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[¶ 10,582C] In the Matter of Patsy Bostwick, P.T. Bostwick, James M. Gaines,
L. Mitchell Conner, John C. Dallas, James Jackson, Jr., H.T. McClendon,
and Ike Newberry, Jr., Bostwick Banking Company, Arlington, Georgia,
Docket No. 92-133k (6-19-92)
Respondents agree to pay civil money penalties assessed by the FDIC.
This was an uncontested notice and became a final order by operation of
law.
In the Matter of
PATSY BOSTWICK,
P.T. BOSTWICK,
JAMES M. GAINES,
L. MITCHELL CONNER,
JOHN C. DALLAS,
JAMES JACKSON, JR.,
H.T. McCLENDON and
IKE NEWBERRY, JR.,
individually, and as institution-affiliated parties of
BOSTWICK BANKING COMPANY
ARLINGTON, GEORGIA
(Insured State Nonmember Bank)
NOTICE OF ASSESSMENT OF CIVIL MONEY PENALTIES, FINDINGS OF FACT AND CONCLUSIONS OF LAW, ORDER TO PAY, AND NOTICE OF HEARING
FDIC-92-133k
The Federal Deposit Insurance Corporation ("FDIC") is of the
opinion that Patsy Bostwick, P.T. Bostwick, James M. Gaines, L.
Mitchell Conner, John C. Dallas, James Jackson, Jr., H.T. McClendon and
Ike Newberry, Jr., individually, and as institution-affiliated parties
("Respondents") of the Bostwick Banking Company, Arlington,
Georgia ("Bank"), have violated section 22(h) of the Federal
Reserve Act, as amended, 12 U.S.C. § 375b, and Regulation O of the
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Board of Governors of the Federal Reserve System ("Regulation
O"), 12 C.F.R. Part 215, promulgated thereunder and made applicable
to insured State nonmember banks pursuant to section 18(j)(2) of the
Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1828(j)(2),
and section 337.3 of the FDIC's Rules and Regulations, 12 C.F.R.
§ 337.3; section 323.4(a) of the FDIC's Rules and Regulations, 12
C.F.R. § 323.4(a); sections 7-1-285 and 7-1-286 of the Official
Code of Georgia Annotated, Ga. Code Ann. §§ 7-1-285 and 7-1-286
(Michie 1989); and sections 80-1-5-.01(5), 80-1-13-.03 and 80-1-14-.01
of the Rules of the Georgia Department of Banking and Finance, Ga.
Comp. R. & Regs. r. 80-1-5-.01(5), 80-1-13-.03 and 80-1-14-.01 (1989).
Wherefore, the FDIC hereby issues this NOTICE OF ASSESSMENT OF CIVIL
MONEY PENALTIES, FINDINGS OF FACT AND CONCLUSIONS OF LAW, ORDER TO PAY,
AND NOTICE OF HEARING ("NOTICE OF ASSESSMENT", "ORDER TO
PAY" and/or "NOTICE OF HEARING") pursuant to the provisions of
sections 8(i)(2) and 18(j)(4) of the Act, 12 U.S.C. §§ 1818(i)(2)
and 1828(j)(4), and Part 308 of the FDIC Rules of Practice and
Procedure, 12 C.F.R. Part 308. In support thereof, the FDIC finds and
concludes as follows:
FINDINGS OF FACT AND CONCLUSIONS OF LAW
A. GENERAL
1. At all times pertinent to the charges herein, the Bank was a
corporation existing and doing business under the laws of the State of
Georgia, having its principal place of business in Arlington, Georgia.
The Bank is and has been, at all times pertinent to the charges herein,
an insured State nonmember bank subject to the Act, 12 U.S.C.
§§ 1811-1831t, the FDIC's Rules and Regulations, 12 C.F.R. Chapter
III, and the laws of the State of Georgia.
2. At all times pertinent to the charges herein, Respondent Patsy
Bostwick was a "director" and an "executive officer" of the
Bank within the meaning of sections 215.2(c) and 215.2(d) of Regulation
O, 12 C.F.R. §§ 215.2(c) and 215.2(d), and was an
"institution-affiliated party" of the Bank within the meaning of
sections 3(u) and 8(i)(2) of the Act, 12 U.S.C. §§ 1813(u) and
1818(i)(2).
