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Former officers of Texas Bank fined, two banned

Edingurg, TX
10/25/2017
Fine Amount: 
$203,000
Penalty Type: 
Issued by: 

The OCC has issued three consent orders to former officials of First National Bank, Edinburg, Texas, which failed in 2013, for their involvement in efforts to falsely represent the bank's regulatory capital in its Call Reports.

  • Robert Gandy III was found to have, while serving as president, chief executive officer and director of the bank, originated and approved loans with concessionary and liberal terms to unqualified borrowers to finance the borrower’s purchase of stock in the bank’s holding company to raise capital for the Bank. Most of these loans were renewed indefinitely and outstanding at the time of the Bank’s closure in September 2013. Gandy caused the Bank to report the stock purchases financed with Bank loans as regulatory capital in the Bank’s Consolidated Reports of Condition and Income (“Call Reports”). Gandy was also found to have originated and approved loans with concessionary and liberal terms to unqualified borrowers to sell the Bank’s other real estate owned (“OREO”) at above-market prices as part of a strategy to reduce the Bank’s OREO and reduce the Bank’s losses that it would have otherwise recorded on sales at fair market prices. On certain occasions, Respondent originated and approved loans to finance the sale of OREO without a credit analysis of the borrower, including $56 million in loans to a borrower in June 2010. For those infractions and others, Gandy was issued an order of prohibition and ordered to pay a civil money penalty (CMP) of $75,000.
  • Michael McCarthy was found to have, while serving as chief lending officer and director of the bank, originated and approved loans with concessionary and liberal terms to unqualified borrowers to finance the borrower’s purchase of stock in the bank’s holding company to raise capital for the Bank, and caused the bank to report the stock purchases as regulatory capital on the bank's Call Reports. He was also found to have participated with Gandy in originating and approving loans to unqualified borrowers to sell the bank's OREO. He was issued an order of prohibition, and ordered to pay a CMP of $125,000.
  • Eduardo Leal was found to have, while serving as controller and chief operations officer of the bank, participated in, the Bank’s accounting practices related to failing to record discounts on the sale of OREO financed with below-market loan terms and accruing interest on nonaccrual loans without justification. These practices were inconsistent with generally accepted accounting principles (“GAAP”), regulatory reporting requirements, and requirements contained within OCC consent orders. As a result of Respondent’s conduct, the Bank filed materially inaccurate Consolidated Reports of Condition and Income (“Call Reports”) for every quarter beginning with the quarter ending June 30, 2009, through the quarter ending June 30, 2013. Leal was issued an order to pay a CMP of $3,000 and an order to cease and desist.

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