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FDIC Enforcement Decisions and Orders

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   [10,055] In the Matter of Security State Bank, Fort Scott, Kansas, Docket No. FDIC-90-33b (3-16-90).

   Bank to cease and desist from practices such as operating with inadequate equity capital for the kind and quality of assets held. (This order was modified by order of the FDIC dated 9-21-90, and terminated on 4-23-93; see15,166 and15,656.)

   [.1] Shareholders—Dividends—Approval
   [.2] Management Bonuses—Curtail
   [.3] Management Fees—Curtail
   [.4] Equity Capital—Ratio Required—Calculation
   [.5] Shareholders—Disclosure—Cease and Desist Order
   [.6] Compliance—Progress Reports—Frequency

(Next page is C-279.)

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In the Matter of

SECURITY STATE BANK
FORT SCOTT, KANSAS
(State Nonmember Insured Bank)
ORDER TO CEASE AND DESIST

   Security State Bank, Fort Scott, Kansas, ("Bank"), having been advised of its right to a Notice of Charges and of Hearing detailing the unsafe or unsound banking practices alleged to have been committed by the Bank and of its right to a hearing on such alleged charges under section 8(b) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(b), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") with counsel for the Federal Deposit Insurance Corporation ("FDIC"), dated March 5, 1990, whereby solely for the purpose of this proceeding and without admitting or denying any unsafe or unsound banking practices, the Bank consented to the issuance of an ORDER TO CEASE AND DESIST ("ORDER") by the FDIC.
   The FDIC considered the matter and determined that it had reason to believe that the Bank had engaged in unsafe or unsound banking practices. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

ORDER TO CEASE AND DESIST
   IT IS HEREBY ORDERED, that the Bank, its Institution-Affiliated Parties, as that term is defined in section 3(u) of the Act, 12 U.S.C. 1813(u), successors and assigns, cease and desist from the unsafe and unsound banking practice of operating with inadequate equity capital for the kind and quality of assets held.
   IT IS FURTHER ORDERED, that the Bank, its Institution-Affiliated Parties, successors and assigns, take affirmative action as follows:

   [.1][.2][.3] 1. (a) Effective the date of this ORDER, the Bank shall not

       (i) declare or pay any cash dividends, or (ii) pay bonuses or increase in any manner whatsoever, salaries or other compensation, including, without limitation, directors fees, or (iii) pay management fees, until the Bank has increased by $700,000 its equity capital.

   [.4] (b) The Bank shall thereafter maintain equity capital, exclusive of the allowance for loan and lease losses, at an amount at or in excess of 6 percent of the Bank's average total assets ("equity capital ratio").
   (c) For purposes of calculating the equity capital ratio required by paragraph 1(b) of this ORDER:
       (i) the Bank's average total assets shall be the quarterly average of total assets reported in the Bank's Report of Condition for the quarter ending June 30 or December 31, whichever nearest precedes the date of calculation; and
       (ii) the terms "equity capital", "allowance for loan and lease losses" and "total assets" shall have the same meaning as those terms have in the prevailing instructions for Preparation of Reports of Condition. Subsequent to the effective date of this ORDER, the equity capital ratio shall be computed as of June 30 and December 31, as appropriate.

   [.5] 2. Following the effective date of this ORDER, the Bank shall send to its shareholders a description of this ORDER, (1) in conjunction with the Bank's next shareholder communication, and also (2) in conjunction with its notice or proxy statement preceding the Bank's next shareholder meeting. The description shall fully describe the ORDER in all material respects. The description and any accompanying communication, statement, or notice shall be sent to the FDIC, Registration and Disclosure Unit, Washington, D.C. 20429, for review at least 20 days prior to dissemination to shareholders. Any changes requested to be made by the FDIC shall be made prior to dissemination of the description, communication, notice, or statement.

   [.6] 3. The Bank shall furnish written progress reports to the Regional Director and the Kansas State Bank Commissioner detailing the form and manner of any action taken to secure compliance with this ORDER and the results thereof every 90 days, beginning 90 days from the effective date of the ORDER. In addition, the Bank shall furnish such reports on request of either the Regional Director or the Kansas State Bank Commissioner. All progress reports and other written responses to this ORDER shall be reviewed by the board of directors of the Bank and made a part of the minutes of the board meeting.
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   4. This ORDER shall become effective ten (10) days from the date of its issuance.
   The provisions of this ORDER shall be binding upon the Bank, its Institution-Affiliated Parties, successors and assigns.
   The provisions of this ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provisions of this ORDER shall have been modified, terminated, suspended, or set aside by the FDIC.
   Pursuant to delegated authority.
   Date of issuance: 3-16-90

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