December 16-- The Sunday edition of The Savannah Morning News reports federal bank regulators have filed a lawsuit against former officials of the now out of business Darby Bank and Trust Company of Vidalia.
"The former director and CEO of the now-defunct Darby Bank & Trust Co. and 15 former bank officers have been sued by a federal agency in a bid to recover at least $15.1 million in losses from bad real estate and other loans over a two-year period.
The 117-page suit filed by the Federal Deposit Insurance Corp., as receiver for the Lyons-based bank, in U.S. District Court in Savannah alleges bank officials ignored repeated warnings of poor management of commercial real estate and acquisition, development and construction loans between Nov. 17, 2007, and Oct. 26, 2009.
Named defendants were:
• Walter B. Bowden of Lyons, who was the bank’s CEO from 1995 until he retired in December 2008. He served on the bank’s directors loan committee during the period of the actions identified in the suit.
• William E. Bedingfield of Vidalia, who was a bank director from 1999 until it closed in November 2010. He also was a member of the loan committee.
• William Emory Davis of Vidalia, who served as director from at least 2005 until May 2010 and as a member of the bank’s directors loan committee at the time of the claims in the suit.
• Donald H. Estroff of Tybee Island, who served as a bank director from 1963 until 2007, was a director from 1999 until 2007 and a loan committee member.
• J. Edward Tyson of Vidalia, who was a bank director from 1991 until February 2007 and a loan committee member.
• Connie Darby Williams of Savannah, who was a director from 1991 until the bank closed in November 2010. She was board chairwoman from March 2007 until the bank failed. She also was a general partner and beneficiary of the Darby Family Limited Partnerships, which owned 32 percent of the bank’s stock.
• Richard D. Williams of Savannah, who served as a director from January 1996 until the bank closed, served on the loan committee and was a beneficiary of the Darby Family Limited Partnerships.
• Richard Allen Williams of Savannah, who was a bank director from 2005 until the bank closed, served on the loan committee and was a beneficiary of the Darby family group.
• Donald R. Coomer of Savannah, who served as a director from 2004 until the bank closed, and chaired the audit committee.
• Wayne D. Hartley of Lyons, who served as a director from March 2007 until the bank closed.
• S. Wayne Smith of Lyons, who served as a director from 1991 until February 2009.
• Michael Zoller of Savannah, who served as a director from March 2007 until the bank closed.
• J. Christopher Banks of Savannah, who served as the bank’s senior vice president and chief loan officer and was a loan committee member from 2002 until September 2009.
• Stephen Coomer of Savannah, who was the bank’s group vice president and manager of commercial lending from April 1997 until the bank failed.
• Donald M. Thompson of Savannah, was senior vice president and manager of the bank’s Savannah City branch from 2005 until he retired in September 2009.
• Stanley E. Harp Jr. of Hahira, who served as president of the bank’s Valdosta branch and loan officer from January 2007 until he was terminated in February 2009. He filed for bankruptcy, and his debts were discharged in 2010. He was named as a nominal defendant in order to seek recovery under the directors and officers liability policy.
About the bank
Darby Bank was formed in Vidalia in 1927 and under director Walter Bowden’s 14-year tenure expanded its lending area in Coastal Georgia markets, opening branches in Savannah and Valdosta.
Darby closed on Nov. 12, 2010, with about $654.7 million in assets, the suit stated. That failure resulted in a loss to the FDIC of about $164.6 million. Darby was owned by DBT Holding Co., which filed for bankruptcy on April 4, 2011, and was administratively dissolved in September 2012.
According to the suit, Bowden had responsibility for the overall management of the bank, including ensuring that the bank adopted and maintained policies and internal controls and that the bank followed safe and sound banking practices.
Commercial real estate loans, as well as acquisition, development and construction loans are inherently risky and are recognized by regulators as such, the suit said.
Under Bowden’s watch, the bank’s assets grew from about $55 million in 1995 to $800 million in 2008, primarily through funding of large numbers of commercial real estate loans, including acquisition, development and construction loans, the suit alleged.
As early as 2004, regulators warned Darby’s board that the rapid and aggressive growth of those loans threatened the bank’s safety. In a letter dated Aug. 10, 2004, regulators warned the overall condition of the bank had “declined, was in a borderline condition, and was at risk of regulatory administrative action,” the suit said.
“Notwithstanding the regulators’ admonition, defendants accelerated Darby’s rate of (commercial real estate) lending at the expense of quality and soundness,” the suit said.
The bank continued to show about double the regulatory threshold for concentrated risk while officials continued to ignore “specific and repeated warnings,” the suit said
“In every report of examination from 2005 through 2008, the regulators criticized the bank’s internal loan review function,” the suit said, adding the bank’s policy kept loan reviews “under the direct supervision of this chief credit officer, who was Banks.”
According to the suit, the loan committee’s practice “evinced utter disregard for regulators’ constant criticism that loan files did not contain large numbers of documents material to borrowers’ ability and willingness to repay.”
In one case cited in the suit, the loan committee on Nov. 8, 2006, approved a $1.9 million loan to a borrower identified only as “RG” for residential construction on Wilmington Island, which was funded on Nov. 17, 2006.
The loan was to cover 100 percent to purchase and develop six to eight lots for 12 months with monthly interest-only payments.
Defendants Bowden, Banks, Davis, Estroff, Tyson, R.A. Williams, C. Williams and R.D. Williams voted to approve the loan despite the fact the borrower already owed the bank $1 million, had guaranteed more than $4 million in other debt and “had a well-known bad credit record with Darby.”
“The borrower had no capacity to repay,” the suit said. Further, he had an annual income of about $263,000, had $30,000 in liquid assets and had no guarantor for the loan, the suit said.
“RG did not sell a single lot,” the suit said, adding that Darby lost almost $1.1 million following foreclosure.
In another loan to “VG,” the loan committee approved $582,000 in November 2006 in “additional funding” to complete construction work on a vacant three-story commercial building at 134 Whitaker St., in addition to a $2 million speculative construction loan for the same project and borrower, the suit said.
The borrower lacked the capacity to repay, the credit memorandum contained no financial information on the borrower and contained no cash flow analysis.
The property later was foreclosed on and Darby took a $1.8 million hit, the suit said.
The FDIC suit contends defendants were negligent and grossly negligent by failing to exercise that “degree of care which every man of common sense, however inattentive he may be, exercises under the same or similar circumstances.”
They also breached their duty “to act with the utmost care and in the best interests of the bank,” the suit said."