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{{11-30-99 p.C-4748}}
   [11,628] In the Matter of Sterling Savings Bank, Chicago, Illinois, Docket No. FDIC-99-074c&b (6-22-99)(This order was terminated by order of the FDIC dated 9-23-99; see ¶16,242.)

   FDIC issues temporary order to cease and desist unsafe or unsound banking practices which FDIC has reason to believe Bank is about to engage in.

In the Matter of
STERLING SAVINGS BANK
CHICAGO, ILLINOIS
(Insured State Nonmember Bank)
TEMPORARY ORDER TO CEASE AND DESIST
FDIC-99-074c&b

   The Federal Deposit Insurance Corporation (``FDIC'') has determined that the unsafe or unsound banking practices which the FDIC has reason to believe Sterling Savings Bank, Chicago, Illinois (``Bank'') is about to engage in, as specified in the NOTICE OF CHARGES AND OF HEARING (``NOTICE'') attached hereto and incorporated herein by reference, are likely to cause insolvency or significant dissipation of the assets or earnings of the Bank, or are likely to weaken the condition of the Bank or other- {{8-31-99 p.C-4749}}wise prejudice the interests of the depositors of the Bank prior to the completion of the proceedings against the Bank initiated pursuant to section 8(b) of the Federal Deposit Insurance Act (``Act''), 12 U.S.C. §1818(b). Therefore, the FDIC hereby issues this TEMPORARY ORDER TO CEASE AND DESIST (``TEMPORARY ORDER'') and hereby gives notice pursuant to section 8(c)(1) of the Act, 12 U.S.C. §1818(c)(1), that the Bank and its institution-affiliated parties, successors and assigns, be and hereby are ORDERED TO CEASE AND DESIST FROM and take affirmative action, as follows:
   In no event shall the Bank pledge or encumber more than $500,000 of its assets to any person or entity, to collateralize or otherwise secure any bond or other surety which may become necessary to post an appeal bond in the matter of FBOP Corporation v. Sterling Savings Bank, No. 92 CH 5375, in the Circuit Court of Cook County, Illinois.
   This TEMPORARY ORDER shall be effective immediately upon service on the Bank and shall remain in full force and effect, pending the completion of the administrative proceedings instituted pursuant to the foregoing NOTICE.
   Pursuant to delegated authority.
   Dated at Washington, D.C., this 22nd day of June, 1999.

In the Matter of
STERLING SAVINGS BANK
CHICAGO, ILLINOIS
(Insured State Nonmember Bank)
NOTICE OF CHARGES
AND OF HEARING

FDIC-99-074c&b

   The Federal Deposit Insurance Corporation (``FDIC''), having reasonable cause to believe that Sterling Savings Bank, Chicago, Illinois, (``Bank''), is about to engage in unsafe or unsound banking practices and, unless restrained, will engage in such practices in conducting the business of the Bank, hereby institutes this proceeding for the purpose of determining whether an appropriate order should be issued against the Bank under the provisions of section 8(b)(1) of the Federal Deposit Insurance Act (``Act''), 12 U.S.C. §1818(b)(1). The FDIC hereby issues this NOTICE OF CHARGES AND OF HEARING (``Notice'') pursuant to the provisions of the Act and the FDIC Rules of Practice and Procedure, 12 C.F.R. Part 308, and alleges as follows:

Jurisdiction and Definitions

   1. The Bank is a corporation existing and doing business under the laws of the State of Illinois and has its principal place of business at Chicago, Illinois. at all times pertinent to this proceeding, the Bank is and has been a State nonmember bank within the meaning of section 3(e)(2) of the Act, 12 U.S.C. §1813(e)(2), an insured depository institution within the meaning of section 3(c)(2) of the Act, 12 U.S.C. §1813(c)(2), and subject to the Act, 12 U.S.C. §st1811-1831u, the Rules and Regulations of the FDIC, 12 C.F.R. Chapter III (``Rules''), and the laws of the State of Illinois. The FDIC has jurisdiction over the Bank and the subject matter of this proceeding.

