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   [5166B] In the Matter of Chickasha Bank & Trust Company, Chickasha, Oklahoma, Docket No. FDIC-90-22a(7-1-91).

   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 Insurance—Violation of Cease and Desist Order
   Bank's failure to correct its unsafe and unsound condition by increasing primary capital, as required by a cease and desist order, is basis for FDIC to terminate deposit insurance.

   [.2] Termination of Insurance—Post-Examination Evidence
   The Board accepts post-examination evidence of an institution's current financial condition, but where that evidence is in the form of affidavits by Bank officials (rather than current call reports or reports of examination) it is accorded little weight.

   [.3] Termination of Insurance—Time for Correction
   Section 8(a) of the FDI Act no longer provides for a period of correction after Board determination that a basis for termination of insurance exists, so after 30 days notice the matter is set for hearing.

In the Matter of

CHICKASHA BANK & TRUST
COMPANY

CHICKASHA, OKLAHOMA
(Insured State Nonmember Bank)
DECISION AND ORDER TO
TERMINATE FEDERAL DEPOSIT
INSURANCE

I. INTRODUCTION

   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.
   Examination II revealed further deterioration of the Insured Institution's financial condition. FDIC examiners found that Respondent had violated the Order, had engaged and/or continued to engage in unsafe or unsound practices, and was in an unsafe or unsound condition to continue operations as an insured institution. On May 21, 1990, the Board of Directors ("Board") of the FDIC issued its Notice of Intention to Terminate Insured Status, Findings, and Order Setting Hearing ("Notice"). Thereafter, the FDIC and the State conducted an examination as of October 12, 1990 ("Examination III"), that revealed that Respondent's primary capital, Part 325 assets, and ratio of primary capital to Part 325 total assets had decreased further.
   Administrative Law Judge James L. Rose ("ALJ") held a hearing on November 28–29, 1990. The ALJ determined that the Respondent had violated the Order and is in an unsafe and unsound condition. The ALJ's Decision recommends that Respondent's in-
{{6-30-92 p.A-1766.14}}sured status be terminated. The parties submitted exceptions to the ALJ's Recommended Decision. This matter is now before the Board for final decision.
   For the reasons set forth below, the Board concludes that termination of insurance is warranted and adopts and incorporates by reference herein the ALJ's Recommended Decision.1

II. REQUEST FOR ORAL ARGUMENT

   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.
   As set forth in prior decisions of the Board (see, In the Matter of Harold Hoffman, 2 P-H FDIC Enf. Dec. ¶5140; FDIC Docket No. FDIC-85-42b, 1 P-H FDIC Enf. Dec. ¶5062), the factors considered in determining whether to exercise the Board's discretion to permit oral argument include whether (1) the factual and legal arguments are fully set forth in the parties' submissions, (2) oral argument will aid the Board in this matter, and (3) the Respondent will be prejudiced by the lack of oral argument. The request here fails to articulate any basis for oral argument before the Board. Accordingly, the Board declines to grant Respondent's request for oral argument.

II. THE ALJ'S RECOMMENDED DECISION

   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 Board finds that the record before it supports the ALJ's determination that termination of insurance is appropriate. The Respondent is operating in an unsafe and unsound condition without realistic prospects for significant, immediate improvement in its capital condition in light of its high level of classified assets.

IV. FACTUAL SUMMARY

   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-


1 Citations to the record of this proceeding shall be as follows:
   ALJ's Recommended Decision, "R.D. at ____."
   Hearing Transcript, "Tr. at ____."
   Joint Stipulations, "Joint Stip. No. ____."
   Exhibits, "FDIC Ex. No. ____" or Resp. Ex. No. ____."
   Exceptions, "FDIC Exc. at ____" or "Resp. Exc. at ____."
   Briefs, "FDIC Br. at ____" or "Resp. Br. at ____."

2 The ALJ declined to accept a second affidavit into evidence. The ALJ determined that:
    In this [second affidavit] it is asserted that the Bank's primary capital to asset ratio had increased to 3.78 percent. There are also assertions concerning earnings and pending contracts. There is no mention of any change in the classification of assets. As with the first affidavit, even if the statements are true, the Bank continues to have inadequate capital. As with the first affidavit, the alleged changes in the Bank's financial condition are not significant and do not alter my conclusions.
R.D. at 3, n. 1.

3 The Respondent's primary capital to Part 325 assets ratio was 7.62 percent as of December 1985. R.D. at 5. As of December 1986, this ratio had dropped to "5.36, and as of December 1987, it was 5.68 percent." Id. The FDIC examination as of April 4, 1986, resulted in an Uniform Financial Institutions ("CAMEL") rating of 4. Id.; Resp. Ex. No. 33, p. 4. As a result, a memorandum of understanding was entered into by the FDIC and Respondent which required the Insured Institution to raise its capital by §1.8 Million and to achieve a primary capital to Part 325 asset ratio of 7.5 percent. R.D. at 5. The FDIC examination found that:
    the bank is suffering from a wide spectrum of difficulties. These include a substantial volume of weak assets, unsatisfactory earnings, weak capital, and violations of law and regulations. The overall condition of the bank suggests failure of the directors to exercise their responsibilities to oversee the affairs of the bank. It is imperative that the Board take action to rectify the problems confronting the bank.
Resp. Ex. 33, p. 1-a.
{{6-30-92 p.A-1766.15}}ber of 1988, the June 4, 1989 Cease-and-Desist Order4 was issued and consented to by the Insured Institution. Tr. at 157, 158 and 159; Joint Stip. No. 1, ¶23; FDIC Ex. No. 3, p. 13.; R.D. at 11.
   Examination II in September of 1989 revealed that the Respondent's condition5 and practices remained unsafe and that Respondent failed to increase its primary capital by $1.8 million as required by the Order. Tr. at 42; FDIC Ex. No. 17, p. 3. The Respondent's ratio of primary capital to total assets was 3.33 percent, which the FDIC determined to be less than the minimum acceptable level as established by 12 C.F.R. § 325.3. FDIC Ex. No. 1, pp. 1-a, 3. Further, the examiners determined that the Respondent had an excessive volume of poor quality loans in its portfolio, was operating with an excessive volume of adversely classified assets,6 and that the CAMEL Rating of "5" indicated that the Insured Institution had "an extremely high immediate or near term probability of failure." Tr. 31; FDIC Ex. No. 1, pp. 1-a-3, 2; FDIC Ex. No. 17, p. 1-a; Resp. Ex. No. 32, p. 1-a-4.
   Before the hearing, a joint examination (Examination III), was conducted that revealed further deterioration7. The Insured Institution held an excessive volume of adversely classified loans and leases that totaled $4,953,000, or 21.97 of percent of its assets. Tr. at 39; FDIC Ex. No. 17, p. 2; R.D. at 6 and 18. Additionally, adversely classified assets8 and contingent liabilities totalled $9,695,000. The results of Examination III provided the ALJ with an update of the Respondent's condition at the time of the hearing.

