Federal Deposit
Insurance Corporation

{{5-31-92 p.C-2084}}
   [¶10,483] In the Matter of Westbank, Westchester, Illinois, Docket No. FDIC-92-73b (3-26-92).

   Bank to cease and desist from such unsafe or unsound practices as following hazardous lending and lax collection practices; operating with inadequate capital; operating in violation of applicable laws or regulations; operating with excessive volumes of adversely classified assets; operating with inadequate liquidity; operating with inadequate allowance for loan and lease losses; failing to maintain adequate documentation of business expenses; failing to keep adequate books and records; 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 4-1-96 see ¶ 16,088.)

   [.1] Management—Qualifications—Review
   [.2] Management—Management Plan—Minimum Requirements
   [.3] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.4] Dividends—Restricted
   [.5] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.6] Assets—Adversely Classified—Eliminate/Reduce
   [.7] Allowance for Loan and Lease Losses—Establish/Maintain
   [.8] Loans—Risk Position—Reduce—Written Plan Required
   [.9] Loan Concentrations—Construction and Development—Reduction Required
   [.10] Loans—Overdue—Collection Plan
   [.11] Loan Committee—Duties
   [.12] Loan Policy—Written Revision—Minimum Requirements
   [.13] Loans—Total Loans—Limitations on Increase
   [.14] Liquidity—Written Policy—Minimum Requirements
   [.15] Violations of Law—Eliminate/Correct
   [.16] Bank Operations—Expense Reimbursement—Policy Required
   [.17] Shareholders—Disclosure—Cease and Desist Order
   [.18] Board of Directors—Committee to Review Compliance with Cease and Desist Order
   [.19] Compliance Reports—Frequency

In the Matter of

WESTBANK
WESTCHESTER, ILLINOIS
Insured State Nonmember Bank
ORDER TO CEASE AND DESIST

   Westbank, Westchester, 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, 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 25, 1992, whereby, solely for the purpose of this proceeding and without admitting or denying the charges of unsafe or
{{5-31-92 p.C-2085}}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:

   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 and violations of law or regulation:
   A. Engaging in hazardous lending and lax collection practices, including, but not limited to the following:
   (1) the failure to obtain proper loan documentation;
   (2) the failure to establish and monitor collateral margins of secured borrowers;
   (3) the failure to establish and enforce adequate programs for the repayment of loans;
   (4) the failure to obtain current and complete financial information;
   (5) extending credit with inadequate diversification of risk; and
   (6) other poor credit administration practices.
   B. Operating with an inadequate level of capital protection for the kind and quality of assets held.
   C. Violating:
   (1) The State of Illinois legal lending limit restrictions as set forth in section 32 of the Illinois Banking Act. ILL. REV. STAT. ch. 17, para. 339;
   (2) The collateral requirements of section 23A of the Federal Reserve Act ("section 23A"), 12 U.S.C. § 371c(c)(1)(C); and
   (3) The substantially same terms requirement of section 23B of the Federal Reserve Act ("section 23B"), 12 U.S.C. § 371c-1(a)(1)(A).
   D. Operating with excessive volumes of adversely classified loans, delinquent loans, and nonaccrual loans.
   E. Operating with inadequate liquidity in light of the Bank's asset and liability mix.
   F. Operating with an inadequate allowance for loan and lease losses for the volume, kind, and quality of loans and leases held.
   G. Failure to maintain adequate documentation of business expenses.
   H. Failure to keep accurate books and records.
   I. Operating with management whose policies and practices are detrimental to the Bank.
   J. 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 its successors and assigns, take affirmative action as follows:

   [.1] 1. (a) During the life of this ORDER, the Bank shall have and thereafter retain qualified management. Each member of the management shall have the qualifications and expertise commensurate with his or her duties and responsibilities at the Bank. 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 asset quality, capital adequacy, earnings, management effectiveness, and liquidity.

