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{{4-30-95 p.C-1791}}
   [10,412] In the Matter of State Bank of Keyesport, Keyesport, Illinois, Docket No. FDIC-91-407b (12-20-91).

   Bank to cease and desist from such unsafe or unsound practices as following hazardous lending and lax collection practices; operating with inadequate capital; operating with inadequate allowance for loan and lease losses; operating with inadequate liquidity; operating in violation of applicable laws or regulations; operating with management whose policies are detrimental to the Bank; and failing to provide adequate supervision over the Bank's affairs. (This order was terminated by order of the FDIC dated 2-28-95; see ¶15,972.)

   [.1] Management—Duties of CEO
   [.2] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.3] Loans—Risk Position—Reduce—Written Plan Required
   [.4] Assets—Adversely Classified—Eliminate/Reduce
   [.5] Allowance for Loan and Lease Losses—Establish/Maintain
   [.6] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.7] Board of Directors—Committee to Review Loans
   [.8] Technical Exceptions—Eliminate/Correct
   [.9] Asset/Liability Management—Written Policy—Minimum Requirements
   [.10] Violations of Law—Eliminate/Correct
   [.11] Profit Plan—Minimum Requirements
   [.12] Dividends—Restricted
   [.13] Shareholders—Disclosure—Cease and Desist Order
   [.14] Compliance Reports—Frequency

In the Matter of

STATE BANK OF KEYESPORT
KEYESPORT, ILLINOIS
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

   State Bank of Keyesport, Keyesport, Illinois ("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 or regulation alleged to have been committed by the Bank and of its right to a hearing on the charges under section 8(b) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1818(b), and having waived those rights, {{4-30-95 p.C-1792}}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 December 10, 1991, whereby, solely for the purpose of this proceeding and without admitting or denying the charges of unsafe or unsound banking practices and violations of law or regulation, 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 and had violated laws 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, its institution-affiliated parties, as that term is defined in section 3(u) of the Act, 12 U.S.C. § 1813(u), and its successors and assigns, cease and desist from the following unsafe or unsound banking practices or violations of law or regulation:
   A. Engaging in hazardous lending and lax collection practices.
   B. Operating with an inadequate level of capital protection for the kind and quality of assets held.
   C. Operating with an inadequate allowance for loan and lease losses for the volume, kind, and quality of loans and leases held.
   D. Operating with inadequate liquidity in light of the Bank's assets and liabilities.
   E. Violating:

       1) Section 23A of the Federal Reserve Act ("section 23A"), 12 U.S.C. § 371c.
       2) The preferentiality, more than normal risk of repayment, and/or unfavorable features prohibitions of section 215.4(a)(2) of Regulation O of the Board of Governors of the Federal Reserve System ("Regulation O"), 12 C.F.R. § 215.4(a)(2).
   F. Operating with management whose policies and practices are detrimental to the Bank and which jeopardize the safety or its deposits.
   G. Operating with a board of directors which has failed to provide adequate supervision over and direction to the management of the Bank to prevent unsafe or unsound banking practices and violations of law or regulation.
   IT IS FURTHER ORDERED that the Bank, its institution-affiliated parties, and any successors and assigns thereof, take affirmative action as follows:

   [.1] 1. (a) Within 120 days from the effective date of this ORDER, the Bank shall retain a new chief executive officer. The new chief executive officer shall have an appropriate level of lending, collection, and loan supervision experience for the type and quality of the Bank's loan portfolio. Such person shall be provided the necessary written authority to implement the provisions of this ORDER.
   (b) The qualifications of the new chief executive officer 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;
       (iv) adhere to safe and sound lending and collection practices;
       (v) substantially reduce the volume of adversely classified loans; and
       (vi) restore all aspects of the Bank to a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness, and liquidity.
   (c) During the life of this ORDER, the Bank shall notify the Regional Director of the Chicago Regional Office of the FDIC ("Regional Director") in writing of any changes in the Bank's management. For purposes of this ORDER, "management" is defined as members of the board of directors and "senior executive officers" as that term is defined in section 32 of the Act ("section 32"), 12 U.S.C. § 1831(i), and section 303.14 of the FDIC's Rules and Regulations ("section 303.14"), 12 C.F.R. § 303.14. Prior to the addition of any individual to the board of directors or the employment of any individual as a senior executive officer, the Bank shall comply with the requirements of section 32 and section 303.14.
   (d) As of the effective date of this ORDER, the Bank shall not grant and lend- {{2-29-92 p.C-1793}}ing authority to Edward A. Mercer. For purposes of this paragraph, lending authority shall be defined to include, but not be limited to authority to make, renew, negotiate terms and conditions, or release, substitute or accept collateral for any loan, overdraft or other extension of credit, either individually, in his capacity as president, or as a member of the board of directors or of any committee of the board of directors. Notwithstanding the above, nothing in this ORDER prohibits Edward A. Mercer from voting for loans in his capacity as a director.

