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{{4-30-97 p.C-4164}}
   [11,272] In the Matter of State Bank of Keyesport, Keyesport, Ill. Docket No. FDIC-96-4b (3-22-96).

   Bank ordered to cease and desist from such unsafe and unsound practices as operating with a board of directors which has failed to provide adequate supervision and direction to the management; operating without qualified management; violating laws and regulations; engaging in hazardous lending and lax collection practices; operating with an excessive level of adversely classified loans, delinquent loans, and nonaccrual loans; operating with an inadequate loan policy; and operating with an inadequate level of capital protection for the kind and quality of assets held. This order was terminated pursuant to order of the FDIC dated 2-6-97. See ¶16,149.

   [.1] Management—Qualifications Specified
   [.2] Directors and Officers—Qualifications Specified
   [.3] Loan Committee—Membership, Duties
   [.4] Management—Management Plan Required
   [.5] Violations of Law—Eliminate, Correct
   [.6] Loans—Extensions of Credit—To Borrowers with Existing Adversely Classified Credits
   [.7] Assets—Problems Assets—Individual Written Plans Required
   [.8] Assets—Adversely Classified Assets—Reduction Required
   [.9] Loans—Special Mention—Correct Deficiencies
   [.10] Loan Policy—Review, Revise
   [.11] Loans—Concentration of Credit—Reduction Required
   [.12] Technical Exceptions—Correction Required
   [.13] Loans—Interest—Accrual of
   [.14] Capital—Tier 1 Capital—Increase Required
   [.15] Dividends—Payment Restricted
   [.16] Loan Loss Reserve—Replenishment Required
   [.17] Profit Plan—Adopt and Implement
   [.18] Board of Directors—Committee to Review Compliance with Cease and Desist Order
   [.19] Cease and Desist Orders—Compliance Reports Required
   [.20] Shareholders—Disclosure—Cease and Desist Order

In the Matter of

STATE BANK OF KEYESPORT
KEYESPORT, ILLINOIS
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-96-4b

   State Bank of Keyesport, Keyesport, Illinois ("Bank"), having been advised of its {{5-31-96 p.C-4165}}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 5, 1996, 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:
   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. Operating with a board of directors which has failed to provide adequate supervision over and direction to the management.
   B. Operating without qualified management, including a permanent chief executive officer.
   C. Violating laws or regulations, including those described at pages 8.16 through 8.23 of the FDIC Report of Examination as of August 28, 1995 ("Report").
   D. Engaging in hazardous lending and lax collection practices, including but not limited to the following:

       — The failure to obtain proper loan documentation;
       — The failure to obtain adequate collateral;
       — The failure to establish and monitor collateral margins of secured borrowers;
       — The failure to establish and enforce adequate loan repayment programs;
       — The failure to obtain current and complete financial information.
   E. Operating with an excessive level of adversely classified loans, delinquent loans, and nonaccrual loans.
   F. Operating with an inadequate loan policy.
   G. Operating with an inadequate level of capital protection for the kind and quality of assets held.
   H. Operating with an inadequate allowance for loans and lease losses for the volume, kind, and quality of loans and leases held.
   I. Operating with excessive overhead expenses and inadequate net interest margins.
   IT IS FURTHER ORDERED, that the Bank, its institution-affiliated parties, and its successors and assigns, take affirmative action as follows:

       [.1] 1. (a) Within 30 days from the effective date of this ORDER, the Bank shall have and retain qualified management. At a minimum, such management shall include a chief executive officer with proven ability in managing a bank of comparable size and experience in upgrading a low quality loan portfolio. Such person shall be provided the necessary written authority to implement the provisions of the ORDER. 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 the allowance for loan and lease losses.
       (b) During the life of this Order, the Bank shall notify the Regional Director of the Chicago Regional Office of the FDIC ("Regional Director") and the Commissioner of Banks and Trust Companies, State of Illinois ("Commissioner"), in writing of any changes in any of the Bank's management. For purposes of this ORDER, "management" is defined as members of {{5-31-96 p.C-4166}}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), section 303.14 of the FDIC 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.

       [.2] 2. (a) Within 60 days from the effective date of this ORDER, the Bank shall add to its board of directors two new independent directors. For purposes of this ORDER, any person or firm is independent if the individual, partner or employee (a) is not an officer of the bank; (b) does not own more than 5 percent of the outstanding shares of the Bank or holding company; (c) is not related by blood or marriage to an officer of or director of the Bank or holding company or to any shareholder owning more than 5 percent of the Bank or holding company's outstanding shares, and who does not otherwise share a common financial interest with such officer, director or shareholder; and (d) is not indebted to the Bank directly or indirectly by blood, marriage or common financial interest, including the indebtedness of any entity in which the individual has a substantial financial interest in an amount exceeding 5 percent of the Bank's total Tier 1 capital and allowance for loan and lease losses. The addition of any new Bank directors required by this paragraph may be accomplished, to the extent permissible by state statute or the Bank's bylaws, by means of appointment or by election at a regular or special meeting of the Bank's shareholders.