Unsafe and Unsound Practices

   2. As reflected in the Bank's March 31, 1999. Call Report:
(a) the Bank's reported total deposits equaled $9,282,000;
(b) the Bank's reported total loans and leases equaled $6,048,000;
(c) the Bank's reported total assets equaled $10,481,000;
(d) the Bank's reported Tier 1 capital (``total capital'') equaled $1,082,000;
(e) the Bank's reported Allowance for Loan and Lease Losses equaled $60,000 (``general loan loss reserves'').
   3. On April 7, 1999, in the Circuit Court of Cook County, Illinois judgment was entered by Judge Sheldon Gardner against the Bank, in favor of First Bank of Oak Park Corporation, Oak Park Illinois (``FBOP''), in the amount of $2,573,186.65.
   4. The judgment was entered for Count III (Breach of Contract) and Amended Count V (Fraud) of the Amended Complaint filed by FBOP, and represented compensatory damages of $1,200,000, attorney's fees and expenses of $173,187, and punitive damages of $1,200,000.
   5. On April 9, 1999, the Bank filed a Motion for Reconsideration, which serves as a stay upon the enforcement of the judgment, until ruled upon by the court. The Motion is {{8-31-99 p.C-4750}}set for oral argument before the court on June 28 and 29, 1999.
   6. Under Rule 305(a) of the Rules of the Supreme Court of Illinois, enforcement of a judgment for money is stayed only if a timely notice of appeal is filed and an appeal bond is presented, approved, and filed.
   7. In the event the court, in ruling upon the Motion for Reconsideration, upholds the judgment of April 7th, or grants any money judgment to FBOP, the Bank will be required to post an appeal bond in order to stay the enforcement of the judgment by FBOP during the pendency of any appeal.
   8. The FDIC believes that in order to acquire a bond in the amount of the judgment, the Bank will be required by any commercial surety to provide sufficient collateral to secure the amount of the bond. The FDIC believes that the Bank will pledge Bank assets to secure any bond required by the judgment of the court.
   9. A pledge of Bank assets in the full amount of the judgment would equal 238 percent of the Bank's Tier 1 capital and 25 percent of its total assets. Such a pledge would violate well-founded principles of risk-diversification, especially in light of the uncertainty of the outcome of the appeal, and would result in a significant diminution of assets, would likely limit the investment options available to the Bank with regard to those assets through the potentially long appeal process, would impair the Bank's liquidity and would render the Bank unable to meet its deposit liabilities.
   10. The lending limit for State savings banks in the State of Illinois regarding loans to one borrower under the Illinois Banking Act, 205 ILCS 205/6013 (``State lending limit''), is $500,000 where the Bank is in compliance with minimum capital requirements, and otherwise is 20 percent of the Bank's total capital plus general loan loss reserves. To meet minimum capital requirements, the Illinois Banking Act, 205 ILCS 205/5007, states that each State savings bank must maintain total capital of not less than 3 percent of total assets.
   11. Any pledge of Bank assets above the State lending limit would remove the Bank's control over a substantial portion of its assets, would adversely affect the Bank's liquidity, create an excessive concentration of speculative risk and, in light of the kind and quality of Bank assets, threaten to leave the Bank with assets inadequate to meet the Bank's deposit liabilities.
   12. The Bank has not identified any other non-Bank assets available as collateral to be pledged for any appeal bond. No director or shareholder of the Bank has offered to provide a personal guaranty or pledge of personal assets to pursue the appeal.
   13. By reason of the allegations set forth in paragraphs 3N12, the FDIC has reasonable cause to believe that the Bank is about to engage in unsafe or unsound banking practices in that it will pledge Bank assets in an amount constituting 238 percent of its Tier 1 capital and 25 percent of its total assets, or some lesser amount in excess of $500,000, and that such a pledge will violate well-established prudential limits regarding risk-diversification, will remove the Bank's control over a substantial portion of its assets, adversely affect the Bank's liquidity, create an excessive concentration of speculative risk and, in light of the kind and quality of Bank assets, threaten to leave the Bank with assets inadequate to meet the Bank's deposit liabilities, in order to prosecute an appeal of a judgment entered by the court in the amount of $2,573,186.65.
   14. Any pledge of Bank assets in the total amount of the judgment or in any amount more than $500,000 is likely to result in a significant dissipation of assets, weaken the Bank's condition, and prejudice the interests of the Bank's depositors.

