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Board Report: 2015-SR-B-005 March 26, 2015

Review of the Failure of Waccamaw Bank

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Waccamaw Bank (Waccamaw), headquartered in Whiteville, North Carolina, opened on September 2, 1997. The bank became a state member bank on May 31, 2001, and formed Waccamaw Bankshares, Inc.,1 a publicly traded one-bank holding company on June 30, 2001. By 2008, Waccamaw's branch network had expanded to 17 locations in North Carolina's Columbus, Brunswick, and Bladen Counties and South Carolina's Lancaster and Horry Counties. The bank was supervised by the Federal Reserve Bank of Richmond (FRB Richmond), under delegated authority from the Board of Governors of the Federal Reserve System (Board), and by the North Carolina Office of the Commissioner of Banks (State).

The State closed Waccamaw on June 8, 2012, and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. According to the FDIC, as of March 31, 2012, Waccamaw had approximately $533.1 million in total assets. In addition, the FDIC estimated that the failure would result in a $51.1 million loss to the Deposit Insurance Fund (DIF). At the time, section 38(k) of the Federal Deposit Insurance Act, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), defined a material loss to the DIF as an estimated loss in excess of $150 million.2 The estimated loss to the DIF associated with the failure of Waccamaw did not meet the threshold for materiality. For failures beneath the material loss threshold, the Dodd-Frank Act requires our office to assess whether the circumstances surrounding the failure were unusual. Upon identifying unusual circumstances warranting additional review, our office conducts an in-depth review similar to a material loss review. We determined that Waccamaw's failure presented unusual circumstances that warranted an in-depth review.3

Objectives, Scope, Methodology, and Scope Limitation

When a loss to the DIF presents unusual circumstances, section 38(k) of the Federal Deposit Insurance Act requires that the Inspector General of the appropriate federal banking agency prepare a report in a manner that is consistent with the requirements of a material loss review. The material loss review provisions of section 38(k) require that the Inspector General of the appropriate federal banking agency undertake the following:

  • review the agency's supervision of the failed institution, including the agency's implementation of prompt corrective action (PCA)
  • ascertain why the institution's problems resulted in a material loss to the DIF
  • make recommendations for preventing any such loss in the future

Our review covered supervisory activity from 2007 through 2012. To accomplish our objectives, we reviewed the Federal Reserve System's Commercial Bank Examination Manual (CBEM) and relevant supervisory guidance. We interviewed staff and collected relevant data from FRB Richmond, the Federal Reserve Bank of Atlanta (FRB Atlanta), the State, and the Board. We also reviewed correspondence, surveillance reports, regulatory reports filed by Waccamaw, examination reports, examination workpapers prepared by FRB Richmond and FRB Atlanta, relevant FDIC documents, and reports prepared by multiple accounting firms.

In addition, we reviewed the January 2010 to June 2012 e-mail communications of certain FRB Richmond staff members to develop a better understanding of Waccamaw's discussions with the Federal Reserve Bank (Reserve Bank) concerning a capital-raise transaction. FRB Richmond did not retain the e-mail records for two supervisors who served in leadership roles for FRB Richmond's supervisory team at Waccamaw during key time periods. We attempted to gain access to some of these e-mail records by requesting Waccamaw's records from the FDIC as of the date of its failure. We obtained the bank's records directly from the FDIC's Division of Resolutions and Receiverships, and we appreciate the FDIC's cooperation in responding to our request. We considered FRB Richmond's inability to produce all the requested records in response to our request a scope limitation for our evaluation.4

We conducted this evaluation from December 2012 through November 2014 in accordance with the Quality Standards for Inspection and Evaluation issued by the Council of the Inspectors General on Integrity and Efficiency. Appendixes at the end of this report include a glossary of key banking and regulatory terms and a description of the CAMELS rating system.5

  • 1. Waccamaw's shares were publicly traded on the NASDAQ stock exchange. Return to text
  • 2. The $150 million materiality threshold applied to losses that occurred from January 1, 2012, through December 31, 2013. Return to text
  • 3. This review fulfills a statutory mandate and does not serve any investigative purposes. Return to text
  • 4. A scope limitation arises when we are not able to complete our evaluation as comprehensively as intended. Return to text
  • 5. The CAMELS acronym represents six components: capital adequacy, asset quality, management practices, earnings performance, liquidity position, and sensitivity to market risk. For full-scope examinations, examiners assign a rating of 1 through 5 for each component and the overall composite score, with 1 indicating the least regulatory concern and 5 indicating the greatest concern. Return to text