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Appeals of Material Supervisory Determinations: Guidelines & Decisions

SARC-98-02 (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 board’s 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 Bank’s 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.