Each depositor insured to at least $250,000 per insured bank



Home > Regulation & Examinations > Bank Examinations > FDIC Enforcement Decisions and Orders




FDIC Enforcement Decisions and Orders

ED&O Home | Search Form | Text Search | ED&O Help


{{9-30-93 p.A-2268}}
   [5198] In the Matter of Tarrant Bank, Fort Worth, Texas, Docket No. FDIC-91-38a (7-20-93).

   Board adopts recommendation of ALJ and orders termination of bank's deposit insurance, despite some improvement in bank's condition after the date of the ALJ's recommended decision, finding that it remains in an unsafe and unsound condition by reason of its inadequate capital, high level of adversely classified assets, and failure of management to supervise and improve operations.

{{9-30-93 p.A-2269}}
   [.1] Termination of Insurance—Inadequate Capital
   An increase in bank's primary capital ratio, due to downsizing the bank, did not improve its overall condition because it also substantially increased ratio of adversely classified assets to equity capital.

   [.2] Termination of Insurance—Management Deficiencies
   Where management failed to supervise high risk loans and did not obtain new capital or otherwise improve operations, slight improvement in earnings does not correct unsafe and unsound conditions.

In the Matter of

TARRANT BANK
FORT WORTH, TEXAS
(Insured State Nonmember Bank)
DECISION AND ORDER
TO TERMINATE FEDERAL
DEPOSIT INSURANCE

FDIC-91-38a

INTRODUCTION

   This is a proceeding initiated by the Federal Deposit Insurance Corporation ("FDIC") on June 12, 1991, to terminate the insured status of Tarrant Bank, Fort Worth, Texas ("Respondent," "Bank," or "Insured Institution"), pursuant to section 8(a) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. §1818(a). A hearing was held in this matter before Administrative Law Judge Steven M. Charno ("ALJ") on April 22, June 10–11, and September 15, 1992. The ALJ issued his Recommended Decision on October 23, 1992, urging that the Respondent's insured status be terminated.1
   The Bank filed exceptions to the ALJ's Recommended Decision asserting that the Bank's financial condition had significantly improved, and requested Oral Argument before the Board of Directors of the FDIC ("Board").2 On February 3, 1993, pursuant to authority delegated by the FDIC Board, the Executive Secretary on the recommendation of the General Counsel issued an Order to Reopen and Supplement Record ("Order") reopening the record to admit more current financial information on the Bank, including a recent State Report of Examination. The parties responded to the request for updated financial information, including the submission of the State's Report of Examination as of October 22, 1992 ("State Examination"), and the Bank filed a Motion to Dismiss which Enforcement Counsel opposed.3

DECISION

   [.1,.2] After a thorough review of the record in this proceeding as supplemented with more recent financial information, including the most recent State Report of Examination of the Bank, the Board concludes that termination of insurance is warranted, as found by the ALJ, and adopts and incorporates herein by reference the ALJ's Recommended Decision, with the modifications set froth in note 6, infra. The record considered by the ALJ fully supports his recommendation to terminate the Bank's deposit insurance.4 Despite the Bank's claims, the more recent financial information submitted pursuant to the Executive Secretary's


1 Citations in this Decision shall be as follows:
Recommended Decision — "R.D. at ____."
Transcript — "Tr. at ____."
Exhibits — "FDIC Ex. ____" or "Resp Ex. ____."
Respondent's Exceptions "Excep. ____."

2 The grant of a request for post-hearing oral argument is an extraordinary matter within the discretion of the Board. 12 C.F.R. §308.40. See In the Matter of Hoffman, 2 P-H FDIC Enf. Dec. ¶5140 (1989); FDIC-85-42b, Bound Vol. 1 P-H FDIC Enf. Dec. ¶5062 (1986). After considering the Respondent's request, the Board finds that none of those circumstances warranting the grant of such a request are present in this case. See also In the Matter of First State Bank of Marlin, 1 P-H Enf. Dec. ¶5179A (1993).

