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FDIC Enforcement Decisions and Orders |
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FDIC issued an order removing bank directors from their offices for violating an order to cease and desist from unsafe or unsound banking practices, for violating laws and regulations, and for breaching their fiduciary duties. The president/chief executive officer of the bank, as the highest-ranking officer of the bank, bears the responsibility for the unsafe or unsound practices, and for the violation of a cease and desist order, resulting in substantial financial loss to the bank.
[.1] Unsafe or Unsound Banking PracticeDefined Generally
[.2] Cease and Desist OrdersWhen Appropriate
[.3] DirectorsDuties and ResponsibilitiesCompliance with Cease and Desist Order
[.4] Prohibition, Removal, or SuspensionCorrection of Violations
[.5] Bank ExaminationsPurpose
[.6] Lending and Collection Policy and ProceduresOverdue Loans
[.7] Lending and Collection Policy and ProceduresUnsafe or Unsound Practices
[.8] AssetsUnsafe or Unsound Practices
[.9] CapitalAdequacyUnsafe or Unsound Practices
[.10] CAMEL RatingManagement"5"
[.11] CAMEL Rating"5" Defined
[.12] Removal, Prohibition, or SuspensionPersonal Benefit from Bank Funds Directors
In the Matter of * * * An Officer and
STATEMENT OF THE CASE
These proceedings arise under Section 8(e)(1) of the Federal Deposit Insurance Act (the "Act") (12 U.S.C. §1818(e)(1)). On October 3, 1983, the Board of Directors of the Federal Deposit Insurance Corporation (the "Board" and the "FDIC", respectively) issued a Notice of Intention to Remove from Office and to Prohibit from Further Participation (the "Notice") against * * * (the "Respondent") and * * *, pursuant to Section 8(e)(1) of the Act and Part 308 of the FDIC Rules of Practice and Procedures (12 C.F.R. Part 308). The Notice charged the Respondent and * * * in their capacities as officers and directors of the * * * Bank of * * * (the "Bank"), with having violated an Order to Cease and Desist issued by the FDIC against the Bank on November 8, 1982, which had become final; and with having engaged or participated in unsafe or unsound banking practices, violations of law, or breaches of their fiduciary duties evidencing a willful or continuing disregard for the safety and soundness of the Bank. The Notice further alleged that the Bank had sustained or probably would sustain substantial financial loss or other damage as a result of the conduct of the Respondent and * * *, and/or that the two officers and directors had received financial gain by reason of such violations, practices, or breaches of fiduciary duties. The Respondent and * * * filed an Answer on November 21, 1983, which admitted certain allegations in the Notice, and denied others.
BACKGROUND
[.1.2] The FDIC alleged that the Respondent, in his capacity as president and a director of the Bank, had caused the Bank to commit unsafe and unsound banking practices: namely, poor quality loans, inadequate capital and loan loss reserves, excessive concentrations, and poor quality of management. The FDIC further claimed that the Respondent had caused the Bank to violate the Order to Cease and Desist by failing to provide the Bank with management acceptable to the FDIC; by failing to take steps to increase sufficiently the Bank's total equity capital and reserves; by failing to adopt and implement policies to improve the quality of the Bank's loan portfolio; and by failing to establish an adequate reserve for loan losses, within the periods specified in the Order to Cease and Desist.
DECISION
[.3.4] After reviewing the entire record, the Board finds that the Recommended Decision is supported by the evidence and is in accordance with applicable law. The Respondent was President and Chief Executive Officer, the senior loan officer, a member of the loan committee and a member of the board of directors of the Bank during the entire period from 1977 to January 1984. As the highest-ranking officer of the Bank, he must of necessity bear the responsibility for the unsafe and unsound practices described in the Recommended Decision and violation of the Order to Cease and Desist, resulting in substantial financial loss to the Bank. The ALJ having found that Respondent violated the law, Respondent's subsequent repayment of funds obtained through impermissible insider transactions is not a defense. The acts of the Respondent demonstrate a willful, or continuing disregard for the safety and soundness of the Bank within the meaning of Section 8(e) of the Act (12 U.S.C. 1818(e)), as recently reaffirmed by the Court of Appeals in Brickner v. FDIC, 53 U.S.L.W. 1081, 2266 (8th Cir. November 5, 1984).
