In a statement released shortly before his bank was closed by regulators, Paul Jennings said the bank failed because "customers, especially some of the larger ones, did not live up to their re-payment obligations," and because the bank had been caught in a "'perfect storm' or convergence of at least five deleterious circumstances, which taken together in a short time were too much for the institution to endure." Those factors are summarized in these excerpts from the statement:
Fraud: "In late 2006 …we uncovered illegal acts being committed against the bank by [a] former bank vice president, for which she was…sent to prison, barred from banking for life and fined by both the federal court and the FDIC. However, that did not fully compensate the bank for the losses we incurred as a result of her nefarious activities."
Real estate market: "Since the bank branched into Stillwater in 1999, we developed a concentration in residential-related loans to builders, developers and other commercial enterprises related to the real estate industry…We were extremely successful in pursuing that business niche, but that all started to change in mid 2006. Not only did real estate loan losses become quite large, but carrying costs in maintaining a large portfolio of non-performing foreclosed properties became too much for us."
Participations: "Like many other banks in the state, we were active in [buying and] selling loan participations…Some of these got into trouble and ultimately defaulted, thereby adding to the…loss of earnings.