The Federal Deposit Insurance Corp. has amended its directive against Old Glory Bank, noting last week that the Elmore City, Oklahoma-based lender is now “adequately capitalized.”
The regulator in August labeled Old Glory “significantly undercapitalized” and ordered the bank to submit an updated capital restoration plan.
The order came less than two weeks after a merger agreement, struck in January between Old Glory’s holding company and special-purpose acquisition company Digital Asset Acquisition Corp., fell apart.
Old Glory had operated under an FDIC consent order since May 2024 due to insufficient capital, according to a prospectus filed by Digital Asset Acquisition Corp. in July. The bank said then it may have to pursue “a sale or organized wind-down” if the deal wasn’t consummated, because it lacked sufficient capital to satisfy regulators.
Old Glory had failed to maintain a Tier 1 leverage ratio of at least 14% as required by the 2024 order, but the merger was set to solve those requirements, the prospectus indicated. Bank executives at the time said they believed they could negotiate a “more reasonable” ratio with regulators, “such as 7 [% to] 9%.”
The FDIC’s amended directive, issued last Tuesday and published Friday, recognizes Old Glory’s improved capitalization but continues to restrict the bank in the short term.
The regulator permits Old Glory to sell common stock, noncumulative perpetual preferred stock or use direct contributions from the bank’s board or shareholders to boost Tier 1 capital, but any offering of securities would need to be reviewed by the FDIC, the agency said.
The bank would need to submit to an acquisition or merger if it does not maintain its Tier 1 capital, the FDIC said. Additionally, the bank would have to obtain the FDIC’s approval for any material transactions such as investments, expansions, acquisitions, sales of assets, or an extension of credit on a highly leveraged transaction, the agency said.
Old Glory is also forbidden from making any capital distribution that would leave the bank undercapitalized, the FDIC said.
Old Glory is also not allowed to accept, renew or roll over any brokered deposits, or to accept employee benefit deposits if such transactions would leave the bank less than adequately capitalized.
If the bank returns to undercapitalized or significantly undercapitalized status and fails to submit an acceptable capital restoration plan, Old Glory would be forced to sell enough voting shares to be deemed adequately capitalized, the FDIC said, adding that the bank may also be forced to accept an offer to be acquired.
Under the amended directive, Old Glory must restrict the interest rate it pays on deposits to the prevailing rates in the bank’s home region. It also must alter, reduce or terminate any activity the FDIC deems an excessive risk to the bank.
Old Glory’s holding company, meanwhile, is prohibited from making any capital distribution without the prior approval of the Federal Reserve’s board.
Old Glory is also forbidden from paying excessive bonuses or compensation to senior executive officers for the 12-month period before the bank became undercapitalized, according to the FDIC
The bank must provide monthly written reports to the Dallas-based FDIC regional director, detailing Old Glory’s compliance with the amended directive.
Last week’s order is effective until Old Glory has been adequately capitalized, on average, for four consecutive calendar quarters after Sept. 30, the FDIC said.