   [.2] 2. (a) Within 30 days from each March 31, June 30, September 30, and December 31 following the effective date of this ORDER, the Bank shall determine from its Consolidated Report of Condition and Income its level of Tier 1 capital, and Tier 1 plus Tier 2 capital, each as a percentage of its total assets ("capital ratios"), for the quarter preceding such respective March 31, June 30, September 30, and December 31 dates. If those capital ratios are less than 7.0 percent and 8.0 percent, respectively, the Bank shall, within 60 days from the date of that determination, increase those capital ratios to not less than 7.0 percent and 8.0 percent, respectively. For purposes of this ORDER, the terms "Tier 1 capital" and "total assets" utilized in computing the capital ratio shall be defined and calculated in accordance with Part 325 of FDIC Rules and Regulations, 12 C.F.R. Part 325; "Tier 2 capital" shall be defined and calculated in accordance with Appendix A of Part 325.
   (b) Any such increase in Tier 1 capital necessary to meet the requirements of this paragraph may be accomplished by the following:

       (i) The sale of common stock and noncumulative preferred stock constituting Tier 1 capital under Part 325; or
       (ii) The elimination of all or part of the assets classified "Loss" as of May 31, 1991 without loss or liability to the Bank, provided any such collection on a partially charged-off asset shall first be applied to that portion of the asset which was not charged off pursuant to this ORDER; or
       (iii) The collection in cash of assets previously charged-off; or
       (iv) The direct contribution of cash by the directors and/or shareholders of the Bank or its holding company; or
       (v) Any other means acceptable to the Regional Director; or
       (vi) Any combination of the above means.
   (c) If all or part of the increase in capital required by this paragraph is to be accomplished by the sale of new securities, the board of directors of the Bank shall adopt and implement a plan for the sale of such additional securities, including the voting of any shares owned or proxies held by or controlled by them in favor of said plan. Should the implementation of the plan involve public distribution of the Bank securities, including a distribution limited only to the Bank's existing shareholders, the Bank shall prepare detailed 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 20 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 its review. Any changes requested to be made in the materials by the FDIC shall be made prior to their dissemination.
   (d) In complying with the provisions of paragraph 2(c) of this ORDER, the Bank shall provide to any subscriber and/or purchaser of Bank 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 10 calendar days of the date any material development or change was planned or occurred, whichever is earlier, and shall be furnished to every purchaser and/or subscriber of the Bank's original offering materials.
   (e) The capital ratio analysis required by this paragraph shall not negate the re- {{2-29-92 p.C-1794}}sponsibility of the Bank and its board of directors to maintain throughout the year an adequate level of capital protection for the kind, quality and degree of market depreciation of assets held by the Bank.

   [.3] 3. (a) Within 60 days from the effective date of this ORDER, the Bank shall formulate and submit to the Regional Director for review and comment, a written plan to reduce the Bank's risk position in each asset in excess of $20,000 which is classified "Substandard" or "Doubtful" in the FDIC Report of Examination as of May 31, 1991 ("Report"). In developing such plan, the Bank shall, at a minimum:

       (i) review the financial position of each such borrower, including source of repayment ability, and alternative repayment sources; and
       (ii) evaluate the available collateral for each such credit, including possible actions to improve the Bank's collateral position.
   (b) Such plan shall include, but not be limited to, the following:
       (i) Dollar levels to which the Bank shall reduce each asset within 6 and 12 months from the effective date of this ORDER; and
       (ii) Provisions for the submission of monthly written progress reports to the Bank's board of directors for review and notation in the minutes of the meetings of the board of directors.
   (c) As used in this paragraph, "reduce" means to (1) collect; (2) charge off; or (3) improve the quality of such assets so as to warrant removal of any adverse classification by the FDIC.
   (d) Within 30 days from receipt of any comment from the Regional Director of any written plan required by this ORDER to be submitted for review and comment and after consideration of all such comments, the Bank shall approve and implement the plan. The approval shall be recorded in the minutes of a board of directors' meeting.

   [.4] 4. Within 30 days from the effective date of this ORDER, the Bank shall eliminate from its books, by charge-off or collection, all assets or portions of assets classified "Loss" as of May 31, 1991 that have not been previously collected or charged off. Elimination or reduction of these assets with the proceeds of other Bank extensions of credit is not considered collection for the purpose of this paragraph.

   [.5] 5. (a) Within 30 days from the effective date of this ORDER, the Bank shall replenish its allowance for loan and lease losses ("ALLL") by an expense entry in an amount equal to those loans required to be charged off by this ORDER.
   (b) Within 30 days from the effective date of this ORDER, the Bank shall make an additional provision to the ALLL which, after review and consideration by the board of directors reflects the potential for further losses in the remaining loans or leases classified "Substandard" and all other loans and leases in its portfolio.
   (c) Within 30 days from the effective date of this ORDER, Reports of Condition and Income required by the FDIC and filed by the Bank subsequent to May 31, 1991, shall be amended and refiled if they do not reflect a provision for loan and lease losses and an ALLL which are adequate considering the condition of the Bank's loan portfolio, and which, at a minimum, incorporate the adjustments required by the above paragraphs of this ORDER.
   (d) Prior to the submission or publication of all Reports of Condition and Income required by the FDIC after the effective date of this ORDER, the board of directors of the Bank shall review the adequacy of the Bank's ALLL and accurately report the same. The minutes of the board meeting at which such review is undertaken shall indicate the findings of the review, the amount of increase in the reserve recommended, if any, and the basis for determination of the amount of ALLL provided.

   [.6] 6. (a) As of the effective date of this ORDER, the Bank shall not extend, directly or indirectly, any additional credit to, or for the benefit of, any borrower who is already obligated in any manner to the Bank on any credit (including any portion thereof) that has been charged off the books of the Bank so long as such credit remains uncollected.
   (b) As of the effective date of this ORDER, the Bank shall not extend, directly or indirectly, any additional credit to, or for the benefit of, any borrower whose loan or other extension of credit has been classified "Substandard" and is uncollected unless the Bank's board of direc- {{9-30-94 p.C-1795}}tors has adopted, prior to such extension of credit, a detailed written statement giving the reasons why such extension of credit is in the best interest of the Bank. A copy of the statement shall be placed in the appropriate loan file and shall be included in the minutes of the applicable board of directors' meeting.

   [.7] 7. As of the effective date of this ORDER, the Bank's board of directors shall designate a directors loan committee to include at least three directors who are not salaried officers of the Bank. At a minimum, the committee shall meet at least twice monthly and perform the following functions:

       (i) Evaluate, grant, and/or approve loans in accordance with the Bank's loan policy. The loan committee shall provide a thorough written explanation of any deviations from the loan policy, which statement shall address how said exceptions are in the Bank's best interest and shall be reflected in the minutes of the corresponding committee meeting.
       (ii) Review and monitor the status of repayment and collection of overdue and maturing loans, as well as other loans that were classified "Substandard" as of May 31, 1991, or that are included on the Bank's internal watch list.
       (iii) Review and give prior written approval for all advances or extensions of credit to any borrower or the borrower's related interest which, when aggregated with all other indebtedness of that borrower or that borrower's related interests exceeds $40,000 for fully secured extensions of credit and $5,000 for unsecured extensions of credit. For purposes of this ORDER, the term "related interest" is defined pursuant to section 215.2(k) of Regulation O, 12 C.F. R. § 215.4(k).

