First State Bank placed under state and federal supervision
AltusTimes, March 2009
Michael Bush

The FDIC is questioning dealings between FSB Bancorp, the holding company, and its subsidiaries, including First State Bank of Altus and Quartz Mountain Aerospace. Bank officials say that even though they are experiencing some criticism due to some problem loans, there is a well indentified plan of action that the Board of Directors are working on with the regulators to return First State Bank to a sound and stable condition.

The FDIC is questioning dealings between FSB Bancorp, the holding company, and its subsidiaries, including First State Bank of Altus and Quartz Mountain Aerospace. Bank officials say that even though they are experiencing some criticism due to some problem loans, there is a well indentified plan of action that the Board of Directors are working on with the regulators to return First State Bank to a sound and stable condition.

The First State Bank of Altus, which lost $5 million in 2008, has been placed under state and federal supervision for hazardous lending, inadequate Capital and earnings, and an excessive level of bad loans, according to a Federal Deposit Insurance Corp. order.

First State Bank made major loans to Quartz Mountain Aerospace, an aircraft manufacturer that has defaulted. The Altus bank also lended millions to an out-of-state residential development project that is mired in bankruptcy, bank President Larry McLaughlin said Friday.

On Dec. 31, the bank had more than $17 million in loans listed as nonaccrual, which means that loans are no longer gathering interest, and payment of the principal is uncertain. Also, $8.7 million in loans were more than 90 days past due.

First State Bank Vice Chairman Lee Doughty said Friday, "There is no question that the bank has experienced some significant criticism recently due to some problem loans, however, there is currently a well identified plan of action that the Board of Directors are working on with the regulators to return First State Bank to a sound and stable condition." Doughty added, "we are open for business and want to assure everyone that their money is safely insured in accordance with FDIC guidelines."

The FDIC order questions dealings between FSB Bancorp, the holding company, and its subsidiaries, including First State Bank of Altus and Quartz Mountain Aerospace.

The Federal Reserve consent order alleges that FSB Bancorp failed to file required regulatory reports, engaged in banking activities that aren't allowed and violated federal limits on banking transactions with subsidiaries.

Quartz Mountain Aerospace officials said last year they intended to build about 130 planes by the end of 2008 and another 385 planes this year. They also wanted to double the company's work force from 100 to 200 employees.

But in November, the company laid off most of its employees, just months after receiving its production certificate from the Federal Aviation Administration for its trademark four-seater, the Model 11E.

More than a dozen of those workers have filed complaints with the state and federal labor departments, claiming wages were not paid and that insurance premiums and other wage garnishments taken from their checks were not passed on to the proper authorities.

In January, First National Bank sought foreclosure against Quartz Mountain Aerospace for more than $450,000 in loans.

FSB Bancorp subsidiaries also are involved in a Colorado real estate development that is now in bankruptcy court.

Regulators ordered the bank to increase its reserve for loan losses, raise Capital, clean bad loans off its books and set up ethics and compliance programs to make sure it follows laws and regulations.

McLaughlin said a pending bond issue could produce some cash for Quartz Mountain Aerospace to repay some of its debt.

Bill Newland, Chairman of Quartz Mountain Aerospace said that the underwriting is nearing completion for the bond offering which should help them pay critical debts.

"This financing will provide necessary funds to take care of current critical financial obligations, including debts to local banks."

The settlement of some litigation related to the residential development loans also could result in some recovery of loaned money, McLaughlin said.

The bank is prepared to solicit Capital infusion from current bank stockholders or new investors.

Even though Doughty tried to dispel rumors Friday that the bank was being sold or closed, McLaughlin said that, "If (plans) aren't successful with the regulators, we would look at a possible merger or sale of the bank," he said. "That certainly is not our desire."

State Banking Commissioner Mick Thompson said regulators will monitor First State Bank to ensure that bank officers "maintain the bank in a safe and sound manner."

Doughty said he welcomes any questions about First State Bank of Altus and thanks all the loyal customers for their support. His contact number is 482-6100.