DIB’s “Doubtful” Loans

It’s never been much of a secret that one of the main reasons businessmen buy banks is to lend themselves money, but the situation at Dallas International Bank is most unusual indeed. Not because last year DIB lent $4 million to its own officers and directors, but because bank examiners classified 40 percent of those loans as either “substandard” or “doubtful.” The revelations come from DIB’s 1977 proxy statement.

The most stunning revelation involves a $125,000 loan to the bank’s own chief executive, John Gray. Examiners classified the collectibility of Gray’s loan as “doubtful.” In DIB’s case the $125,000 loan to Gray isn’t illegal, but it furnishes an interesting contrast between DIB’s loan practices and that of other major banks. Three of the city’s five largest banks, First National, Mercantile and the National Bank of Commerce, absolutely will not lend money to their own officers, fearing an embarrassment such as the DIB situation. Texas Bank and Republic National Bank will lend money to their own officers under certain limitations set down by the Federal Reserve Board – $30,000 on a first mortgage real estate loan; $10,000 for children’s education; and $5,000 for any other purpose. Gray’s $125,000 loan is legal because DIB is not a member of the Federal Reserve System.

By the time DIB began writing its proxy statement, the bank claimed that the classified loan total had been paid down to $ 1.1 million from the original total of $ 1.7 million. The bank bitterly protested the examiners’ judgements, which reflected examiners’ doubts about whether the loans could be repaid as planned. Besides the Gray loan, examiners classified loans to directors Joe Abbey, Tom Gray, James Latham and Dub Miller as “substandard.” They also classified a $758,950 loan to advisory director C.S. McKamy as “substandard” as well as two loan guaranties by directors Rex Cauble and former state district Judge Robert Hall. By January 31. the bank claimed Cauble’s $150,000 guaranty balance and Tom Gray’s $80,000 loan had been paid off. The DIB proxy also revealed that two current DIB directors are particularly large borrowers. During 1976 the bank lent $1,241,250 to Denton County rancher Rex Cauble, perhaps best known for his position on the Texas Aeronautics Commission. Cauble owns approximately $600,000 worth of DIB stock. Sigel Liquor Stores president Sidney Sigel borrowed $977,500. He owns only about $10,000 in DIB stock.