FINDINGS OF FACT
The Board adopts Judge Clarke's Recommended Findings of Fact, and incorporates them herein by reference.
CONCLUSIONS OF LAW
The Board adopts Judge Clarke's Recommended Conclusions of Law, and incorporates them herein by reference.
ORDER OF REMOVAL AND PROHIBITION FROM PARTICIPATION
Having found and concluded that * * * (the "Respondent"), in his capacity as an officer and director of the * * * Bank of * * * (the "Bank"), has violated a cease-and-desist order which has become final, has engaged or participated in unsafe or unsound banking practices, violations of law, and breaches of his fiduciary duty, evidencing a willful or continuing disregard for the safety and soundness of the Bank; and
Docket No. FDIC 83-218e
Recommended Decision, Findings of Fact,
SUMMARY OF PROCEEDINGS
On October 3, 1983, the Federal Deposit Insurance Corporation ("FDIC") issued a Notice of Intention to Remove From Office and to Prohibit From Further Participation ("Notice") to * * * ("Respondent") and * * * pursuant to the provisions of section 8(e)(1) of the Federal Deposit Insurance Act ("Act") (12 U.S.C. § 1818(e)(1) and Part 308 of the FDIC Rules of Practice and Procedures (12 CFR Part 308). The Notice charged the Respondent and * * * , in their capacities as officers and directors of the * * * Bank of * * * ("Bank"), with violating an FDIC Cease and Desist Order issued on November 8, 1982 against the Bank, which had become final, with engaging in unsafe or unsound banking practices, with committing violations of law, and/or with breaching their fiduciary duties evidencing a continuing disregard for the safety and soundness of the Bank. The Notice further alleged that, as a result of the Respondent and * * * actions and conduct, the Bank had suffered or would probably suffer substantial financial loss or other damage, or that the interests of the Bank's depositors could be seriously prejudiced by reason of such violations, practices, or breaches of fiduciary duties, and/or that the Respondent and * * * had received financial gain by reason of such violations, practices, or breaches of their fiduciary duties.
FINDINGS OF FACT
A. General Findings
1. The Bank is a corporation existing and doing business under the laws of the state of * * * and has its principal place of business at * * * (Notice, para. 1; Answer, para. 1).
[.5] 4. The FDIC conducts periodic examinations of banks under its supervision. The purposes of an examination are: (1) to determine the financial condition of the bank, (2) to evaluate its management and (3) to determine its compliance with applicable laws and regulations. Evaluation of the financial condition of a bank involves an analysis of capital adequacy, analysis of
{{4-1-90 p.A-369}}quality of assets, analysis of the bank's earnings and analysis of the bank's liquidity position (Tr. 46).
B. Findings Concerning the November 8, 1982 Order to Cease and Desist
7. The Bank was under the Respondent's leadership and control during the time period allowed for correction in the November 1982 Order (Notice, para. 4; Answer, paras. 4 and 6; Tr. 438, 439).
C. Findings Concerning the Unsafe or Unsound Practices in Which Respondent was Engaged and/or Which He Participated.
18. The Bank was examined by the FDIC as of the close of business May 6, 1983, by a group of FDIC examiners under the direction of Examiner-in-Charge, * * * (FDIC Ex. 2; Tr. 48).
{{4-1-90 p.A-371}}
[.6] c. A volume of overdue loans amounting to 13.13% of the total amount of the Bank's loans is excessive (Tr. 110).
[.7] e. A volume of classified loans equal to 17.44% of a bank's total loans is excessive or very high. Such percentage in banks comparable to * * * Bank of * * * is normally two to five percent (Tr. 107).
