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FDIC Enforcement Decisions and Orders |
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The FDIC Board adopts ALJ's recommendation and grants summary judgment terminating the insurance because there is no factual dispute concering Bank's violation of a cease and desist order requiring it to increase its primary capital. (This order was terminated by order of the FDIC dated 4-20-92; see ¶9010.)
[.1] Termination of InsuranceViolation of Cease and Desist Order
[.2] Summary JudgmentTermination of Insurance
[.3] Practice and ProcedureAnswerMotion to Amend
In the Matter of
This proceeding seeks to terminate the insured status of The First State Bank, Hawk-
{{6-30-92 p.A-1830.10}}ins, Texas ("Bank" or "Respondent"), upon findings made by the Board of Directors ("Board") of the Federal Deposit Insurance Corporation ("FDIC" or "Petitioner") pursuant to section 8(a) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. §1818(a), that the Bank is in an unsafe or unsound condition to continue operations as an insured bank. One of the grounds for involuntary termination of insurance under section 8(a)(2) of the FDI Act, 12 U.S.C. §1818(a)(2), is a finding that the institution or its directors have violated a law, regulation, or order, a condition imposed by the FDIC in writing or an agreement entered into with the FDIC. After an examination of the Bank by the FDIC on May 5, 1989, the FDIC determined that the Bank violated certain provisions of a Cease and Desist Order to which it was subject. Most significantly, the Bank failed to increase primary capital to 7.0 percent within the prescribed 120 days. In fact, its adjusted capital ratio was 3.24 percent on the date of examination. Other problems existed as well, including an inadequate reserve for losses and an excessive volume of poor quality assets and loans.
Respondent stipulated to an Order to Cease and Desist ("Order") in September 1988, which became effective on October 28, 1988. Paragraph 1(a) of the Order required Respondent to submit to Petitioner within 60 days a plan to increase primary capital to 7.0 percent of total assets, to achieve that capital ratio within 120 days and to maintain it thereafter. The Bank did timely submit a plan, but failed to achieve the required ratio, either by the prescribed date or any time thereafter. On May 5, 1989, when the Bank was examined by the FDIC, its adjusted capital ratio was 3.24 percent.
Respondent submitted a Request for Oral Argument before the Board. No reasons were provided for the Request, and it was not opposed by Enforcement Counsel.
A. Statutory and Regulatory Requirements.
It is uncontested that the FDIC has the power to terminate a bank's insured status upon a finding that it is in an unsafe or unsound condition. 12 U.S.C. §1818(a). The central issue is, of course, whether the Bank was in such condition. FDIC regulations provide that "[a]ny bank which has less than its minimum capital requirement is deemed to be engaged in an unsafe or unsound practice". 12 C.F.R. §325.4(b). Furthermore, 12 C.F.R. §325.4(c)(2) provides that a bank with a primary capital-to-asset ratio equal to or greater than three percent may nonetheless be operating in an unsafe or unsound condition, and the FDIC is not precluded from bringing an action to terminate insurance under section 8(a) of the FDI Act, 12 U.S.C. §1818(a), with regard to such a bank. Moreover, under section 8(a)(2) of the FDI Act, the Board may terminate insurance of an institution if it or its directors have violated any law, regulation, order, written condition imposed by the FDIC, or agreement entered into with the FDIC.
B. Enforcement Counsel's Assertions
[.1] The low capital-to-asset ratio, below the 7.0 percent stipulated to in the Order, is the principal basis upon which the FDIC seeks to terminate the Bank's insured status.1The underlying statistics of the case are not contested by the Bank. R.D. at 4. At the May 5, 1989 examination, the Bank's adjusted primary capital ratio was 3.24 percent. See Examination Report for May 5, 1989, Exhibit 3 to Respondent's Exceptions to Recommended Decision and Brief in Support ("Resp. Ex. 3"). In addition, adversely classified assets were found to be 316.4 percent of equity capital and reserves. Id.. In sum, as of the May 5, 1989 examination, Respondent was determined to be in violation of the Order, and in an unsafe or unsound condition to continue operations as an insured institution because: (1) it was operating with inadequate capital and reserves; (2) it was operating with an excessive volume of poor quality assets; (3) it failed to achieve the primary capital ratio required by the Order; and (4) it was operating with management whose policies and practices were detrimental to the institution. Id. and R.D. at 5.
