Federal Deposit
Insurance Corporation

{{2-29-00 p.C-4547}}
   [¶11,517] In the Matter of Bankers Trust of Madison, Madison, Alabama, Docket No. 98-052b (6-12-98)

   A cease and desist order was issued, based on findings by the FDIC that it had reason to believe that respondent had engaged in unsafe and unsound practices. (This order was terminated by order of the FDIC dated 12-14-99; see ¶16,247.)

   [.1] Management—Qualifications Specified
   [.2] Capital—Increase Required
   [.3] Loan Loss Reserve—Establishment of or Increase Required
   [.4] Assets—Adversely Classified Assets—Reduction Required
   [.5] Loans—Extensions of Credit—Curtail to Existing Borrowers
   [.6] Loans—Comply With Written Policy
   [.7] Loans—Internal Review Procedure
   [.8] Budget and Earning Forecast—Preparation Required
   [.9] Violations of Law—Correction of Violations Required
   [.10] Strategic Plan—Preparation of Required
   [.11] Year 2000 Plan—Preparation of Required
   [.12] Shareholders—Disclosure of Cease and Desist Order Required

In the Matter of
BANKERS TRUST OF MADISON
MADISON,ALABAMA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-98-052b
   Bankers Trust of Madison, Madison, Alabama ("Bank"), having been advised of its right to a written Notice of Charges and of Hearing detailing unsafe or unsound banking practices and violations of applicable laws and regulations alleged to have been committed by the Bank and of its right to a hearing regarding such alleged charges under section 8(b)(1) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1818 (b)(1), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") with a representative of the Legal Division of the Federal Deposit Insurance Corporation ("FDIC"), dated June 12th, 1998, whereby solely for the purpose of this proceeding and without admitting or denying any of the alleged charges of unsafe or unsound banking practices and violations of applicable laws and 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 committed violations of applicable laws and regulations.
   The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

   IT IS HEREBY ORDERED, that the Bank, its institution-affiliated parties, as such 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 laws and regulations:
   A. Failing to provide adequate supervision {{2-29-00 p.C-4548}}and direction over the affairs of the Bank by the board of directors of the Bank to prevent unsafe or unsound practices and violations of laws and regulations;
   B. Operating the Bank with management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits;
   C. Operating the Bank with an excessive volume of adversely classified assets;
   D. Operating the Bank with equity capital that is inadequate for the kind and quality of assets held by the Bank;
   E. Engaging in practices which produce inadequate operating income and excessive loan losses;
   F. Failing to provide and maintain an adequate allowance for loan and lease losses for the volume, kind and quality of loans held by the Bank; and
   G. Engaging in violations of applicable Federal and state laws and regulations, as more fully described on pages 31 through 35 of the Joint FDIC and Alabama State Banking Department Report of Examination of the Bank as of July 28, 1997 ("ROE").
   H. Failing to take appropriate measures to ensure that the electronic information systems and other automated systems that are used by the Bank, or upon which the Bank depends for the conduct of its business ("Bank Information Systems"), are able to perform correctly all automated processing operations, including interactions and interdependence with other automated systems, involving dates later than December 31, 1999 ("Year 2000 compliant").
   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 ninety (90) days from the effective date of this ORDER, the Bank shall have and retain qualified management. Such management shall include a qualified chief executive officer with proven ability in managing a bank of comparable size and with comparable asset problems, and a new senior lending officer with proven ability in managing a loan portfolio of comparable size and with an appropriate level of lending, collection and loan supervision experience necessary to supervise the upgrading of a low quality loan portfolio. Such management shall be provided the necessary written authority to implement the provisions of this ORDER.
   (b) The qualifications of management shall be assessed on its ability to (i) comply with the requirements of this ORDER, (ii) operate the Bank in a safe and sound manner, (iii) comply with applicable laws and regulations, (iv) ascertain that the Bank Information Systems are fully Year 2000 compliant, and are appropriately tested to demonstrate such compliance, and (v) restore all aspects of the Bank to a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness, and liquidity. As long as this ORDER remains in effect, the Bank shall notify the Regional Director of the FDIC's Atlanta Regional Office ("Regional Director") and the state of Alabama Superintendent of Banks ("Superintendent") in writing of any changes in management. Such notification shall be in addition to any application and prior approval requirements established by section 32 of the Act, 12 U.S.C. § 1831i, and implementing regulations; must include the names and qualifications of any replacement personnel; and must be provided at least thirty (30) days prior to the individual's assuming the new position.
   (c) The Bank shall designate and executive officer as the Bank's Year 2000 Officer. The Year 2000 Officer shall possess the experience and qualifications necessary to provide appropriate oversight over the Bank's efforts to bring the Bank Information Systems into Year 2000 compliance. The Year 2000 Officer shall be provided the necessary written authority to implement the provisions of this ORDER relating to Year 2000 compliance.

