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{{5-31-94 p.C-2845}}
   [10,670] In the Matter of Mondamin Savings Bank, Mondamin, Iowa, Docket No. FDIC-92-314b (11-16-92).

   Bank to cease and desist from such unsafe or unsound practices as operating with excessive volumes of adversely classified assets; following hazardous lending and lax collection practices; operating in violation of applicable laws or regulations; operating with inadequate loan documentation; engaging in practices which produce inadequate operating income and excessive loan losses; failing to provide adequate supervision over the Bank's affairs; operating without adequate reserve for loan losses; operating with inappropriate investment in life insurance policies; and operating without proper internal routine and controls. (This order was terminated by order of the FDIC dated 3-9-94; see ¶15,824.)

   [.1] Management—Qualifications—Review
   [.2] Management—Management Plan—Minimum Requirements
   [.3] Assets—Adversely Classified—Eliminate/Reduce
   [.4] Allowance for Loan and Lease Losses—Establish/Maintain
   [.5] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.6] Loans—Risk Position—Reduce—Written Plans Required
   [.7] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.8] Loans—Overdue—Accrual of Interest
   [.9] Loan Policy—Written Revision—Minimum Requirements
   [.10] Profit Plan—Minimum Requirements
   [.11] Funds Management—Written Policy Required
   [.12] Investment Policy—Revision—Minimum Requirements
   [.13] Dividends—Restricted
   [.14] Life Insurance—Executive Policy—Termination Required
   [.15] Technical Exceptions—Eliminate/Correct
   [.16] Loans—Concentrations of Credit—Reduction Plan
   [.17] Data Processing—Correction of Deficiencies Required
   [.18] Violations of Law—Eliminate/Correct
   [.19] Audit—External Audit—Minimum Procedures Specified
   [.20] Shareholders—Disclosure—Cease and Desist Order

In the Matter of

MONDAMIN SAVINGS BANK
MONDAMIN, IOWA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-92-314b

   Mondamin Savings Bank, Mondamin, Iowa ("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 such alleged 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 {{5-31-94 p.C-2846}}Federal Deposit Insurance Corporation ("FDIC"), dated October 20, 1992, whereby solely for the purpose of this proceeding and without admitting or denying any unsafe or unsound banking practices or 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 banking practices and had violated laws 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, 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 and unsound banking practices and violations of law and/or regulations:
   A. operating with an excessive volume of adversely classified assets;
   B. engaging in hazardous lending and lax collection practices, including maintaining an excessive volume of adversely classified loans;
   C. engaging in violations of applicable laws and regulations;
   D. operating with management whose policies and practices are detrimental to the Bank;
   E. operating with deficient or inadequate loan documentation, including but not limited to current financial statements, insurance coverage, and cash flow and/or operating information;
   F. engaging in practices which produce inadequate operating income and excessive loan losses;
   G. failing to provide adequate supervision and direction over the affairs of the Bank to prevent unsafe or unsound practices and violations of law and/or regulation;
   H. operating with an inadequate allowance for loan and lease losses for the volume, kind and quality of loans held;
   I. operating with excessive and inappropriate investments in life insurance policies; and
   J. operating without adequate internal routine and control procedures for the Bank's electronic data processing operations.
   IT IS FURTHER ORDERED, that the Bank, its institution-affiliated parties, and its successors and assigns, take affirmative action as follows:

   [.1] 1. (a) (i) No more than 60 days from the effective date of this ORDER, the Bank shall have and thereafter retain qualified management. Such management shall include a qualified chief executive officer who shall be given stated written authority by the Bank's board of directors, including responsibility for implementing and maintaining the policies of the Bank. The chief executive officer shall have an appropriate level of experience to perform the duties assigned to that individual by the Bank's board of directors. The Bank shall promptly notify the Regional Director of the FDIC's Kansas City Regional Officer ("Regional Director") of the identity of said chief executive officer. 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 of the Act, 12 U.S.C. § 1831i, and section 303.14 of the FDIC's Rules and Regulations, 12 C.F.R. § 303.14.
   (i) The assessment of whether the Bank has "qualified management" shall be based upon management's conduct, both individual and joint, with respect to the Bank in: (A) complying with the requirements of this ORDER; (B) complying with applicable laws and regulations; and (C) not engaging in any unsafe or unsound banking practice which has an adverse effect on the Bank's asset quality, capital adequacy, earnings, or liquidity.

