Each depositor insured to at least $250,000 per insured bank

SARC- 95-02 (July 17, 1995)

The Supervision Appeals Review Committee of the Federal Deposit Insurance Corporation (“FDIC”), on July 12, 1995, considered your appeal and concluded that the Composite “3” rating assigned at the August 22, 1994 limited scope examination was appropriate.  The virtually unlimited investment authority exercised by Chairman … with no board supervision or oversight, the board’s failure to establish and implement a definitive investment policy, and the board’s general failure to supervise the investment portfolio create unwarranted exposure to the bank and justify the rating.

As of the examination date, the bank was in substantial noncompliance with the February 10, 1992 FFIEC Policy Statement on Securities Activities.  Relevant securities activities were not being conducted in a segregated trading account; documentation demonstrating that prices paid for high risk mortgage derivatives represented fair market value was not being maintained; there was no board approved investment policy; the activities were being conducted from a remote location without maintenance of bank records on premises; and there were virtually no limits on the investment officer’s authority.  Deficiencies in managing the bank’s investment portfolio had been brought to the board’s attention at previous examinations with no effective corrective action taken.

Pursuant to the FDIC’s guidelines, the scope of the FDIC’s 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 or to any subsequent corrective action.

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.