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FDIC Enforcement Decisions and Orders |
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The FDIC Board adopts ALJ's recommendation and terminates the insured status of Bank found to be operating in an unsafe and unsound condition without realistic prospects for significant, immediate improvement in its capital condition.
[.1] Termination of InsuranceViolation of Cease and Desist Order
[.2] Termination of InsurancePost-Examination Evidence
[.3] Termination of InsuranceTime for Correction
In the Matter of
This is a proceeding to terminate the insured status of Chickasha Bank & Trust Company, Chickasha, Oklahoma (the "Insured Institution" or "Respondent"), pursuant to section 8(a) of the Federal Deposit Insurance Act (the "FDI Act"), 12 U.S.C. § 1818(a). The Insured Institution consented to a Cease-and-Desist Order ("Order") after an examination as of September 23, 1988 ("Examination I"), revealed continued inadequate capital and an excessive level of poor quality assets. The Federal Deposit Insurance Corporation ("FDIC") and the Oklahoma State Banking Department ("State") conducted a joint examination as of September 15, 1989 ("Examination II"), to determine compliance with the Order.
Respondent submitted a Request for Oral Argument before the Board with its Exceptions to the Recommended Decision. Pursuant to 12 C.F.R. § 308.43, the grant of a request for post-hearing oral argument is an extraordinary matter within the sole discretion of the Board.
The ALJ recommends that the Board "issue the attached Order terminating the Bank's insurance...." R.D. at 15. The ALJ found that, "[e]ven accepting [Bank President] Pettigrew's statements as true, the Respondent continues to have substantially inadequate capital, even for a well-managed bank without serious financial problems...the Bank is in an unsafe and unsound condition and ... its Federal Deposit Insurance ought to be terminated." R.D. at 4. The ALJ considered two post-hearing affidavits submitted by Respondent, admitting2 the first affidavit into evidence. He found that "the decision to terminate a bank's insurance is of the utmost seriousness and should be based upon a full consideration of all reasonably available evidence." R.D. at 3 and 4.
The Respondent is an insured State nonmember bank located in Chickasha, Oklahoma, with approximately $44 million in assets. Tr. at 3; FDIC Ex. No. 17, p.3; R.D. at 18. Following Examination I3 in Septem-
The FDIC has the authority under section 8(a) of the FDI Act, 12 U.S.C. § 1818(a), to terminate a financial institution's insured status upon a finding that it is in an unsafe or unsound condition or that it has violated a written agreement with the FDIC. In this proceeding, it is the Insured Institution's capital inadequacy, high volume of adversely classified assets, inability to comply with the Order, and lack of prospects for an immediate infusion of new capital that require termination of federal deposit insurance.
[.1] A. The ALJ Properly Found that FDIC Enforcement Counsel have Established that Respondent is in an Unsafe and Unsound Condition and that it has Violated Terms of the Cease-and-Desist Order.
Resp. Ex. 32, pp. 23; FDIC Ex. 1, pp. 23; FDIC Ex. 17, pp. 23; Tr. at 3033, 4143.
B. Exceptions
[.2] FDIC Enforcement Counsel's Exception challenged the acceptance of the Respondent's First Monthly Affidavit into evidence, asserting that if additional financial information is necessary, the document submitted should be either a Call Report or a Report of Examination. In previous termination of insurance actions the Board has accepted post-FDIC examination evidence as to an institution's current financial condition. However, that evidence has been in the form of current Call Reports and state reports of examination. This type of evidence is significantly different in nature, both as to reliability and objectivity, than the affidavits at issue in this proceeding. While the Board concurs with the ALJ's decision to accept the first affidavit in evidence (and to reject the second for the reasons stated), the inherently self-serving and one-sided nature of the affidavits raises questions as to the weight to be accorded such evidence. However, as the ALJ concluded, even if the two affidavits are taken at face value, they simply do not establish that the Insured Institution is no longer in an unsafe or unsound condition and no longer a threat to depositors and the insurance fund.
[.3] C. Time for Correction is not Available under FIRREA
D. Respondent's Request for Stay
Respondent has requested that the Board stay the "effectiveness of any such order terminating insured status...to permit the Bank the opportunity to appeal." Resp. Exc. at 5. However, Respondent has not provided any reasonable justification for such a stay. The record before the Board reveals a financial institution in a lengthy and continual decline. Despite its attempts, it has been unable to attract the additional capital necessary for it to survive as a viable institution. Delay in the termination of the insured status can only prolong the harm and increase the risk to depositors and to the insurance fund.