   [.2] 2. (a) Within thirty (30) days from the effective date of this ORDER and within thirty (30) days after each December 31, March 31, June 30, and September 30 thereafter while this ORDER remains in effect, the Bank's board of directors shall calculate the Bank's Tier 1 capital as a percentage of its total assets ("capital ratio") as of the nearest preceding December 31, March 31, June 30, or September 30 date. If such capital ratio is less than 6.0 percent, the Bank shall, within ninety (90) days from the date of such calculation, increase its Tier 1 capital by an amount sufficient to raise its capital ratio to not less than 6.0 percent as of the nearest preceding March 31, June 30, September 30, or December 31 date. Such increase {{8-31-98 p.C-4549}}in Tier 1 capital may be accomplished by any one or more of the following:

   (i) The sale of new securities in the form of common stock;
   (ii) The collection in cash of all or part of the assets other than loans classified "Loss" or "Doubtful" as of June 30, 1997, and charged off in accordance with paragraph 4 of this ORDER;
   (iii) The direct contribution of cash by the shareholders of the Bank;
   (iv) The collection in cash of assets other than loans previously charged off; or
   (v) any other means acceptable to the Regional Director and the Superintendent.

   [.3] 3. (a) Within forty-five (45) days from the effective date of this ORDER, and concurrently with compliance with the requirements of paragraph 2 of this ORDER, the Bank shall establish and thereafter continuously maintain an adequate allowance for loan and lease losses in accordance with the prevailing requirements of the Instructions for the Consolidated Reports of Condition and Income, by charges against current operating income. In complying with the requirements of this paragraph 3(a) of the ORDER, the Bank's board of directors shall meet and review the adequacy of the Bank's allowance for loan and lease losses prior to the end of each calendar quarter. The review shall include consideration of loans internally classified during the Bank's loan review process, loans adversely classified at FDIC and the State of Alabama Banking Department examinations of the Bank, and delinquent non-performing loans. The minutes of the board meeting at which such review is undertaken shall indicate the results of the review, the amount of any recommended increases in allowance, and the basis for determining the amount of allowance provided.
   (b) Reports of Condition and Income required to be filed by the Bank prior to the effective date of this ORDER and subsequent to December 31, 1997, shall reflect a provision for the allowance for loan and lease losses necessary to comply with paragraph 3(a) of this ORDER. If necessary to comply {{8-31-98 p.C-4550}}with this paragraph 3(b) of the ORDER, the Bank shall file amended Reports of Condition and Income within thirty (30) days from the effective date of this ORDER.