3 The Board denies Respondent's motion because the factual premise is incorrect. The reopening of the record rendered moot the original 90-day period, and upon resubmission of the record to the Board initiated a new 90-day period under the statute. In any event, it is settled law that the failure to render a decision within 90-days does not result in a loss of agency jurisdiction. Saratoga Savs. & Loan Ass'n. v. Federal Home Loan Bank Bd., 879 F.2d 689 (9th Cir. 1989) (the 9th Circuit held that the Federal Home Loan Bank Board did not relinquish jurisdiction over an enforcement action by failing to render a decision within the statutory 90-day time period).

4 The ALJ based his decision on the following uncontested financial information found in the FDIC examination reports of the dates set forth below:
{{9-30-93 p.A-2270}}Order of February 3, 1993, not only does not show any improvement in the Bank's financial condition, but rather a further deterioration.5 The record reflects that the Bank has had seriously inadequate capital and an extraordinarily high level of adversely classified assets for several consecutive years. During this time period, management has failed to properly supervise the Bank's high risk indirect dealer loans and has been unable to obtain new capital or otherwise improve operations, notwithstanding the current economic environment. What minor improvements have occurred have been the result of a reduction in the Bank's assets, which increased its capital to assets ratio marginally but also substantially increased the ratio of its adversely classified assets to equity capital. The Bank has had ample time and opportunity during the course of this proceeding to make necessary corrections and improvements and to provide evidence of any such improvement. Accordingly, the Board has no alternative but to agree with the ALJ's ultimate conclusion6 that the Bank is and has been for a substantial period of time in an unsafe and unsound condition, which presents an unacceptable risk to the deposit insurance fund and therefore requires termination of the Bank's deposit insurance.

ORDER TERMINATING FEDERAL
DEPOSIT INSURANCE

   Pursuant to 12 U.S.C. §1818(a), IT IS HEREBY ORDERED, that the insured status of Tarrant Bank, Fort Worth, Texas, is terminated effective as of the close of business forty-five days from the date of this Order.
   IT IS FURTHER ORDERED, that, pursuant to 12 C.F.R. §308.123, the Bank shall immediately, but not later than thirty days from the date of this Order, give notice to its depositors of the termination of its status as an insured depository institution. Such notice shall be mailed to each depositor at the depositor's last address of record as shown upon the books of the Bank. The Bank 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 Bank at the depositor's last address of record as shown upon the books of the Bank and the date thereof. Such notice shall meet the requirements of section 308.123 of the FDIC Rules of Practice and Procedure, 12 C.F.R. §308.123, as follows:

NOTICE

____, 1993
   1. The status of Tarrant Bank, Fort Worth, Texas, 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 ____, 1993.
   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.
   3. Insured deposits in Tarrant Bank, on the ____ day of ____, 1993, will continue to be insured, as provided by the Federal Deposit Insurance Act, for two (2) years after the close of business on the ____ day of ____, 1993. Provided, however, that any withdrawals after the close of business on the ____ day of ____, 1993, will reduce the insurance coverage by the amount of such withdrawals.
   Tarrant Bank Fort Worth, Texas
   There may be included in such notice, with the written approval, of the FDIC, any additional information or advice the Bank may deem desirable, provided that the information required by 12 C.F.R. §308.123 shall be set forth in a conspicuous manner on the first page of the notice.
   IT IS FURTHER ORDERED, that the Bank, not later than thirty days from the date of this Order, shall publish in no fewer


5 The State Examination shows a decrease in the Bank's primary capital ratio to 4.6 percent (based upon primary capital of $3.3 million and total assets of $72,436,000), an increase in the ratio of adversely classified assets to total equity capital and reserves to 597.52 percent, and an increase in the ratio of adversely classified loans to total loans to 32.15 percent. Although the State Examination shows marginal improvement in net income, that is deceptive because the loan loss reserve was not adequately funded (when the reserve is properly funded, only $5,000 of the $905,000 income reported remains). State Examination, at 1-e. The State Examination indicates that while the Bank has ceased purchasing the high risk indirect automobile loans, substantial problems exist with its remaining portfolio.