   [.2] (b) No more than 30 days from the effective date of this ORDER, the board of directors shall develop a written analysis and assessment of the Bank's management and staffing needs ("management plan"), which shall include, at a minimum:

       (i) identification of both the type and number of officer positions needed to manage and supervise properly the affairs of the Bank;
       (ii) identification and establishment of such Bank committees as are needed to provide guidance and oversight to active management;
    {{1-31-93 p.C-2847}}
       (iii) evaluation of each Bank officer, and in particular the chief executive officer, and staff member 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 maintenance of the Bank in a safe and sound condition; and
       (iv) evaluation of each plan of action to recruit and hire any additional or replacement personnel with the requisite ability, experience and other qualifications, which the board of directors determines are necessary to fill Bank officer or staff member positions consistent with the board's analysis, evaluation and assessment as provided in paragraphs 1(b)(i) and 1(b)(iii) of this ORDER.
   (c) The written management plan and any subsequent modification thereto shall be submitted to the Regional Director for review and comment. No more than 30 days from the receipt of any comment from the Regional Director, and after consideration of such comment, the board of directors shall approve the written management plan and/or any subsequent modification thereto which approval shall be recorded in the minutes of the board of directors. Thereafter, the Bank and its institution-affiliated parties shall implement and follow the written management plan and/or any subsequent modification.
(d) (i) No more than 90 days from the effective date of this ORDER, the board of directors shall prepare a list of potential candidates for the board of directors for consideration by the shareholders of the Bank. The list of potential candidates shall include individuals who are independent with respect to the Bank, in such number that, if elected, would cause a majority of the board of directors to be independent with respect to the Bank. The actions taken in identifying potential candidates, including any communication with such individuals, shall be documented and made a part of the minutes of the board of directors. Copies of these board minutes shall be provided to the Regional Director no more than 120 days from the effective date of this ORDER.
   (ii) At the next meeting of the shareholders of the Bank, and at each succeeding meeting of the shareholders at which Bank directors are to be elected, the members of the board of directors who are also shareholders shall nominate and support the election of candidates to the board of directors who are independent with respect to the Bank and who have agreed to stand for election to the board of directors, in such number as are necessary to cause a majority of the board of directors to be and to remain independent with respect to the Bank.
   (iii) For purposes of this ORDER, an individual who is "independent with respect to the Bank" shall be any individual who:
   (A) is not an officer or employee of the Bank, any subsidiary of the Bank, or any of the Bank's affiliated organizations;
   (B) does not own, directly or indirectly, more than 5 percent of the outstanding voting stock of the Bank, any subsidiary of the Bank, or any of the Bank's affiliated organizations;
   (C) is not related by blood, marriage or common financial interest to any individual who is not independent with respect to the Bank because such individual does not satisfy the criteria described in this paragraph concerning independence. The phrase "common financial interest" means any relationship involving individuals who, directly or indirectly, (1) have an ownership interest in a common enterprise, or (2) are in a debtor/creditor relationship. "Common financial interest" does not include common ownership of publicly traded securities registered with the Securities and Exchange Commission, unless the individuals involved have filed or are required to file a statement under 15 U.S.C. § 78p; and
   (D) is not indebted to the Bank, directly or indirectly (including any "related interest" of the individual, as defined in 12 C.F.R. § 215.2(k), and any member of the individual's "immediate family," as defined in 12 C.F.R. § 215.2(e)), in an amount exceeding 5 percent of the Bank's Tier {{1-31-93 p.C-2848}}1 capital and allowance for loan and lease losses.
   (e) Effective the date of this ORDER, the Bank's board of directors shall meet at least monthly. The board shall prepare in advance and shall follow a detailed written agenda at each meeting, which shall include consideration of actions of any committees. Nothing in the foregoing sentence shall preclude the board from considering matters other than those contained in the agenda. Detailed written minutes of all board meetings shall be maintained and recorded on a timely basis.

