UPDATE -- Expert Witness: Frontier State Bank Right in Challenging FDIC in Rare Showdown

In a rare court hearing, Oklahoma City-based FSB did not back down to the FDIC when it said the bank should change its policies because they believed that the bank is exposed to interest rate risk. That belief doesn't relate to the facts that the bank's management has guided it to consistent, above-peer-group profitability since 2002 nor has it violated any law or regulation. FSB's Security Portfolio is invested primarily in mortgage obligations backed by Fannie Mae and Freddie Mac, two government-sponsored enterprises.

"At a time when banks are failing at a record pace because of loan losses, the FDIC is clearly misguided in their approach to attacking a strong, healthy bank like FSB," said Keith Geary, president and CEO of Capital West Securities in Oklahoma City. "I'm certain there is quite a bit of admiration in the banking world that FSB is standing up for themselves and ultimately their customers and community."

On June 1, Frontier held roughly $583 million in total assets and $63.7 million in total equity capital.

The FDIC started an exam in April 2008 and filed a complaint last October. The rare administrative hearing started June 1, 2009 and lasted a week. Attorney Joshua Bock (josh.bock@bgllp.com) of Bracewell Giuliani headed FSB's legal team. Bock said the administrative law judge, an FDIC employee, will make a recommendation in the next several weeks to a three-person FDIC panel, which can adopt his order or issue its own findings.

If that ruling goes against the bank, Geary expects FSB will appeal to the 10th Circuit Court of Appeals in Denver, which he believes would afford the bank a "level playing field." This type of FDIC hearing has not occurred for about 20 years. Nearly all banks will settle before the process gets this far, but Geary said current banking conditions could lead to more banks filing challenges.

"FSB is extremely profitable, they have a proven sound investment plan in place, the quality of their assets is unquestioned, they did not take taxpayer bailout funding and are no risk to the FDIC Insurance Fund. In short, they are a model community bank," Geary said. "The FDIC should work to acknowledge their success and bring their own policies and procedures up to date.

"I am a strong supporter of the FDIC under most circumstances, but I believe they need to refocus their efforts on failing banks with poor asset quality in order to lessen the rate at which their Insurance Fund is being depleted," Geary said.

For more information, including documents released by the FDIC to the American Banker, visit http://saxumpr.com/files/bank/.

About Capital West Securities, Inc.

Established in 1995, Capital West Securities is an Oklahoma-based, full-service brokerage and municipal underwriting firm. Capital West is a member of the Financial Industry Regulatory Authority (FINRA) and the Security Investor Protection Corporation (SIPC) with a solid performance record with corporate and public finance services that include underwriting, trading and financial consulting. For more information, visit www.capitalwest.com.

SOURCE: Capital West Securities, Inc.

for Capital West Securities, Inc. 
Chad Previch, 405-608-0445 
(Cell) 405-487-9249 
cprevich@saxumpr.com