Opinion ID: 2074942
Heading Depth: 1
Heading Rank: 8

Heading: Correspondent Banks.

Text: Donald Ostrand, manager of FNB's correspondent banking department between 1965 and 1985, explained the nature and role of a correspondent bank: The correspondent bank [here, Bank of Stapleton] is approached by a borrower [Phyllis Churchill] ... and determines whether they are interested in having the borrower as a customer. If it involves funds in excess of what their legal limit is, they need a correspondent [FNB] to help them. Then they contact the correspondent and say, we have a customer A. This is what he is looking for or they are looking for. We can provide up to X amount of dollars. We are going to need your help for the overline portion, and are you interested. We say, Well, we are always interested, but send us the information in order that we may make a credit judgment, and so we make an independent credit judgment, and then we determine that we would be interested or would participate in that line. Regarding the overline, or participation, loan to Phyllis Churchill, the Bank of Stapleton and FNB had various duties. As indicated by Ostrand, FNB made an independent credit judgment whether to participate in a line of credit to Phyllis Churchill. FNB also set a $50,000 limit and the interest rate on the overline loan to Phyllis Churchill. The Bank of Stapleton, in addition to informing FNB about possible participation in a loan, performed several services pertaining to the Phyllis Churchill overline loan. The Stapleton bank kept a separate ledger on the overline loan, had all the personal contact with Phyllis Churchill after FNB turned down Phyllis Churchill's request that she deal directly with FNB, prepared financial statements regarding Phyllis Churchill which were forwarded to FNB, supplied FNB with general information about Phyllis Churchill's business activity, and kept FNB informed relative to important events which might concern Churchill's overline account. The Bank of Stapleton received .5 percent of the interest paid on Phyllis Churchill's overline loan, which, according to Clara Ewoldt, vice president of the Bank of Stapleton, was intended to cover the paperwork and fees that the Bank of Stapleton would have in connection with the overline loan. The .5 percent was not intended in any way to be a form of compensation, salary, bonus, or commission for [the Bank of Stapleton's] services. Although the Bank of Stapleton was not directly compensated for its work on overline loans, the correspondent bank relationship with FNB was, nonetheless, advantageous to the Bank of Stapleton because the relationship enabled the Stapleton bank to keep its customers when the legal loan limit for the Bank of Stapleton necessitated location of additional funds. Furthermore, while no Bank of Stapleton employee was ever simultaneously an employee of FNB, nevertheless, FNB suggested that, as a condition of FNB's becoming a participation lender, the Bank of Stapleton should hire an experienced manager. FNB's suggestion resulted in the Bank of Stapleton's hiring Byron Keslar as its chief executive officer. When FNB became a participation lender to Phyllis Churchill, FNB did not supply the Bank of Stapleton with a promissory note for the entire amount of Phyllis Churchill's indebtedness. Rather, a new note, payable to the Bank of Stapleton for the amount of the overline loan, was signed by Phyllis Churchill at the Stapleton bank. FNB sent the Bank of Stapleton a participation certificate, which was filled out by an executive officer of the Stapleton bank and returned to FNB with a copy of the note for the overline loan. The participation certificate contained information regarding the amount of the overline loan, its due date, and collateral for the loan. Funds from the overline loan were not delivered directly to Phyllis Churchill, but were deposited in the Bank of Stapleton's account with FNB. Ewoldt described the Bank of Stapleton's account with FNB as the [s]ame as [a] checking account. We have deposits and withdrawals. When funds were deposited in its FNB account, the Bank of Stapleton would then simultaneously deposit funds in Phyllis Churchill's account. To make payments on her overline account with FNB, Phyllis Churchill wrote checks payable to the Bank of Stapleton, which, in turn, paid FNB its proportionate share of a payment in accordance with the interbank participation agreement for the overline loan. Inferentially, the Bank of Stapleton's payments to FNB were made through checks deposited in the Stapleton bank's account at FNB. From April 1977 until September 1982, Phyllis Churchill received overline loans in various amounts from FNB. If one of Phyllis Churchill's overline loans became due, the Bank of Stapleton renewed the loan without first contacting FNB so long as the amount of the overline loan was within the $50,000 limit set by FNB for 1979 and 1980. Keslar of the Bank of Stapleton characterized his autonomy in renewing Phyllis Churchill's overline loans: [T]he boys down there [at FNB] told me to use my own judgment on those loans, and that's what I did.