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FDIC Enforcement Decisions and Orders

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   [10,184] In the Matter of Golden Spike Bank, Tremonton, Utah, Docket No. FDIC-91-50b (2-15-91).

   Bank to cease and desist from operating with inadequate management; operating with an unacceptable methodology for determining adequacy of the loan valuation reserve; operating with inadequate policies for liquidity and funds management; operating with inadequate internal routine and controls policies; operating in such a manner as to produce operating losses; and operating in violation of FDIC regulations. (This order was terminated by order of the FDIC dated 7-30-93; see ¶ 15,706.)

   [.1] Management—Qualifications—Review
   [.2] Capital—Primary Capital—Increase—Methods
   [.3] Assets—Adversely Classified—Eliminate
   [.4] Loan Policy—Written Revision Required
   [.5] Loans—Concentrations of Credit—Reduce
   [.6] Loan Loss Reserve—Adequacy—Maintain
   [.7] Profit Plan—Minimum Requirements—Review
   [.8] Violations of Law—Eliminate/Correct
   [.9] Funds Management and Liquidity—Written Policy Required
   [.10] Bank Operations—Internal Routine and Control Policy—Establish
   [.11] Dividends—Restricted
   [.12] Audit—Internal—Written Program Required
   [.13] Strategic Plan—Minimum Requirements—Review
   [.14] Shareholders—Disclosure—Cease and Desist Order
   [.15] Compliance—Progress Reports—Frequency

In the Matter of

GOLDEN SPIKE BANK
TREMONTON, UTAH
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

   Golden Spike Bank, Tremonton, Utah ("Bank"), having been advised of its right to a Notice of Charges and of Hearing detailing the unsafe or unsound banking practices and violations of law and/or regulations alleged to have been committed by the Bank and of its right to a hearing on the alleged charges under section 8(b)(1) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1818(b)(1), 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 February 14, 1991, whereby solely for the purpose of this proceeding and without admitting or denying the alleged charges of unsafe or unsound banking practices and violations of law and/or regulations, 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 {{9-30-93 p.C-834}} banking practices and had committed violations of law and/or regulations. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

ORDER TO CEASE AND DESIST

   IT IS HEREBY ORDERED that the Bank, and any institution-affiliated party as such term is defined in section 3(u) of the Act, 12 U.S.C. 1813(u), cease and desist from the following unsafe or unsound banking practices and violations:

       (a) operating with inadequate management;
       (b) operating with an unacceptable methodology for determining adequacy of the loan valuation reserve:
       (c) operating with inadequate policies for liquidity and funds management;
       (d) operating with inadequate internal routine and controls policies;
       (e) operating in such a manner as to produce operating losses; and
       (f) operating in violation of sections 326.8(b), 329.2 and 350 of the FDIC Rules and Regulations.
   IT IS FURTHER ORDERED that the Bank take affirmative action as follows:

   [.1] 1. The Bank shall have and retain qualified management.
   (a) Each member of management shall have qualifications and experience commensurate with his or her duties and responsibilities at the Bank. Management should include a chief executive officer with proven ability in managing a Bank of comparable size, improving earnings, and other matters needing particular attention. Management should also include a senior lending officer with significant appropriate lending, collection, and loan supervision experience. Each member of management shall be provided appropriate written authority from the Bank's board of directors to implement the provisions of the ORDER.
   (b) The qualifications of management shall be assessed on its ability to:

       (i) comply with the requirements of this ORDER;
       (ii) operate the Bank in a safe and sound manner;
       (iii) comply with applicable laws and regulations; and
       (iv) restore all aspects of the Bank to a safe and sound condition, including, capital adequacy, earnings, management effectiveness, and liquidity.
   (c) During the life of this ORDER, the Bank shall notify the Regional Director of the FDIC's San Francisco Regional Office ("Regional Director") in writing when it proposes to add any individual to the Bank's board of directors or employ any individual as a senior executive officer. The notification must be received at least 30 days before such addition or employment is intended to become effective and should include a description of the background and experience of the individual or individuals to be added or employed.
   (d) The Bank may not add any individual to its board of directors or employ any individual as a senior executive officer if the Regional Director issues a notice of disapproval pursuant to section 32 of the Act, 12 U.S.C. § 1831i.