   [.3] 2. No more than 10 days from the effective date of this ORDER, the Bank shall eliminate from its books, by charge-off, collection, or other proper entries, all assets or portions of assets classified "Loss" and 50 percent of all assets or portions of assets classified "Doubtful" as of May 29, 1992, which have not been previously collected, charged off, or otherwise eliminated by other proper entries. Reduction of these assets through use of proceeds of loans made by the Bank does not constitute collection for the purpose of this paragraph.

[.4] 3. (a) As used in this ORDER, "allowance for loan and lease losses" ("allowance") means the same as the term in section 325.2(a) of the FDIC's Rules and Regulations, 12 C.F.R. § 325.2(a), and in the Instructions for Preparation of Reports of Condition and Income ("Instructions").
   (b) The bank shall have and maintain an adequate allowance in accordance with the requirements of the Instructions.
   (c) Reports of Condition and Income required to be submitted by the Bank as of each Report date, as that term is used in the Instructions, between and including June 30, 1992, and the effective date of this ORDER, shall, at a minimum, reflect an allowance maintained in accordance with the Instructions. If necessary to comply with this paragraph, the Bank shall file amended Reports of Condition and Income within 10 days from the effective date of this ORDER.
   (d) Prior to the submission of any Report of Condition and Income required to be filed by the Bank after the effective date of this ORDER, the board of directors of the Bank shall: (i) review the adequacy of the Bank's allowance, (ii) provide for an adequate allowance, and (iii) accurately report the allowance in any such Report of Condition and Income. The minutes of the board meeting at which such review is undertaken shall indicate the results of the review, including any increases in the allowance, and the basis for determining the amount of allowance provided.

[.5] 4. (a) As used in this ORDER:

       (i) "Tier 1 or core capital" ("Tier 1 capital") means the same as the term in section 325.2(m) of the FDIC's Rules and Regulations, 12 C.F.R. § 325.2(m).
       (ii) "Total assets" means the same as the term in section 325.2(n) of the FDIC's Rules and Regulations, 12 C.F.R. § 325.2(n).
   (b) After appropriate entries for an adequate allowance are made in accordance with the requirements of paragraph 3 of this ORDER, but no later than September 30, 1992, the Bank shall have and maintain Tier 1 capital at or in excess of 6 percent of the Bank's total assets ("Tier 1 capital ratio"). From and after September 30, 1992, for purposes of calculating Tier 1 capital ratio, Tier 1 capital and total assets shall be the dollar amount reported in the Bank's most recent Report of Condition and Income.
   (c) During the period this ORDER is in effect, if the Tier 1 capital ratio declines below 6 percent, the Bank shall, within 60 days after the date on which the said ratio so declined, submit a written plan to the Regional Director for approval describing the means and timing by which the Bank shall increase such ratio up to or in excess of 6 percent. Upon receiving written notification of the approval of the plan, the Bank shall increase its Tier 1 capital ratio to equal or exceed 6 percent in accordance with the approved plan and shall thereafter maintain its Tier 1 capital ratio at or in excess of such level while this ORDER is in effect.

[.6] 5. (a) Within 30 days from the effective date of this ORDER, the board of directors shall develop a written plan of action to lessen the Bank's risk position in each line of credit aggregating $20,000 or more which was classified "Substandard" or "Doubtful" as of May 29, 1992. In developing such plan, the Bank shall, at a minimum:

       (i) review the financial position of {{1-31-93 p.C-2849}}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.
Based upon such review and evaluation, the written plan of action shall: (A) establish target dollar levels to which the Bank shall reduce the aggregate dollar volume of "Substandard" or "Doubtful" classifications within 6 and 12 months from the effective date of this ORDER; and (B) provide for the submission of written monthly progress reports to the Bank's board of directors for review and notation in the board minutes. 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.
   (b) The written plan of action described by paragraph 5(a) and any subsequent modification thereto shall be submitted to the Regional Director for review and comment. No more than 30 days after the receipt of any comment from the Regional Director, the board of directors shall approve the written plan of action, which approval shall be recorded in the minutes of the board of directors. Thereafter, the Bank and its institution-affiliated parties shall follow the written plan of action and/or any subsequent modification.