   [.8] 8. (a) Within 30 days from the effective date of this ORDER, the Bank shall correct the technical exceptions listed on pages 2-d, 2-d-1, and 2-d-2 of the Report.
   (b) Effective immediately, the Bank shall require complete loan documentation, realistic repayment terms and current financial information adequate to support the outstanding indebtedness of each borrower. Such financial information for commercial loans and, when applicable, for consumer loans, shall include, at a minimum, detailed balance sheets, profit and loss statements, or copies of tax returns, and cash flow projections, and shall be obtained prior to disbursing or renewing any loan or extension of credit.

   [.9] 9. (a) Within 60 days from the effective date of this ORDER, the Bank shall review its asset/liability management policy for adequacy and, based upon this review, shall make appropriate revisions in the policy which are necessary to strengthen funds management procedures and maintain adequate provisions to meet the Bank's liquidity needs. The revised policy shall, at a minimum, include the following:

       (i) maximum dollar gap levels at three, six, and twelve month time horizons;
       (ii) target ratios for the gap to total assets at three, six, and twelve month time horizons;
       (iii) provisions for a minimum acceptable liquidity ratio of 30%, as calculated on page 5-a of the Report;
       (iv) provisions for a maximum acceptable dependency ratio of negative 10%, as calculated on page 5-a of the Report;
       (v) provisions for a maximum ratio of total loans to total deposits on 65%; and
       (vi) a restriction on borrowing by the Bank to that amount required for occasional and temporary seasonal credit needs and to meet deposit withdrawals.
   The minutes of the board meetings at which such reviews are undertaken shall indicate the results of the reviews.
   (b) The policy, when revised as required by this paragraph, shall be submitted to the Regional Director for review and comment, along with a detailed plan describing the means by which the minimum revisions detailed in paragraph 9(a) will be accomplished. Within 30 days of the receipt of any comment from the Regional Director, and after consideration of all such comments, the board of directors shall approve and implement the asset-liability management policy and plan. The approval shall be recorded in the minutes of the board of directors' meeting.

   [.10] 10. Within 60 days from the effec- {{9-30-94 p.C-1796}}tive date of this ORDER, the Bank shall eliminate and/or correct all violations of law or regulation listed on pages 6-a and 6-a-1 of the Report, and shall implement procedures to ensure future compliance with all applicable laws and regulations.

   [.11] 11. (a) Within 60 days from the effective date of this ORDER, the Bank shall formulate and submit to the Regional Director for review and comment a written Profit Plan. The plan shall be consistent with the Bank's loan, investment, and asset/ liability management policies. The plan shall address, at a minimum, 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 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;
       (iv) a description of the operating assumptions that form the basis for, and adequately support, major projected income and expense components; and
       (v) periodic salary review.
   (b) Within 30 days from receipt of any comment from the Regional Director required by this paragraph to be submitted for review and comment and after consideration of all such comments, the Bank shall approve and implement the plan. The approval shall be recorded in the minutes of a board of directors' meeting.

   [.12] 12. As of the effective date of this ORDER, the Bank shall not declare or pay any cash dividend without the prior written consent of the Regional Director.

   [.13] 13. Following the effective date of this ORDER, the Bank shall send to its shareholders or otherwise furnish a description of this ORDER: (1) in conjunction with the Bank's next shareholder communication; and (2) in conjunction with its notice or proxy statement preceding the Bank's next shareholder meeting. The description shall fully describe this ORDER in all material respects. The description and any accompanying communication, statement or notice shall be sent to the FDIC in Washington, D.C. 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.

   [.14] 14. Within 15 days of the end of each calendar quarter following the effective date of this ORDER, the Bank shall furnish to the Regional Director written progress reports signed by each member of the Bank's board of directors, detailing the actions taken to secure compliance with this ORDER and the results thereof. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Regional Director has, in writing, released the Bank from making further reports.
   The effective date of this ORDER shall be 10 days after its issuance by the FDIC.
   The provisions of this ORDER shall be binding upon the Bank, its institution-affiliated parties, and any successors and assigns thereof.
   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.
   Dated: December 20, 1991.
   Pursuant to delegated authority.

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