Regulators who oversee federally insured banks have served notice of their intent to ban two local bankers from practicing in the industry and fining each $250,000.
A notice outlining the proposals was recently sent by the Office of the Comptroller of the Currency to Saul Ortega, the former chief financial officer, chief executive officer and chairman of the board of the now defunct First National Bank in Edinburg; and David Rogers, Jr., another former chairman of the board.
“Such Orders would prohibit each Respondent from participating in any manner in the conduct of the affairs of any insured depository institution or any other institution, credit union, agency or entity” governed by the OCC, said the notice, dated Sept. 25.
The OCC is alleging that between 2008 and 2011, both men were officers of the bank and engaged in efforts that “masked the Bank’s deteriorating financial condition through misconduct that inflated earnings and capital and improperly reduced or delayed reported losses,” the 32-page document said.
The document also singled out Rogers for placing “the interests of a member of his immediate family above those of the Bank…”
Ortega and Rogers filed a response addressing each charge laid out against them, according to Bill Sims, an attorney representing them.
“In terms of the allegations made in the lawsuit, we believe that after the discovery and a hearing, we believe we will prevail,” Sims said.
Four of the bank’s directors reached a deal with the OCC that allows them to continue working in banking. As part of the deal, they each agreed to pay a penalty of $5,000 while neither admitting nor denying wrongdoing. They also agreed to adhere to laws and regulations, avoid unsafe or unsound policies, and refrain from serving in any role with authority to approve loans.
The OCC closed First National Bank in September 2013 after the bank sustained mounting financial losses, including a $174 million loss on investments it had with the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, otherwise known as Freddie Mac and Fannie Mae, the OCC documents said.
Ortega and Rogers are entitled to a hearing before an administrative law judge, which is independent of the OCC. Once a hearing occurs, the administrative law judge will send recommendations to the OCC about any sanctions against the men; ultimately, however, it is up to the OCC to make a final determination regarding the proposed ban and fine. Both men are entitled to appeal the decision before an appellate court.
The regulatory action comes as a final chapter in the spectacular rise and fall of First National Bank, which was based in Edinburg and grew to be the 12th largest bank in Texas.
Banking experts in the community said First National Bank catered to working class people with poor or little credit, often at higher interest rates. Doing this made them a lot of money, the experts said.
But the collapse of the subprime housing market in 2008 hit First National Bank hard, forcing them, like so many other banks, to foreclose on many properties. The OCC document focuses on how First National sold off these foreclosed properties and how they reported them to regulators as being at the heart of regulatory action.
“At that time, the bank owned a lot of stock in Freddie Mac and Fannie Mae, which they had bought, really, at the encouragement of the OCC,” Sims said. “When the economy crashed, the highest levels in Washington decided that they would not support the preferred stock of Fannie and Freddie and as a result, the bank lost overnight 60 percent of its capital, or $176 million, so that’s going to be a big issue, obviously in the lawsuit.”