3. At all times pertinent to the charges herein, Respondent P.T.
Bostwick was a "director" and an "executive officer" of the
Bank within the meaning of sections 215.2(c) and 215.2(d) of Regulation
O, 12 C.F.R. §§ 215.2(c) and 215.2(d), and was an
"institution-affiliated party" of the Bank within the meaning of
sections 3(u) and 8(i)(2) of the Act, 12 U.S.C. §§ 1813(u) and
1818(i)(2).
4. At all times pertinent to the charges herein, Respondent James M.
Gaines was a "director" and an "executive officer" of the
Bank within the meaning of sections 215.2(c) and 215.2(d) of Regulation
O, 12 C.F.R. §§ 215.2(c) and 215.2(d), and was an
"institution-affiliated party" of the Bank within the meaning of
sections 3(u) and 8(i)(2) of the Act, 12 U.S.C. §§ 1813(u) and
1818(i)(2).
5. At all times pertinent to the charges herein, Respondents L.
Mitchell Conner, John C. Dallas, James Jackson, Jr., H.T. McClendon and
Ike Newberry, Jr. were "directors" of the Bank within the meaning
of section 215.2(c) of Regulation O, 12 C.F.R. § 215.2(c), and all
were "institution-affiliated parties" of the Bank within the
meaning of sections 3(u) and 8(i)(2) of the Act, 12 U.S.C.
§§ 1813(u) and 1818(i)(2).
6. At all times pertinent to the charges herein, the Respondents
exercised a controlling influence over the management, policies and
practices of the Bank.
7. The FDIC has jurisdiction over the Respondents, the Bank and the
subject matter of this proceeding.
B. VIOLATIONS OF REGULATION O
8. Pursuant to section 215.4(a)(1) of Regulation O, 12 C.F.R.
§ 215.4(a)(1), the Bank may not extend credit to any of its executive
officers, directors, or principal shareholders, or to any related
interest of such persons, unless the extension of credit is made on
substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions by the Bank
with other persons that are not covered by Regulation O and who are not
employed by the Bank.
9. On January 23, 1991, the Bank renewed an extension of credit to
executive vice president P.T. Bostwick in the amount of $21,753. The
renewed amount of this extension of credit included the sum of
$2,185.79 in unpaid interest.
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10. The renewal of the extension of credit by the Bank to P.T. Bostwick
constitutes an "extension of credit" by the Bank to an executive
officer within the meaning of section 215.3(a) of Regulation O, 12
C.F.R. § 215.3(a).
11. At the time the Bank approved the renewal of the extension of
credit to P.T. Bostwick described in paragraphs 9 and 10 hereof,
persons not affiliated with the Bank were required to pay, on similar
extensions of credit, all earned interest at the time of any renewal of
the extension of credit by the Bank.
12. The Respondents caused or permitted the Bank to renew the extension
of credit to P.T. Bostwick described in paragraphs 9 and 10 hereof in
violation of section 215.4(a)(1) of Regulation O, 12 C.F.R.
§ 215.4(a)(1), because the renewal was not made on substantially the
same terms as those prevailing at the time for comparable extensions of
credit to persons not affiliated with the Bank as the result of the
inclusion of unpaid interest in the principal amount of the renewed
extension of credit.
13. Pursuant to section 215.4(b)(1) of Regulation O, 12 C.F.R.
§ 215.4(b)(1), the Bank may not extend credit to and/or for the
benefit of an executive officer, director or principal shareholder, or
any related interest of such persons, in an amount that, when
aggregated with all other extensions of credit by the Bank to and/or
for the benefit of the executive officer, director or principal
shareholder, or any related interest of such persons, exceeds the
greater of $25,000 or 5 percent of the Bank's unimpaired capital and
unimpaired surplus, unless the extension of credit has been approved in
advance by a majority of the Bank's entire board of directors with the
interested party abstaining from the voting.