[.8] h. An amount of classified assets equal to 264.53% of the total equity capital and reserves of the Bank is excessive. Such percentage in other banks in the state of * * * is usually less than 50% (Tr. 108).
[.9] j. Adjusted equity capital and reserves in an amount equal to 2.17% of adjusted total assets is indicative of an inadequate capital account. That percentage in comparable banks in the state of * * * is between 6.5% and 7.5% (Tr. 113, 114).
[.10] u. The instructions of the three federal bank regulatory agencies provide that the Management of a bank should be rated 5 in those instances where incompetence has been demonstrated and where problems resulting from management are of such severity that management must be strengthened or replaced before sound condition can be brought about (FDIC Ex. 33).
[.11] v. The instructions of the federal bank regulatory agencies provide that a bank given a composite rating of 5 is one where the volume and character of weaknesses are such as to require urgent aid from the shareholders or other sources. Such banks require immediate corrective action and constant supervisory attention, and the probability of failure is high for banks in this category (FDIC Ex. 33).
D. Findings Concerning Acts from Which Respondent Derived Personal Benefit
22. Beginning February 9, 1983, the Respondent's * * * account was overdrawn for 34 consecutive days. The overdraft balance of the account during the first six days exceeded $1,000. The Respondent paid no customary fees to the Bank as a result of the overdrafts. Respondent did not have a written, preauthorized agreement for credit or for transfer of funds from other accounts. These overdrafts, under these conditions, were in violation of section 22(h) of the Federal Reserve Act, as amended (12 U.S.C. §375b), as implemented by section 215.4(d) of Regulations O of the Board of Governors of the Federal Reserve System (12 C.F.R. § 215.4(d)), as made applicable to State nonmember banks by section 22(j) of the Federal Deposit Insurance Act (12 U.S.C. § 1828(j)) (FDIC Ex. 2, p. 6-b-1; FDIC Ex. 21; Tr. 190-194).
E. Findings Concerning the Loans to * * * and * * *
25. The Respondent, at all times pertinent to this proceeding, was the president and chief loan officer of the Bank. Also, he was the officer of account on loans by the Bank to * * * (Tr. 439).
F. Findings Concerning Financial Losses or Probable Financial Losses by the Bank
32. The Bank has suffered substantial financial loss from the actions or omissions of Respondent in that: (1) the Bank received no income, either in interest or fees, from the overdraft of Respondent's account, (2) the Bank was deprived of the income and the possible earnings thereon, of the $11,510 abstracted from the Bank's income account between 1980 and 1983, (3) the Bank has been required to charge off large amounts of the * * * credit as a result of improper servicing and handling of that credit, (4) the Bank has been required to charge off large amounts of other credits extended by the Bank, totaling hundreds of thousands of dollars, during the period Respondent has served as president and chief loan officer of the Bank (FDIC Ex. 2; FDIC Ex. 13).
CONCLUSIONS OF LAW
1. The FDIC has jurisdiction over the Bank, the Respondents, and the subject matter of this proceeding.
[.12] 9. Respondent abstracted Bank funds totaling at least $11,501 for his personal benefit from the bank control account in which premiums from the sale of credit life insurance were deposited. Such action by Respondent constituted a breach of his fiduciary duty as an officer and director of the Bank, resulted in financial gain to Respondent and demonstrated personal dishonesty on the part of Respondent.
ORDER OF REMOVAL AND
Having found and concluded that * * * ("Respondent"), in his capacity as an officer and director of the * * * Bank of * * * ("Bank"), has violated a cease-and-desist order which has become final, has engaged or participated in unsafe or unsound banking practices, violations of law, and breaches of his fiduciary duty, evidencing a willful or continuing disregard for the safety and soundness of the Bank; and
Executive Secretary
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Last Updated 6/6/2003 | legal@fdic.gov |