[.2] Respondent's present management assumed responsibility for the Bank's operation only after the Order was entered into, and attributed many of the problems cited in the examination report to previous management. Resp. Ex. 6, 7, and 9. However, while Respondent claims improvement in a majority of the areas in question, the record is nevertheless replete with admissions of inadequate capital (below 7.0 percent) and other violations of the Order. The ALJ focused on the issue of compliance with the Order's primary capital ratio requirement. He found that paragraph 1(a) of the Order required Respondent to achieve a 7 percent ratio within 120 days, "not merely to submit a plan intended to accomplish that result". R.D. at 4. He further found that Respondent admitted that it violated the Order's primary capital requirements. Id. Because there is no factual dispute concerning the Bank's violation of the Order, the Board affirms the grant of Enforcement Counsel's Motion for Summary Judgment on this basis.2
C. The Bank's Contentions
[.3] Respondent attempted to circumvent its admissions of violation of the Order in its January 10, 1991 Answer ("Resp. Ex. 9") by seeking to amend that Answer. It claimed the Answer was ambiguous, purportedly because it was pro se, and that documents received during discovery warranted amendment to include certain affirmative defenses.
The Board has fully examined the record and finds no material modification of the ALJ's Recommended Decision required.
IT IS HEREBY ORDERED, that the insured status of The First State Bank, Hawkins, Texas, is terminated effective as of the close of business sixty days from the date of this Order.
____, 1991
There may be included in such notice, with the written approval of the FDIC, any additional information or advice the Bank may deem desirable.
/s/ Hoyle L. Robinson
In the Matter of
At the prehearing conference held in this matter on February 2, 1991, the Federal Deposit Insurance Corporation ("FDIC" or "Petitioner") made an oral motion for summary judgment, contending that no hearing was required because Respondent's Answer did not raise an issue of material fact. The First State Bank of Hawkins, Texas ("Respondent") orally opposed the summary judgment motion and requested leave to file a written motion to amend its Answer. At the conclusion of the conference, I took the summary judgment motion under advisement, granted Respondent's request to file a written motion and established a procedural schedule intended to allow the parties a limited opportunity to explore the possibility of settling this case without further litigation. That schedule called for Respondent to submit a settlement proposal by February 19 and for Petitioner to respond to that proposal by March 5.
A. The Motions to Amend
Petitioner conducted an examination of Respondent's operations on May 5, 1989 and, based thereon, issued (1) a November 14, 1989 Notice to Primary Regulator of Findings and (2) a March 6, 1990 Notice of Intention to Terminate Insured Status ("Notice") pursuant to 12 U.S.C. §1818(a). By letter dated March 21, 1990, Respondent's President and Chief Executive Officer responded to the Notice. Petitioner took no further action until December 31, 1990, when its Executive Secretary sent a letter asking Respondent to file an answer to the Notice in the form required by Section 308.21 of the FDIC's Rules of Practice and Procedures ("FDIC Rules"), 12 C.F.R. §308.21. Respondent's President and Chief Execu-
B. The Summary Judgment Motion
As noted above, the unamended Answer admits every material allegation of fact contained in the Notice and provides a factual predicate for granting Petitioner's summary judgment motion. Respondent advances two arguments in opposition to that motion.
1. As of May 5, 1989, Respondent was:
Respondent submitted a Request for Oral Argument before the Board, which was unopposed by FDIC Enforcement Counsel. The Bank alleges that due to the unique facts in this case and the recent favorable earnings performance, oral argument should be granted.