Notice of Hearing

   Notice is hereby given that a hearing will be held at Chicago, Illinois, commencing 60 days from the date of service of this NOTICE on the Bank, for the purpose of taking evidence on the charges herein before specified in order to determine: Whether an appropriate Order should be issued under the Act requiring the Bank to cease and desist from unsafe or unsound banking practices specified herein. The hearing will be held before an Administrative Law Judge to be appointed by the Office of Financial Institution Adjudication pursuant to 5 U.S.C. §3105. The hearing will be public, and in all respects will be conducted in compliance with the provisions of the Act and the FDIC Rules and Practice and Procedure. The Bank is hereby directed to file an Answer to this NOTICE within 20 days from the date of service of this NOTICE on the Bank, as provided by section 308.19 of the FDIC Rules {{8-31-99 p.C-4751}}of Practice and Procedure, 12 C.F.R. §308.19.
   The original and one copy of all papers to be filed or served in this proceeding shall be filed with the Office of Financial Institution Adjudication, 1700 G Street, N.W., Washington, D.C. 20552, pursuant to section 308.10 of the FDIC Rules of Practice and Procedure, 12 C.F.R. §308.10. Copies of all papers filed or served in this proceeding shall be served upon the Office of the Executive Secretary, Federal Deposit Insurance Corporation, 550 17th Street, N.W., Room H-5018, Washington, D.C. 20429-9990; Arthur L. Beamon, Associate General Counsel, Compliance and Enforcement Section, Federal Deposit Insurance Corporation, 550 17th Street, N.W., Room MB-3128, Washington, D.C. 20429-9990; and Timothy E. Divis, Regional Counsel (Supervision), Federal Deposit Insurance Corporation, 500 West Monroe, Suite 3200, Chicago, Illinois 60661.
   Pursuant to delegated authority.
   Dated at Washington, D.C., this 22nd day of June, 1999.
Mark S. Schmidt
Associate Director
Division of Supervision

In the Matter of
STERLING SAVINGS BANK
CHICAGO, ILLINOIS
(Insured State Nonmember Bank)
FINDINGS OF FACT AND
CONCLUSIONS OF LAW

FDIC-99-074c&b

   The Federal Deposit Insurance Corporation (``FDIC''), has considered whether to issue a TEMPORARY ORDER TO CEASE AND DESIST (``TEMPORARY ORDER'') pursuant to section 8(c) of the Federal Deposit Insurance Act (``Act''), 12 U.S.C. §1818(c), in conjunction with the issuance of a NOTICE OF CHARGES AND OF HEARING (``NOTICE''), pursuant to section 8(b)(1) of the Act, 12 U.S.C. §1818(b)(1), against Sterling Savings Bank, Chicago, Illinois (``Bank'').
   Based upon information provided by the Bank, the FDIC makes the following FINDINGS OF FACT AND CONCLUSIONS OF LAW:

FINDINGS OF FACT

Jurisdiction and Definitions

   1. The Bank is a corporation existing and doing business under the laws of the State of Illinois and has its principal place of business at Chicago, Illinois. At all times pertinent to this proceeding, the Bank is and has been a State nonmember bank within the meaning of section 3(e)(2) of the Act, 12 U.S.C. §1813(e)(2), an insured depository institution within the meaning of section 3(c)(2) of the Act, 12 U.S.C. §1813(c)(2), and subject to the Act, 12 U.S.C. §st1811-1831u, the Rules and Regulations of the FDIC, 12 C.F.R. Chapter III (``Rules''), and the laws of the State of Illinois. The FDIC has jurisdiction over the Bank and the subject matter of this proceeding.