   [.2] 2. (a) Within 30 days from the effective date of this ORDER, the Bank shall retain a bank consultant acceptable to the Regional Director and the Commissioner. The consultant shall develop a written analysis and assessment of the Bank's management and staffing needs ("Management Plan") for the purpose of providing qualified management for the Bank. The Management Plan shall include, at a minimum:

   (i) Identification of both the type and number of officer positions needed to properly manage and supervise the affairs of the Bank;
   (ii) Identification and establishment of such Bank committees as are needed to provide guidance and oversight to active management;
   (iii) Evaluation of all Bank officers and staff members to determine whether these individuals possess the ability, experience and other qualifications required to perform present and anticipated duties, including adherence to the Bank's established policies and practices, and restoration and maintenance of the Bank in a safe and sound condition; and
   (iv) A plan to recruit and hire any additional or replacement personnel with the requisite ability, experience and other qualifications to fill those officer or staff member positions identified by this paragraph of this ORDER.

   [.3] 3. (a) Within 30 days of the close of business on the last calendar day of each calendar quarter following the effective date of this ORDER, the Bank shall determine from its Report of Condition and Income its level of Tier 1 capital and its level of total capital as a percentage of its total assets ("capital ratios") for that calendar quarter. If the capital ratios are less than 8 percent and 10 percent, respectively, the Bank shall, within 90 days of the date of the required determination, increase its capital ratios to not less than 8 percent and 10 percent, respectively, calculated as of the end of that preceding quarterly period. For purposes of this ORDER, Tier 1 capital, total capital, the capital ratios, and total assets shall be calculated in accordance with Part 325 of the FDIC Rules and Regulations ("Part 325"), 12 C.F.R. Part 325, and all appendices thereto, except that in calculating total capital, the Bank may include its entire allowance for loan and lease losses. The term "close of business" is defined as in the Federal Financial Institutions Examination Council's ("FFIEC's") Instructions for the Reports of Condition and Income.
   (b) Any such increase in Tier 1 capital may be accomplished by the following:

   (i) The sale of common stock and noncumulative perpetual preferred stock constituting Tier 1 capital or total capital under Part 325 and appendices thereto; or
   (ii) The elimination of all or part of the assets classified "Loss" as of June 30, 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 the shareholders of the Bank or its holding company; or
   (v) Any other means acceptable to the Regional Director and Commissioner; or
   (vi) Any combination of the above means.

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

   [.5] 5. (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 extensions of 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 credit has been classified "Substandard," and is uncollected unless the Bank's board of directors 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.

   [.6] 6. As of 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 June 30, 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.

   [.7] 7. (a) Within 10 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 the charged off by this ORDER.
   (b) Within 10 days from the effective date of this ORDER, the Bank shall make an additional provision for loan and lease losses 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. In making this determination, the board of directors shall consider concentrations within the loan portfolio, the level of delinquent and/or nonaccrual loans, and deficiencies in loans contained on the watch list. At a minimum, the ALLL shall at all times equal at least 2 percent of total loans.
   (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 June
{{5-31-92 p.C-2088}}30, 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 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 reserve provided.

   [.8] 8. (a) Within 60 days from the effective date of this ORDER, the Bank shall adopt and implement a written plan to reduce the Bank's risk position in each asset in excess of $50,000 which is classified "Substandard" in the FDIC's Report of Examination as of June 30, 1991 ("Report"). A copy of the written plan shall be submitted to the Regional Director and the Commissioner. In developing such plan, the Bank shall, at a minimum:

   (i) Review the financial position of each such borrower, including source of repayment, 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.

   (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 minutes of the meetings of the board of directors.

   [.9] 9. Within 60 days from the effective date of this ORDER, the Bank shall adopt and implement a written plan to reduce the construction and development loan concentration of credit identified on page 2-c of the Report to not more than 100 percent of the Bank's total Tier 1 capital, and the loan concentrations of credit identified on page 2-c-1 of the Report to not more than 25 percent of the Bank's total Tier 1 capital for each concentration listed on that page. A copy of the written plan shall be submitted to the Regional Director and the Commissioner. Such plan shall prohibit any additional advances that would increase the concentrations or create new concentrations and shall include, but not be limited to, the following:

   (a) Dollar levels to which the Bank shall reduce each concentration within 6 and 12 months from the effective date of this ORDER; and
   (b) Provisions for the submission of monthly written progress reports to the Bank's board of directors for review and notation in minutes of the meetings of the board of directors.