14. From April 1, 1990, through June 30, 1990, five percent of the
Bank's unimpaired capital and unimpaired surplus equaled $60,350 as
computed by reference to the Bank's then most recent Consolidated
Report of Condition and Income dated March 31, 1990.
15. On April 21, 1990, the Bank permitted director L. Mitchell Conner
to assume the obligation for repayment of an October 9, 1987 extension
of credit by the Bank to Jean N. Bostwick in the amount of $128,113.
16. The assumption of the aforementioned extension of credit by L.
Mitchell Conner constitutes an "extension of credit" by the Bank
to a director within the meaning of section 215.3(a) of Regulation O,
12 C.F.R. § 215.3(a).
17. The extension of credit assumed by L. Mitchell Conner described in
paragraphs 15 and 16 hereof exceeded 5 percent of the Bank's
unimpaired capital and unimpaired surplus and the assumption was not
approved in advance by the vote of a majority of the Bank's entire
board of directors with L. Mitchell Conner abstaining from the voting.
18. The Respondents caused or permitted the Bank to allow the
assumption by L. Mitchell Conner of the extension of credit described
in paragraphs 15 through 17 hereof in violation of section 215.4(b)(1)
of Regulation O, 12 C.F.R. § 215.4(b)(1), because a majority of the
Bank's entire board of directors failed to approve in advance the
assumption of the extension of credit.
C. VIOLATIONS OF FDIC REGULATIONS
19. Section 323.4(a) of the FDIC's Rules and Regulations, 12
C.F.R. § 323.4(a), provides that any real estate appraisal performed
in connection with a "federally related transaction", as such
term is defined in sections 323.2(e) and (g) of the FDIC's Rules and
Regulations, 12 C.F.R. §§ 323.2(e) and (g), shall satisfy the
minimum requirements specified in section 323.4(a) of the FDIC's Rules
and Regulations, 12 C.F.R. § 323.4(a).
20. During the years 1990 and 1991, the Bank made extensions of credit
secured by real estate to the following individuals in the stated
amounts:
Borrower | Amount |
(1) | $104,000 |
(2) | $150,000 |
(3) | $250,050 |
(4) | $213,900 |
(5) | $203,700 |
(6) | $103,830 |
21. The extensions of credit granted by the Bank to the
borrowers described in paragraph 20 hereof were each "federally
related transactions" within the meaning of section 323.4(a) of the
FDIC's Rules and Regulations, 12 C.F.R. § 323.4(a), in that each
extension of credit was a real estate-related financial transaction
involving the use of real property as security for the extension of
credit by the Bank, a "regulated institu-
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section 323.1(b) of the FDIC's Rules and Regulations, 12 C.F.R.
§ 323.1(b). As such, each extension of credit required a real estate
appraisal which satisfied the minimum standards specified in section
323.4(a) of the FDIC's Rules and Regulations, 12 C.F.R. § 323.4(a).
22. The extensions of credit granted by the Bank to the borrowers
described in paragraph 20 hereof were not supported by real estate
appraisals which satisfied the requirements of section 323.4(a) of the
FDIC's Rules and Regulations, 12 C.F.R. § 323.4(a), because the
appraisals obtained by the Bank (1) were not sufficiently descriptive
to enable the reader to ascertain the estimated market value of the
subject real estate, (2) did not analyze in sufficient detail prior
sales of the subject real property, (3) did not analyze a reasonable
marketing period for the subject real estate, (4) did not follow a
reasonable valuation method which included direct sales comparison,
income or cost approaches to market value, and (5) did not contain
sufficient documentation to support the appraiser's logic, reasoning,
judgment and analysis.
23. The Respondents caused or permitted the Bank to grant the
extensions of credit to the borrowers described in paragraph 20 hereof
in violation of section 323.4(a) of the FDIC's Rules and Regulations,
12 C.F.R. § 323.4(a), because the extensions of credit were not
supported by real estate appraisals which satisfied the required
minimum standards specified in the regulation.
