More than a year after a
Industry veteran Brian Byrne, who is now an investment committee member at Assembler Growth Capital, said the numbers disclosed in the failure don't add up neatly as a one-off bank failure.
"I was on Wall Street all through the 2006 to 2008 period," Byrne said. "This is exactly how things get roiling."
While state banking groups say
The Office of the Comptroller of the Currency closed First National just before the weekend after the agency said it found "false and deceptive bank records" suggesting fraud and which ultimately drained the bank's capital reserves.
The bank has since reopened as a branch of the First Bank & Trust Co. out of Duncan, Oklahoma, which is buying $20 million of First National's assets.
While the bank was relatively small for the industry, the Federal Deposit Insurance Corp. estimates the failure could cost the agency's Deposit Insurance Fund more than $43 million to wind down. In addition to the hefty cost, experts say discrepancies in the bank's accounting filings have left questions unanswered.
Shifting sands on the balance sheet
While the FDIC reported $7.1 million in uninsured deposits at the time of the bank's failure, the bank's June 30 call report indicated that the deposits over $250,000 — the maximum covered by insurance and a proxy for uninsured deposits — totaled $25.5 million. This discrepancy raises questions about whether $18 million in deposits became insured or if significant deposit flight occurred between June and October.
Another anomaly lies in the bank's capital records. Despite the bank reporting what appeared to be a healthy 12.9% capital ratio, the OCC's statement indicated that the bank's capital had been significantly depleted.
The bank also reported a $1.262 million writedown due to "changes in accounting principles and corrections from material accounting errors" in its June call report, a disclosure that could partly account for the bank's deteriorating capital position and hint at deeper issues at the bank.
Experts said the most likely culprit appears to be the bank's
The FDIC has said it will make half of customers' uninsured funds available to depositors on Monday. That amount could increase as the FDIC sells the remaining assets of the bank, but that's not guaranteed, Byrne said.
"We don't know whether some of these depositors had retirement accounts, trust, business accounts, escrow … so it's hard to say how much they were covered," he said. "But when I saw the point about [covering] the other 50% after we liquidate the assets … that's a big red flag for me, because they didn't do that with [Silicon Valley Bank] or Signature Bank, because those are bigger — and by the way, they weren't [Global Systemically Important Banks] either."
Byrne said that by only guaranteeing half the share of uninsured deposits at the bank, the FDIC has left the possibility of deposits taking a significant "haircut," which would differ from the
"It's just strange that … they could have covered that other $20 million," Byrne said. "They chose not to, and it's almost like they're creating a precedent."
Adrian Beverage, the president and CEO of the Oklahoma Bankers Association, said he believes the incident is a one-off occurrence.
"The OCC and the FDIC are following protocol on what they need to do, and the bank was acquired by First Bank & Trust of Duncan, which is an incredibly strong community bank in Oklahoma with multiple locations," Beverage said. "We know that the First National customers are in very good hands with First Bank."
The leader departs
Another issue is the reported departure of the bank's then-CEO Danny Seibel just before the bank's failure. American Banker attempted to reach Seibel for comment but was unsuccessful.
Garvin County Sheriff Jim Mullett — whose district includes Lindsay — said Seibel left the bank weeks before the firm went bust, but that he had no criminal record or past run-ins with law enforcement.
Beverage said he heard about the CEO's departure following a federal regulatory exam.
"I first got word about two weeks ago [about the CEO departing] shortly after [what] I believe was the OCC exam," he said. "I haven't gotten the final word on who was the regulatory authority that was doing the exam."
Mullett indicated the former CEO had come onto his radar around a year prior.
"We looked into a scam a long time ago, like over a year ago, that was the only involvement that we have in it," he said. "That was just someone who got scammed out of some money. All I know is the owner of the bank called and let us know that the FBI started looking into something and then turned it over to the FDIC investigators."
A spokesman at the Oklahoma City field office of the Federal Bureau of Investigation did not respond to a request to confirm that account by press time.
Byrne said given the size of the bank, federal investigators must have had a reason to look through its books.
"Maybe it was a whistleblower, I don't know, but the fact that they shut the bank down on a Friday night, which is what they usually do anyway, and then made a statement about fraudulent accounting like that, if that was a bigger bank — like a regional — that would slam the markets big time," he said. "So the fact that they found discrepancies, and they found accounting irregularities, said to me, is the real story here. How many more of these are out there?"
Beverage said the details are still emerging on First National's balance sheet issues.
"There were some electronic discrepancies, I haven't got strong details as to what those are yet," he said. "But as far as from a national perspective, I don't see this causing any systemic situations in Oklahoma, let alone nationally."
Paul Foster, the Community Bankers Association of Oklahoma's general counsel, said he couldn't comment on the issue as he was legally involved with relevant parties. Foster did note that he is not representing the bank's former CEO.
"I definitely do not represent Danny Seibel," Foster said.
Byrne speculated that commercial real estate troubles could be playing a part. FDIC officials have said repeatedly the industry continues to face headwinds in the areas of credit, with rising non-current loan ratios, especially in consumer real estate.
"You're starting to see stress in these marks because, you know, let's face it, commercially, the real estate has not even begun to be marked down yet," Byrne said. "I wonder if they had a few big businesses or clients go belly up, and the CEO was just trying to paper it over…he might have been trying to move money from one side of the balance sheet to another. There's definitely something wrong."
