Fraud Identification Training Sept-Oct 2022

CASE STUDY 9

WILLIAMS STATE BANK

Situation:

The bank is located in Redrock, a small community 30 miles outside of Memphis. Because of the lower housing costs and real estate taxes, cheap gas, and the proximity of the airport, a large number of people are moving out of Memphis and into Redrock. Frank Furter, the former bank president, no longer knew everyone in town. Rather than incur credit risk with individuals he hadn’t known his entire life, he decided to sell the bank, which he had owned for over 40 years. Mr. Furter shopped the bank until he found buyers willing to pay 2.7 times book up to 8% capital. Employees of this simple, very conservative bank at the time of the sale included the 67-year old president, Cashier Olga Wessel, and two teller/bookkeepers. The prospective buyers, Bill Yates and John Taylor, each have 15 years of lending and management experience and were able to arrange suitable financing for the purchase. Information on both Yates and Taylor obtained from other ROEs was limited to name and title only. In a letter to the Regional Office, the prospective owners stated that the present Board would remain intact for at least one year. Required approvals for forming the holding company and purchasing the bank's stock were obtained. Following consummation of the purchase, both men owned 15% of the one-bank holding company and Taylor’s relatives owned the remaining 70%. Yates became bank President and Taylor became Executive Vice President (EVP). During the preplanning phase of the upcoming examination scheduled for 1-15- X9, Examiner in Charge (EIC) Doug Clark became aware of the bank’s changed financial condition. Here is a profile of the bank’s performance since the purchase:

9X8

6/X8

3/X8

12/X7

12/X6

6/X5

95,500

83,700

66,400

58,300

35,200

11,000

Gross Loans

840

750

675

650

400

130

ALLL

4,500

4,400

4,200

3,650

5,300

17,200 29,700

Investments Total Assets

110,000

95,000

74,000

65,000

42,900

50,780 17,750 27,600

46,750 18,890 18,550

39,800 14,050 13,410

37,850 10,100 10,650

29,700

25,100

Core Deposits

4,600 3,950 4,250

850

> $100M

0

Borrowings

8,075

7,225

6,220

5,950

3,450

Equity Capital

1,400

850 525 105

385

970 800 250

400 250 150

175

Net Income Dividends

990 215

50 25

40 15

ALLL Provision

1