6 The Board, however modifies this decision by not adopting the ALJ's conclusion that the loan loss reserve was adequate. The Board finds that it was underfunded and this finding is supported by the State Examination. Accordingly, the Board does not adopt two paragraphs on the middle of page 5 following the heading: "3. Loan Loss Reserve." Second, the Board does not adopt the paragraph on the bottom of page 8 in which the ALJ speculates about the likelihood of the Bank obtaining adequate capital.
{{9-30-93 p.A-2271}}than two issues of a local newspaper of general circulation in Fort Worth, Texas, 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 each such publication.
   IT IS FURTHER ORDERED, that if the Bank is closed for liquidation prior to the time of the opening for business forty-five days from the date of this Order, the notices described above 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 other 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 20th day of July, 1993.
   /s/ Hoyle L. Robinson
   Executive Secretary

__________________________________________

RECOMMENDED DECISION

In the Matter of
Tarrant Bank
Fort Worth, Texas
(Insured Nonmember State Bank)
Docket No. FDIC-91-38a
Steven M. Charno, Administrative Law Judge:

   On June 12, 1991, the Federal Deposit Insurance Corporation ("Petitioner" or "FDIC") issued a Notice of Intention to Terminate Insured Status, Findings, and Order Setting hearing to Tarrant Bank ("Respondent" or "Bank"), alleging that Respondent was in an unsafe or unsound condition and seeking termination of the Bank's insured status pursuant to Section 8(a) of the Federal Deposit Insurance Act, 12 U.S.C. § 1818(a). Respondent demurred by Answer filed June 24, 1991.
   A hearing was held before me on April 22 in Dallas, Texas and on June 10–11, 1992 in Fort Worth, Texas.1 At the commencement of the hearing, the parties submitted an extensive joint statement of stipulated facts and contested issues. Both parties submitted simultaneous post-trial briefs on August 10, 1992 and simultaneous reply briefs under due date of August 24, 1992. Because review of the briefs suggested that the outcome of this proceeding might turn on the quality and extent of Respondent's 1992 earnings and because the record was incomplete concerning this matter, I initiated a conference call with the parties and, by Order of August 28, 1992, caused the hearing to recommence on September 15, 1992 in Fort Worth, Texas. At the conclusion of the reopened hearing, both parties presented oral argument.2
   Upon consideration of the entire record developed in this proceeding, I have reached a decision in favor of the FDIC. In so holding, I rely upon the following findings of fact and conclusions of law.3

I. Background

   Based upon its examination of Respondent as of September 7, 1990, the FDIC initiated this proceeding by issuing a Notification to Primary Regulator of Findings ("Notification") to the Commissioner of the Texas Department of Banking on February 28, 1991. The Notification alleged that Respondent was in an unsafe or unsound condition by virtue of being operated with (1) inadequate capital and reserves, (2) an excessive volume of poor quality assets and (3) management whose policies and practices were detrimental to the Bank and jeopardized the safety of deposits. As a condition to the continuation of insured status, the Notification required that Respondent accomplish the following actions within thirty days: (1) increase primary capital by $5,200,000, (2) eliminate from its books, by charge-off or otherwise, all of the assets classified as "loss" and not less than 50 percent of the assets classified as "doubtful" in a


1 Respondent's proposed transcript corrections, which were filed July 24, 1992, are identified as Respondent's

2 I did not receive the transcript of the September 15 hearing until October 13, 1992.

3 Proposed findings and conclusions not treated in the ensuring discussion are found to be moot in light of the findings and conclusions which were adopted, to be immaterial to any matter properly before me or to be statement of general principle which lack probative value in the absence of a specific factual context. Findings and conclusions appearing below but not discussed are based on the parties' stipulations or upon admissions contained in post-hearing pleadings.
{{9-30-93 p.A-2272}}September 1990 examination and (3) retain qualified management.
   After the expiration of the thirty-day corrective period provided in the Notification, the FDIC determined that Respondent had failed to increase its primary capital by $5,200,000. The failure to fully comply with such a condition, standing alone, has been held to justify the issuance of an order terminating insured status. Docket No. FDIC-80-33a, 1981 F.D.I.C. Enf. Dec. (P-H) ¶5007 at 5077; Docket No. FDIC-87-120a, 1989 F.D.I.C. Enf. Dec. (P-H) ¶5136 at A-1444; see also In re The First State Bank, 1991 F.D.I.C. Enf. Dec. (P-H) ¶5170B.

