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Michigan Trust Bank

IN RE: Michigan Trust Bank (In Organization) Southfield, Oakland County, Michigan Application for Federal Deposit Insurance (Bank Insurance Fund)

ORDER

The Board of Directors has fully considered all available facts and information relevant to the factors contained in section 6 of the Federal Deposit Insurance Act (12 U.S.C. 1816) and relating to the application for Federal deposit insurance, with membership in the Bank Insurance Fund, for Michigan Trust Bank, an uninsured state-chartered trust bank located at 29610 Southfield Road, Southfield, Michigan, and concluded that the application should denied.

Accordingly, it is hereby ORDERED, for the reasons set forth in the attached Statement, that the application submitted on behalf of Michigan Trust Bank for Federal deposit insurance be and the same hereby is denied.

Dated at Washington, D.C., this 7th day of October, 2003.

BY ORDER OF THE BOARD OF DIRECTORS
Robert E. Feldman
Executive Secretary


IN RE: Michigan Trust Bank (In Organization) Southfield, Oakland County, Michigan Application for Federal Deposit Insurance (Bank Insurance Fund)

STATEMENT

Pursuant to the provisions of section 5 of the Federal Deposit Insurance Act (12 U.S.C. 1815) an application for Federal deposit insurance, with membership in the Bank Insurance Fund, has been filed by Michigan Trust Bank, an uninsured state-chartered trust bank located at 29610 Southfield Road, Southfield, Michigan.

Section 6 of the Federal Deposit Insurance Act (12 U.S.C. 1816) requires the Board of Directors ("Board") of the Federal Deposit Insurance Corporation ("FDIC") to consider various statutory factors in connection with a determination to grant or deny a deposit insurance application. Those factors are:

    The financial history and condition of the depository institution;

    The adequacy of the depository institution's capital structure;

    The future earnings prospects of the depository institution;

    The general character and fitness of the depository institution's management;

    The risk presented by the depository institution to the appropriate deposit insurance fund;

    The convenience and needs of the community to be served by the depository institution; and

    Whether the depository institution's corporate powers are consistent with the purposes of the Federal Deposit Insurance Act.

Each of these factors has been reviewed and considered in connection with the proponent's application and will be discussed below.

The bank is an uninsured state-chartered trust bank located in Southfield, Michigan. It has operated since April 2000. It administers approximately $80 million in trust assets and, although it has only been slightly profitable to date, it has received favorable trust examination ratings from the FDIC and the Michigan Office of Financial and Insurance Services. If its deposit insurance application were approved, MTC Capital Corporation, the bank's holding company, would be dissolved and its assets would be transferred to the bank. In addition, the bank would also receive a sufficient capital infusion, through the issuance of new stock, to allow it to maintain a Tier I capital to assets leverage ratio of not less than 8 percent throughout the first three years of its operation as an insured depository institution. The bank's proposed business plan envisions operating as a traditional community bank gathering deposits from and lending money to the community, and its volume and growth assumptions for deposits and loans appear reasonable in comparison to other new banks in close proximity to the bank. The bank's proposed operations also appear to enhance the overall competition among area financial institutions in the bank's primary trade area. Finally, the bank proposes to operate as a state nonmember bank that would offer a full range of traditional commercial, residential, and consumer loans, trust operations, and deposit account options. Therefore, all of the statutory factors, except for those relating to the general character and fitness of management and risk to the deposit insurance fund, have been favorably resolved.

With regard to bank management, the bank proposes that its largest shareholder, Mr. Stanford C. Stoddard, serve as the chairman of the board of directors and chief lending officer. The FDIC Board recognizes, however, that Mr. Stoddard previously was involved in several legal proceedings arising out of his involvement with an insured depository institution and its holding company that raised issues concerning actions he took in management positions. These proceedings were ultimately dismissed; however, two deposit insurance applications were subsequently filed with the FDIC for proposed de novo state nonmember banks. In both applications, Mr. Stoddard was the primary proponent and would have had significant control over the operations of the new banking institutions. In connection with those deposit insurance applications, the FDIC Board found that Mr. Stoddard had demonstrated undesirable banking practices in his former position as chief executive officer of a multi-billion dollar banking organization that reflected adversely on his judgment. Those practices involved an unacceptable commingling of Mr. Stoddard's personal and business interests and accounting. Based on those findings, the FDIC Board denied the applications in published decisions, due to Mr. Stoddard's significant control and involvement in the management of the proposed new institutions, on the statutory factors concerning the general character and fitness of management and risk to the deposit insurance fund.

