FDIC Moves In Quickly, Quietly, Efficiently : Anatomy of a Texas Bank Closure

DENTON, Tex. —  They claim they are executives with Tri-State Investors. In truth, they are employees of the Federal Deposit Insurance Corp., slipping quietly into town to take over a bank.

Fifty-seven FDIC employees filter into the Sheraton Hotel during the noon hour, preparing to move on USBank, a 25-year-old institution that has lost much of its capital in a check-kiting scheme and is crippled by more than $20 million in bad loans.

The bank closes at 2:13 p.m. after its directors turn it over to the state banking commissioner and acknowledge that there is no way to save it.

Bank Chairman Donald Wright goes downstairs to the bank lobby to tell employees what they have feared for months. Nearly all of the 85 employees are in tears. There is a round of applause, quiet at first, then growing, when Wright enters. He hugs some employees, then turns to Alan Rouse, the FDIC’s closing supervisor, the man now in charge.

Rouse booms: “This bank has been sold and will open tomorrow morning as a branch of United National Bank, Dallas.”

He asks employees to stay through the evening to help the FDIC prepare it for reopening.

“These are not mean people,” Rouse says of the closing specialists. “These are good people. We don’t divorce people from their pocketbooks. They’re divorced right now. We hope to get them remarried shortly.”

A woman raises her hand. “How do we answer the phone?”

“FDIC,” Rouse responds.

Employees have known for two hours that the bank would close. The local newspaper bannered a headline in the afternoon editions, trumpeting the failure and prompting what cashier Mike Grandey called a “mini-run.”

“Everybody in town is calling their neighbor, telling them, ‘Go get your money,’ ” one bank examiner says.

FDIC officials are furious that word has leaked.

Down to Wire

“I’ve never before been told where I would be and when,” says Rick Hoffman, the FDIC’s assistant regional closing manager. He promises an investigation.

Although the FDIC prepares for a closing for weeks in most cases, the failure is not official until regulators, in this case the state banking department, take control. Bank officials have until the last minute to rescue the bank.

Frank Norris, the FDIC’s regional closing manager, says that in his three years with the FDIC, on at least half a dozen occasions the agency has had a team ready to move in when the bank’s board came up with the money to save it.

“The hotel, the community, the people should never know why we were here. We cannot be in a position where we have created a crisis for a bank,” Norris says.

That explains why the FDIC has reserved 16 rooms at the Sheraton under a fictitious name.

“It’s all--I hate to call it a game--a procedure that we have to go through to get done what we have to do,” Norris says.

Four FDIC officials enter the lobby with Wright.

“We need to get the doors locked, the drive-throughs shut and the automatic teller machines down,” Rouse orders.

Six police officers have already taken up position at the bank’s doors and in front of its vault.

“It’s still hard to believe,” says Patrolman Gillis Hammett, standing guard at the vault. “I’m working my bank. I’ve banked here 20 years.”

An FDIC attorney is waiting at the courthouse, and as soon as the bank is turned over, files a petition asking a district judge to approve the sale.

The document is signed within an hour, and the bank becomes the property of the Ford Group, a company that has just boosted the number of banks it controls to 25, 11 in Texas, 14 in New Mexico.

Five have been bought from the FDIC.

The purchase agreement is simple: Ford accepts all of the bank’s $89 million in assets, even the $20 million in bad loans, and takes over its $84 million in 26,000 deposit accounts in exchange for a cash payment of $22 million from the FDIC.

“It’s a turnkey operation. We go in and inventory the bank and tell them what they’ve bought, then that the bank is theirs,” Hoffman says.

Hoffman says that despite the $22-million payout to Ford, the transaction is the cheapest for the FDIC and the best for the community.

Check-Kiting Blamed

The owners of 78 accounts that exceed the $100,000 maximum insurance limit would have lost money if the transaction had been handled any other way, and with the whole bank purchase, loans stay local, he says.

Brack Shaver, a senior vice president of USBank, blames the insolvency on a check-kiting scheme in 1986.

“It was about one-third of our capital. See, the kite was $2.4 million, and our capital was a little more than $7.5 million,” he says. “All that happened at this bank is the capital was wiped out.”

Grandey, the cashier and another senior vice president, says a Frisco, Tex., cattleman and a Memphis, Tenn., cattle broker kited hot checks for three weeks before the scheme was detected.

USBank is suing both the cattleman and the Memphis bank involved, but the case has not come to trial.

Robert Gentry, 40, the chief operating officer of the new bank, talks to employees in the lobby, decorated with an artificial Christmas tree and mechanical Santa Claus, while they eat dinner.

“We’re a strong, solid bank starting fresh, new,” Gentry says. He says most employees will be kept on permanently.

“We may not have room for every single person, but we have a history of not bringing in our people,” he said. “My face is the only new one you’ll see tomorrow.”

“Tomorrow morning, I think it best that y’all report at 7:30. . . . There’ll be people wanting to make withdrawals, but try to convince them their money is safe. The only major changes tomorrow is there’ll be no lending, no extensions. We’ll only accept payments.”

Employees, so angry at 2:30 p.m., now titter. They applaud Gentry when he finishes his 10-minute speech, then applaud the FDIC team for its courtesy.

Employees finish their daily business, and tellers tote up the cash in their drawers. They have made themselves comfortable. Some have kicked off their shoes and put on slippers.

It is the seventh or eighth closing this year for Hoffman. He loses count. “Believe it or not, one of the biggest problems with being a liquidator is walking out after the first day and trying to remember where you are,” he says. “You also have trouble finding your car, with so many different rental cars. I’ve actually walked up to the wrong car and tried to put my key in it.”