II. Capital Adequacy

   A. Uncontested Facts
   The FDIC contends that Respondent's insured status should be terminated because the Bank is presently in an unsafe or unsound condition by reason of capital inadequacy. A portion of the factual assertions relied upon by the FDIC in support of this contention were not contested. Thus, the parties have stipulated the following facts concerning Respondent's condition:

September 7, 1990 May 21, 1991
Primary Capital $2,859,000 $3,256,000
Total assets $90,309,000 $76,309,000
Primary capital ratio 3.17% 4.27%
Ratio of adversely classified
loans to total loans 22.03% 18.33%
Ratio of adversely classified
assets to total equity
capital and reserves 352.33% 390.49%

   B. Respondent's Condition on January 17, 1992

   Petitioner conducted an examination of the Bank as of January 17, 1992. Because Respondent challenges certain results of the examination, the parties were unable to reach stipulations concerning Respondent's condition at that time. For the reasons set forth below, I make the following findings of fact concerning Respondent's condition as of January 17, 1992: (1) Respondent's primary capital ratio was 4.33 percent, (2) Respondent's ratio of adversely classified loans to total loans was 17.16 percent and (3) Respondent's ratio of adversely classified assets to total equity capital and reserves was 420.25 percent.4

   1. ORE Classifications

   Respondent disputes the correctness of five adverse classifications of the Bank's Other Real Estate ("ORE") during the 1992 examination. The burden of establishing the validity of these classifications is on Petitioner. In response to questions from the bench, Petitioner's expert witness failed to fully explain the objective factual basis for his classification of a piece of ORE acquired from Mr. Maguire. This failure was not remedied by the expert's testimony that he could not recall his bases for criticizing Respondent's appraisal of the Maguire property or that he had relied upon the opinion of another expert who was not made available for cross-examination. The opinion of an expert who is unwilling or unable to explain his methodology or assumptions is not entitled to deference. See Sunshine State Bank v. FDIC, 783 F.2d 1580, 1583 (11th Cir. 1986). Accordingly, I find that Petitioner has not demonstrated the accuracy of its classification of the Maguire ORE as "doubtful" in the amount of $392,000. I therefore find that Respondent's equity capital as of January 17, 1992 should be increased by $196,000.
   In support of its challenge of the four remaining adverse classifications of the Bank's ORE, Respondent offered the testimony of a real estate appraiser, who was qualified on the record as an expert witness. I found this individual's testimony to be contrived, self-


4 During the hearing, the parties agreed that the above figures from the 1992 examination report need not be modified should I make rulings comparable to those set forth in sections II.B.1.-4. of this Decision.
{{9-30-93 p.A-2273}}serving, subjective, unsupported by any consistently applied methodology and generally undeserving of belief. In contrast, Petitioner's expert clearly and credibly articulated the methods and premises which underlay the remaining adverse classifications. Accordingly, I reject the testimony of Respondent's witness, credit and accept that of Petitioner's expert and find the four remaining ORE classifications to be supported by the record.

   2. Indirect Dealer Loans

   During the 1992 examination, Petitioner adversely classified some $2,225,000 in indirect automobile dealer installment loans. Respondent challenges these classifications and asks that $54,000 in "loss" classifications be set aside and that $54,000 be added to Respondent's equity capital as of January 17, 1992.
   The FDIC's policies and procedures5 provide that the principal criterion for assessing the quality of installment credit shall be performance. Rather than utilize this criterion to review Respondent's installment loan portfolio, Petitioner employed a detailed and searching analysis of the creditworthiness of the portfolio on a loan by loan basis. This analysis resulted in a significantly higher number of adversely classified loans than would have been the case if performance had been the sole review criterion.6 Petitioner chose the more detailed method of analysis because (1) the Supervisor of the Bank appointed by the Texas Department of Banking (State Supervisor) had expressed concern about the underwriting standards used by Respondent in making the indirect dealer loans and (2) a sample of those loans evidenced significant credit quality problems.7
   Because the principal objection to the classification of Respondent's indirect dealer loans is based on Petitioner's departure from its normal practice and because that departure was challenged classifications.

