In-depth review of WV bank failure not necessary – fraud, scarce oversight, poor management was clear, report indicates

The second bank of the year to fail – First State Bank of Barboursville, W.Va. – did not warrant an in-depth review by the federal insurer of bank deposits even though the failure is estimated to cost the federal deposit insurance fund nearly $47 million, according to a report issued Wednesday.

However, the report indicated, there’s no doubt that the bank was the victim of an employee fraud scheme and that it ultimately collapsed because of deficient oversight by the bank’s board and poor risk management practices.

The office of inspector general for the Federal Deposit Insurance Corp. (FDIC) said the failure of First State Bank (FSB) was not the result of unusual circumstances that warrant an in-depth review. Instead, the OIG determined, essentially, that run-of-the mill fraud, lax oversight, and risk management shortfalls caused the failure.

The report noted that multiple FDIC examinations from 2012 through 2019 identified the deficient oversight and poor management practices. “FSB’s Board and management failed to execute actions and address recommendations to improve FSB’s safety and soundness, its capital levels and liquidity continued to decline, and the bank ultimately failed,” the report stated.

FDIC closed the bank in early April, noting that the failure was not a result of the coronavirus crisis. “The First State Bank has experienced longstanding capital and asset quality issues, operating with financial difficulties since 2015,” the FDIC said in a statement. “The bank’s December 31, 2019 financial reports indicated capital levels were too low to allow continued operations under federal and state law.”

The agency reported then that FSB had approximately $152.4 million in total assets and $139.5 million in total deposits at year-end 2019. Estimated costs to the FDIC’s Deposit Insurance Fund (DIF) of the bank’s failure, according to the agency, will be $46.8 million.

Four banks have failed so far in 2020, according to the FDIC. In addition to FSB, those were Ericson State Bank of Ericson, Neb. (in February, and the first of the year to fail), which held $101 million in assets and estimated to cost the insurance fund $14.1 million; First City Bank of Florida in Fort Walton Beach (in October), with assets of $134.7 million and estimated to cost the BIF $10 million; and Almena State Bank of Almena, Kansas (also in October), with assets of $70 million and estimated to cost the insurance fund $18.3 million.

Failed Bank Review: The First State Bank, Barboursville, W.Va.