D. VIOLATIONS OF STATE LAWS AND REGULATIONS
24. Section 7-1-285 of the Official Code of Georgia
Annotated, Ga. Code Ann. § 7-1-285 (Michie 1989), provides in
pertinent part that the Bank shall not extend credit to any one person
that, when aggregated with the amount of all other extensions of credit
by the Bank to that person, exceeds (1) 15 percent of the Bank's
statutory capital base, unless the entire amount of the extensions of
credit is secured by good collateral or other ample security or (2) 25
percent of the Bank's statutory capital base.
25. At the times pertinent to the charges herein and on and prior to
January 29, 1991, 15 percent of the Bank's statutory capital base
equaled $147,750 and 25 percent of the Bank's statutory capital base
equaled $246,250. At the times pertinent to the charges herein and on
and after January 30, 1991, 15 percent of the Bank's statutory capital
base equaled $155,250 and 25 percent of the Bank's statutory capital
base equaled $258,750.
26. During the years 1990 and 1991, the Bank granted extensions of
credit to the following individuals or companies in the stated
amounts:
Borrower | Amount |
(1) | $247,796 |
(2) | $369,106 |
(3) | $359,261 |
(4) | $400,050 |
(5) | $417,600 |
(6) | $346,625 |
(7) | $350,129 |
(8) | $416,250 |
27. Each of the extensions of credit granted by the Bank to
the borrowers described in paragraph 26 hereof exceeded 25 percent of
the Bank's statutory capital base as specified in paragraph 25 hereof.
28. The Respondents caused or permitted the Bank to grant the
extensions of credit described in paragraph 26 hereof in violation of
section 7-1-285 of the Official Code of Georgia Annotated,
Ga. Code Ann. § 7-1-285 (Michie 1989), because each extension of
credit exceeded 25 percent of the Bank's statutory capital base.
29. Section 80-1-5-.01(5) of the Rules of the Georgia Department of
Banking and Finance, Ga. Comp. R. & Regs. r. 80-1-5-.01(5) (1989),
provides that in determining whether an extension of credit in excess
of 15 percent of the Bank's statutory capital base is secured by
"good collateral and ample security", the lack of a perfected
lien, inadequate insurance and the absence of required margins between
collateral value and the amount of the extension of credit shall be
prima facie evidence of inadequate security for the extension of
credit. Moreover, extensions of credit secured by endorsement must be
supported by a financial statement of the endorser, properly signed,
which is not more than 18 months old and which reflects adequate income
to service the extension of credit and unencumbered equity in property
sufficient to protect the extension of credit.
30. During the years 1990 and 1991, the Bank granted extensions of
credit to the fol-
{{10-31-00 p.C-2482.14}}lowing individuals or companies in the stated amounts
in excess of 15 percent of the Bank's statutory capital base as
specified in paragraph 25
hereof:
Borrower | Amount |
(1) | $167,749 |
(2) | $173,538 |
(3) | $175,812 |
(4) | $150,050 |
(5) | $210,095 |
(6) | $350,129 |
(7) | $220,861 |
The aforementioned extensions of credit failed to satisfy
the requirements of section 80-1-5-.01(5) of the Rules of the Georgia
Department of Banking and Finance, Ga. Comp. R. & Regs. r. 80-1-5-.0(5)
(1989), because the extensions of credit lacked proper lien perfection,
were not supported by adequate appraisals of collateral and/or did not
have the proper margins between collateral value and the amount of the
extension of credit.
31. The Respondents caused or permitted the Bank to grant the
extensions of credit to the borrowers described in paragraph 30 hereof
in violation of section 80-1-5-.01(5) of the Rules of the Georgia
Department of Banking and Finance, Ga. Comp. R. & Regs. r.
80-1-5-.01(5) (1989), because the extensions of credit exceeded 15
percent of the Bank's statutory capital base and were not supported by
"good collateral and ample security."
32. Section 7-1-286 of the Official Code of Georgia
Annotated, Ga. Code Ann. § 7-1-286 (Michie 1989), provides in
pertinent part that a bank doing business in the State of Georgia may
only make a regularly amortizing extension of credit secured by
improved or unimproved real estate where the amount of such extension
of credit does not exceed 90 percent of the fair market value of the
real estate.