   [.7] 6. Effective the date of this ORDER, the Bank shall not extend, directly or indirectly, credit to, or for the benefit of, any borrower who has a loan or other extension of credit with the Bank that has been charged off or classified, in whole or in part, "Loss," "Doubtful," or "Substandard," and is uncollected, unless a majority of the Bank's board of directors first (a) determines that such advance is in the best interest of the Bank, (b) determines that the Bank has satisfied the requirements set out in paragraph 5 of this ORDER as to such borrower, and (c) approves such advance. A written record of the board of directors' determination and approval of any advance under the terms of this paragraph shall be maintained in the credit file of the affected borrower(s) as well as the minutes of the board of directors. The requirements of this paragraph do not prohibit the Bank from renewing any credit already extended to the borrower.

   [.8] 7. Effective the date of this ORDER, the Bank shall not accrue interest on any loan that is, or becomes, 90 days or more delinquent as to principal or interest, unless the loan is both well secured and in the process of collection; "well secured" and "in the process of collection" shall have the same meaning as those terms have in the prevailing Instructions. The Bank shall reverse on its books all previously accrued but uncollected interest on any loan that has ceased to accrue interest pursuant to this provision.

   [.9] 8. No more than 30 days from the effective date of this ORDER, the Bank shall revise its written loan policies. The revised written loan policies and any subsequent modification thereto shall be submitted to the Regional Director for review and comment. No more than 30 days after the receipt of any comment from the Regional Director, the board of directors shall approve the written loan policies and/or any subsequent modification thereto which approval shall be recorded in the minutes of the board of directors. Thereafter, the Bank and its institution-affiliated parties shall follow the written loan policies and/or subsequent modification thereto.

[.10] 9. (a) No more than 30 days from the effective date of this ORDER, the Bank shall develop a written profit plan consisting of goals and strategies for improving the earnings of the Bank, which written profit plan shall include, at a minimum:

       (i) 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) The written plan and any subsequent modification thereto shall be submitted to the Regional Director for review and comment. No more than 30 days after the receipt of any comment from the Re- {{1-31-93 p.C-2850}}gional Director, the board of directors shall approve the written profit plan and any subsequent modification thereto, which approval shall be recorded in the minutes of the board of directors. Thereafter, the Bank and its institution-affiliated parties shall follow the written profit plan and/or any subsequent modification thereto.

   [.11] 10. No more than 30 days from the effective date of this ORDER, the Bank shall review the Bank's written funds management policy and shall record the results of such review in the board of directors' minutes. Thereafter, the Bank and its institution-affiliated parties shall follow the written funds management policy.

   [.12] 11. No more than 30 days from the effective date of this ORDER, the Bank shall review the Bank's written investment policy and shall record the results of such review in the board of directors' minutes. Thereafter, the Bank and its institution-affiliated parties shall follow the written investment policy.

   [.13] 12. The Bank shall not pay or declare any cash dividends without the prior written consent of the Regional Director.

   [.14] 13. No more than 30 days from the effective date of this ORDER, the Bank shall terminate, and recover the cash surrender value of, all life insurance policies owned by the Bank which insure the life of former president James R. Unruh.

[.15] 14. (a) No more than 60 days from the effective date of this ORDER, the Bank shall correct the technical exceptions on loans noted on page 2-d of the FDIC's Report of Examination of the Bank as of May 29, 1992.

   [.16] (b) No more than 45 days from the effective date of this ORDER, the Bank shall implement a plan to reduce the concentrations of credit pertaining to: (i) loans to Echo Farms, Incorporated and to individual owners thereof, and (ii) after terminating the Bank's life insurance policies on the life of former president James R. Unruh as required by paragraph 13, split dollar life insurance policies owned by the Bank insuring the life of president Gary N. Ervin, as noted on pages 2-b and 2-b-1, respectively, of the FDIC's Report of Examination of the Bank as of May 29, 1992, to less than 25 percent of the Bank's Tier 1 capital.

