as we have been,? he said.