V. DISCUSSION

   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.
   As the ALJ found, FDIC Enforcement Counsel have established "that the Bank is now and has been operating in an unsafe and unsound condition in that it has too little capital given the poor quality of its assets." R.D. at 13–14. Moreover, the Respondent admitted that the Order, issued against the Insured Institution on May 25, 1989, required it to "[i]ncrease its primary capital by no less than $1,800,000 within 90 days after the effective date of the Order" and that the


4 The Order required Respondent to (1) increase its primary capital by $1.8 million within 90 days; (2) submit a written plan within 60 days to state and federal regulators to reduce assets classified Doubtful and Substandard as of the date of the examination; (3) establish and maintain an adequate reserve for loan losses; (4) submit a written plan to state and federal regulators to reduce the dependence upon short-term funding sources to fund long-term assets; (5) within 60 days submit a written plan to state and federal regulators to reduce concentrations of credit; and (6) to have and retain qualified management. Joint Stip. 1, ¶23; R.D. at 12.

5 The Insured Institution's ratio of primary capital to Part 325 total assets was 3.33 percent while the ratio of adjusted primary capital to adjusted Part 325 total assets was 3.14 percent. Respondent's year-to-date net income was a negative $468,000. Total assets adversely classified was $7,111,000 or 384.59 percent to total equity capital and reserves. While the total loans equaled $25,295,000, 14.85 percent of gross loans and leases were overdue. Tr. 30–34; Joint Stip. No. 1, ¶22; FDIC Ex. No. 1, p. 1–3; R.D. at 16–17.

6 The Examiner noted that "the dollar volume of total adversely classified assets has declined only slightly since the last examination. Nevertheless, the total represents approximately 385 percent of total equity capital and reserves, an increase from 306 percent at the last examination." FDIC Ex. 1, p. 1-a-1.

7 Examination III revealed that primary capital decreased to $1,368,00 with adjusted primary capital at $1,093,000. The Part 325 assets decreased to $44,716,000 with an adjusted Part 325 assets at $44,441,000. The ratio of primary capital to Part 325 total assets decreased to 3.06 percent while the ratio of adjusted primary capital to adjusted Part 325 assets decreased to 2.46 percent. The Insured Institution's year-to-date income was $37,000 (not including losses attributed to Other Real Estate). Total assets adversely classified increased to $9,695,000 or 596.92 percent of total equity capital and reserves. Total loans decreased to $22,581,000. Respondent once again received a CAMEL rating of "5." Tr. 42–45; FDIC Ex. No. 17, pp. 2–4; R.D. at 17–18.

8 This included $3.5 million in Grady County, Oklahoma, general obligation bonds which were issued and purchased by the Insured Institution during 1986. The ALJ determined that these bonds should not be adversely classified. R.D. at 9–11. Deduction of these bonds results in classified assets of $6,195,000 or 14.05 percent of Respondent's total assets. R.D. at 11.
{{6-30-92 p.A-1766.16}}Insured Institution had not increased its primary capital. Joint Stip. 1, pp. 5–6.
   FDIC Enforcement Counsel contend that the Respondent has been in an unsafe or unsound condition9 since September 15, 1989, so that the "bulk of risk in the Bank [is] borne by its depositors and the Bank Insurance Fund, not its shareholders."10 FDIC Br. at 23. FDIC Enforcement Counsel also argue that, "the Bank has an excessive volume of adversely classified assets (21.97 percent of total assets and 596.62 percent of total equity capital and reserves) and that the percentage of loans past due (10.78) is excessive." FDIC Br. at 31, Tr. at 30–31 and 41–42.
   In response to FDIC Enforcement Counsel's arguments, the Insured Institution alleges that it is not operating in an unsafe or unsound manner (Resp. Br. at 3); that FDIC Enforcement Counsel have failed to prove their "allegation of `unsafe or unsound condition' by a preponderance of the evidence; and that a bank examiner's conclusion is not entitled to any deference" (Resp. Br. at 3 and 4).11 Additionally, Respondent contends that its "capital12 situation is improving...[due to the] rebookings allowed... by the Oklahoma State Banking Commissioner [that] raised the ratio to 3.22 [percent]." Citing Resp. Ex. A; Tr. at 133; Resp. Br. at 5.13
   The Insured Institution attacks the FDIC's classifications arguing that, if the ALJ reclassifies the Grady County general obligation bonds, "the total classified assets for the Bank in 1990 would be approximately $6.2 million." Respondent claims "a steady decrease in adversely classified assets, which is an extremely favorable trend."14 Resp. Br. at 14.
   The Board finds that the ALJ properly determined that "even subtracting the Grady County bonds from the assets classified at the October 1990 examination, leaves $6,195,000 in classified assets or 14.05 percent of the Bank's total assets...[that] amounts to 452 percent of the Bank's total equity capital and reserves." R.D. at 11. This level of classified assets, when viewed in the light that the Respondent's primary capital was only $1,675,000,15 is inconsistent with the Respondent's assertions that it is in a safe and sound condition and that the

9 The "Bank's ratio of retained earnings to average total equity at December 31, 1987, was 10.36 percent, at December 31, 1988, a negative 83.15 percent and as of June 30, 1989, a negative 241.72 percent...." FDIC Br. at 23; FDIC Ex. No. 1, p. 3.

10 The Respondent's ratio of primary capital to Part 325 assets was 3.33 percent as of Examination II and then decreased to 3.06 percent with Examination III. As FDIC Enforcement Counsel note, 12 C.F.R. § 325.4(c)(2) provides: "An insured bank with a ratio of primary capital to total assets that is equal to or greater than three percent may be operating in an unsafe or unsound condition." FDIC Enforcement Counsel argue that "whether a bank is in an unsafe or unsound condition at a particular point in time must, in each case, be determined on the basis of the adequacy of the bank's capital and/or the particular set of facts and circumstances at that time." FDIC Br. at 31. Further, FDIC Enforcement Counsel rely on the Board's decision in FDIC-83-252b&c, FDIC Enf. Dec. and Orders ¶5049 (1985) p. A-480, A-556, which states that, "perhaps the single most important factor in assessing the adequacy of a bank's capital is the quality, type, liquidity and diversification of assets, with particular reference to assets adversely classified." FDIC Br. at 31.

11 FDIC Enforcement Counsel contend that the Respondent has engaged or is engaging in unsafe or unsound practices by virtue of the Insured Institution's ratio of total capital to total assets and its excessive volume of classified loans. FDIC Br. at 35–36. Section 325.3(b) sets forth the minimum capital requirements for an insured institution: the capital "shall consist of a ratio of total capital to total assets of not less than 6 percent and a ratio of primary capital to total assets of not less than 5.5 percent." 12 C.F.R. § 325.3(b).