   [.2] 2. (a) During the life of this ORDER, the Bank shall maintain adjusted primary capital in such an amount as to equal or exceed eight and one-half (8.5) percent of the Bank's adjusted Part 325 total assets. Primary capital and Part 325 total assets utilized shall be calculated in accordance with prevailing instructions for the preparation of Reports of Condition. The computation of adjusted primary capital and the ration of adjusted primary capital to adjusted Part 325 total assets shall be determined by using the procedures outlined in the "Analysis of Capital" schedule in the FDIC Report of Examination.
   (b) Any increase in primary capital necessary to meet the requirements of Paragraph 2 of this ORDER may be accomplished by the following:

       (i) the sale of common stock: or
       (ii) the sale of perpetual preferred stock; or
       (iii) the direct contribution of cash by the board of directors and/or shareholders of the Bank; or
       (iv) the collection of assets previously charged off; or
       (v) the reduction of the "Loss" assets specified in Paragraph 3 of this ORDER without loss or liability to the Bank; or
       (vi) any other means acceptable to the Regional Director; or
       (vii) any combination of the above means.
{{4-30-91 p.C-835}}
   (c) If all or part of the increase in primary capital required by Paragraph 2 of this ORDER is accomplished by the sale of new securities, the board of directors shall forthwith take all necessary steps to adopt and implement a plan for the sale of such additional securities, including the voting of any shares owned or proxies held or controlled by them in favor of the plan. Should the implementation of the plan involve a public distribution of the Bank's securities (including a distribution limited only to the Bank's existing shareholders), the Bank shall prepare offering materials fully describing the securities being offered, including an accurate description of the financial condition of the Bank and the circumstances giving rise to the offering, and any other material disclosures necessary to comply with the federal securities laws. Prior to the implementation of the plan and, in any event, not less than fifteen (15) days prior to the dissemination of such materials, the plan and any materials used in the sale of the securities shall be submitted to the FDIC, Registration and Disclosure Section, Washington, D.C. 20429, for review. Any changes requested to be made in the plan or materials by the FDIC shall be made prior to their dissemination. If the increase in primary capital is provided by the sale of preferred stock, then all terms and conditions of the issue, including but not limited to those terms and conditions relative to interest rate and convertibility factor, shall be presented to the Regional Director for prior approval.
   (d) In complying with the provisions of Paragraph 2 of this ORDER, the Bank shall provide to any subscriber and/or purchaser of the Bank's securities written notice of any planned or existing development or other changes which are materially different from the information reflected in any offering materials used in connection with the sale of Bank securities. The written notice required by this paragraph shall be furnished within ten (10) days from the date such material development or change was planned or occurred, whichever is earlier, and shall be furnished to every subscriber and/or purchaser of the Bank's securities who received or was tendered the information contained in the Bank's original offering materials.
   (e) For the purposes of this ORDER, the terms "primary capital" and "total assets" shall have the meanings ascribed to them in Part 325 of the FDIC Rules and Regulations, 12 C.F.R. §§ 325.2(h) and 325.2(k).

   [.3] 3. Within 10 days from the effective date of this ORDER, the Bank shall eliminate from its books, by charge-off or collection, all assets classified "Loss" as of September 14, 1990, that have not been previously collected or charged-off. Elimination of these assets through proceeds of other loans made by the Bank is not considered collection for the purpose of this paragraph.

   [.4] 4. Within 60 days from the effective date of this ORDER, the Bank shall revise, adopt, and implement written lending and collection policy to provide effective guidance and control over the Bank's lending function, which policy shall include specific guidelines for placing loans on a nonaccrual basis. In addition, the Bank shall obtain adequate and current documentation for all loans in the Bank's loan portfolio. Such policy and its implementation shall be in a form and manner acceptable to the Regional Director as determined at subsequent examinations and/or visitations.

   [.5] 5. Within 180 days from the effective date of this ORDER, the Bank shall reduce the concentration as specified on Page 2-b of the Report of Examination as of September 14, 1990, to an amount which shall be less than twenty-five (25) percent of the Bank's total equity capital and reserves. In addition, the Bank shall not make new extensions of credit to any borrower or associated entities which will equal twenty-five (25) percent or more of the Bank's total equity capital and reserves.

