Federal Deposit
Insurance Corporation

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[¶ 10,582C] In the Matter of Patsy Bostwick, P.T. Bostwick, James M. Gaines, L. Mitchell Conner, John C. Dallas, James Jackson, Jr., H.T. McClendon, and Ike Newberry, Jr., Bostwick Banking Company, Arlington, Georgia, Docket No. 92-133k (6-19-92)

   Respondents agree to pay civil money penalties assessed by the FDIC. This was an uncontested notice and became a final order by operation of law.

In the Matter of
PATSY BOSTWICK,
P.T. BOSTWICK,
JAMES M. GAINES,
L. MITCHELL CONNER,
JOHN C. DALLAS,
JAMES JACKSON, JR.,
H.T. McCLENDON and
IKE NEWBERRY, JR.,
individually, and as institution-affiliated parties of
BOSTWICK BANKING COMPANY
ARLINGTON, GEORGIA
(Insured State Nonmember Bank)
NOTICE OF ASSESSMENT OF CIVIL MONEY PENALTIES, FINDINGS OF FACT AND CONCLUSIONS OF LAW, ORDER TO PAY, AND NOTICE OF HEARING

FDIC-92-133k

   The Federal Deposit Insurance Corporation ("FDIC") is of the opinion that Patsy Bostwick, P.T. Bostwick, James M. Gaines, L. Mitchell Conner, John C. Dallas, James Jackson, Jr., H.T. McClendon and Ike Newberry, Jr., individually, and as institution-affiliated parties ("Respondents") of the Bostwick Banking Company, Arlington, Georgia ("Bank"), have violated section 22(h) of the Federal Reserve Act, as amended, 12 U.S.C. § 375b, and Regulation O of the
{{10-31-00 p.C-2482.11}} Board of Governors of the Federal Reserve System ("Regulation O"), 12 C.F.R. Part 215, promulgated thereunder and made applicable to insured State nonmember banks pursuant to section 18(j)(2) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1828(j)(2), and section 337.3 of the FDIC's Rules and Regulations, 12 C.F.R. § 337.3; section 323.4(a) of the FDIC's Rules and Regulations, 12 C.F.R. § 323.4(a); sections 7-1-285 and 7-1-286 of the Official Code of Georgia Annotated, Ga. Code Ann. §§ 7-1-285 and 7-1-286 (Michie 1989); and sections 80-1-5-.01(5), 80-1-13-.03 and 80-1-14-.01 of the Rules of the Georgia Department of Banking and Finance, Ga. Comp. R. & Regs. r. 80-1-5-.01(5), 80-1-13-.03 and 80-1-14-.01 (1989).

   Wherefore, the FDIC hereby issues this NOTICE OF ASSESSMENT OF CIVIL MONEY PENALTIES, FINDINGS OF FACT AND CONCLUSIONS OF LAW, ORDER TO PAY, AND NOTICE OF HEARING ("NOTICE OF ASSESSMENT", "ORDER TO PAY" and/or "NOTICE OF HEARING") pursuant to the provisions of sections 8(i)(2) and 18(j)(4) of the Act, 12 U.S.C. §§ 1818(i)(2) and 1828(j)(4), and Part 308 of the FDIC Rules of Practice and Procedure, 12 C.F.R. Part 308. In support thereof, the FDIC finds and concludes as follows:

A. GENERAL

   1. At all times pertinent to the charges herein, the Bank was a corporation existing and doing business under the laws of the State of Georgia, having its principal place of business in Arlington, Georgia. The Bank is and has been, at all times pertinent to the charges herein, an insured State nonmember bank subject to the Act, 12 U.S.C. §§ 1811-1831t, the FDIC's Rules and Regulations, 12 C.F.R. Chapter III, and the laws of the State of Georgia.

