Every day on the way to and from work, I pass through the town of
The First National Bank of Keystone was founded in 1904. Having survived the Great Depression, it boasted the slogan “time-tried, panic tested” on its exterior wall. But by the 1970s, the decline of the coal industry caused economic collapse and double-digit unemployment in most of the coal towns in southern
First National, with assets of $17 million and only $5 million in loans, was struggling to stay afloat. Enter J. Knox McConnell. Hired in 1977 as the new manager, the skinflint
McConnell was an idiosyncratic manager who, despite being worth a reported $23 million, drove and old Buick, and wore threadbare suits. To prevent office romances, McConnell made it bank policy to hire only women and his staff, which included two former
McConnell worked quickly. Within three years he had risen to the rank of chairperson and president. He wielded his power to reduce the size of the board of directors from 14 to six and stacked it with submissive members. One of McConnell’s designs for the bank was to purchase other bank’s risky debt, repackage it and sell it as securities. To finance this endeavor, First National used a line of credit from another bank and began offering some of the country’s highest interest rates to solicit depositors nationwide.
By 1987, the bank had assets of $65 million.
By 1990, they were $85 million.
By 1992, they were up to $102 million. The bank was attracting a lot of attention, including that of the Office of the Comptroller of the Currency (OCC), which began investigating the bank. But the on-site inspectors didn’t slow down First National’s momentum.
The rise of the bank was a boon to the struggling local economy. In a town with an unemployment rate over 30%, the bank was far and away the town’s largest employer. Its annual taxes accounted for two-thirds of Keystone’s revenue and practically every business in town came under ownership of either Cherry or Church. Many residents of the small town bought stock in First National, whose share price rocketed to over $300.
By 1995, First National reported $235 million in assets with a return on equity of 83%. The bank was named top-performing small bank in the nation three times in the mid-1990s by American Banker, a respected industry journal.
In October of 1997, J. Knox McConnell passed away and was succeeded by Billie Cherry. Despite being stonewalled and intimidated by armed guards, inspectors were still investigating the bank, fueled by the profligate spending habits of bank directors that included bank employee bonuses of brand new cars.
In August of 1999, with bank assets recorded at $1.1 billion, inspectors finally got a breakthrough. They discovered $515 million worth of sold assets still sitting on the bank’s books. With the board unable to explain the discrepancy, the OCC declared the bank insolvent and forced it to shutdown. The following month, inspectors uncovered 370 file boxes full of bank documents buried in a 100-foot-long trench on Church’s mountaintop ranch. Further investigations revealed that the bank had technically been insolvent for the past three years.
By 2000 Terry Church was charged with obstructing justice. Billie Cherry, also a former Keystone mayor, was found guilty of forging McConnell’s will after his death to increase her share of his estate. Several other bank employees were charged with insider trading by the SEC after unloading shares upon realizing the bank’s perilous state. Eventually, through various convictions of fraud, conspiracy and embezzlement, Church would be sentenced to serve 27 years in federal prison and Cherry to 16.
Bank loses cost the Federal Deposit Insurance Corporation $800 million, making it the costliest bailout since the savings and loans crisis of the 1980s and one of the ten largest bailouts in
Currently, there are only two banks in all of
It is in this context that TBAI is working to create a new lending initiative. We are seeking to create a loan fund to disburse small loans to local entrepreneurs to start and invest in their business ventures. This fund will be a revolving loan fund, meaning that all repayments received will be returned and used for additional loans. Loan clients will be graduates of our business training program and will have completed and sufficiently-researched business plans.
There are still many opportunities for businesses to thrive here in
Sources:
Wild West Virginia Bank Failure
Federal Banking Regulators Failed to Move on Keystone Problems
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