33. On October 24, 1989, the Bank made a regularly amortizing extension
of credit secured by real estate to Virginia Gleaton in the amount of
$140,000. the proceeds of the extension of credit were used to purchase
two condominiums located in the State of Florida having a fair market
value of $70,300 and $72,200, respectively, 90 percent of the
cumulative value of which equaled $128,250.
34. The Respondents caused or permitted the Bank to grant the
aforementioned extension of credit to Virginia Gleaton in violation of
section 7-1-286 of the Official Code of Georgia Annotated,
Ga. Code Ann. § 7-1-286 (Michie 1989), because the amount of the
extension of credit exceeded 90 percent of the fair market value of the
collateral real estate.
35. Section 80-1-13-.03 of the Rules of the Georgia Department of
Banking and Finance, Ga. Comp. R. & Regs. r. 80-1-13-.03 (1989),
provides that a bank doing business in the State of Georgia may not
place "Correspondent Funds" with another financial institution in
excess of 15 percent of the bank's statutory capital base without the
prior approval of the bank's board of directors or a committee
thereof. For purposes of section 80-1-13 of the Rules of the Georgia
Department of Banking and Finance, Ga. Comp. R. & Regs. r. 80-1-13
(1989), the term "Correspondent (or Federal Funds" shall mean
"excess funds of one financial institution placed with another
financial institution at interest and subject to immediate
withdrawal."
36. On or about December 31, 1990, the Bank sold "Federal Funds"
in the cumulative amount of $3,870,000 to the Georgia Bankers Bank,
Atlanta, Georgia, which amount exceeded 15 percent of the Bank's
statutory capital base, without the prior approval of the Bank's board
of directors or a committee thereof.
37. The Respondents caused or permitted the Bank to sell the
aforementioned "Federal Funds" in violation of section
80-1-13-.03 of the Rules of the Georgia Department of Banking and
Finance, Ga. Comp. R. & Regs. 4. 80-1-13-.03 (1989), because the sale
was not approved in advance by the Bank's board of directors or a
committee thereof.
38. Section 80-1-14-.01(2) of the Rules of the Georgia Department of
Banking and Finance, Ga. Comp. R. & Regs. r. 80-1-14-.01(2) (1989),
provides that the board of directors of every bank doing business in
the State of Georgia shall elect an auditor who shall be charged with
the responsibility for implementation of the bank's internal audit
program and who shall provide a summary of audit activities to the
bank's board of directors at least annually.
39. During the year 1990, the Bank's internal auditor did not
implement the bank's internal audit program and, furthermore, did not
report a summary of audit activities to the Bank's board of directors.
40. The Respondents caused or permitted
{{10-31-00 p.C-2482.15}} the Bank to violate section
80-1-14-.01(2) of the Rules of the Georgia Department of Banking and
Finance, Ga. Comp. R. & Regs. r. 80-1-14-.01(2) (1989), by failing to
require the Bank's internal auditor to implement the Bank's internal
audit program and by failing to require the Bank's internal auditor to
report a summary of audit activities to the Bank's board of directors
for the year 1990.
41. Pursuant to section 3(v) of the Act, 12 U.S.C. § 1813(v), the
term "violation"includes any action (alone or with another or
others) for or toward causing, bringing about, participating in,
counseling or aiding or abetting a violation.
ORDER TO PAY
By reason of the violations set forth in the NOTICE OF ASSESSMENT,
the FDIC has concluded that civil money penalties should be assessed
against each Respondent pursuant to sections 8(i)(2) and 18(j)(4) of
the Act, 12 U.S.C. §§ 1818(i)(2) and 1828(j)(4). After taking into
account the appropriateness of the penalties with respect to the size
of financial resources and the good faith of each respondent, the
gravity of the violations, the history of previous violations, and such
other matters as justice may require, it is:
ORDERED, by reason of the violations set forth in paragraphs 8 through
40 hereof, that a penalty of $1,000.00 be, and hereby is, assessed
against Patsy Bostwick; a penalty of $5,000.00 be, and hereby is,
assessed against P.T. Bostwick; a penalty of $1,000.00 be, and hereby
is assessed against L. Mitchell Conner; a penalty of $1,000.00 be, and
hereby is, assessed against John C. Dallas; a penalty of $1,000.00 be,
and hereby is, assessed against James M. Gaines; a penalty of $1,000.00
be, and hereby is, assessed against James Jackson, Jr.; a penalty of
$1,000.00 be, and hereby is, assessed against H.T. McClendon; and a
penalty of $1,000.00 be, and hereby is, assessed against Ike Newberry,
Jr., pursuant to sections 8(i)(2) and 18(j)(4) of the Act, 12 U.S.C.