   3. Loan Loss Reserves

   A determination of the adequacy of Respondent's loan loss reserves turns on the opinions of three comparably qualified experts. After employing a number of methodologies, Petitioner's expert reached the conclusion that Respondent's reserves as of December 31, 1991 should have been $2,000,000. When the premises underlying this conclusion are projected to March 31, 1992, the amount of reserves which Petitioner believes necessary is $1,906,000. Respondent's expert calculated the proper amount of reserves to be $1,400,000 on December 31 and $1,258,000 on March 31. The State Supervisor, who was the only independent expert to give evidence in the proceeding, calculated the necessary reserve level to be slightly in excess of $1,400,000 on March 31.
   The reserve adequacy calculations of Petitioner's expert were generally comparable to those of Respondent's expert and the State Supervisor, except that Petitioner's expert chose to double the figure he initially calculated under all but one methodology in order to establish a reserve level for the Bank.8 This doubling of reserve levels is neither a generally accepted accounting practice nor a generally accepted regulatory practice.9 Accordingly, I find the reserve requirements calculated by the State Supervisor and Respondent's expert to be better supported by fact, logic and established usage than the requirement calculated by Petitioner's expert. I further find that Respondent should have had a reserve level of approximately $1,494,000 on January 17, 1992.10 I therefore find that Respondent's level of reserves on January 17, 1992 was not materially inadequate and that its level of reserves after that date exceeded its reasonable requirements by approximately $500,000.

   4. Bias

   Respondent argues that Petitioner's conduct of the 1992 examination evidence bias


5 See "Uniform Policy for Classification of Consumer Installment Credit Based on Delinquency Status" and DOS Manual of Examination Policies at 3.1–26.

6 Respondent's expert credibly so testified without controversion.

7 Petitioner's Assistant Regional Director credibly so testified without controversion.

8 This finding is based upon my examination of the experts' calculations, which is supported by the uncontroverted testimony of Respondent's expert.

9 The testimony to this effect of Respondent's expert, a former regulatory official, was supported by an empirically based, well-reasoned analysis and was not rebutted by Petitioner.

10 This figure was derived by subtracting the State Supervisor's March 31, 1992 reserve requirement from the projected requirement of Petitioner on that date and further subtracting that difference from Petitioner's calculation of the January 17, 1992 reserve requirement.
{{9-30-93 p.A-2274}}against the Bank. Respondent asserts that such bias is shown by (1) five adverse classifications of ORE, (2) the adverse classification of a significant volume of Respondent's indirect dealer loans, (3) Petitioner's methodology and manner of calculating Respondent's loan loss reserve and (4) other alleged errors and omissions in the 1992 examination report.
   As discussed above, Respondent's challenges of Petitioner's classification of ORE and indirect dealer paper are not sustainable.11 Petitioner's material error in calculating Respondent's loan loss reserve cannot be raised to the level of bias. Finally, I find that Petitioner's purported errors and omissions in preparing the 1992 examination report have no material impact on the question of Respondent's safety and soundness and are, therefore, irrelevant to the issues before me. Viewed in its totality, the evidence adduced by Respondent does not meet the burden of establishing bias on the part of Petitioner.

   C. Respondent's Condition on August 31, 1992

   Respondent submitted a large volume of financial data concerning the Bank's operations and condition during the first eight months of 1992. This data included two of Respondent's quarterly Reports of Condition and Income, balance sheets and income statements for July and August of 1992 and copious underlying documentation relating to the Bank's recoveries, classifications and loan portfolio performance. This data was offered in evidence at the September 15 hearing and was not seriously challenged by Petitioner through cross-examination or through the introduction of rebuttal evidence. Accordingly, I find Respondent's evidentiary presentation to be the most probative evidence in the record concerning the Bank's condition during 1992 and make the following findings of fact concerning Respondent's condition on August 31, 1992: (1) Respondent's primary capital ratio had increased to 4.84 percent, (2) Respondent's ratio of adversely classified loans to total loans had been reduced to 13.87 percent and (3) Respondent's ratio of adversely classified assets to total equity capital and reserves had dropped to 369.81 percent.