   2. At all times pertinent to the charges herein, Respondent Patsy Bostwick was a "director" and an "executive officer" of the Bank within the meaning of sections 215.2(c) and 215.2(d) of Regulation O, 12 C.F.R. §§ 215.2(c) and 215.2(d), and was an "institution-affiliated party" of the Bank within the meaning of sections 3(u) and 8(i)(2) of the Act, 12 U.S.C. §§ 1813(u) and 1818(i)(2).

   3. At all times pertinent to the charges herein, Respondent P.T. Bostwick was a "director" and an "executive officer" of the Bank within the meaning of sections 215.2(c) and 215.2(d) of Regulation O, 12 C.F.R. §§ 215.2(c) and 215.2(d), and was an "institution-affiliated party" of the Bank within the meaning of sections 3(u) and 8(i)(2) of the Act, 12 U.S.C. §§ 1813(u) and 1818(i)(2).

   4. At all times pertinent to the charges herein, Respondent James M. Gaines was a "director" and an "executive officer" of the Bank within the meaning of sections 215.2(c) and 215.2(d) of Regulation O, 12 C.F.R. §§ 215.2(c) and 215.2(d), and was an "institution-affiliated party" of the Bank within the meaning of sections 3(u) and 8(i)(2) of the Act, 12 U.S.C. §§ 1813(u) and 1818(i)(2).

   5. At all times pertinent to the charges herein, Respondents L. Mitchell Conner, John C. Dallas, James Jackson, Jr., H.T. McClendon and Ike Newberry, Jr. were "directors" of the Bank within the meaning of section 215.2(c) of Regulation O, 12 C.F.R. § 215.2(c), and all were "institution-affiliated parties" of the Bank within the meaning of sections 3(u) and 8(i)(2) of the Act, 12 U.S.C. §§ 1813(u) and 1818(i)(2).

   6. At all times pertinent to the charges herein, the Respondents exercised a controlling influence over the management, policies and practices of the Bank.

   7. The FDIC has jurisdiction over the Respondents, the Bank and the subject matter of this proceeding.

B. VIOLATIONS OF REGULATION O

   8. Pursuant to section 215.4(a)(1) of Regulation O, 12 C.F.R. § 215.4(a)(1), the Bank may not extend credit to any of its executive officers, directors, or principal shareholders, or to any related interest of such persons, unless the extension of credit is made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions by the Bank with other persons that are not covered by Regulation O and who are not employed by the Bank.

   9. On January 23, 1991, the Bank renewed an extension of credit to executive vice president P.T. Bostwick in the amount of $21,753. The renewed amount of this extension of credit included the sum of $2,185.79 in unpaid interest.
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   10. The renewal of the extension of credit by the Bank to P.T. Bostwick constitutes an "extension of credit" by the Bank to an executive officer within the meaning of section 215.3(a) of Regulation O, 12 C.F.R. § 215.3(a).

   11. At the time the Bank approved the renewal of the extension of credit to P.T. Bostwick described in paragraphs 9 and 10 hereof, persons not affiliated with the Bank were required to pay, on similar extensions of credit, all earned interest at the time of any renewal of the extension of credit by the Bank.

   12. The Respondents caused or permitted the Bank to renew the extension of credit to P.T. Bostwick described in paragraphs 9 and 10 hereof in violation of section 215.4(a)(1) of Regulation O, 12 C.F.R. § 215.4(a)(1), because the renewal was not made on substantially the same terms as those prevailing at the time for comparable extensions of credit to persons not affiliated with the Bank as the result of the inclusion of unpaid interest in the principal amount of the renewed extension of credit.

   13. Pursuant to section 215.4(b)(1) of Regulation O, 12 C.F.R. § 215.4(b)(1), the Bank may not extend credit to and/or for the benefit of an executive officer, director or principal shareholder, or any related interest of such persons, in an amount that, when aggregated with all other extensions of credit by the Bank to and/or for the benefit of the executive officer, director or principal shareholder, or any related interest of such persons, exceeds the greater of $25,000 or 5 percent of the Bank's unimpaired capital and unimpaired surplus, unless the extension of credit has been approved in advance by a majority of the Bank's entire board of directors with the interested party abstaining from the voting.