12 Primary capital decreased from 1988 to 1990, and the ratio of primary capital to Part 325 assets decreased as follows:
Examination I (8-23-88) $1,830,000 3.75%
Examination II (9-15-89) $1,530,000 3.33%
Examination III (10-12-90) $1,368,000 3.06%

Resp. Ex. 32, pp. 2–3; FDIC Ex. 1, pp. 2–3; FDIC Ex. 17, pp. 2–3; Tr. at 30–33, 41–43.


13 However, the FDIC Examiner-in-charge testified that despite the rebooking, he would still classify the assets as a Loss. Tr. at 139–140. Furthermore, the State's decision to permit the Insured Institution to rebook classified assets is not binding on the Board, and in light of the history of the issue and the examiner's testimony, the Board declines to accede to the State's determination.

14 Respondent argues that the pendency of the lawsuit has prevented it from raising the additional $1.8 million as required under the Order. Tr. at 244–245, 288; Resp. Br. at 2. However, the ALJ found that this argument is not meritorious since the Respondent's president stated in his August 2, 1989, letter to FDIC Regional Director Walker that "[m]y first negotiations for capital for our bank began approximately 14 months ago with an Australian Investment Banking firm." Resp. Ex. 4-1, p. 1. The Board agrees that this argument is specious. The Insured Institution had ample time prior to the initiation of this action to meet the required capital increase.

15 Respondent's Call Report as of March 31, 1991, states that its total primary capital has increased to $1,732,000. The increase in total primary capital since the March 31, 1990 Call Report is only an increase of $57,000, far short of the required necessary for compliance with the Order's $1.8 Million.
{{6-30-92 p.A-1766.17}}Insured Institution's "condition is improving16 and will continue to improve."17 Resp. Br. at 1. The Respondent's assertions are simply not accurate and, considering the evidence before the Board, not realistic. Simply stated, the Insured Institution is in a capital-deficient condition, with an extreme volume of adversely classified assets. It has provided no evidence that would indicate any reasonable prospect for reaching capital compliance in the near future.

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.
   The Respondent has set forth several Exceptions to the Recommended Decision that have been thoroughly considered by the Board. Respondent states in its first Exception that "the Bank takes exception to the ALJ's recommendation that the FDIC Board of Directors issue an order terminating the Bank's federal deposit insurance." Resp. Exc. at 1. The Insured Institution continues to press positions taken at the hearing and rejected by the ALJ as Exceptions18 to the ALJ's findings that are adverse to the Insured Institution, including the findings of fact and conclusions of law.
   Respondent asserts eleven separate Exceptions to the Recommended Decision, seven Exceptions to the ALJ's Findings of Fact, and five Exceptions to the ALJ's Conclusions of Law. The Exceptions span the ALJ's recommendation not to grant it a period of correction to the ALJ's failure to adopt the Respondent's proposed Conclusions of Law. However, considering the record before it, the Board finds that none of the Respondent's Exceptions are meritorious.

   [.3] C. Time for Correction is not Available under FIRREA
   Before the enactment of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), Pub. L. 101-73, 103 Stat. 83 (August 9, 1989), section 8(a) of the FDI Act specifically provided for a period of correction of not less than 120 days (or a shorter period not less than 20 days) before the issuance of the Notice. 12 U.S.C. § 1818(a) (1989). However, section 8(a) of the FDI Act no longer provides for a period of correction. After determining that a basis for termination of insurance exist, the FDIC is required to give 30 days' notice to the insured institution's primary regulator "for the purpose of securing the correction of such practice, condition, or violation." 12 U.S.C. § 1818(a)(2)(A). After giving such notice, the FDIC, if it determines that "any unsafe or unsound practice or condi-


16 Respondent asserts in its Exceptions to Recommended Decision and Request for Oral Argument and Request for Stay that "capital has increased by over .70% since the hearing." Resp. Exc. at 1. According to the December 30, 1990 Call Report, the Insured Institution's primary capital to Part 325 asset ratio was 3.38 percent. Further, the March 31, 1991, Call Report reveals an increase in the ratio to 3.86 percent. These ratios include the loans the State authorized Respondent to rebook.

17 The capital maintenance regulations, Part 325, have been amended by the FDIC. See 56 Fed. Reg. 10,154 (1991). The revised regulations provides that an "insured depository institution with a ratio of Tier 1 capital to total assets that is less than two percent is deemed to be operating in an unsafe or unsound condition pursuant to section 8(a) of the Federal Deposit Insurance Act [12 U.S.C. § 1818(a)]." 56 Fed. Reg. at 10162. Under these revised regulations, which are not applicable to this proceeding, Respondent has a 1.20 percent ratio of Tier 1 capital to total assets when utilizing its March 31, 1991, Call Report.

18 The Respondent submitted its Brief in Support of Exceptions to Recommended Decision. A thorough review of the allegations and assertions contained in the Brief reveals no new arguments nor support for reversing the determination made by the ALJ.
{{6-30-92 p.A-1766.18}}tion or any violation" requires termination of the insured status, will serve notice on the insured institution and set the matter for hearing. 12 U.S.C. § 1818(a)(2)(B).
   The Respondent has had a substantial "period of time for correction" since the FDIC issued its notification under section 8(a) on March 15, 1990. Additionally, prior to issuance of the notification, the Insured Institution was subject to the May 25, 1989, Cease-and-Desist Order which required the Insured Institution to correct its adverse financial condition, including raising primary capital by $1.8 million. Consequently the Board agrees with the ALJ's conclusion that "on the record [no]...purpose [is] to be served by ordering another period of correction." R.D. at 13–14.

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.

CONCLUSION

   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 7–9 and 13–14. 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.

ORDER TERMINATING FEDERAL
DEPOSIT INSURANCE

   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.
   IT IS FURTHER ORDERED, that, pursuant to 12 C.F.R. § 308.62, the Respondent, not later than thirty days from the date of this Order, shall give notice to its depositors of the termination of its status as an insured bank. Such notice shall be mailed to each depositor at the depositor's last address of record as shown on the books of Respondent. The Respondent shall furnish the FDIC with a copy of the notice mailed, together with an affidavit executed by the person who mailed the same. The affidavit shall state that said notice has been mailed to each depositor of the Respondent at the depositor's last address of record as shown on the books of the Respondent and the date thereof. Such notice shall meet the requirements of section 308.62 of the FDIC Rules of Practice and Procedures, 12 C.F.R. § 308.62, as follows:

NOTICE

   July ____, 1991
1. The status of Chickasha Bank & Trust Company, Chickasha, Oklahoma, as an insured bank under the provisions of the Federal Deposit Insurance Act, will terminate as of the close of business on the ____ day of September, 1991.
   2. Any deposits made by you after that date, either new deposits or additions to existing deposits, will not be insured by the Federal Deposit Insurance Corporation.
{{6-30-92 p.A-1766.19}}
   3. Insured deposits in the Respondent on the ____ day of September, 1991, will continue to be insured, as provided by the Federal Deposit Insurance Act, for two years after the close of business, provided, however, that any withdrawals after the close of business on the ____ day of September, 1991, will reduce the insurance coverage by the amount of such withdrawals.