As part of the review process for the current application, the Division of Supervision and Consumer Protection ("DSC") expressed concerns about Mr. Stoddard's proposed management role and significant control over the bank. The proponent's management attempted to address DSC's concerns in several ways. For example, the proponent advised DSC that, while Mr. Stoddard would be a director and the chairman of the board of directors, the bank's corporate documents specified that that was not an executive position. The proponents also indicated that, provided certain legal assurances could be obtained by Mr. Stoddard, he would execute an agreement not to vote the stock in his own name, or in his name as Trustee, for the election of the bank directors for two years, or until he was no longer the chairman of the board and director, whichever occurred first. Alternatively, if certain legal assurances could be obtained, Mr. Stoddard would consider giving an irrevocable voting proxy to a person to vote the bank's stock. The proponent's management also underscored the policies and committees that would be in place in order to prevent conflicts of interests and oversee bills and other expense reimbursements. Additionally, the proponent expressed a willingness to create a management committee of three directors that would interview and hire a president and chief lending officer.

While the FDIC Board understands and appreciates the bank's position concerning controls it has or will have in place to attempt to assure proper management of the institution once it becomes insured, the fact remains that Mr. Stoddard will be the single largest shareholder in the institution following the proposed dissolution of MTC Capital Corporation. In addition, various Stoddard family trusts will hold a significant amount of stock in the institution that can be voted by Mr. Stoddard's business associates or family members. Taken together, these interests will approximate 65 percent of the outstanding shares in the institution and could, through their voting rights, potentially influence the management of the institution. Aside from the ownership issue, Mr. Stoddard would also be the chairman of the board for the institution and would be responsible for new business acquisition, conducting board meetings, setting agendas, and participating in various bank committees. Finally, he would be acting as the bank's chief lending officer. Therefore, the proposed arrangement would essentially assure that Mr. Stoddard and his related family interests have the potential to influence all levels of the newly insured bank's operations.

The FDIC Board is aware that Mr. Stoddard presently holds significant stock interests in MTC Capital Corporation, is the chairman of the board of directors for that company and the bank, and that the bank has received satisfactory reviews on trust examinations from the FDIC and the State of Michigan as well as satisfactory external audits. While it acknowledges these positive attributes, the FDIC Board recognizes that the existing bank's activities are limited to trust operations, the bank is currently being managed by an experienced trust officer, and the majority of the assets being administered by the bank are controlled by Mr. Stoddard or related to him. The grant of deposit insurance to the bank and the conversion of its charter to a commercial bank would expand the scope of the bank's services and operations, and eventually require the replacement of some of the bank's senior management with more experienced commercial bank executives. Therefore, the bank's past examination and audit results are not considered conclusive indicators of whether the bank's proposed management would be able to properly manage the institution after it received deposit insurance and expanded its operations. Likewise, the fact that the bank is not a completely new institution does not diminish the fact that the FDIC Board considers adequate senior management a critical factor in ensuring the success of a newly insured depository institution.

Because the FDIC Board is not satisfied that the proponent's management has adequately addressed concerns expressed in prior deposit insurance application denials regarding Mr. Stoddard's fitness to participate in the management of a newly insured institution and Mr. Stoddard's potential to influence and control the management and operations of the proponent if deposit insurance were granted, the FDIC Board finds unfavorably on the statutory factor regarding the general character and fitness of the bank's management. Due to the potential risk that the proponent's failure to satisfactorily address these issues may pose to the deposit insurance fund, the FDIC Board also finds unfavorably on the statutory factor of risk to the deposit insurance fund.



Last Updated 03/24/2011 Legal@fdic.gov