   14. From April 1, 1990, through June 30, 1990, five percent of the Bank's unimpaired capital and unimpaired surplus equaled $60,350 as computed by reference to the Bank's then most recent Consolidated Report of Condition and Income dated March 31, 1990.

   15. On April 21, 1990, the Bank permitted director L. Mitchell Conner to assume the obligation for repayment of an October 9, 1987 extension of credit by the Bank to Jean N. Bostwick in the amount of $128,113.

   16. The assumption of the aforementioned extension of credit by L. Mitchell Conner constitutes an "extension of credit" by the Bank to a director within the meaning of section 215.3(a) of Regulation O, 12 C.F.R. § 215.3(a).

   17. The extension of credit assumed by L. Mitchell Conner described in paragraphs 15 and 16 hereof exceeded 5 percent of the Bank's unimpaired capital and unimpaired surplus and the assumption was not approved in advance by the vote of a majority of the Bank's entire board of directors with L. Mitchell Conner abstaining from the voting.

   18. The Respondents caused or permitted the Bank to allow the assumption by L. Mitchell Conner of the extension of credit described in paragraphs 15 through 17 hereof in violation of section 215.4(b)(1) of Regulation O, 12 C.F.R. § 215.4(b)(1), because a majority of the Bank's entire board of directors failed to approve in advance the assumption of the extension of credit.

C. VIOLATIONS OF FDIC REGULATIONS

   19. Section 323.4(a) of the FDIC's Rules and Regulations, 12 C.F.R. § 323.4(a), provides that any real estate appraisal performed in connection with a "federally related transaction", as such term is defined in sections 323.2(e) and (g) of the FDIC's Rules and Regulations, 12 C.F.R. §§ 323.2(e) and (g), shall satisfy the minimum requirements specified in section 323.4(a) of the FDIC's Rules and Regulations, 12 C.F.R. § 323.4(a).

   20. During the years 1990 and 1991, the Bank made extensions of credit secured by real estate to the following individuals in the stated amounts:

   21. The extensions of credit granted by the Bank to the borrowers described in paragraph 20 hereof were each "federally related transactions" within the meaning of section 323.4(a) of the FDIC's Rules and Regulations, 12 C.F.R. § 323.4(a), in that each extension of credit was a real estate-related financial transaction involving the use of real property as security for the extension of credit by the Bank, a "regulated institu-
{{10-31-00 p.C-2482.13}}ton" as defined by section 323.1(b) of the FDIC's Rules and Regulations, 12 C.F.R. § 323.1(b). As such, each extension of credit required a real estate appraisal which satisfied the minimum standards specified in section 323.4(a) of the FDIC's Rules and Regulations, 12 C.F.R. § 323.4(a).

   22. The extensions of credit granted by the Bank to the borrowers described in paragraph 20 hereof were not supported by real estate appraisals which satisfied the requirements of section 323.4(a) of the FDIC's Rules and Regulations, 12 C.F.R. § 323.4(a), because the appraisals obtained by the Bank (1) were not sufficiently descriptive to enable the reader to ascertain the estimated market value of the subject real estate, (2) did not analyze in sufficient detail prior sales of the subject real property, (3) did not analyze a reasonable marketing period for the subject real estate, (4) did not follow a reasonable valuation method which included direct sales comparison, income or cost approaches to market value, and (5) did not contain sufficient documentation to support the appraiser's logic, reasoning, judgment and analysis.

   23. The Respondents caused or permitted the Bank to grant the extensions of credit to the borrowers described in paragraph 20 hereof in violation of section 323.4(a) of the FDIC's Rules and Regulations, 12 C.F.R. § 323.4(a), because the extensions of credit were not supported by real estate appraisals which satisfied the required minimum standards specified in the regulation.

