An ill-fated push into government-backed lending and inadequate board oversight were the primary reasons for the October failure of Almena State Bank in Kansas, according to a report by an internal government watchdog agency.
The $69 million-asset bank was
At the time of its failure, the FDIC said the collapse reflected “longstanding capital and asset quality issues” that were unrelated to economic conditions from the coronavirus pandemic.
A report released Friday by the FDIC’s Office of the Inspector General put most of the blame on the bank’s directors.
The failure “occurred because of a board that did not provide adequate corporate governance or management oversight,” the report said. “The board’s performance and management were considered to be critically deficient.”
The report said that Almena’s examiners determined that Shad Chandler, the bank’s chairman and majority shareholder, “substantially dominated the bank’s policies and practices.” Chandler and his wife owned about 60% of the bank’s stock.
Starting in 2014, Chandler led an aggressive growth strategy that involved using higher-cost wholesale funds to back a push into large Small Business Administration and Department of Agriculture loans, the report said. Examiners warned management in 2016 and 2017 about the increased risk tied to the loans.
But the bank “lacked the requisite skills and experience to ensure appropriate loan underwriting and credit administration and sufficient levels of liquidity and capital,” the report said. Almena started having “significant” credit quality issues in 2018 that ate away at its capital.
Almena entered into a consent order with its bank regulators on April 5, 2019, but it failed to comply with “many provisions” including the development and implementation of capital and liquidity restoration plans. Almena became undercapitalized in May 2019 and critically undercapitalized 13 months later.
Almena’s failure cost the FDIC’s Deposit Insurance Fund $18 million, or roughly a quarter of the bank’s total assets.