Chickasha Bank & Trust Company Chickasha, Oklahoma

There may be included in such notice, with the written approval of the FDIC, any additional information or advice the Respondent may deem desirable.
   IT IS FURTHER ORDERED, that the Respondent, not later than thirty days from the date of this Order, shall publish the said notice in no fewer than two issues of a local newspaper of general circulation in Chickasha, Oklahoma, and shall furnish the FDIC with proof of publication of such notice in the form of a certification from the publisher and a tear sheet or clipping evidencing each such publication.
   IT IS FURTHER ORDERED, that if the Respondent is closed for liquidation prior to the time of the opening for business thirty days from the date of this Order, the notices described herein shall not be given to depositors.
   The Board retains full jurisdiction over these proceedings during the interim between the date hereof and the effective termination date, as fixed above, with full power and authority to amend, modify, alter, or rescind this order of termination of the insured status of the Respondent. The provisions of this Order shall remain effective and enforceable except to the extent that, and until such time as, any provision of the Order shall be modified, terminated, suspended, or set aside by the FDIC.
   By direction of the Board of Directors.
   Dated at Washington, D.C., this 1st day of July, 1991.
   /s/ Hoyle L. Robinson

________________________________________
RECOMMENDED DECISION

In the Matter of
Chickasha Bank & Trust Company
Chickasha, Oklahoma
(Insured State Nonmember Bank)

James L. Rose, Administrative Law Judge:

Statement of the Case
   This matter is before me upon an action by the Federal Deposit Insurance Corporation under 12 U.S.C. § 1818(a), to terminate the Federal Deposit Insurance of the Chickasha Bank & Trust Company, Chickasha, Oklahoma (herein the Respondent or the Bank).
   This proceeding was initiated by the FDIC issuing a Notification to the Primary Regulator of Findings on March 13, 1990. The Notification required the Bank to increase its primary capital by $1,800,000 within 30 days and to eliminate from its books all assets classified as loss and not less than 50 percent of its assets classified as doubtful in the examination as of September 15, 1989. After the 30-day period provided in the Notification, the FDIC concluded that the Bank had not complied with the requirement to increase its primary capital by $1.8 million and that the Bank continued to be in an unsafe and unsound condition.
   Therefore, on May 21, 1990, the FDIC issued a Notice of Intention to Terminate Insured Status, Findings, and Order Setting Hearing. The Notice charged that the Bank had violated the previously consented to cease and desist order, that the Bank was in an unsafe and unsound condition, and that a significant risk to the insurance fund existed. The Bank filed its answer on July 9, 1990. On November 28 and 29, 1990, this matter was heard before me at Oklahoma City, Oklahoma. Both the FDIC and the Bank were represented by counsel.
   Following the close of the hearing, counsel submitted extensive briefs and reply briefs. In addition, by letter dated December 5, 1990, counsel for the Respondent advised that the Oklahoma Supreme Court had granted the Bank's motion for a writ of prohibition against contesting the validity of certain bonds issued by Grady County (the classification of which will be discussed below). Further, by transmittal letter dated February 1, 1991, counsel for the Respondent submitted an affidavit signed by Landel Pettigrew, the Bank's president, setting forth certain alleged changes in its primary capital and average assets as of December 31, 1990, and January 31, 1991.
   Counsel for the FDIC objected to receipt
{{6-30-92 p.A-1766.20}}of Pettigrew's affidavit into the record essentially on grounds that it was submitted following the close of the hearing and after the time for submission of briefs.
   I conclude that the affidavit ought to be received into evidence. First, the affidavit does not set forth evidence which was available at the time of the hearing. Rather, it purports to update the Bank's condition since the hearing and to be the most recent evidence available concerning the Bank's capital position. One of the difficulties with an action to terminate a bank's insurance is that the remedy does not aim to set right past violations, like a cease and desist, prohibition or civil money penalty. The remedy is prospective, but is necessarily based on evidence reflecting a past condition. Therefore deeming irrelevant all evidence after some set point in the past (the Notice, for instance) risks deciding the issue of insurance termination upon conditions which no longer exist. Further, 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. Indeed the FDIC Corporation Board, sua sponte, reviewed an ALJ decision recommending termination of insurance to which no exceptions had been taken "given the serious nature of a Section 8(a) sanction. ..." In the Matter of *** Bank (Insured State Non-Member Bank), 2 P-H FDIC Enf. Dec. ¶5136 (1989) at A-1444. See also 2 P-H Enf. Dec.¶5133 (1989) where a state examination and call reports issued within two months of the hearing were considered because they constituted the most recent and reliable information of the bank's condition. In that case the FDIC Board noted that no capital injection had been made through the date of the Bank's exceptions to the ALJ decision and found that it continued to operate at a dangerously low capital level.
   Thus the FDIC Board recognizes decisions regarding the termination of a bank's insurance should consider recent competent evidence. Nevertheless, some accommodation must be made between insuring that the Board's final decision be based on current evidence and having finality to the process of taking evidence. At some point the record has to be deemed complete, yet all relevant and material evidence presented by the parties should be considered, given the seriousness of insurance termination.
   In this case that accommodation can be achieved by receiving Pettigrew's affidavit.1 The fact assertions in the affidavit are of course hearsay, and have not been subject to cross-examination by counsel for the FDIC or subject to contest by rebuttal evidence. Were these facts material, then I would be inclined to reopen the record to allow the FDIC to respond. However, upon reviewing the affidavit I conclude that the assertions concerning the Bank's capital demonstrate no significant or material change from that set forth in the record. Even accepting Pettigrew's statements as true, the Bank continues to have substantially inadequate capital, even for a well-managed bank without serious financial problems. Therefore, although I received Pettigrew's affidavit into the record, it does not alter my conclusion that the Bank is in an unsafe and unsound condition and that, its Federal Deposit Insurance ought to be terminated.
   Upon the record as a whole,2 including my observation of the witnesses, briefs and arguments of counsel, I hereby make the following Findings of Fact, Conclusions of Law, and recommended Order.