D. VIOLATIONS OF STATE LAWS AND REGULATIONS

   24. Section 7-1-285 of the Official Code of Georgia Annotated, Ga. Code Ann. § 7-1-285 (Michie 1989), provides in pertinent part that the Bank shall not extend credit to any one person that, when aggregated with the amount of all other extensions of credit by the Bank to that person, exceeds (1) 15 percent of the Bank's statutory capital base, unless the entire amount of the extensions of credit is secured by good collateral or other ample security or (2) 25 percent of the Bank's statutory capital base.

   25. At the times pertinent to the charges herein and on and prior to January 29, 1991, 15 percent of the Bank's statutory capital base equaled $147,750 and 25 percent of the Bank's statutory capital base equaled $246,250. At the times pertinent to the charges herein and on and after January 30, 1991, 15 percent of the Bank's statutory capital base equaled $155,250 and 25 percent of the Bank's statutory capital base equaled $258,750.

   26. During the years 1990 and 1991, the Bank granted extensions of credit to the following individuals or companies in the stated amounts:

   27. Each of the extensions of credit granted by the Bank to the borrowers described in paragraph 26 hereof exceeded 25 percent of the Bank's statutory capital base as specified in paragraph 25 hereof.

   28. The Respondents caused or permitted the Bank to grant the extensions of credit described in paragraph 26 hereof in violation of section 7-1-285 of the Official Code of Georgia Annotated, Ga. Code Ann. § 7-1-285 (Michie 1989), because each extension of credit exceeded 25 percent of the Bank's statutory capital base.

   29. Section 80-1-5-.01(5) of the Rules of the Georgia Department of Banking and Finance, Ga. Comp. R. & Regs. r. 80-1-5-.01(5) (1989), provides that in determining whether an extension of credit in excess of 15 percent of the Bank's statutory capital base is secured by "good collateral and ample security", the lack of a perfected lien, inadequate insurance and the absence of required margins between collateral value and the amount of the extension of credit shall be prima facie evidence of inadequate security for the extension of credit. Moreover, extensions of credit secured by endorsement must be supported by a financial statement of the endorser, properly signed, which is not more than 18 months old and which reflects adequate income to service the extension of credit and unencumbered equity in property sufficient to protect the extension of credit.

   30. During the years 1990 and 1991, the Bank granted extensions of credit to the fol-
{{10-31-00 p.C-2482.14}}lowing individuals or companies in the stated amounts in excess of 15 percent of the Bank's statutory capital base as specified in paragraph 25 hereof:

   The aforementioned extensions of credit failed to satisfy the requirements of section 80-1-5-.01(5) of the Rules of the Georgia Department of Banking and Finance, Ga. Comp. R. & Regs. r. 80-1-5-.0(5) (1989), because the extensions of credit lacked proper lien perfection, were not supported by adequate appraisals of collateral and/or did not have the proper margins between collateral value and the amount of the extension of credit.

   31. The Respondents caused or permitted the Bank to grant the extensions of credit to the borrowers described in paragraph 30 hereof in violation of section 80-1-5-.01(5) of the Rules of the Georgia Department of Banking and Finance, Ga. Comp. R. & Regs. r. 80-1-5-.01(5) (1989), because the extensions of credit exceeded 15 percent of the Bank's statutory capital base and were not supported by "good collateral and ample security."

   32. Section 7-1-286 of the Official Code of Georgia Annotated, Ga. Code Ann. § 7-1-286 (Michie 1989), provides in pertinent part that a bank doing business in the State of Georgia may only make a regularly amortizing extension of credit secured by improved or unimproved real estate where the amount of such extension of credit does not exceed 90 percent of the fair market value of the real estate.