   D. Discussion

   The appropriate "base line," i.e., minimum, ratio of capital to total assets under 12 C.F.R. § 325.3(b) is 5.5 percent. See Docket No. FDIC-86-41b, 1987 F.D.I.C. Enf. Dec. (P-H) ¶5092 at 7143. Because the Bank's primary capital ratio equalled no more than 4.84 percent on August 31, 1992, I find that Respondent lacked adequate capital on that date. The question of whether this capital inadequacy constitutes an unsafe or unsound condition must be answered in light of Respondent's overall financial condition and must take into account the level of its adversely classified assets. See Docket No. FDIC-87-120a, supra. On August 31, 1992, Respondent had adversely classified assets which equalled 369 percent of its equity capital and reserves. In light of prior decisions by the FDIC, I conclude that this level of adversely classified assets is excessive. See, e.g., Docket No. FDIC-80-33a, 1980 F.D.I.C. Enf. Dec. at 5084 [142 percent]; Docket No. FDIC-86-41b, 1987 F.D.I.C. Enf. Dec. (P-H) ¶5092 at 7144, 7147 and 7151 [162 percent]; In re First State Bank of Marlin, Docket No. FDIC-90-207a (F.D.I.C., issued August 4, 1992) [255 percent]. I therefore conclude that Respondent's capital inadequacy, when viewed in the context of the potential risk engendered by its large volume of poor quality assets, constitutes an unsafe or unsound condition. I also conclude that this condition provides an independent basis for the issuance of an order terminating Respondent's status as an insured depository institution.

   III. Respondent's Management

   Petitioner argues that the 1992 examination revealed serious deficiencies in Respondent's management. Specifically, Petitioner asserts that the examination report criticized Respondent's management in connection with the Bank's indirect dealer loans for (1) originating 20 percent of all newly classified loans, (2) failing to adhere to underwriting policies and (3) purchasing high-risk paper. The record supports these criticisms, and Respondent has proffered no probative evidence in contravention. Accordingly, I find that Respondent's management has failed to


11 The fact that Petitioner's expert was unwilling or unable to articulate the basis for his expert opinion as to one of the ORE classifications is not demonstrative of bias.
{{9-30-93 p.A-2275}}adequately supervise and control the Bank's indirect dealer loans, which constitute over 26.1 percent of Respondent's total loans.12 The fact that Respondent's management is presently being overseen by a State Supervisor cannot guarantee the abatement of these13 or other management practices which threaten the Bank's safety and soundness.
   Respondent's employment of the real estate appraiser who testified on the Bank's behalf in this proceeding raises an additional concern over the ability and willingness of Respondent's management to conduct the Bank's affairs in a way which minimizes risk. Management's acceptance of that individual's opinions concerning credit quality constitutes, at the least, a wholly irresponsible triumph of wishful thinking over objective risk appraisal.14
   Based on the foregoing findings, I conclude that the policies and practices of Respondent's management are detrimental to the Bank and constitute an unsafe and unsound banking practice. See Northwest Natl Bank v. United States, 917 F.2d 1111, 1115 (8th Cir. 1990). The existence of that practice was a determinative factor in my conclusion that Respondent was in an unsafe and unsound condition on August 31, 1992.