I. The Facts

   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.
   Although this action is predicated on the FDIC examination as of September 15, 1989, the Bank's deteriorating condition predates that examination. Thus, as of December 1985, the Bank's primary capital to Part 325 assets was 7.62 percent (whereas peer banks had a ratio of 9.25 percent). As of Decem-


1 On March 7, 1991, I received a second affidavit signed by Pettigrew purporting to update the Bank's financial condition as of February 28, 1991. In this it is asserted that the Bank's primary capital to asset ratio had increased to 3.78 percent. There are also assertions concerning earnings and pending contracts. There is no mention of any change in the classification of assets. As with the first affidavit, even if the statements are true, the Bank continues to have inadequate capital. As with the first affidavit, the alleged changes in the Bank's financial condition are not significant and do not alter my conclusions. Since there has to be some end to receiving evidence, I do not believe it appropriate to withhold issuance of this decision pending argument on whether this affidavit should also be received into the record. Accordingly, I decline to do so.

2 Counsel for the FDIC moved to correct the record in certain respects. The motion is received as an exhibit and granted; however, none of the corrections alter the facts on which this decision is based.
{{6-30-92 p.A-1766.21}}ber 1986, the Bank's capital to asset ratio was 5.36 percent, and as of December 1987, it was 5.68 percent.
   An examination as of April 4, 1986, found the Bank to have a primary capital to assets ratio of 4.69 percent and it was assigned a Uniform Financial Institutions rating (CAMEL) of 4, the next to lowest (R. Ex. 34). This examination resulted in a memorandum of understanding (MOU) requiring the Bank to raise its capital by $1.8 million in order to achieve the required ratio of 7.5 percent.
   However, by December 1988, the Bank's capital to asset ratio dropped to 3.61 percent and this, along with a relatively high level of classified assets, resulted in a cease and desist order on May 29, 1989, to which the Bank consented. Among other things, the cease and desist order required the Bank to raise its primary capital by $1.8 million and to maintain a ratio of adjusted primary capital to assets at or above 7 percent.
   Earlier the Bank asked for but was denied admittance to the capital forbearance program on the recommendation of the Oklahoma State Banking Commission. However, by letter of March 20, 1987, Wayne Osborne, the Oklahoma Banking Commissioner, wrote Kenneth Walker, the FDIC Regional Director, recommending the Bank's admittance to the capital forbearance program. Osborne noted that the State's earlier recommendation was due to the Bank's weakened capital position as a result of an unwise dividend declared in 1984 and 1985, along with "exorbitant" directors' fees (R. Ex. 35).
   In a letter report accepting the Bank into the capital forbearance program it is stated, "Dividends of 1984 and 1985 did play a major role in posturing the Bank poorly for the significant loss identified at the April 4, 1986, examination for the Bank's adjusted equity capital ratio of 4.69 percent" (R. Ex. 38). The Bank's capital forbearance plan included a provision that the Bank would resume dividends in 1990 when its capital was planned to exceed 6 percent.
   Following agreement to the cease and desist order, Pettigrew stated in a letter to Walker dated August 2, 1989 (R. Ex. 4-1), that the Bank had begun trying to raise capital "14 months ago (June 1988) but had been unsuccessful." At this time he indicated to Walker that the Bank would continue to try to raise the capital required in the cease and desist order.
   Thus, on examination of September 15, 1989, having concluded that the Bank failed to raise capital and that its primary capital to assets ratio was 3.33 percent with 16 percent of its assets classified and these classified assets amounting to 348.59 percent of its total equity capital and reserves, the FDIC concluded that the Bank not only had breached the cease and desist order but was in an unsafe and unsound condition. The CAMEL rating given the Bank at that time was 5, the lowest possible.
   As indicated, the Notification was issued on March 13, 1990, and the Bank was re-examined as of October 12, 1990. At the October 12 examination, the Bank's primary capital to assets ratio was found to be 3.06 percent, 21.97 percent of its assets were classified, and classified assets represented 596.62 percent of its total equity capital and reserves. Again the CAMEL rating was 5.
   While the Respondent does not contest these facts, it maintains that the Bank's condition is improving, that the reduction in its capital and increase in its classified assets are as a result of the economy (and not management), that its capital is not inadequate under the standards set forth by the FDIC in its rules, 12 C.F.R. Part 325, and that to terminate its insurance would result in the Bank's closure which would be a more serious risk to the FDIC insurance fund than allowing the Bank to continue in existence.

II. Analysis and Concluding Findings

A. General

   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.
   These general trends can be seen from the call reports and examination reports in evidence:
{{6-30-92 p.A-1766.22}}

Primary Capital Classified Classified Classified Items
Part 325 Assets Assets Total Equity
Total Assets (in 1000's) Total Assets Capital & Reserves
4/4/86 4.94% 9251 13.97% 178.30%
9/11/87 5.18% 9782 21.30% 341.31%
9/23/88 3.75% 7506 15.50% 305.87%
9/15/89 3.33% 7111 16.17% 348.59%
10/12/90 3.06% 9695 21.97% 596.62%
Without the Grady County
Bond Classification 6195 14.05% 452%
   The Respondent's principal argument is that since its primary capital to assets ratio has never been below 3 percent, it is not, and has never been in an unsafe and unsound condition. The Respondent argues from 12 C.F.R. § 325.4(c), which states:
       Unsafe or unsound condition. Any insured bank with a ratio of primary capital to total assets that is less than three percent is deemed to be operating in an unsafe or unsound condition pursuant to section 8(a) of the Federal Deposit Insurance Act (12 U.S.C. § 1818(a)).
   Since a bank with less than a 3 percent leverage ratio is deemed to be in an unsafe and unsound condition the Respondent argues that a bank with a ratio in excess of 3 percent cannot be found to be in an unsafe and unsound condition.
   The Respondent's argument is specifically contrary to 12 U.S.C. § 325.4(c)(2), wherein it is stated:
       An insured bank with a ratio of primary capital to total assets that is equal to or greater than three percent may be operating in an unsafe or unsound condition. The FDIC is not precluded from bringing an action pursuant to 12 U.S.C. 1818(a) where an insured bank has a ratio of primary capital to total assets that is equal to or greater than three percent.
   Indeed, the starting point for an analysis of capital adequacy is set forth in 12 C.F.R. § 325.3(b):
       Calculation of minimum capital requirement. The minimum capital requirement for a bank (or an insured bank making an application to the FDIC) shall consist of a ratio of total capital to total assets of not less than 6 percent and a ratio of primary capital to total assets of not less than 5.5 percent.
   Thus contrary to the Respondent's principal legal contention in this matter, I conclude that the minimum primary capital required of a bank "whose overall financial condition is fundamentally sound, which (is) well managed and which (has) no material or significant weakness" is 5.5 percent of total assets. 12 C.F.R. § 325.3(a). While there is no conclusive presumption of capital inadequacy where a bank maintains a primary capital to asset ratio in excess of 3 percent, such does not mean that capital levels in the 3 percent range demonstrate capital adequacy. To the contrary, a primary capital to asset ratio of less than 5.5 percent with more implies inadequate capital.
   Furthermore, and of significance in this case, the Respondent has had an excessive level of classified assets. As noted above, since 1987, the Respondent's classified items have been more than three times its total equity capital and reserves. As of the October 1990 examination, the total equity capital and reserves to be classified items was 596 percent which means that if only 16 percent of the classified items were to become uncollectable, the Bank would be insolvent. Such demonstrates an extremely high level of risk to the depositors and the insurance fund. Indeed, an expert witness for the Respondent, John M. Woody, testified: "The bank is a problem institution. The level of classified assets are high." (Tr. 326)