   [.4] 4. Within (30) days from the effective date of this ORDER the Bank shall eliminate from its books, by collection, charge off or other proper entries, all assets or portions of assets classified "Loss" and one-half of all assets or portions of assets classified "Doubtful" by the FDIC or the Alabama State Banking Department as a result of its most recent examination of the Bank which have not been previously collected or charged off, unless otherwise approved in writing by the Regional Director and the Superintendent.
   5. (a) Within sixty (60) days from the effective date of this ORDER, the Bank shall submit to the Regional Director and the Superintendent a written plan of action to reduce each line of credit which was adversely classified by the FDIC and the Alabama State Banking Department as of June 30, 1997, and which aggregated one hundred fifty thousand dollars ($150,000) or more as of that date. Such plan of action shall thereafter be implemented by the Bank and monitored, and progress reports shall be submitted by the Bank to the Regional Director and the Superintendent concurrently with the other reporting requirements set forth in paragraph 17 of this ORDER.
   (b) As used in this paragraph 5 of the ORDER, "reduce" means to (i) collect, (ii) charge off, or (iii) improve the quality of such assets sufficiently to warrant removal of any adverse classification by the FDIC or the Alabama State Banking Department.
   6. Within sixty (60) days of the effective date of this ORDER the Bank shall develop a specific plan for the reduction of the concentrations of credit contained on pages 58 and 59 of the ROE.

   [.5] 7. (a) Effective the date of this ORDER, the Bank shall not extend, directly or indirectly, any additional 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, except as provided in paragraph 7 (b) of this ORDER.
   (b) Effective the date of this Order, the Bank shall not extend additional credit, directly or indirectly, to or for the benefit of any borrower who has a loan or other extension of credit with the Bank that has been classified, in whole or in part, "Substandard," and is uncollected, unless a majority of the Bank's board of directors first: (i) determines that such advance is in the best interest of the Bank; (ii) determines that the Bank has satisfied the requirements set out in paragraph 5(a) of this ORDER as to such borrower; (iii) determines that the extension of credit is in full compliance with the Bank's loan policy; (iv) determines that all necessary loan documentation is on file, including, but not limited to, current financial and cash flow information and satisfactory appraisal, title and lien documents; and (v) approves such advance. A written record of the board of directors' determination and approval of any advance under this paragraph 7(b) of the ORDER shall be maintained in the credit files of each affected borrower as well as in the minutes of the board of directors.
   (c) The requirements of paragraph 7(b) of the ORDER shall not prohibit the Bank from renewing or extending the maturity of any credit already extended to the borrower, provided such action is in accordance with both Federal and state laws, rules and regulations, and further provided that all interest due at the time of such renewal or extension is collected in cash from the borrower.

   [.6] 8. (a) Within ninety (90) days from the effective date of this ORDER, the Bank shall implement procedures to fully comply with its written loan policy. In developing these procedures, the Bank shall address the comments and recommendations set forth on pages 24 and 25 of the ROE and incorporate into the procedures the following lending requirements:

   (i) A requirement that before advancing any loan the Bank must obtain, analyze, and verify credit information which will be sufficient to identify a source of repayment and support for the scheduled repayment plan;
   (ii) A requirement that all collateral documentation or evidence of collateral documentation be obtained and reviewed before loan proceeds are disbursed;
   (iii) A requirement for the maintenance and review of complete and current credit files on each borrower with extensions of credit outstanding;
   (iv) A requirement that each extension of credit have an appropriate repayment plan;

   (v) A requirement for the establishment of criteria and guidelines for the acceptance and review of financial statements;
   (vi) A requirement for appraisal procedures which, at a minimum, satisfy the requirements of Part 323 of the FDIC's Rules and Regulations, 12 C.F.R. Part 323.

