FDIC OIG review of Almena State Bank failure cites aggressive pursuit of large-dollar guaranteed loans, poor board oversight

The failure last October of the $69 million-in-assets Almena State Bank, Almena, Kan., estimated to have cost the federal bank deposit insurance fund $18 million, was chalked up to a risky growth strategy coupled with a poorly equipped board in a report issued Friday by the Federal Deposit Insurance Corp. (FDIC) Office of Inspector General (OIG).

According to the report, FDIC examiners said the bank board chairman in 2014 “led an aggressive growth strategy that focused on originating large government guaranteed loans” – specifically, small-business and agriculture loans – “largely funded through liquid assets and higher cost, wholesale funds” (such as brokered deposits). Examiners also found, the report states, that board and bank management “lacked the requisite skills and experience to ensure appropriate loan underwriting and credit administration, and sufficient levels of liquidity and capital.” The report says the bank experienced significant asset quality problems beginning in 2018, and those continued despite examiners’ recommendations, increasingly dire exam ratings, and a consent order in 2019 that called for the development and implementation of capital and liquidity restoration plans.

The OIG considers a series of factors in a failed-bank review to decide whether unusual circumstances warrant further review, including the size of the loss itself, FDIC supervision, any potential fraud, and other relevant conditions or circumstances. In this review, it said, it identified no unusual circumstances that would warrant an in-depth review.

“ASB experienced longstanding capital and asset quality issues resulting from the aggressive growth strategy that management implemented in 2014. It launched this growth strategy without sufficient experience, and coupled with hazardous lending practices and inadequate Board oversight, this strategy resulted in the bank’s deterioration,” the report states. “ASB’s Board and management failed to comply with the Consent Order and were unable to improve the bank’s safety and soundness. Furthermore, ASB was unable to remediate its deficient capital condition resulting in its failure.”

FDIC OIG Failed Bank Review (FBR-21-003)