B. The Grady County Bonds

   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.
   As indicated above, shortly following the close of the hearing the Supreme Court of Oklahoma ruled in the Bank's favor on its
{{6-30-92 p.A-1766.23}}original jurisdiction petition seeking to prohibit contesting the legality of the bond issue. The Bank had argued that Oklahoma has a limitation period for contesting a bond issue which had run before the plaintiffs brought their suit.
   Though the lawsuit remains active, the Bank contends that inasmuch as the plaintiffs cannot successfully challenge the legality of the bond issue, the examiner's classification should be rescinded.
   The Bank further contends that the Grady County bonds lawsuit has inhibited its ability to raise capital and with success in this litigation it will be able to pursue capital injection. Therefore, either the FDIC's action to terminate its insurance ought to be dismissed or, at a minimum, another corrective period during which the Bank would be allowed to raise capital should be ordered.
   Under the Board's Sunshine decision, 1 P-H FDIC Enf. Dec. ¶5049 (1985), affirmed Sunshine State Bank v. Federal Deposit Insurance Corporation, 783 F.2d 1580 (11th Cir. 1986), as a general matter, an FDIC examiner's classification of a loan is entitled to substantial deference. The underlying facts upon which the classification judgment is made can be tested for accuracy, and the examiner's judgment can be evaluated to determine whether it is outside "the zone of reasonableness." But absent adverse findings on these issues, the examiner's predictive judgment concerning the inherent weakness in a credit must be accepted. Further, facts occurring subsequent to the classification are not relevant to determine whether or not the classification was appropriate in the first instance. Sunshine at 6125. However, post-examination facts certainly can be used, if otherwise relevant, to determine the current status of a bank's assets for purposes of whether, for instance, a bank's insurance ought to be terminated. 2 P-H FDIC Enf. Dec. ¶5136, supra.
   Here, the Respondent contends that $3.5 million substandard classification should be removed from the Bank's total classified assets, based upon the Supreme Court's action. I agree with the Respondent. I conclude that the substandard classification was reasonable in the first instance, due to the pendency of the lawsuit. However with the Supreme Court's determination that the bond issue cannot be contested, and given the fact that the bonds are backed by the Grady County taxing authority and its full faith and credit, I conclude that this is not an asset which should be classified. Further, the FDIC has never classified such an asset in the Region which includes Oklahoma. (Joint Ex. 2)
   Nevertheless, even subtracting the Grady County bonds from the assets classified at the October 1990 examination, leaves $6,195,000 in classified assets or 14.05 percent of the Bank's total assets. Further, this level of classified assets amounts to 452 percent of the Bank's total equity capital and reserves. Both percentages are inordinately high and demonstrate substantial weakness in asset quality. Accordingly, I conclude that even accepting the Respondent's position with regard to the Grady County bonds, it had too high a level of classified assets.
   The second point the Respondent makes with regard to the Grady County bonds is that pendency of the lawsuit inhibited it from raising capital; and absent this impediment, it is now in a position to pursue capital successfully. I reject the Respondent's argument in this respect primarily because Pettigrew stated in his letter to Walker (R. Ex. 4-1) that the Bank had been attempting to raise capital since June 1988, but without success. The lawsuit, however, was not filed until December 1989, approximately a year and a half later. Therefore, the pendency of the lawsuit could not have been the critical element of the Bank's inability to raise capital. The lawsuit may have been a factor after December 1989; but given the Bank's lack of success prior to its filing, I conclude that the Supreme Court's decision will not foreseeably aid the Bank in raising capital.

C. Rebooking the Harbor and Hess Credits

   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
{{6-30-92 p.A-1766.24}}Oklahoma State Banking Commissioner who permitted rebooking of $33,379 (R. Ex. 108).
   At the 1990 examination, the FDIC also required the Bank to charge off from other real estate owned, $43,000 of the Harbor real estate credit. The Bank appealed this charge-off to the Oklahoma Banking Commissioner who allowed it to rebook the asset in the amount of $38,000 (R. Ex. 102). The dispute concerning whether and to what extent this is a bookable asset involved appraisal on the real estate and the methodology used.
   The sum and substance of the testimony with regard to these two credits is that whether they are bankable assets is a matter about which there could be reasonable disagreement. The Respondent brought forth no evidence to the effect that the underlying facts upon which the FDIC examiner made his decision were erroneous nor, in view of the testimony of the State Banking Commissioner, can I say that the examiner's conclusion concerning these credits was outside the zone of reasonableness.
   Although the decision of the State Banking Commissioner may be considered here as relevant evidence concerning these credits, such is not binding on the FDIC. 2 P-H FDIC Enf. Dec. ¶5136 at A-1445 n. 4. Accordingly, deference must be given the examiner's determination and I conclude that the Hess and Harbor assets were appropriately required to be charged off from the Bank's books.
   Nevertheless, even if these are bookable assets and the Bank's capital should be increased by approximately $80,000, such would not substantively affect its capital position.
   Assuming the rebooking of these two credits and rescinding the substandard classification of the Grady bonds from the October 1990 examination would yield the following: The Bank's primary capital to assets would go from 3.06 percent to 3.28 percent; adversely classified assets to total assets would go from 21.97 percent to 14 percent; and total equity capital and reserves to classified assets would go from 596 percent to 362 percent.
   Even accepting the Respondent's position with regard to these credits, the picture of its capital adequacy and asset quality is essentially identical to that at the September 1989 examination, which was before the Grady lawsuit was filed. At best, the Bank's current situation is not worse than in September 1989, when it was assigned a 5 rating and an order of correction was entered.
   Similarly, accepting the affidavit submitted by the Respondent's president in February 1991, the Bank's primary capital to assets ratio would be 3.75 percent and its total equity capital and reserves to adversely classified assets 394 percent, which means that if just one-fourth of the classified assets become uncollectable the Bank would be insolvent. Therefore, even accepting the Respondent's best case numbers, the Bank has an insufficient capital cushion given the poor quality of its assets. (Pettigrew's second post-hearing affidavit, asserting a primary capital to asset raito of 3.78 percent shows no significant change.)
   I therefore conclude that the Bank is now and has been operating in an unsafe and unsound condition in that it has too little capital given the poor quality of its assets.

