Background
An organizing
group appealed the decision of the Office of the Comptroller of
the Currency's (OCC's) licensing division, Bank Organization
Structure (BOS), to deny their application to establish a de novo
chartered bank.
The organizing
group expressed concern and disagreement with several reasons
provided in the denial letter as the basis for denying the charter
application. The
group's appeal primarily focused on:
1)
Inconsistencies
in what they were told during the field investigation and what the
denial letter stated;
2)
Concerns
expressed in the denial letter with the organizing group's lack of
banking experience;
3)
OCC
concerns with the proposed bank's operating plan;
4)
OCC
comments about the proposed president/ chief operating officer
(CEO); and
5)
Comments
in the denial letter that indicate the group had not provided
information on their plans to market the proposed bank's stock.
Discussion
While all
concerns in the appeal were investigated and discussed with the
appropriate parties, the ombudsman decided that opining on the
propriety of the comments presented in the denial letter would not
lead to a decision on whether a charter should be granted.
The ombudsman
determined the best approach to resolve this appeal would be to
independently assess the information in the BOS application
file and make a determination on the merits of the information
as to whether the charter should be granted.
After
reviewing the information, the ombudsman applied the criteria
outlined in the regulation established for the purpose of providing
guidance on granting bank charters to organizers of a proposed
bank. 12 CFR 5.20,
"Organizing a bank," is explicit in outlining the importance of
the operating plan on the OCC's decision to grant a national
charter. Specifically:
12 CFR 5.20(h) Operating
plan-
(1) General. (I) Organizers of a proposed
national bank shall submit an operating plan that adequately
addresses the statutory and policy considerations set forth in
paragraphs (e) and (f)(2) of this section. The plan must reflect sound
banking principles and demonstrate realistic assessment of risk
in light of economic and competitive conditions in the market
to be served. (ii) The
OCC may offset deficiencies in one factor by strengths in one or
more other factors. However, deficiencies in
some factors, such as unrealistic earnings prospects, may have
a negative influence on the evaluation of other factors, such
as capital adequacy, or may be serious enough by themselves to
result in denial. The
OCC considers inadequacies in an operating plan to reflect
negatively on the organizing group's ability to operate a
successful bank.
The group's
operating plan contained inconsistencies and assumptions that were
not adequately explained. As an example, it was
difficult to understand how the proposed institution would achieve
deposit growth of 4 percent per year when the entire market had only
experienced average growth of 1 percent in the four years presented
in their deposit analysis. Additionally, a market
penetration strategy that assumed the bank could pay less than
market rate on deposits, when other banking professionals
interviewed indicated deposits in that area were rate
sensitive, did not appear realistic.
Conclusion
While the
group was convinced that there was a need for a locally owned bank,
they did not submit an operating plan that demonstrated the
proposed bank could reasonably be expected to achieve and maintain
profitability. The
other issues discussed in the denial letter by themselves were not
insurmountable had the operating plan been sound. While those issues did not
form the basis for the ombudsman's decision, they offered no support
to warrant granting a charter to the organizing group. In considering whether any
factors were present to mitigate the weaknesses in the operating
plan, the ombudsman determined there were no other factors to offset
weaknesses of the plan. Therefore, the ombudsman
upheld the denial of the charter, based on the poor operating
plan.