A. Statutory and Regulatory Background
It is uncontested that the FDIC has the power to terminate a bank's insured status upon a finding that it is in an unsafe or unsound condition. 12 U.S.C. §1818(a). The key question here, of course, is whether the Bank was in such condition. FDIC regulations provide that "[a]ny bank which has less than its minimum capital requirement is deemed to be engaged in an unsafe or unsound practice." 12 C.F.R. §325.4(b). Section 325.3(a) of the FDIC's regulations requires banks to maintain at least the minimum capital set forth in the regulations. Furthermore, section 325.4(c)(2) provides that a bank with a primary capital-to-asset ratio equal to or greater than three percent may nonetheless be operating in an unsafe or unsound condition, and that the FDIC is not precluded from bringing an action to terminate insurance under section 8(a) of the FDI Act with regard to such a bank.1Moreover, under section 8(a)(2) of the FDI Act, the Board may terminate insurance of an
B. Enforcement Counsel's Assertions
Enforcement Counsel alleges that, due to the Bank's inadequate capital, poor asset quality, lax management policies, and failure to comply with the 1982 cease-and-desist order, it is operating in an unsafe or unsound condition and its Federal Deposit Insurance should be terminated. The extremely low primary capital ratio is the chief basis upon which the FDIC seeks to terminate insurance, and the issue was accorded extensive analysis by the ALJ.
C. The Bank's Defenses
[.1] Although Respondent filed numerous exceptions to the ALJ's Recommended Decision, they may be summarized into several major categories. First, the Bank is concerned that the ALJ (and presumably the FDIC) placed undue emphasis on capital in considering whether to terminate insurance, and failed to consider all material factors. This argument is not only wrong, but even if it were correct, it would not further Respondent's position. On page 4 of the ALJ's Decision, the ALJ stated that this case is "principally," not exclusively, about capital adequacy. He went on to cite "other areas of criticism in the examination reports, . . . which could support an order of termination," and acknowledged that, because termination "is typically reserved only for egregious cases of capital inadequacy," he would focus his analysis on capital. Id.
[.2] Next, Respondent objects to the omission of net income data for June, July, and
[.3] On the basis of the alleged improvement in its financial condition resulting from the improved earnings discussed above, Respondent urges the Board to adopt a proposed alternative remedy, granting a "reasonable probationary period of time so that it may continue on its road to recovery." Respondent's Exceptions Brief, p. 7. In its Post-Hearing Brief, p. 11, Respondent re-
The Board has fully examined the record and finds no material modification of the ALJ's Recommended Decision required.
IT IS HEREBY ORDERED, that the insured status of the Bank of Healdton, Healdton, Oklahoma, is terminated effective as of the close of business sixty days from the date of this Order.
____, 1992
There may be included in such notice, with the written approval of the FDIC, any additional information or advice the Bank may deem desirable.
/s/ Hoyle L. Robinson
In the Matter of
This matter is before me upon a Notice by the Federal Deposit Insurance Corporation to terminate the Federal Deposit Insurance of the Bank of Healdton (herein the Bank), pursuant to 12 U.S.C. §1818(a).
The Respondent is a small commercial bank, and is the only financial institution located in Healdton, a town of about 3,000 in south central Oklahoma. The nearest alternative bank is 10 miles from Healdton. (Tr. 131, 132)
The FDIC alleges that given the Bank's inadequate capital, poor asset quality, lax management policies and failure to comply with the 1982 Cease and Desist Order, it should be found to be in an unsafe and unsound condition and its Federal Deposit Insurance should be terminated.
1. The Bank is a corporation existing and doing business under the laws of the State of Oklahoma, and maintains its principal place of business in Healdton, Oklahoma. Jt. Stip. 1.
1. The FDIC has jurisdiction of this matter pursuant to 12 U.S.C. §§ 1811 and 1833(k).
IT IS HEREBY ORDERED, that the insured status of Bank of Healdton, Healdton Oklahoma, ("Bank"), is terminated effective as of the close of business sixty days from the date of this Order Terminating Federal Deposit Insurance ("Order").
____, 1991
There may be included in such notice, with 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. |
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Last Updated 6/6/2003 | legal@fdic.gov |