Apr. 18--PANAMA CITY, Fla. -- BONIFAY -- The Bank of Bonifay's primary plan to raise capital was nixed earlier this month, leaving the Holmes County bank with one less option to improve its financial health.

The Bank of Bonifay ended a sale agreement with Protective Life, a $39.5-billion Birminghambased life insurance company, on April 1. Protective Life's purchase of the bank hinged on the insurer getting federal bailout money, which the Treasury Department never committed to.

The Bonifay-Protective deal, struck in November, was set to link two institutions in need of capital. Protective, like a number of large insurancecompanies,wantedaccess to Troubled Asset Relief Program funds,thefederalbankbailoutmoney. That money was designated by the Treasury Department for banks or bank holding companies, though, which led a number of insurers to try to acquire banks to qualify.

The Treasury h a d b e e n reluctant to state definitively if it would extend TARP funds to insurance c o m p a n i e s , though, which left Protective's p r o s p e c t i v e bank purchase in limbo. A week after the sale agreement died the Treasury announced it would extend bailout money to insurers, but it's unclear of Protective Life would have been deemed "too-big-to-fail."

"The issues that they're worried about are systemic risk," said Steve Turner, managing director with Novantas, a financial consulting firm. "Could the insurance companies ... end up in a situation where they are unable to fund themselves, or they start to see their policy holders withdraw?"

Turner was skeptical of the plan to extend aid to insurers as well as banks.

"The Treasury has a finite number of tools to help ... one would question w h e t h e r s u p p o r t i n g i n s u r a n c e companies right now is critical, and whether or not they might be better off holding on to the tools that they have available, a remaining $35 billion in TARP funds, until there's a need. ... and certainly Protective Life doesn't fall into the same category as a Metlife or Prudential."

The oldest state-chartered bank in Florida, Bank of Bonifay lost $3.6 million in 2008 after losing more than $2.6 million in 2007. Its capital levels are "adequate" according to federal guidelines, but adequate is not necessarily a good thing.

The bank's risk-based capital ratio, the percentage of easy-toaccess assets like cash that the bank has on hand to cover any potential losses, stood at 9.57 percent at the end of 2008, according to the Federal Deposit Insurance Corporation. Regulators begin to monitor a bank's practices more closely when that ratio falls below 10 percent.

Mike Medley, chairman of the board for the Bank of Bonifay, said in March the bank had a backup plan to draw capital from investors. Medley was not available to talk last week. Protective Life spokeswoman Eva Robertson did not return several phone calls.

Like most struggling banks in the Panhandle, the Bank of Bonifay was hit hard by the crashing real estate market. The bank, which has $230 million in assets, had $13,960,000 in nonaccrual loans, defaulted loans which likely will not be paid back, and another $14,048,000 in non-current loans, which are 90 or more days past due, at the end of 2008.

The nonaccrual number is a function of flagging real estate prices, the bank had $267,000 in those bad loans after 2005, then $589,000 after 2006 and $8,428,000 after 2007.

The bank's health should come into more focus in the near future, when first quarter call reports are released by the FDIC.

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