       [.3] (b) Within 30 days of the effective date of this ORDER, the Bank shall appoint a loan committee comprised of three individuals, two of which must be directors who are not also officers of the Bank. The loan committee shall meet at least bi-monthly. The loan committee shall, at a minimum:

         (i) Review and preapprove all advances, renewals, or extensions of credit to any borrower or the borrower's related interests when the aggregate volume of credit extended to the borrower and the borrower's related interests exceeds $25,000. For purposes of this ORDER, the term "related interest" is defined pursuant to section 215.2(k) of Regulation O, 12 C.F.R. § 215.2(k) and
         (ii) Maintain written minutes of the committee meetings which include a record of the review and status of all loans.

       [.4] 3. (a) Within 45 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 be developed within 90 days from the effective date of this ORDER and 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.
       (b) Within 30 days of the receipt of the Management Plan or any subsequent modifications thereto, the Bank shall approve the Management Plan or any subsequent modifications, which approval shall be recorded in the minutes of the board of directors meeting. Thereafter, the Bank shall implement and follow the Management Plan and any subsequent modifications. A copy of the Management Plan and any subsequent modifications shall be submit- {{5-31-96 p.C-4167}}ted to the Regional Director and the Commissioner.

       [.5] 4. (a) Within 30 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of law and/or regulations listed on pages 8.16 through 8.23 of the Report.
          (b) Within 30 days from the effective date of this ORDER, the Bank shall implement procedures to ensure future compliance with all applicable laws and regulations.

       [.6] 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 or classified "Loss" 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," "Doubtful," or is listed for "Special Mention" 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 incorporated in the minutes of the applicable board of directors' meeting.

       [.7] 6. (a) Within 60 days from the effective date of this ORDER, the Bank shall formulate and submit to the Regional Director and the Commissioner for review and comment, a written plan to reduce the Bank's risk position in each asset in excess of $50,000 which is classified "Substandard" in the Report. A copy of the written plan shall be submitted to the Regional Director and the Commissioner upon its completion. 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.
       (b) Such plan shall include, but not be limited to, the following:
         (i) Dollar levels to which the Bank shall reduce each asset within six 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.
       (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 and the Commissioner.
       (d) Within 30 days from the receipt of any comment from the Regional Director and the Commissioner, and after the adoption of any recommended changes, the Bank shall approve the written plan, which approval shall be recorded in the minutes of a board of directors' meeting. Thereafter, the Bank shall implement and follow this written plan.

   [.8] 7. 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 August 28, 1995, that have not been previously collected or charged off. Any such charged off asset shall not be rebooked without the prior written consent of the Regional Director and the Commissioner. 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.

   [.9] 8. Within 60 days of the effective date of this ORDER, the Bank shall correct all deficiencies in those loans listed for Special Mention in the Report.

       [.1O] 9. (a) Within 60 days of 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, consistent with the comments and recommendations in the Report, necessary to strengthen lending pro- {{5-31-96 p.C-4168}}cedures and abate additional loan deterioration. The revised written loan policy and any subsequent modifications shall be submitted to the Regional Director and the Commissioner for review and comment upon their completion.
       (b) Within 30 days from the receipt of any comments from the Regional Director and the Commissioner, the board of directors shall approve the written loan policy and any subsequent modification thereto, which approvals shall be recorded in the minutes of a board of directors' meeting. Thereafter, the Bank shall implement and follow the written loan policy and any subsequent modifications thereto. The Bank shall inform the Regional Director and the Commissioner, in writing, of the manner in which it intends to implement this policy and ensure compliance therewith.

       [.11] 10. (a) Within 60 days from the effective date of this ORDER, the Bank shall adopt and implement a written plan to reduce each of the loan concentrations of credit identified on page 3.g of the Report to not more than 25 percent of the Bank's total Tier 1 capital. A copy of the written plan shall be submitted to the Regional Director and the Commissioner upon its completion. 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:

         (i) Dollar levels to which the Bank shall reduce each concentration 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 minute of the meetings of the board of directors. As used in this paragraph, "reduce" means to collect or charge off.
       (b) Within 30 days from receipt of any comment from the Regional Director and the Commissioner, and after the adoption of any recommended changes, the Bank shall approve the plan, which approval shall be recorded in the minutes of a board of directors' meeting. Thereafter, the Bank shall implement and follow the plan.