   (a) Dollar levels to which the Bank shall reduce delinquencies within 6 and 12 months from the effective date of this ORDER; and
   (b) Provisions for the submission of monthly written progress reports to the Bank's board of directors for review and notation in minutes of the meetings of the board of directors.

   [.12] 12. (a) Within 60 days from the effective date of this ORDER, and annually thereafter, the board of directors of the Bank shall review the Bank's loan policy and procedures for adequacy and, based upon this review, shall make all appropriate revisions to the policy necessary to strengthen lending procedures and abate additional loan deterioration.
   (b) The Bank's loan policy, as initially revised, shall include provisions:

   (i) Establishing review and monitoring procedures to ensure that all lending personnel are adhering to the established procedures and that the directorate is receiving timely and fully documented reports.
   (ii) Requiring that all extensions of credit originated or renewed be supported by current credit information and collateral documentation, including lien searches and the perfection of security interests; have a clearly defined and stated purpose; and have a predetermined and realistic repayment source and schedule. Such documentation shall include current financial information, profit and loss statements or copies of tax returns, and cash flow projections, and shall be maintained throughout the term of the loan with loan officer notations and comments.
   (iii) Requiring loan committee review and monitoring of the status of repayment and collection of overdue and maturing loans, as well as those loans which are classified "Substandard" in the Report or in subsequent FDIC and State of Illinois Reports of Examination.
   (iv) Requiring the establishment and maintenance of a loan grading system and internal loan watch list.
   (v) Requiring a written plan to lessen the risk position in each line of credit identified as a problem credit on the Bank's internal loan watch list.
   (vi) Prohibiting the capitalization of interest or loan related expenses unless the board of directors provides, in writing, a detailed explanation of why said deviation is in the best interest of the Bank.
   (vii) Requiring that extensions of credit to any of the Bank's executive officers, directors, or principal shareholders, or to any related interest of such person, be thoroughly reviewed for compliance with all provisions of Regulation O.
   (viii) Requiring a nonaccrual policy in accordance with the FFIEC Instructions for the Consolidated Reports of Condition and Income.
   (ix) Requiring accurate reporting of past due loans to the loan committee on at least a monthly basis.
   (x) Addressing concentrations of credit and diversification of risk, including goals for portfolio mix, estab- {{5-31-92 p.C-2090}}lishment of limits within loan and other asset categories, and development of a tracking and monitoring system for the economic and financial condition of specific geographic locations, industries, and groups of borrowers.
   (xi) Incorporating limitations on the amount that can be loaned in relation to established collateral values, including the requirement that the source of the valuations be identified and which require that such collateral valuations shall be completed prior to the disbursement of loan proceeds and be performed on a periodic basis over the term of the loan.
   (xii) Establishing standards for the institution of collection efforts by the loan officer or legal counsel, and procedures to ensure timely recognition of loss through charge-off, where appropriate.
   (xiii) Prohibiting the extension of a maturity date, advancement of additional credit or renewal of a loan to a borrower whose obligations to the Bank were classified "Substandard" or "Loss," whether in whole or in part, as of June 30, 1991, or by the FDIC or State authority in a subsequent Report of Examination, without the full collection in cash of accrued and unpaid interest, unless the loans are well secured and/or are adequately supported by current and complete financial information, and the renewal or extension has first been approved in writing by a majority of the Bank's board of directors.
   (xiv) Establishing officer lending limits and limitations on the aggregate level of credit to any one borrower which can be granted without the prior approval of the Bank's loan committee.
   (xv) Requiring that collateral appraisals be completed prior to the making of secured extensions of credit. In addition, periodic collateral valuations shall be performed for all secured "problem loans."
   (xvi) Prohibiting the issuance of standby letters of credit unless the letters of credit are well secured and/or are adequately supported by current and complete financial information.
   (xvii) Establishing limitations on the maximum volume of loans in relation to total assets.