IV. Requested Stay of the Order Terminating Insurance

   In response to Petitioner's showing that the Bank is in an unsafe and unsound condition and, therefore, should have its deposit insurance terminated, Respondent contends that its financial condition has improved during 1992, in major part because of the Bank's strong earnings performance. Based on this performance, Respondent asks that the effective date of any order terminating deposit insurance be stayed for a sixmonth period.
   The unrefuted evidence of record establishes that:
   (1) between January 1 and August 31, 1992, Respondent had net income of $771,000, of which $565,000 was operating income;
   (2) during the same period, Respondent had recoveries of $452,000;
   (3) Respondent's loan portfolio decreased by 10.9 percent during the first eight months of 1992, while its classified loans declined by 25.6 percent;
   (4) as of August 31, 1992, 99.3 percent of Respondent's adversely classified loans were classified "substandard;" and
   (5) an August payment was made on 59.1 percent of Respondent's $1,707,000 in "nonaccrual" loans in 1992.
   Based on the facts of record, there can be no serious question that Respondent's overall financial condition improved during the period from September 1990 to August 1992. If Respondent were to continue its year-to-date earnings performance for an additional six-month period, the Bank would have a primary capital ratio in conformity with the requirements of 12 C.F.R. § 325.3(b).15
   In the past, the FDIC's Board of Directors has demonstrated a willingness

    to stay the effective date of an Order to Terminate Insurance if the Board finds that there is recent progress toward achieving the level of capital necessary to return the insured institution to viability and that additional time to continue the recapitalization is in the best interests of the Fund.
In re First State Bank of Marlin, supra at 26; see also In re Chickasha Bank & Trust Co., Docket No. FDIC-90-22a (F.D.I.C., No. FDIC-89-190a (F.D.I.C., issued April 20, 1992). Although Respondent appears to have made recent progress toward achieving capital adequacy, there are two factors which distinguish this case from the above-referenced cases in which the FDIC stayed the effectiveness of its remedial orders. First,

12 Indirect dealer loans comprised more than one-third of Respondent's loan portfolio at the time of the 1992 examination.

13 While the record establishes that Respondent suspended most of its indirect dealer lending after the 1992 examination, reactivation of the program is presently being reconsidered by the Bank's management. The record does not provide a basis to determine whether operation of the reactivated program would cause further unsafe or unsound banking practices.

14 The extent to which the appraiser's conclusions might have been dictated by Respondent's management was not explored at the hearing.

15 The representation to this effect of Respondent's counsel during oral argument is supported by the record. The rejoinder of Petitioner's counsel that Respondent's 1992 income figures do not take into account any provision for loan losses is immaterial to the amount of Respondent's earnings for the next six months since Respondent's present loan loss reserve exceeds any reasonable requirement by at least $500,000.
{{9-30-93 p.A-2276}}there is no evidence in this case of an impending capital infusion which would wholly remedy a demonstrated capital inadequacy. Second, and more significant, Respondent's management have shown themselves to lack the willingness or ability to eschew policies and practices detrimental to the Bank. Their imprudent propensity for high-risk lending and their employment of an individual who manufactured putative justifications for high-risk positions were discussed above. For the foregoing reasons, I conclude that a stay of the order in this case would increase the risk to the insurance fund and that any delay in effectuating a remedial order is therefore inappropriate.
   Upon the foregoing findings of fact and conclusions of law, and upon the entire record in this proceeding, I hereby recommend issuance of the following:

ORDER TERMINATING FEDERAL
DEPOSIT INSURANCE

   IT IS HEREBY ORDERED, that the insured status of Respondent, Tarrant Bank, Fort Worth, Texas, 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 308.123 of the FDIC Rules of Practice and Procedures, 12 C.F.R. § 308.123, as follows:

NOTICE

November ____, 1992

   1. The status of Tarrant Bank, Fort Worth, Texas, as an insured depository institution under the provisions of the Federal Insurance Act, will terminate as of the close of business on the ____ day of December, 1992.
   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.
   3. Insured deposits in Tarrant Bank, Fort Worth, Texas, on the ____ day of December, 1992, 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 December, 1992, will reduce the insurance coverage by the amount of such withdrawals.

Tarrant Bank
Fort Worth, Texas

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 Fort Worth, Texas, 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.
   Done at Arlington, Virginia, this 23rd day of October, 1992.

ED&O Home | Search Form | Text Search | ED&O Help

Last Updated 6/6/2003 legal@fdic.gov