   [.6] 6. Within 30 days from the effective date of this ORDER, the board of directors shall review the adequacy of the reserve for loan losses and establish a comprehensive policy for determining the adequacy of the reserve for loan losses. For the purpose of this determination, the adequacy of the reserve shall be determined after the charge-off of all loans or other items classified "Loss." The policy shall provide for a review of the reserve at least once each calendar quarter. Said review should be completed at least ten (10) days prior to the end of each quarter, in order that the findings of the board of directors with respect to the {{4-30-91 p.C-836}} loan loss reserve may be properly reported in the quarterly Reports of Condition and Income. The review should focus on the results of the Bank's internal loan review, loan loss experience, trends of delinquent and nonaccrual loans, an estimate of potential loss exposure of significant credits, concentrations of credit, and present and prospective economic conditions. A deficiency in the reserve shall be remedied in the calendar quarter it is discovered, prior to submitting the Report of Condition, by a charge to current operating earnings. The minutes of the board of directors meeting at which such review is undertaken shall indicate the results of the review.

   [.7] 7. Within 60 days from the effective date of this ORDER, the Bank shall formulate and implement a written profit plan. This plan shall be forwarded to the Regional Director for review and comment and shall address, at a minimum, the following:
   (a) goals and strategies for improving and sustaining the earnings of the Bank, including:

       (i) an identification of the major areas in, and means by which, the board of directors will seek to improve the Bank's operating performance:
       (ii) realistic and comprehensive budgets;
       (iii) a budget review process to monitor the income and expenses of the Bank to compare actual figures with budgetary projections; and
       (iv) a description of the operating assumptions that form the basis for, and adequately support, major projected income and expense components.
   (b) coordination of the Bank's loan, investment, and operating policies, and budget and profit planning, with the funds management policy.

   [.8] 8. Within 60 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of law which are more fully set out on page 6-a of the Report of Examination of the Bank as of September 14, 1990. In addition, the Bank shall take all necessary steps to ensure future compliance with all applicable laws and regulations.

   [.9] 9. Within 60 days from the effective date of this ORDER, the Bank shall develop or revise, adopt, and implement a written liquidity and funds management policy. Such policy and its implementation shall be in a form and manner acceptable to the Regional Director as determined at subsequent examinations and/or visitations.

   [.10] 10. Within 60 days from the effective date of this ORDER, the Bank shall adopt and implement a policy for the operation of the Bank in such a manner as to provide adequate internal routine and control policies consistent with safe and sound banking practices. Such policy and its implementation shall be satisfactory to the Regional Director as determined at subsequent examinations and/or visitations.

   [.11] 11. The Bank shall not pay cash dividends in any amount except as follows:

       (a) such declarations and payments are made in accordance with applicable State and Federal laws and regulations;
       (b) that after payment of such dividends, the ratio of adjusted primary capital to total assets of the Bank will be not less than eight and one-half (8.5) percent;
       (c) that such declaration and payment of dividends shall be approved in advance by the board of directors; and
       (d) that such declaration and payment of dividends shall be approved in advance, in writing, by the Regional Director, which approval shall not be unreasonably withheld.

   [.12] 12. Within 60 days from the effective date of this ORDER, the Bank shall revise, adopt and fully implement a written internal audit program. Such program and its implementation shall be in a form and manner acceptable to the Regional Director as determined at subsequent examinations and/or visitations.

   [.13] 13. Within 60 days of the effective date of this ORDER, the Bank shall develop and submit to the Regional Director a written three-year strategic plan. Such plan shall include specific goals for the dollar volume of total loans, total investment securities, and total deposits as of December 31, 1991, December 31, 1992, and December 31, 1993. For each time frame, the plan will also specify the anticipated average maturity and average yield on loans and securities; the average maturity and average costs of deposits; the level of earning assets as a percentage of total assets; and the ratio of net interest income to average earning assets. The plan shall be in a form and manner acceptable to the Regional Director as de- {{1-31-93 p.C-837}}termined at subsequent examinations and/or visitations.

   [.14] 14. Following the effective date of this ORDER, the Bank shall send to its shareholders or otherwise furnish a description of this ORDER in conjunction with the Bank's next shareholder communication and also 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.

   [.15] 15. Within 30 days of the end of the first quarter following the effective date of this ORDER, and within thirty (30) days of the end of each quarter thereafter, the Bank shall furnish written progress reports to the Regional Director and the Commissioner detailing the form and manner of any actions taken to secure compliance with this ORDER and the results thereof. Such reports shall include a copy of the Bank's Report of Condition and the Bank's Report of Income. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Regional Director and the Commissioner have released the Bank in writing from making further reports.
   The provisions of this ORDER shall be binding upon the Bank, its directors, officers, employees, agents, successors, assigns, and other persons participating in the conduct of the affairs of the Bank.
   This ORDER shall become effective ten (10) days from the date of its issuance.
   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.
   Dated at San Francisco, California, this 15th day of February, 1991.

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