WASHINGTON - House Banking Committee members plan to grill top regulators Tuesday about a string of expensive and embarrassing bank failures.

"The losses to the FDIC insurance funds as a result of these failures in 1999 were the highest since the days of the savings and loan crisis," House Banking Committee Chairman Jim Leach said in a letter inviting regulators to testify.

This month a small bank in Rep. Leach's home state collapsed, adding to the insurance funds' costs.

Iowa officials closed $114 million-asset Hartford-Carlisle Savings Bank on Jan. 14, shortly after Federal Deposit Insurance Corp. examiners discovered $12 million of bad loans. In a four-paragraph press release, the FDIC cited "apparent fraud" at the bank, a theme likely to be echoed by agency chairman Donna A. Tanoue and her peers during testimony before the House Banking Committee.

But in the three weeks since Hartford-Carlisle was shut down, FDIC officials have refused to substantiate the claim or say whether prior enforcement actions were taken. And though fraud may yet be proven to have dealt the crowning blow to Hartford-Carlisle, industry observers and call-report data suggest examiners should have been concerned by the bank's growth-at-any-cost strategy. From June 1997 to June 1999, for example, Hartford-Carlisle's loan-and-lease portfolio grew 310%, compared with 14% for the average bank or thrift.

"When I see rapid growth like that, right off the bat I know there's a problem," said Bert Ely, an Alexandria, Va.-based consultant who has criticized regulators for being too soft on wayward banks. "If you go back and look at BestBank [of Boulder, Colo.] or [First National Bank of] Keystone [W.Va.], you'll also see very fast rates of growth." Both banks failed at a total cost to the Bank Insurance Fund of more than $1 billion.

"Had they been responsibly managed, I suspect that good business practice would have slowed that growth," said Helge S. Christensen, chairman of Madison, Wis.-based Bankers' Bank, which sued Hartford-Carlisle's holding company Jan. 26 to recover a $2 million promissory note. "Unless you're a dot-com, you can't get away with that."

If Hartford-Carlisle's deposits had kept pace with its assets, such criticism might be more muted. But they did not. From mid-1996 - when Dirk A. Thierer and Steven L. Wilson purchased the three-office bank - to the day it was closed, Hartford-Carlisle's loan-to-deposit ratio swelled from 42% to 150%.

As the gap grew, bank officials began to borrow furiously. During the first nine months of 1999 alone, the bank's non-deposit liabilities grew from $7 million to $24 million, excluding funds purchased from other banks.

Mr. Ely pointed out some additional oddities in Hartford-Carlisle's call reports. For example, though the bank's loans and leases tripled between June 1997 and June 1999 - spanning consumer, real estate, and commercial loans - its employee count fell to 15 from 18 during that time. By comparison, the average commercial bank with under $100 million of assets had 21 employees.

With the bank's loan volume exploding and the number of employees available to originate and service those loans shrinking, the volume of troubled loans could be expected to grow. But as recently as yearend 1998, Hartford-Carlisle's call report listed nonperforming loans at zero. By Sept. 30, the bank claimed only $149,000 in troubled credits.

Even the FDIC's claim of "apparent fraud" is in question. When Iowa banking chief Holmes Foster shut down the bank, he made it clear the allegation was the FDIC's, not his. "I have avoided using the word 'fraud' or anything like that," said Mr. Foster, whose examiners shared supervisory duty over the bank. "That remains to be seen."

Fraud - and the inability of outside auditors to detect it - has emerged as a key defense for regulators over the past two years, beginning with the failure of $314 million-asset BestBank in July 1998. In that case, the FDIC's inspector-general criticized examiners for missing key opportunities to clamp down on the allegedly crooked credit-card lender. In a response letter, however, FDIC Supervision Director James L. Sexton defended his staff. "The examination process is not specifically designed to detect fraud," he wrote.

Despite the FDIC's reticence, additional information about the alleged fraud at Hartford-Carlisle has begun to trickle out. According to agency sources, nearly half the bank's $12 million of bad loans were fraudulent business and commercial loans made by Mr. Thierer to himself or his family. (Mr. Thierer, who was ousted by the FDIC on Jan. 6 and whose home was searched Jan. 27 by the Federal Bureau of Investigation, did not return phone calls.)

A review of Iowa public records by American Banker revealed that at least three Thierer-connected companies received one or more loans from Hartford-Carlisle in 1996 or 1997, including: 3-DT, Boxer Shorts, and DWT, which also does business as Petro-N-Provisions.

Bank officials are permitted to make loans to themselves or relatives, within limits, so there is no reason to believe that any of the loans cited above were illegal. In most cases, loans to insiders must simply be approved by the bank's board, minus the official in question. But until the FDIC or the U.S. Attorney's office comes forward with a more detailed account, the legitimacy of these and other loans remains unclear.

As for the remainder of the $12 million of bad loans, an FDIC official said most were extended to one company and its affiliates, later identified by another source as Murdock Communications Corp. of Cedar Rapids.

"I can't substantiate a rumor that this is the mystery institution that somehow brought down the bank," said Eugene Davis, a turnaround specialist who was appointed interim chairman and chief executive officer of Murdock last month.

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