The Federal Deposit Insurance Corp. will conduct a further investigation of the failure of Cooper, Texas-based Enloe State Bank, the regulator announced in a memorandum issued Sept. 23.
Enloe State Bank failed under suspicious circumstances. The weekend prior to its routine examination with the Texas Department of Banking, the fire department was called to the bank and found burning papers on a conference room table. Three weeks later, the bank was closed by the Department with the FDIC appointed receiver.
According to the memo, the bank's board "failed to establish adequate corporate governance to monitor and control management's activities. The inadequate governance structure resulted in the origination of a large number of irregular loans (allegedly fraudulent and fictitious)."
The losses on these irregular loans reduced Enloe's capital to the point where the board was "unable to obtain additional capital to restore the bank to health," the FDIC wrote.
The regulator downgraded Enloe's rating in April 2018 and issued the bank a Matters Requiring Board Attention, a supervisory recommendation that an issue requires more effort to address than a normal course of business.
"The MRBAs included in the examination report noted that the Bank was not in conformance with established safety and soundness standards," the FDIC wrote.
After the suspicious fire, the FDIC told the Texas Department of Banking it would like to help with the examination, and the department agreed. The joint investigation "identified significant losses associated with over 100 fraudulent and/or fictitious loans," according to the memorandum. The estimated loss rate was approximately 75%.
The FDIC concluded that an "in-depth review" of the loss was warranted. The agency expects to complete the review within six months and stated that the extra scrutiny "will provide an opportunity to further evaluate the cause of failure and the FDIC's supervision of the Bank to determine whether there are any lessons to be learned from this failure." The FDIC did not immediately respond to requests for comment.
The Texas Department of Banking is also undergoing additional investigations into the failure and is working with the FDIC, Deputy Commissioner Kurt Purdom said in an interview.
The Department is investigating both the causes of the failure and any lessons learned, Purdom said. "We do that with all failures," Purdom said. "We go back and do a post mortem after the fact and see if there are any lessons learned ... that we could do to change our policies or procedures to do better."
