The Sad Story of Commercial State Bank

Leadership Integrity – The Sad Story of Commercial State Bank, Andrews, Texas

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Considering another wave of banking crisis, I am finally compelled to tell this story. I have not spoken of it in decades and never in this detail.

I recently posted an article about leadership integrity. Integrity, or rather the lack of integrity in a leader lead to very unpleasant and devastating experiences for them and those they supposedly lead. Here’s the story…

I had not been in banking very long. The gentleman that hired me had retired and the owner of the bank took over the active management of the bank along with the other five banks he and his family owned.

Mr. McCaskill, the man that hired me and remained my friend and mentor until he died in 2016 came into the bank one day, pulled me aside, and told me I had a great future in the banking industry but that it would not be at this bank. He also cautioned me as to the integrity of the owner.

The owner treated me well over the next two to three years, affording me opportunities to learn, grow, and lead. For that I am grateful.

This was during the 1980s amid rampant inflation and economic calamity, especially in the banking sector as bank were failing and being shut down in Texas and all over the country.

You know it was bad in Texas that even today the ratio of non-performing loans to capital is called the Texas Ratio.

Sometime in 1988, the cracks in their veneer posing as integrity began to appear. I openly questioned some of the things going on such as ownership’s loans inside the bank not being paid on time and moving around between the owner’s other banks, loans made in other people names but his receiving the proceeds, questionable general ledger entries, questionable deposits, and wire transfers being made.

I was told that it was none of my concern, this was above my pay grade, they knew what they were doing because they owned six banks, I was pretty good at what I did but was not knowledgeable and experienced in the larger scope and to stay in my place. In other words, I was to shut up and do my job. The condescension was palpable as was the insult to my intelligence and my own integrity.

I recall a time in 1989 when all of this was going on and big party was held in Dallas for a big announcement and unveiling. All employees, officers, and directors from all six banks converged upon a big hotel and convention center for the big unveiling of the new brand names for the banks. We were all now under one name, a new brand…Freedom Bank.

After all the jocularity and hoopla were finally over, many of us converged on a Dallas country and western dance place. I specifically remember one of the bank directors that was there and buying roses for all the ladies. While watching that charade I recall thinking that the roses are a nice gesture. I wish he would just make a loan payment.

Very shortly after that name change, the regulatory examinations, both federal and state, started coming with increased frequency and deeper scrutiny. This is when things really got ugly and intense.

Millions of dollars in loans, including the loans of the owner and the director I mentioned previously were charged off. Capital quickly fell well below required regulatory thresholds. Outside directors had already run for cover. A state appointed supervisor was named and was in our bank every day. He had veto power over anything and everything. The owners still ran their bank however the supervisor could stop them in their tracks if he thought they were continuing their nefarious ways. Under him, I now really started learning the mechanics of every aspect of banking.

To lower costs, I cut power to the second floor and disconnected the big message board sign.

A couple years prior I was ordered to make an entry into the bank’s general ledger for a federal income tax refund receivable. Regulators had questioned it however taxes were handled at the holding company level, so I had to refer them there. Come to find out, the owner had received the tax refund sometime before and kept the money.

The bank president came up with the idea to collect that money out of the holding company checking account to resolve that bad receivable asset. We had been charged the by regulators to collect bad loans and assets so, we did.

A shit storm of epic proportions ensued. There was much weeping, wailing, gnashing of teeth, name calling, yelling, and threats of termination from the owner. We stood our ground and only after receiving word from bank regulators did we put it back as the money in the account was for a health insurance premium for the employees of all six banks.

A couple of loan officers soon left of their own accord. Then, the bank president and I laid off half the staff. This made 12-to-18-hour days the norm for me as I filled in multiple roles. I even enlisted my mother to daily reconcile the bank’s correspondent bank accounts statements.

Then, in October of 1990, the one remaining outside director and bank president left the bank. As they left, they turned the bank over to Texas Department of Banking conservatorship and the owners were divested of their asset. The Commissioner of Banking for the State of Texas was now running the bank and looking for a proper buyer. The conservator arrived the next day and I started learning even more from him.

The owners were extremely self-serving and did everything bad that I mentioned in my article on leadership integrity and then some.

Said one thing, did another.

Promises made, never kept.

No honesty in communications and dealings

No accountability for decisions or actions.

Assigned blame to others.

Remained true only to their corrupt self-serving values.

Trust had evaporated.

Total dysfunction ensued.

Standards dropped through the floor.

Total and complete avoidance of accountability as evidenced by their claim of no wrong doing.

The above culminated in the divestiture of their banks, being banned from the banking industry in any form, and lawsuits for violating federal and state banking laws. They had even continued to violate banking laws despite multiple cease-and-desist orders.

The opportunity for me to lead my fellow employees that stayed through this mess and help restore and keep customers confidence in the bank and especially confidence in its employees was particularly challenging and ultimately rewarding. The range of emotions was stark. I like to think I did a pretty fair job of it.

I left that bank in 1991 after having been there 10 years. That was six years after Mr. McCaskill’s cautionary warning about this owner. I finally decided that after five years in the Marines with five different commanding officers and 10 years at that bank going through three different bank presidents and two state appointed supervisors, it was time for me to go someplace where they could get used to me.

Still, I found the seed of benefit inside that adversity. I would say long after I left that I may not know how to run a bank, but I certainly know what not to do. This is where I also realized that everything and anything I ever needed to know about banking I learned as a grunt infantry officer in the United States Marine Corps. It is about the relationships I build, letting people do their jobs, and leading with integrity.

I grew as a person, as a man, as a banker, and more importantly as a leader. The lessons learned while experiencing leadership without integrity served me well later.

“I’ve come to see institutional decline like a staged disease: harder to detect but easier to cure in the early stages, easier to detect but harder to cure in the later stages. An institution can look strong on the outside but already be sick on the inside,” ~?James C. Collins,?How the Mighty Fall: And Why Some Companies Never Give In

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Published March 22, 2023 All Rights Reserved ? 2023