   [.13] 13. During the life of this ORDER, the Bank shall not increase its total loans by more than 4 percent during any calendar quarter without providing, at least 30 days prior to its implementation, a growth plan to the Regional Director and the Commissioner. Such growth plan shall include the funding source to support the projected growth, as well as the anticipated use of funds. This growth plan shall not be implemented without the prior written consent of the Regional Director and the Commissioner. In no event shall the Bank increase its total loans by more than 10 percent annually. For the purpose of this paragraph, "total loans" shall be defined as in the FFIEC's Instructions for the Consolidated Reports of Condition and Income.

   [.14] 14. Within 60 days from the effective date of this ORDER, the Bank shall adopt and implement a written plan addressing liquidity. Annually thereafter during the life of this ORDER, the Bank shall review this plan for adequacy and, based upon such review, shall make appropriate revisions in the plan that are necessary to maintain adequate provisions to meet the Bank's liquidity needs. A copy of the revised plan shall also be submitted to the Regional Director and the Commissioner. The initial plan shall include, at a minimum, provisions:

   (i) Establishing a desirable range for volatile liability dependency ratio as computed by the FDIC in the Report;
   (ii) Requiring that monthly calculations of the liquidity and dependency ratios, following the format utilized in regulatory reports of examination, be provided to the board of directors for review, with such review noted in the board minutes;
   (iii) Identifying the source and use of borrowed and/or volatile funds;
   (iv) Establishing appropriate lines of credit at correspondent banks, including the Federal Reserve Bank of Chicago, that would allow the Bank to borrow funds to meet depositor demands if
{{2-28-95 p.C-2091}}the Bank's other provisions for liquidity are inadequate;
   (v) Establishing contingency plans to improve liquidity to the level established in the Bank's liquidity policy;
   (vi) Establishing parameters for borrowing federal funds such as limits concerning dollar amounts and duration and specifying authorized sources/lenders; and
   (vii) Restricting the Bank's reliance on borrowed funds to that amount required for seasonal credit needs and to meet deposit withdrawals.

   [.16] 16. (a) Within 60 days from the effective date of this ORDER, the board of directors of the Bank shall review the Bank's written policy covering expense reimbursements to its directors, officers, and employees and, based upon this review, shall make appropriate revisions to the policy. A copy of the written policy shall be submitted to the Regional Director and the Commissioner.
   (b) The Bank's expense reimbursement policy, as initially revised, shall include:

   (i) Provisions which specify the reasonable limitations for all categories of expenses related to customer entertainment and business development; and
   (ii) Provisions which require complete documentation of all expenses related to customer entertainment and business development. At a minimum, the Bank shall require the submission of an original receipt, identification of the person or persons entertained, and the business purpose of the expense before a check is issued for payment by the Bank.

   [.17] 17. 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 the ORDER in all material respects. The description and any accompanying communication, notice, or statement 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.

   [.18] 18. Within 10 days from the effective date of this ORDER, the Bank shall establish a compliance committee comprised of at least two directors. No committee member may be an executive officer or principal shareholder, as those terms are defined in sections 215.2(d) and (j) of Regulation O, 12 C.F.R. §§ 215.2(d) and (j). The committee shall monitor compliance with this ORDER, and, within 30 days from the effective date of this ORDER, and every 30 days thereafter, shall submit to the board of directors for consideration at its regular monthly meeting a written report detailing the Bank's compliance with this ORDER. The compliance report shall be incorporated in the minutes of the board of directors' meeting. Establishment of this committee does
{{2-28-95 p.C-2092}}not in any way diminish the responsibility of the entire board of directors for ensuring that compliance with the provisions of this ORDER is achieved.

   [.19] 19. Within 30 days of the end of each calendar quarter following the effective date of this ORDER, the Bank shall furnish to the Regional Director and the Commissioner written progress reports signed by each member of the Bank's board of directors, detailing the actions taken to secure compliance with the 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: March 26, 1992.
   Pursuant to delegated authority.