   [.12] 11. Within 60 days of the effective date of this ORDER, the Bank shall correct all technical exceptions listed in the Report.

   [.13] 12. Within 10 days of the effective date of this ORDER, the Bank shall adopt and implement procedures for placement of delinquent loans on nonaccrual status in accordance with the Instructions for the Consolidated Reports of Condition and Income which shall require the reversal of accrued interest on loans placed in nonaccrual status.

    [.14] 13. (a) Within 60 days from the effective date of this ORDER, the Bank shall increase its Tier 1 capital by not less than $130,000.
       (b) Within 30 days from the last 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 as a percentage of its total assets ("capital ratio") for that calendar quarter. If the capital ratio is less than 7.0 percent, the Bank shall, within 60 days of the date of the required determination, increase its capital ratio to not less than 7.0 percent calculated as of the end of that preceding quarterly period. For purposes of this ORDER, Tier 1 capital 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.
       (c) 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 under Part 325; or
         (ii) The elimination of all or part of the assets classified "Loss" as of August 28, 1995, 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;
         (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 the Commissioner; or
         (vi) Any combination of the above means.
       (d) If all or part of the increase in capital required by this paragraph is to be accomplished by the sale of new securities, {{5-31-96 p.C-4169}}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 materials used in the sale of the securities shall be submitted to the FDIC, Registration and Disclosure Section, Room F-640, 1776 F-Street, N.W., 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.
       (e) In complying with the provisions of paragraph 13(d) 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 occured, whichever is earlier, and shall be furnished to every purchaser and/or subscriber of the Bank's original offering materials.
       (f) The capital ratio analysis required by this paragraph shall not negate the responsibility of the Bank and its board of directors for maintaining throughout the year an adequate level of capital protection for the kind, quality and degree of market depreciation of assets held by the Bank.

   [.15] 14. While this ORDER is in effect, the Bank shall not declare or pay any dividends without the prior written consent of the Regional Director and the Commissioner.

[.16] 15. (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.
   (c) Within 30 days from the effective date of this ORDER, Reports of Condition and Income required by the FDIC and the Commissioner and filed by the Bank subsequent to September 30, 1995, 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 subparagraphs of this ORDER.
   (d) Prior to submission or publication of all Reports of Condition and Income required by the FDIC and the Commissioner 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.

   [.17] 16. (a) Within 60 days from the effective date of this ORDER, the Bank shall adopt and implement a written profit plan and a realistic, comprehensive budget for all categories of income and expense for calendar year 1996. The plan required by this paragraph shall contain formal goals and strategies, consistent with sound banking practices, to reduce discretionary expenses and to improve the Bank's overall earnings, and shall contain a description of the operating assumptions that form the basis for major projected income and expense components. A copy of the plan shall be submitted to the Regional Director and the Commissioner upon its completion.
{{5-31-96 p.C-4170}}

       (b) The written profit plan shall address, at a minimum, the following:
         (i) an identification of the major areas in, and means by which, the board will seek to improve the Bank's operating performance;
         (ii) a budget review process to monitor the income and expenses of the Bank to compare actual figures with budgetary projections; and,
         (iii) periodic salary review.
       (c) Prior to the end of each calendar quarter, the Bank's board of directors shall evaluate the Bank's actual performance in relation to the plan and budget required by this paragraph and record the results of the evaluation, and any actions taken by the Bank, in the minutes of the board of directors' meeting at which such evaluation is undertaken.
       (d) The written profit plan and budget required by this ORDER shall be prepared and submitted to the Regional Director and the Commissioner for review and comment 30 days prior to the end of each calendar year for which this ORDER is in effect. Within 30 days of receipt of all such comments from the Regional Director and the Commissioner and after adoption of any recommended changes, the Bank shall approve the plan, which approval shall be recorded in the minutes of the board of directors' meeting. Thereafter, the Bank shall implement and follow the plan.

   [.18] 17. Within 30 days from the effective date of this ORDER, the Bank shall establish a compliance committee comprised of at least three 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 not in any way diminish the responsibility of the entire board of directors for ensuring compliance with the provisions of this ORDER.

   [.19] 18. Within 30 days following each calendar quarter subsequent to 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 the ORDER had been accomplished and the Regional Director and the Commissioner have, in writing, released the Bank from making further reports.

   [.20] 19. 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, Registration and Disclosure Section, Room F-640, 1776 F-Street, N.W., Washington, D.C. 24029, 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.
   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.
   Pursuant to delegated authority.

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