D. Another Period of Correction

   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.
   I do not agree with the Respondent's argument that with successful resolution of the Grady County bonds lawsuit it will necessarily be able to raise capital. It was unable to raise capital well before the action was filed.
   Further, from the record it appears that in part, at least, the Respondent's difficulties over the last several years are as a result of management improvidently declaring a dividend and paying its directors "exorbitant" fees. While the Bank was ultimately admitted to the capital forbearance program, it had initially been denied admittance based upon the State Banking Commissioner's evaluation of management. Since management remains the same, I cannot conclude from these facts that management is more than marginally adequate.
   The Respondent further contends that the Bank's problems are a direct result of the well known economic conditions existing in Oklahoma the last few years. While eco-
{{6-30-92 p.A-1766.25}}nomic conditions in the State no doubt have had an impact on the Bank, it is noted that the Bank's peers, who presumably operate in the same economic climate, had a primary capital to asset ratio of 10.25 percent as of June 30, 1990 (FDIC Ex. 17).
   Accordingly, on the record before me I cannot conclude there would be any purpose to be served by ordering another period of correction. 2 P-H Enf. Dec. ¶5136, supra. I will recommend that the FDIC Corporation Board issue the attached Order terminating the Bank's insurance and adopt the following findings of fact and conclusions of law:

FINDINGS OF FACT

   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).
   2. The Bank is, and has been at all times pertinent hereto, an insured State nonmember bank subject to the Act, 12 U.S.C. §§ 1811-1831k, the Rules and Regulations of the FDIC, 12 C.F.R. Chapter III, and the laws of the State of Oklahoma (Joint Ex. 1, No. 3).
   3. Following an examination as of September 23, 1988, an Order to Cease and Desist ("Order") was issued against the Bank on May 25, 1989, effective June 4, 1989 (Tr. 157, 158 and 159; Joint Ex. 1, No. 23; FDIC Ex. 3, p. 13).
   4. Inter alia, the Order required the Bank to increase its primary capital by no less than $1,800,000 within 90 days (Joint Ex. 1, No. 23(a)).
   5. The Bank did not increase its primary capital by $1,800,000 within 90 days after the effective date of the Order (Tr. 34, 159; Joint Ex. 1, No. 24; FDIC Ex. 1, p. 1; FDIC Ex. 17, p. 1-b).
   6. Examiners from the FDIC examined the Bank as of September 15, 1989, and prepared a Report of Examination (Joint Ex. 1, No. 11; FDIC Ex. 1).
   7. As a result of the September 15, 1989, examination the FDIC determined that the Bank was engaging or had engaged in unsafe or unsound practices, was in an unsafe or unsound condition, and had violated the Order (FDIC Ex. 1).
   8. The FDIC issued a Notification to Primary Regulator of Findings ("Notification") regarding the Bank on March 15, 1990 (Joint Ex. 1, No. 4).
   9. Following the expiration of the 30-day corrective period set forth in the Notification, the FDIC determined that the Bank had not been restored to a safe and sound condition (Joint Ex. 1, Nos. 8, 24).
   10. On May 21, 1990, the FDIC issued a Notice of Intention to Terminate Insured Status, Findings and Order Setting Hearing ("Notice") (Joint Ex. 1, No. 9).
   11. Examiners from the FDIC examined the Bank as of October 12, 1990, and prepared a Report of Examination (Tr. 37; FDIC Ex. 17).
   12. An analysis of the results of the September 15, 1989, examination revealed the condition of the Bank to be as follows:
   (a) Primary capital was $1,530,000 (Joint Ex. 1, No. 22(a); FDIC Ex. 1, p. 3).
   (b) The Bank's ratio of primary capital to Part 325 total assets was 3.33 percent (Tr. 33; Joint Ex. 1, No. 22(e); FDIC Ex. 1, p. 3).
   (c) The Bank failed to increase its primary capital by $1,800,000 as required by the Order (Tr. 34, 159; Joint Ex. 1, No. 22(g); FDIC Ex. 1, p. 1).
   (d) The Bank's equity capital equaled $143,000 before losses of $34,000 in Other Real Estate (Tr. 30; Joint Ex. 1, No. 22(h); FDIC Ex. 1, p. 3).
   (e) The Bank's year-to-date net income was a negative $468,000 (Joint Ex. 1, No. 22(i); FDIC Ex. 1, p. 4).
   (f) The Bank's total assets equaled $43,984,000 (Joint Ex. 1, No. 22(j); FDIC Ex. 1, p. 2).
   (g) The Bank's total assets adversely classified equaled $7,111,000 or 384.59 percent of total equity capital and reserves (Tr. 33; Joint Ex 1, No. 22(k)).
   (h) The Bank's total loans equaled $25,295,000 (Joint Ex. 1, No. 22(l)).
   (i) The Bank's overdue loans and leases equaled 14.85 percent of gross loans and leases (Joint Ex. 1, No. 22(m)).
   13. The Bank had an excessive volume of poor quality loans in its portfolio. As of September 15, 1989, adversely classified loans and leases in the amount of $5,922,000 equaled 23.41 percent of the Bank's total loans and leases of $25,295,000 (Tr. 31; FDIC Ex. 1, p. 2).
{{6-30-92 p.A-1766.26}}
   14. During the September 15, 1989, examination the FDIC made the following analysis of the Bank's assets:
   (a) Adversely classified loans and leases were:

Substandard $5,464,000
Doubtful 173,000
Loss 285,000
Total $5,922,000
   (b) Adversely classified assets were:

Substandard $6,619,000
Doubtful 173,000
Loss 319,000
Total $7,111,000
   15. Based upon the results of the September 1989 examination, the Bank was assigned a composite Uniform Financial Institutions rating of "5" indicating that the Bank had "an extremely high immediate or near term probability of failure" and that, absent "urgent and decisive corrective measures" the Bank would likely require liquidation and payoff of depositors, disbursement of emergency assistance, merger or acquisition (FDIC Ex. 1, p. 1-a-3; R. Ex. 32, p. 1-a-4).
   16. An analysis of the results of the October 12, 1990, examination revealed the condition of the Bank to be as follows:
   (a) Primary capital was $1,368,000 (Tr. 42; FDIC Ex. 17, p. 3).
   (b) The Bank's Part 325 total assets equaled $44,716,000 (Tr. 38; FDIC Ex. 17, p. 3).
   (c) Adjusted Part 325 total assets, which is Part 325 total assets less 50 percent of assets classified Doubtful, equaled $44,441, 000 (Tr. 42; FDIC Ex. 17, p. 3).
   (d) The Bank's ratio of primary capital to Part 325 total assets was 3.06 percent (Tr. 43; FDIC Ex. 17, p. 3).
   (e) The Bank's equity capital equaled $444,000 before losses of $99,000 in Other Real Estate (Tr. 44; FDIC Ex. 17, pp. 2–3).
   (f) The Bank's year-to-date net income was $37,000 (Tr. 45; FDIC Ex. 17, p. 4).
   (g) The Bank's total assets adversely classified equaled $9,695,000 or 596.92 percent of total equity capital and reserves (Tr. 43; FDIC Ex. 17, pp. 2–3).
   (h) The Bank's total loans equaled $22,581,000 (Tr. 38; FDIC Ex. 17, p. 2).
   17. During the October 12, 1990, examination the FDIC made the following analysis of the Bank's assets:
   (a) Adversely classified loans and leases were:

