FDIC "Eats" 3/4 of Failed Texas Bank Posted by AVCU on 10:51 AM

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As reported in the September 26th edition of American Banker, the Federal Deposit Insurance Corporation (FDIC) plans to scrutinize a small Texas bank that failed under suspicious conditions.
Regulators closed the $37m Enloe State Bank in May after the Texas state regulator revealed “insider abuse and fraud by former officers.”  The failure is expected to cost the FDIC fund $27.6m . . . about 3/4 of Enloe's asset size.  about $500,000 of deposits exceeded FDIC insurance limits.

FDIC says the bank’s board “failed to establish adequate corporate governance to monitor and control management’s activities,” including those of a “dominant bank president.”  The lax oversight led to the origination of a large number of allegedly fraudulent or fictitious loans, which depleted capital and contributed to the failure.  Concerns about the bank’s leadership go back to April 2018 when examiners downgraded Enloe’s Camels rating to “two” from “one,” based on the management component. The bank was instructed to beef up its controls and the board was directed to produce a full financial statement audit for 2018 including proof of the bank’s internal controls and routines. The bank had not provided the FDIC mandated audit report as of March 2019.

Subsequently, a suspicious night-time fire occurred in the bank’s only branch on May 11, two days before a scheduled regulator exam. Local firemen responded to a report of papers being lit on fire.

The Texas Banking Commission asked the FDIC to participate in a post-fire examination.  As a result, the bank’s rating was lowered to a 5, and was designated a troubled and critically under-capitalized institution due to significant losses tied to over 100 fraudulent or fictitious loans.

The bank's board voluntarily agreed to close on May 31st. Enloe was the nation's first bank failure in 17 months.