   [.7] 10. (a) Within thirty (30) days from the effective date of this ORDER, the Bank shall adopt an internal loan review and grading system to provide for the periodic review of the Bank's loan portfolio in order to identify and categorize the Bank's loans, and other extensions of credit which are carried on the Bank's books as loans, on the basis of credit quality. At a minimum, the grading system shall provide for:

   (i) The specification of standards and criteria for assessing the credit quality of the Bank's loans;
   (ii) The application of the loan grading standards and criteria to the Bank's loan portfolio;
   (iii) The categorization of the Bank's loans into groupings based on the varying degree of credit and other risks which may be presented under the applicable grading standards and criteria;
   (iv) For any loan exhibiting credit and other risks, an assessment of the likelihood that the loan will not be repaid according to its terms and conditions;
   (v) The identification of any loan which is not in conformance with the Bank's loan policy;
   (vi) The identification of any loan which presents any unsafe or unsound banking practice or condition or is otherwise in violation of any applicable Federal or state law, rule or regulation; and
   (vii) The requirement for a written report to be made to the Bank's board of directors, not less than quarterly, identifying the status of those loans which exhibit credit and other risks under the applicable grading standards and criteria and the prospect of full collection or strengthening the quality of any such loans.

   [.8] 11. (a) Not later than June 30, 1998, the Bank shall prepare a realistic and comprehensive budget and earnings forecast for calendar year 1998 and shall submit this budget and earnings forecast to the Regional Director and the Superintendent for review and comment.
   (b) As long as this ORDER remains in effect, the Bank shall prepare annually realistic and comprehensive calendar year budget and earnings forecasts on a consolidated basis as of January 1 of each year subsequent to 1998 and shall submit these budget and earnings forecasts to the Regional Director and the Superintendent for review and comment no later than January 31 of each year.
   (c) In preparing the budget and earnings forecasts required by this paragraph 11 of the ORDER, the Bank shall:

   (i) Identify the major areas in, and means by, which the board of directors will seek to improve the Bank's operating performance; and
   (ii) Describe the operating assumptions that form the basis for, and adequately support, major projected income and expense components.

   [.9] 12. Within sixty (60) days from the effective date of this ORDER, the Bank shall take all necessary steps, consistent with sound banking practices, to eliminate or correct all violations of law and regulations committed {{8-31-98 p.C-4552}}by the Bank, as described on pages 31 through 35 of the ROE. In addition, the Bank shall adopt appropriate procedures to ensure the Bank's future compliance with all applicable laws and regulations.

   [.10] 13. Within one hundred twenty (120) days from the effective date of this ORDER, the Bank's board of directors shall develop a three year strategic plan for the Bank (Strategic Plan), which shall address: i) economic conditions and economic forecasts regarding the Bank's market are; ii) potential methods for achieving growth in the Bank's total assets; iii) potential methods for improving the Bank's operations in the context of any projected growth in the size of the Bank's total assets; iv) carrying on the functions of the Bank's management in the event of a loss of the services of current personnel; and v) integration of an assessment of the Bank's staffing needs with the Bank's business plan.
   14. As of the effective date of this ORDER, the Bank shall not pay any cash property dividends without the prior written consent of the Regional Director or Superintendent.

   [.11] 15. (a) Within 60 days from the effective date of this ORDER, the Bank shall develop and adopt a plan which details how the Bank shall assess, renovate, and test all Bank Information Systems to establish that they are fully Year 2000 compliant ("Year 2000 Plan"). At a minimum, the Bank's Year 2000 Plan shall contain provisions to address all of the requirements of this ORDER and shall be in accordance with the Federal Financial Institutions Examination Council's ("FFIEC's") May 5, 1997, Interagency Statement on Year 2000 Project Management Awareness and all other statements and guidelines by the FFIEC regarding Year 2000 readiness ("FFIEC issuances").
   (b) The Year 2000 Plan shall be reviewed and approved by the Bank's board of directors prior to adoption, and such review and approval shall be recorded in the minutes of the Bank's board of directors meeting. Immediately following the adoption of the Bank's Year 2000 Plan, the Bank shall submit a copy of the plan to the Regional Director and the Superintendent. The Bank's board of directors shall consider any comments on the Year 2000 Plan from the FDIC or the State Authority, and shall amend the Year 2000 Plan as necessary.
   (c) Thereafter, the Bank shall implement the Year 2000 Plan.