   33. On October 24, 1989, the Bank made a regularly amortizing extension of credit secured by real estate to Virginia Gleaton in the amount of $140,000. the proceeds of the extension of credit were used to purchase two condominiums located in the State of Florida having a fair market value of $70,300 and $72,200, respectively, 90 percent of the cumulative value of which equaled $128,250.

   34. The Respondents caused or permitted the Bank to grant the aforementioned extension of credit to Virginia Gleaton in violation of section 7-1-286 of the Official Code of Georgia Annotated, Ga. Code Ann. § 7-1-286 (Michie 1989), because the amount of the extension of credit exceeded 90 percent of the fair market value of the collateral real estate.

   35. Section 80-1-13-.03 of the Rules of the Georgia Department of Banking and Finance, Ga. Comp. R. & Regs. r. 80-1-13-.03 (1989), provides that a bank doing business in the State of Georgia may not place "Correspondent Funds" with another financial institution in excess of 15 percent of the bank's statutory capital base without the prior approval of the bank's board of directors or a committee thereof. For purposes of section 80-1-13 of the Rules of the Georgia Department of Banking and Finance, Ga. Comp. R. & Regs. r. 80-1-13 (1989), the term "Correspondent (or Federal Funds" shall mean "excess funds of one financial institution placed with another financial institution at interest and subject to immediate withdrawal."

   36. On or about December 31, 1990, the Bank sold "Federal Funds" in the cumulative amount of $3,870,000 to the Georgia Bankers Bank, Atlanta, Georgia, which amount exceeded 15 percent of the Bank's statutory capital base, without the prior approval of the Bank's board of directors or a committee thereof.

   37. The Respondents caused or permitted the Bank to sell the aforementioned "Federal Funds" in violation of section 80-1-13-.03 of the Rules of the Georgia Department of Banking and Finance, Ga. Comp. R. & Regs. 4. 80-1-13-.03 (1989), because the sale was not approved in advance by the Bank's board of directors or a committee thereof.

   38. Section 80-1-14-.01(2) of the Rules of the Georgia Department of Banking and Finance, Ga. Comp. R. & Regs. r. 80-1-14-.01(2) (1989), provides that the board of directors of every bank doing business in the State of Georgia shall elect an auditor who shall be charged with the responsibility for implementation of the bank's internal audit program and who shall provide a summary of audit activities to the bank's board of directors at least annually.

   39. During the year 1990, the Bank's internal auditor did not implement the bank's internal audit program and, furthermore, did not report a summary of audit activities to the Bank's board of directors.

   40. The Respondents caused or permitted
{{10-31-00 p.C-2482.15}} the Bank to violate section 80-1-14-.01(2) of the Rules of the Georgia Department of Banking and Finance, Ga. Comp. R. & Regs. r. 80-1-14-.01(2) (1989), by failing to require the Bank's internal auditor to implement the Bank's internal audit program and by failing to require the Bank's internal auditor to report a summary of audit activities to the Bank's board of directors for the year 1990.

   41. Pursuant to section 3(v) of the Act, 12 U.S.C. § 1813(v), the term "violation"includes any action (alone or with another or others) for or toward causing, bringing about, participating in, counseling or aiding or abetting a violation.

   By reason of the violations set forth in the NOTICE OF ASSESSMENT, the FDIC has concluded that civil money penalties should be assessed against each Respondent pursuant to sections 8(i)(2) and 18(j)(4) of the Act, 12 U.S.C. §§ 1818(i)(2) and 1828(j)(4). After taking into account the appropriateness of the penalties with respect to the size of financial resources and the good faith of each respondent, the gravity of the violations, the history of previous violations, and such other matters as justice may require, it is:

   ORDERED, by reason of the violations set forth in paragraphs 8 through 40 hereof, that a penalty of $1,000.00 be, and hereby is, assessed against Patsy Bostwick; a penalty of $5,000.00 be, and hereby is, assessed against P.T. Bostwick; a penalty of $1,000.00 be, and hereby is assessed against L. Mitchell Conner; a penalty of $1,000.00 be, and hereby is, assessed against John C. Dallas; a penalty of $1,000.00 be, and hereby is, assessed against James M. Gaines; a penalty of $1,000.00 be, and hereby is, assessed against James Jackson, Jr.; a penalty of $1,000.00 be, and hereby is, assessed against H.T. McClendon; and a penalty of $1,000.00 be, and hereby is, assessed against Ike Newberry, Jr., pursuant to sections 8(i)(2) and 18(j)(4) of the Act, 12 U.S.C. §§ 1818(i)(2) and 1828(j)(4).

   FURTHER ORDERED, that the effective date of this ORDER TO PAY be, and hereby is, stayed with respect to each Respondent until 20 days after the date of receipt of the NOTICE OF ASSESSMENT by the Respondent, during which time each Respondent may file an answer and request a hearing pursuant to section 8(i)(2)(H) of the Act, 12 U.S.C. § 1818(i)(2)(H), and section 308.19 of the FDIC Rules of Practice and Procedure, 12 C.F.R. § 308.19. An original and one copy of the answer, any such request for a hearing, and all other documents in this proceeding must be filed in writing with the Office of Financial Institution Adjudication, 1700 G Street, N.W., Washington, D.C. 20552, pursuant to section 308.10 of the FDIC Rules of Practice and Procedure, 12 C.F.R. § 308.10. Also, copies of all papers filed in this proceeding shall be served upon the Office of the Executive Secretary, Federal Deposit Insurance Corporation, 550 17th Street, N.W., Washington, D.C. 20429; Arthur L. Beamon, Associate General Counsel, Compliance and Enforcement, Federal Deposit Insurance Corporation, 550 17th Street, N.W., Washington, D.C. 20429; and John J. Rubin, Regional Counsel (Supervision), Federal Deposit Insurance Corporation, 245 Peachtree Center Avenue, N.E., Suite 1200, Atlanta, Georgia 30303.

   If any Respondent fails to file a request for a hearing within 20 days from the date of receipt of this NOTICE OF ASSESSMENT, the penalty assessed against the Respondent, pursuant to this ORDER TO PAY, will be final and shall be paid within 60 days after the date of receipt of this NOTICE OF ASSESSMENT.

   IT IS FURTHER ORDERED that, if any Respondent requests a hearing with respect to the charges alleged in the NOTICE OF ASSESSMENT, the hearing shall commence 120 days from the date of receipt of this NOTICE OF ASSESSMENT at Albany, Georgia, or at such other date or place upon which the parties to this proceeding and the Administrative Law Judge mutually agree.

   The hearing will be public and shall be conducted in accordance with the provisions of the Act, 12 U.S.C. §§ 1811-1831t, the Administrative Procedure Act, 5 U.S.C. §§ 551-559, and the FDIC Rules of Practice and Procedure, 12 C.F.R. Part 308. The hearing will be held before an Administrative Law Judge to be appointed by the Office of Financial Institution Adjudication pursuant to 5 U.S.C. § 3105. The exact time and location of the hearing will be determined by the Administrative Law Judge.
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   In the event any Respondent requests a hearing, the Respondent shall also file an answer to the charges in this NOTICE OF ASSESSMENT within 20 days after the date of receipt of this NOTICE OF HEARING in accordance with section 308.19 of the FDIC Rules of Practice and Procedure, 12 C.F.R. § 308.19. Failure of any Respondent to request a hearing shall render the civil money penalty assessed in this NOTICE OF ASSESSMENT final and unappealable pursuant to section 8(i)(2)(E)(ii) of the Act, 12 U.S.C. § 1818(i)(2)(E)(ii), and section 308.19(c)(2) of the FDIC Rules of Practice and Procedure, 12 C.F.R. § 308.19(c)(2).

   Pursuant to delegated authority.

   Dated at Washington, D.C., this 19th day of June, 1992.