FDIC to conduct in-depth review of suspicious Texas bank failure

The Federal Deposit Insurance Corp. plans to take a closer look at a Texas bank that failed under suspicious conditions.

Regulators shuttered the $37 million-asset Enloe State Bank in Cooper in late May after the Texas Banking Commissioner unearthed “insider abuse and fraud by former officers,” according to a press release issued at that time.

Legend Bancorp in Bowie, Texas, only bought 14% of the failed bank’s assets. The failure, the only one to occur this year, is expected to cost the Deposit Insurance Fund $27.6 million, or roughly three-fourths of Enloe's asset size.

The FDIC, in its failed bank review, determined that in-depth analysis “is warranted, given the extent of irregular loans and the extraordinarily high estimated loss rate.” The agency said it should complete the review within six months.

The review document provided more insight into Enloe’s failure, stating that the bank’s board “failed to establish adequate corporate governance to monitor and control management’s activities,” including those of a “dominant bank president.”

Efforts to contact Anita Moody, Enloe’s former president, were unsuccessful.

The lax oversight led to the origination of a large number of allegedly fraudulent or fictitious loans, which depleted capital and contributed to the failure, the FDIC said.

But concerns about the bank’s leadership date back to April 2018 when examiners downgraded Enloe’s Camels rating to “two” from “one,” based on the management component.

The bank was instructed to beef up its controls. The board, for instance, was expected to produce a full financial statement audit for 2018 that included proof of the bank’s internal controls and routines.

The bank was flagged in March 2019 for not providing the FDIC with a full audit report.

A suspicious fire broke out at the bank’s sole branch on May 11, a Saturday night two days before a scheduled examination. The local fire department responded to a report of papers being lit on fire, according to the Paris News.

Given the circumstances, the Texas Banking Commission asked the FDIC to participate in the examination, which began on May 16. A week later, the bank’s Camels rating was lowered to “five.” It was designated a troubled and critically undercapitalized institution after examiners identified “significant losses” tied to more than 100 fraudulent or fictitious loans.

The board “voluntarily agreed to close” on May 31, the FDIC’s review said.