§§ 1818(i)(2) and 1828(j)(4).
FURTHER ORDERED, that the effective date of this ORDER TO PAY be, and
hereby is, stayed with respect to each Respondent until 20 days after
the date of receipt of the NOTICE OF ASSESSMENT by the Respondent,
during which time each Respondent may file an answer and request a
hearing pursuant to section 8(i)(2)(H) of the Act, 12 U.S.C.
§ 1818(i)(2)(H), and section 308.19 of the FDIC Rules of Practice and
Procedure, 12 C.F.R. § 308.19. An original and one copy of the
answer, any such request for a hearing, and all other documents in this
proceeding must be filed in writing with the Office of Financial
Institution Adjudication, 1700 G Street, N.W., Washington, D.C. 20552,
pursuant to section 308.10 of the FDIC Rules of Practice and Procedure,
12 C.F.R. § 308.10. Also, copies of all papers filed in this
proceeding shall be served upon the Office of the Executive Secretary,
Federal Deposit Insurance Corporation, 550 17th Street, N.W.,
Washington, D.C. 20429; Arthur L. Beamon, Associate General Counsel,
Compliance and Enforcement, Federal Deposit Insurance Corporation, 550
17th Street, N.W., Washington, D.C. 20429; and John J. Rubin, Regional
Counsel (Supervision), Federal Deposit Insurance Corporation, 245
Peachtree Center Avenue, N.E., Suite 1200, Atlanta, Georgia 30303.
If any Respondent fails to file a request for a hearing within 20 days
from the date of receipt of this NOTICE OF ASSESSMENT, the penalty
assessed against the Respondent, pursuant to this ORDER TO PAY, will be
final and shall be paid within 60 days after the date of receipt of
this NOTICE OF ASSESSMENT.
NOTICE OF HEARING
IT IS FURTHER ORDERED that, if any Respondent requests a hearing
with respect to the charges alleged in the NOTICE OF ASSESSMENT, the
hearing shall commence 120 days from the date of receipt of this NOTICE
OF ASSESSMENT at Albany, Georgia, or at such other date or place upon
which the parties to this proceeding and the Administrative Law Judge
mutually agree.
The hearing will be public and shall be conducted in accordance with
the provisions of the Act, 12 U.S.C. §§ 1811-1831t, the
Administrative Procedure Act, 5 U.S.C. §§ 551-559, and the FDIC
Rules of Practice and Procedure, 12 C.F.R. Part 308. The hearing will
be held before an Administrative Law Judge to be appointed by the
Office of Financial Institution Adjudication pursuant to 5 U.S.C.
§ 3105. The exact time and location of the hearing will be determined
by the Administrative Law Judge.
{{10-31-00 p.C-2482.16}}
In the event any Respondent requests a hearing, the Respondent shall
also file an answer to the charges in this NOTICE OF ASSESSMENT within
20 days after the date of receipt of this NOTICE OF HEARING in
accordance with section 308.19 of the FDIC Rules of Practice and
Procedure, 12 C.F.R. § 308.19. Failure of any Respondent to request a
hearing shall render the civil money penalty assessed in this NOTICE OF
ASSESSMENT final and unappealable pursuant to section 8(i)(2)(E)(ii) of
the Act, 12 U.S.C. § 1818(i)(2)(E)(ii), and section 308.19(c)(2) of
the FDIC Rules of Practice and Procedure, 12 C.F.R. § 308.19(c)(2).
Pursuant to delegated authority.
Dated at Washington, D.C., this 19th day of June, 1992.