Substandard $4,251,000
Doubtful 550,000
Loss 152,000
Total $4,953,000
   (b) Adversely classified assets and contingent liabilities were:

Substandard $8,888,000
Doubtful 550,000
Loss 257,000
Total $9,695,000
(Tr. 39; FDIC Ex. 17, p. 2.)
   18. Based upon the results of the October 1990 examination, the Bank was assigned a composite Uniform Financial Institutions rating of "5" (Tr. 48; FDIC Ex. 1, p. 1-a-3; FDIC Ex. 17, p. 1-a-3; R. Ex. 32, p. 1-a-4).
   19. As a result of the Oklahoma Supreme Court decision of December 3, 1990, the Grady County Bonds should not be classified. As of that date, the Bank's total classified items was $6,180,000 representing 394.10 percent of its equity capital and reserves.

CONCLUSIONS OF LAW

   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.
   2. In an action to terminate a bank's insured status under section 8(a) of the Act, 12 U.S.C. § 1818(a), the FDIC has the burden of establishing such condition or practice by a preponderance of the credible evidence.
   3. At all times pertinent to this proceeding, the Bank was an insured State nonmember bank subject to the Act, 12 U.S.C. §§ 1811-1831(k), the Rules and Regulations of the FDIC, 12 C.F.R. Chapter III, and the laws of the State of Oklahoma.
   4. As of September 15, 1989, the Bank's total capital was below the minimum acceptable level established by FDIC regulations regarding capital maintenance for fundamentally sound, well-managed banks having no material or significant financial weaknesses within in the meaning of 12 C.F.R. § 325.3.
   5. As of September 15, 1989, the Bank was operating with an excessive volume of adversely classified assets.
   6. As of September 15, 1989, the Bank
{{6-30-92 p.A-1766.27}}was in an unsafe or unsound condition within the meaning of section 8(a) of the Act, 12 U.S.C. § 1818(a).
   7. As of October 12, 1990, the Bank's total capital was below the minimum acceptable level established by FDIC regulations regarding capital maintenance for fundamentally sound, well-managed banks having no material or significant financial weaknesses within the meaning of 12 C.F.R. § 325.3.
   8. The Bank had an excessive volume of poor quality loans in its portfolio.
   9. As of October 12, 1990, the Bank was operating with an excessive volume of adversely classified assets.
   10. As of October 12, 1990, the Bank was in an unsafe or unsound condition within the meaning of 12 U.S.C. § 1818(a).
   11. As of November 28, 1990, the Bank continued to be in an unsafe or unsound condition within the meaning of section 8(a) of the Act, 12 U.S.C. § 1818(a).
   12. For purposes of this action the Harbor and Hess credits, which the Oklahoma Banking Commissioner allowed to be rebooked, are not bankable assets.
   13. As of December 3, 1990, the Grady County Bonds issue should not be classified as substandard.
   14. As of December 31, 1990, the Bank continued to have inadequate capital and excessive classified assets.
   15. The FDIC has satisfied all statutory requirements of section 8(a) of the Act, 12 U.S.C. § 1818(a), in this action to terminate the Bank's status as an insured depository institution.
   16. By failing to increase its primary capital as required by the Order, the Bank engaged in a violation of the Order.
   17. Violation of the Order is a sufficient cause to terminate the Bank's status as an insured depository institution.
   Dated, Washington, D.C. March 12, 1991
   /s/ James L. Rose

In the Matter of
Chickasha Bank & Trust Company
Chickasha, Oklahoma
(Insured State Nonmember Bank)

ORDER TERMINATING FEDERAL DEPOSIT INSURANCE

   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").
   IT IS FURTHER ORDERED, that pursuant to 12 C.F.R. § 308.62, the Bank, not later than thirty days from the date of this Order, shall give notice to its depositors of the termination of its status as an insured bank. Such notice shall be mailed to each depositor and the depositor's last address of record as shown on the books of the Bank. The Bank shall furnish the Federal Deposit Insurance Corporation ("FDIC") with a copy of the notice mailed, together with an affidavit executed by the person who mailed the same. The affidavit shall state that said notice has been mailed to each depositor of the Bank at the depositor's last address of record as shown on the books of the Bank and the date thereof. Such notice shall meet the requirements of section 308.62 of the FDIC Rules of Practice and Procedure, 12 C.F.R. § 308.62, as follows:

NOTICE

   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;
   2. Any deposits made by you after this date, either new deposits or additions to existing deposits, will not be insured by the Federal Deposit Insurance Corporation;
   3. Insured deposits in Chickasha Bank & Trust Company on the ____day of ____, 1991, will continue to be insured, as provided by the Federal Deposit Insurance Act, for 2 years after the close of business on the ____day of ____, 1991. Provided, however, that any withdrawals after the close of business on the ____ day of ____, 1991, will reduce the insurance coverage by the amount of such withdrawals.

Chickasha Bank & Trust Company

1924 South Fourth Street

P.O. Box 1307

Chickash, Oklahoma 73023

   There may be included in such notice, with
{{6-30-92 p.A-1766.28}}the written approval of the FDIC, any additional information or advice the Bank may deem desirable. The Board strongly suggests that the Bank post the above notice on its doors and at all locations where its depositors make deposits and withdrawals.
   IT IS FURTHER ORDERED, that the Bank, not later than thirty days from the date of this Order, shall publish in not less than two issues of a local newspaper of general circulation in Chickasha, Oklahoma, the said notice and shall furnish the FDIC with proof of publication of such notice in the form of a certification from the publisher and a tear sheet or clipping evidencing such publication.
   IT IS FURTHER ORDERED, that if the Bank is closed for liquidation prior to the time of the opening for business thirty days from the date of this Order, the notices described herein shall not be given to depositors.
   The Board retains full jurisdiction over these proceedings during the interim between the date hereof and the effective termination date, as fixed above, with full power and authority to amend, modify, alter, or rescind this Order Terminating Federal Deposit Insurance of the Bank. The provisions of this Order shall remain effective and enforceable except to the extent that, and until such time as, any provision of the Order shall be modified, terminated, suspended, or set aside by the FDIC.
   By direction of the Board of Directors.
   Dated at Washington, D.C. this ____ day of ____, 1991.
   /s/ Hoyle L. Robinson

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