The evidence in this record obviates the Respondent's assertion that the Insured Institution is improving. The evidence supports the ALJ's findings that the Respondent's capital-to-asset ratio is too low; that the Respondent has an excessive volume of adversely classified assets; that the Respondent's current condition is at best the same as in September 1989 when it was assigned a CAMEL rating of 5 and it stipulated to the Cease-and-Desist Order, with which it has not complied; and that even accepting the Respondent's assertions in their post-hearing affidavits, "the Bank has an insufficient capital cushion given the poor quality of its assets" resulting in the determination that the "Bank is now and has been operating in an unsafe and unsound condition." R.D. at 13. The Board, therefore, adopts the ALJ's findings and concurs with the ALJ's conclusion that the Insured Institution is in an unsafe or unsound condition within the meaning of 12 C.F.R. § 325.3. R.D. at 79 and 1314. Absent an infusion of capital that has not been forthcoming, the deposit insurance of the Insured Institution should be terminated. Inasmuch as the Insured Institution has been in a steadily declining financial condition and has been unable to attract the necessary capital for the past several years, there is nothing in this record to indicate that this trend will end and that the Insured Institution will find a source of new capital in the immediate future. Therefore, the Board hereby enters an order terminating the insured status of the Insured Institution.
IT IS HEREBY ORDERED, that the insured status of Chickasha Bank & Trust Company, Chickasha, Oklahoma, is terminated effective as of the close of business sixty days from the date of this Order.
July ____, 1991
There may be included in such notice, with the written approval of the FDIC, any additional information or advice the Respondent may deem desirable.
In the Matter of
Statement of the Case
The Respondent is a small commercial bank which has been in existence since 1973. It is one of three banks located in Chickasha, Oklahoma, a town of about 16,000, 45 miles from Oklahoma City.
This case is about capital adequacy and asset quality. In brief, the record evidence overwhelmingly points to the conclusion that the Bank's capital is and has been inadequate, particularly for the high level of classified assets it holds. Further, the evidence shows that these conditions have existed with a generally downward trend for the last 5 years; and, there is no compelling evidence (including the Respondent's posthearing affidavits) that the Bank's condition will improve significantly in the foreseeable future.
In 1986, Grady County (where the Bank is located) issued general obligation bonds, $3,500,000 of which the Bank purchased. On December 29, 1989, a lawsuit was filed, the essence of which contested the legality of the bond issue and the Bank was made a party defendant. In the examination of October 12, 1990, this $3.5 million asset was classified substandard essentially on grounds that if plaintiffs are successful the bonds could be cancelled or rescinded and in such a case it would be difficult to predict their value.
At the 1989 examination, the FDIC required the Bank to charge off a loan to Dr. Don Hess in the amount of $50,038.74. Subsequently, the Bank appealed this ruling to the Oklahoma State Banking Commissioner who permitted rebooking of $42,538.74 of this credit, which represented the chargedoff amount minus six payments which had been received (R. Ex. 94). In the 1990 report, the FDIC again required the Bank to charge off this loan in the amount of $35,000, and again the Respondent appealed to the
The Respondent argues that if its capital should be found inadequate, rather than terminate its insurance, which would surely result in its going out of business, another period of correction ought to be ordered. The Respondent maintains that it has at least adequate management which should be able to raise additional capital. It also notes that the trends are moving in a positive direction.
1. The Bank is a State nonmember bank existing and doing business under the laws of the State of Oklahoma and has its principal place of business in Chickasha, Oklahoma (Joint Ex. 1, No. 1).
1. The FDIC has jurisdiction over the Bank and this action, pursuant to the Act, 12 U.S.C. §§ 1811-1831(k), and the FDIC Rules and Regulations, 12 C.F.R. Chapter III.
In the Matter of
IT IS HEREBY ORDERED, that the insured status of Chickasha Bank & Trust Company, Chickasha, Oklahoma ("Bank"), is terminated effective as of the close of business sixty days from the date of this Order Terminating Federal Deposit Insurance ("Order").
1. The status of the Chickasha Bank & Trust Company, Chickasha, Oklahoma, as an insured depository institution, under the provisions of the Federal Deposit Insurance Act, will terminate as of the close of business on the ____day of ____, 1991;
There may be included in such notice, with |
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Last Updated 6/6/2003 | legal@fdic.gov |
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