Risk Management Manual of Examination Policies - FDIC

GENERAL CHARACTER OF THE MANAGEMENT (Continued)
Discuss proposed board and management committees and their associated responsibilities. Assess the reasonableness of fees and
other expenses associated with the application and organization, including insider involvement. Evaluate the reasonableness of stock
benefit plans, including stock options, stock warrants, and other similar stock based compensation plans. The structure of stock
benefit plans should encourage the continued involvement of the participants and serve as an incentive for the successful operation of
the institution. Assess reasonableness of fidelity coverage. An insured depository institution should maintain sufficient coverage on
its active officers and employees to conform with generally accepted industry practices.
Summary and Findings
Board Committee Structure and Fidelity Coverage
The organizers have provided for a usual and customary committee structure to assist in overseeing and managing the bank’s
operations. No exceptions were noted to these proposals and structures. Organizers stated that sufficient fidelity coverage would be
procured and maintained.
Reasonableness of Organizational Expenses
Organizational and pre-opening expenses appear excessive for the formation of a denovo national association and do not reflect
favorably on the Applicant.
Most of the responsibility for these high expenses can arguably be attributed to the previous leadership during the prior Application
submission (August 2000). Casey Grant, the lead organizer and proposed Chairman/CEO displayed a lack of fiscal discipline during
his tenure and was responsible for formulating the previous nontraditional and seemingly higher risk business model. This model was
poorly supported and thus required extensive time to procure supporting documentaion and fesibilitiy studies. During this lengthy
process, Mr. Grant relied extensively on legal cousel and consultants which added to the expense burden. Finally, Mr. Grant
prematurely added a staff of twenty, including highly compensated officers, which impacted pre-chartering costs.
Since the previous management’s departure and filing of the new Application, organizational expenses while high, appear to have
moderated. Despite the high organizational expenses, management has been successsful, during two separaterly underwritten capital
offerings, in forming a substantial amount of capital. It is believed this capital is sufficient to absorb the high costs and provide for the
growth of the proposal.
Employment Agreements & Compensation
The Applicant anticipates negotiating employment agreements with several officers. The officers (to date) with corresponding annual
salaries are as follows: Chairman/CEO Joe Hamm, $150M; CFO Nigel Newbury ∗ $55M; CTO Frank Gray, $55M; CLO John Well,
$90M. In addition, Controller Sue Herrera $65M; and Senior Technology Officer Brian Bain $110M will reportedly be under
contract. The agreements generally include the following standard terms:
• Employment Term: Generally one year. Continues thereafter unless terminated by either party;
• Other Benefits: Medical, and participation in any existing stock benefit plan.
• Bonus: Sole discretion of Board of Directors
• Termination without Cause: Lump sum payment equal to the present value of the unexpired portion of the employee’s term
(effectively less than or equal to 1 year). Discount derived using the prevailing Federal funds rate.
Stock Benefit Plan
The Applicant intends to formulate a plan for certain executive officers, directors, and other employees. To date, this plan has not
been formalized or submitted for Regulatory review. Organizers have committed to enacting a plan that is consistent with existing
regulatory guidelines. Said plan should be scrutinized for reasonableness in light of exceptions taken by the Examiner during the prior
Messrs. Newbury and Gray’ respective salaries represent the proposed bank’s pro-rata expense only. Additional compensation of
$55M for each will be paid by Holding Company-1, London, England. This represents compensation for services performed at the
top-tier holding company level. Refer to biographical information for their respective roles.
FDIC 6510/10 (02-2002) 31