Appeals of Material Supervisory Determinations: Guidelines
(March 12, 1998)
The Supervision Appeals Review Committee of the Federal Deposit Insurance
Corporation on March 11, 1998, has considered the appeal of [Bank] (Bank),
and concludes that the Component 3 ratings for Capital, Liquidity and
Sensitivity, and the Composite 3 rating assigned at the October 20, 1997,
examination are appropriate. The proposed Memorandum of Understanding is
also considered an appropriate course of action.
Management has adopted a strategy of rapid
growth as evidenced by the increase in total assets from $60 to $109 million
and in loans from $30 million to $86 million over a two year period. The
majority of this growth is concentrated in real estate subdivision
development and residential construction lending and is being funded with
brokered deposits. The use of volatile deposits to fund this type of
activity is cause for concern, especially in view of the numerous
documentation deficiencies, poor loan underwriting standards, and weak loan
administration reflected in the report of examination. Also, the report
reflects the boards failure to develop appropriate funding policies and
procedures and to establish specific risk limits relating to liquidity and
interest rate risk. In view of the Banks current lending and funding
strategies, management depth and succession are considered inadequate.
Pursuant to our guidelines, the scope of
our review was limited to the facts and circumstances that existed at the
time of the examination and no consideration was afforded any changes in
circumstances occurring after that date.
This determination is considered a final
supervisory decision of the Federal Deposit Insurance Corporation.
By direction of the Supervision Appeals
Review Committee of the Federal Deposit Insurance Corporation.