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Published Tuesday, Feb. 12
Wayne White | Managing Editor
BURLINGAME—The Federal Deposit Insurance Corporation (FDIC)
has issued an order to cease and desist to the First State Bank
of Burlingame, but the bank is in no danger of closing, and all
depositors’ money is safe, according to the bank’s president.
The FDIC’s order outlines corrective action for unsafe or
unsound banking practices and violations of law alleged to have
been committed by the bank. Although the order was issued Dec. 22,
the FDIC made the order and all of its December enforcement actions
public Jan. 30.
Contacted Tuesday, bank president John Fowler said a common misperception
of a cease and desist order is that the FDIC is closing a bank,
but that is not the intent of the order.
“We have to cease and desist from the practices identified
in the order,” Fowler said. “The bank is not going to
close.”
He noted that the FDIC insures all depositors’ funds up to
$250,000 in most cases; other types of accounts or deposits are
insured to unlimited amounts.
“In that regard, people’s money is safe,” he said.
“The order should have very limited effect, if any, on our
customers.”
Fowler said the unsound banking practices identified in the order
stem from the bank’s dealings with one of the bank’s
lines of credit.
“It basically came from a line of loans in a certain industry,”
he said. “We didn’t feel like it reflected on our entire
processes here.”
“A lot of it revolved around this line. We were not getting
the type of information we needed,” he said.
According to the order, on Dec. 15, the bank entered into a consent
agreement in which the bank neither admitted or denied any unsafe
or unsound banking practices or violations of law, but consented
to the issuance of the cease and desist order.
“We did have some problems that we did need to get corrected,”
Fowler said.
Specifically, the bank is ordered to cease from engaging in hazardous
lending and lax collection practices, including failing to obtain
proper loan documentation; failing to obtain adequate collateral;
failing to adequately identify the extent of risk in existing loans;
operating with excessive level of adversely classified loans; operating
with an inadequate level of capital for the kind and quality of
assets held; and operating in such a manner as to produce inadequate
earnings.
“I would say we have probably complied with 70 percent of
the order so far,” Fowler said. “We completely intend
to comply with the order. We’re definitely working with having
the whole order complied with.”
As part of required corrective actions, the bank must engage an
independent third party to analyze the bank’s management and
staffing performance. The bank must also develop a written management
plan and identify the type and number of officer positions needed
to manage the affairs of the bank.
“We’ll wait for the study to be completed and go with
the recommendations,” Fowler said. “We will probably
need to add another loan officer, at least.”
The bank must also develop a plan for systematically reducing and
monitoring the bank’s loan portfolio of industry related borrowers
to an amount commensurate with the bank’s management expertise,
size and location.
Fowler said one result of the order might be tightened credit for
borrowers, which is also a result of the current economic conditions.
“A lot of banks are kind of scaling back, tightening up credit
standards,” he said. “[The order] may make getting credit
a little tougher, but I see that as more of a product of current
economic times.
“Through the order, we have to tighten up and clean up the
way we do some things. Yes, there are going to be some changes.”
The bank must also maintain minimum capital levels as set out in
the order.
“As far as taking some losses, protecting capital and building
up loan loss reserve, we must maintain eight percent of loan loss
capital,” Fowler said. “We’re working to get that
raised. In the next few months, we’ll have that taken care
of.”
The order stipulates the bank’s board of directors must develop
a program of independent loan review and periodically review the
bank’s loan portfolio and promptly identify loans with credit
weaknesses. The bank also must formulate a plan to reduce the bank’s
risk exposure in assets in excess of $50,000 identified as substandard
or doubtful in the FDIC’s examination report. In addition,
the bank shall not extend additional credit to any borrower who
has a loan classified as substandard or doubtful and is uncollected.
“Once we comply with [the order], hopefully it will be lifted
and we can go on to operate without it,” Fowler said.
He said that any customers who have concerns about the order are
encouraged to call him or the bank’s executive vice president,
Steve DeWitt, at (877) 654-2421.
First State Bank of Burlingame’s main office is at Burlingame
and it has a branch in Osage City.
The cease and desist order was one of three issued, and one of 12
enforcement actions taken by the FDIC against Kansas banks last
year. |
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