   [.17] 15. No more than 60 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all deficiencies in the electronic data processing department as described on page 6-2 of the FDIC's Report of Examination of the Bank as of May 29, 1992.

   [.18] 16. No more than 60 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of law and regulations committed by the Bank as described on pages 6-1 through 6-1-f the FDIC's Report of Examination of the Bank as of May 29, 1992.

[.19] 17. (a) Within 60 days from the effective date of this ORDER, the Bank shall engage an independent auditor to perform an audit of the Bank in accordance with the "Basic External Auditing Procedures" in the FDIC's Statement of Policy Providing Guidance on External Auditing Procedures for State Nonmember Banks, 55 Fed. Reg. 2145 (1990), reprinted in 1 Federal Deposit Insurance Corporation Law, Regulations and Related Acts (P-H) at p. 5302.01 (January 22, 1990), a copy of which is attached to this ORDER as Appendix "A" and is incorporated herein by reference. The audit shall include special emphasis on the handling of accrued interest on extensions of credit to James R. Unruh, Corrine Unruh, Gary N. Ervin, Jerry Shelton, and Mondamin Development Corporation, including the charging of such accrued interest to Bank expenses.
   (b) The Bank shall promptly notify the Regional Director of the identity and qualifications of the independent auditor retained by the Bank in perform the audit. In addition, the Bank shall instruct said independent auditor in writing to provide a separate copy of the findings of the audit to the Regional Director at the same time that the completed audit is transmitted to the Bank. A copy of the written instruction shall be sent to the Regional Director at the same time it is sent to the independent auditor.
   (c) No more than 30 days after receipt of comments from the Regional Director regarding the completed audit or, in the event there are no comments from the Regional Director, no more than 45 days from receipt of the completed audit by the Bank, the Bank's board of directors shall, after taking into consideration any comments by the Regional Director, convene a meeting of the board of directors and adopt the findings contained in the audit, {{9-30-94 p.C-2851}}and shall record such adoption and the dollar amount of any interest reductions made by improper entries on the Bank's records, including charges to Bank expenses, in the minutes of the board of directors. Promptly after such adoption, the Bank's board of directors shall make written demand in accordance with the audit's findings upon James R. Unruh, Gary N. Ervin, other institution-affiliated parties, and/or Bank affiliates for restitution or reimbursement of any such unpaid interest within 10 days after receipt of the written demand. The Bank shall immediately provide the Regional Director with a copy of its written demand and, if any payment is made, evidence of its receipt of restitution or reimbursement, in whole or in part.
   (d) The Bank shall not accept restitution or reimbursement pursuant to the ORDER, which was or would be paid for or funded in any manner whatsoever from or by the use of the Bank's assets, including without limitation, by means of any extension of credit from the Bank. As used in this ORDER, "extension of credit" means the same as defined in section 215.3 of Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. § 215.3.

    (e) (i) In the event the findings of the audit disclose any apparent criminal violations of the United States Code, the Bank shall promptly report such apparent violations in accordance with Part 353 of the FDIC's Rules and Regulations, 12 C.F.R. Part 353.
       (ii) In the event the findings of the audit disclose any material error or improper entry in any account of the Bank, the Bank shall amend its records to correct any such material error or improper entry and immediately notify the Regional Director in writing of the material error or improper entry uncovered and the corrective action taken. If such error or entry resulted in improper filings of the Bank's Reports of Condition and Income, the Bank shall file amended Reports of Condition and Income as required by the Regional Director.

   [.20] 18. Following the effective date of this ORDER, the Bank shall send to its shareholders a description of this ORDER, (a) in conjunction with the Bank's next shareholder communication, and also (b) 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 Section, 550 17th Street, N.W., 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.
   19. The Bank shall furnish written progress reports to the Regional Director and the Superintendent of Banking for the State of Iowa ("Superintendent") 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 this ORDER. In addition, the Bank shall furnish such reports on request of either the Regional Director or the Superintendent. 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.
   This ORDER shall become effective 10 days from the date of its issuance.
   The provisions of this ORDER shall be binding upon the Bank and 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.
   Dated this 16th day of November, 1992.
   Pursuant to delegated authority.

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