Unsafe and Unsound Practices

   2. As reflected in the Bank's March 31, 1999. Call Report:

    (a)nthe Bank's reported total deposits equaled $9,282,000;
    (b)nthe Bank's reported total loans and leases equaled $6,048,000;
    (c)nthe Bank's reported total assets equaled $10,481,000;
    (d)nthe Bank's reported Tier 1 capital (``total capital'') equaled $1,082,000;
    (e)nthe Bank's reported Allowance for Loan and Lease Losses (``general loan loss reserves'' equaled $60,000).
   3. On April 7, 1999, in the Circuit Court of Cook County, Illinois judgment was entered by Judge Sheldon Gardner against the Bank, in favor of First Bank of Oak Park Corporation, Oak Park Illinois (``FBOP''), in the amount of $2,573,186.65.
   4. The judgment was entered for Count III (Breach of Contract) and Amended Count V (Fraud) of the Amended Complaint filed by FBOP, and represented compensatory damages of $1,200,000, attorney's fees and expenses of $173,187, and punitive damages of $1,200,000.
   5. On April 9, 1999, the Bank filed a Motion for Reconsideration, which serves as a stay upon the enforcement of the judgment, until ruled upon by the court. The Motion is set for oral argument before the court on June 28 and 29, 1999.
   6. Under Rule 305(a) of the Rules of the Supreme Court of Illinois, enforcement of a {{8-31-99 p.C-4752}}judgment for money is stayed only if a timely notice of appeal is filed and an appeal bond is presented, approved, and filed.
   7. In the event the court, in ruling upon the Motion for Reconsideration, upholds the judgment of April 7th, or grants any money judgment to FBOP, the Bank will be required to post an appeal bond in order to stay the enforcement of the judgment by FBOP during the pendency of any appeal.
   8. The FDIC believes that in order to acquire a bond in the amount of the judgment, the Bank will be required by any commercial surety to provide sufficient collateral to secure the amount of the bond. The FDIC believes that the Bank will pledge Bank assets to secure any bond required by the judgment of the court.
   9. A pledge of Bank assets in the full amount of the judgment would equal 238 percent of the Bank's Tier 1 capital and 25 percent of its total assets. Such a pledge would violate well-founded principles of risk-diversification, especially in light of the uncertainty of the outcome of the appeal, and would result in a significant diminution of assets, would likely limit the investment options available to the Bank with regard to those assets through the potentially long appeal process, would impair the Bank's liquidity and would render the Bank unable to meet its deposit liabilities.
   10. As a concentration of risk, the investment of bank assets in excess of 25 percent of capital in a single instrument is in contravention to the FDIC's general principles of the safe and sound operation of an insured financial institution. Generally a concentration is a significantly large volume of economically-related assets that an institution has advanced or committed to one person, entity or affiliated group. These assets may in the aggregate present a substantial risk to the safety and soundness of the institution. Adequate diversification of risk allows the institution to avoid the excessive risks posed by concentrations.
   11. The lending limit for State savings banks in the State of Illinois regarding loans to one borrower under the Illinois Banking Act, 205 ILCS 205/6013 (``State lending limit''), is $500,000 where the Bank is in compliance with minimum capital requirements, and otherwise is 20 percent of the Bank's total capital plus general loan loss reserves. To meet minimum capital requirements, the Illinois Banking Act, 205 ILCS 205/5007, states that each State savings bank must maintain total capital of not less than 3 percent of total assets.
   12. Any pledge of Bank assets above the State lending limit would remove the Bank's control over a substantial portion of its assets, would adversely affect the Bank's liquidity, create an excessive concentration of speculative risk and, in light of the kind and quality of Bank assets, threaten to leave the Bank with assets inadequate to meet the Bank's deposit liabilities.
   13. The rationale for the State lending limit is the establishment of prudential limits to ensure risk diversification thus reducing the degree of risk to an institution from a single asset or borrower. In this case, the degree of risk created by any pledge of Bank assets to secure the appeal bond should not exceed $500,000.
   14. Management of the Bank has not identified any non-Bank assets available as collateral to be pledged for any appeal bond. No director or shareholder of the Bank has offered to provide a personal guaranty or pledge of personal assets to pursue the appeal.
   15. Any pledge of Bank assets in excess of $500,000, especially in light of the kind and quality of the assets the Bank holds, will diminish the assets available to the FDIC for distribution, and increase the loss to the insurance fund should the Bank be declared insolvent or closed.
   16. By reason of the allegations set forth in paragraph 3N12, the FDIC has reasonable cause to believe that the Bank is about to engage in unsafe or unsound banking practices in that it will pledge Bank assets in an amount constituting 238 percent of its Tier 1 capital and 25 percent of its total assets, or some lesser amount in excess of $500,000, and that such a pledge will violate well-established prudential limits regarding risk-diversification, will remove the Bank's control over a substantial portion of its assets, adversely affect the Bank's liquidity, create an excessive concentration of speculative risk and, in light of the kind and quality of Bank assets, threaten to leave the Bank with assets inadequate to meet the Bank's deposit liabilities, in order to prosecute an appeal of a judgment entered by the court in the amount of $2,573,186.65.
   17. Any pledge of Bank assets in the total amount of the judgment or in any amount more than $500,000 is likely to cause a significant {{8-31-99 p.C-4753}}dissipation of assets, weaken the Bank's condition, and prejudice the interests of the Bank's depositors.

CONCLUSIONS OF LAW

   Based upon the foregoing, the FDIC is of the opinion that the Bank is about to engage in unsafe or unsound banking practices in conducting the business of the Bank. The FDIC is further of the opinion that, unless the Bank is restrained by issuance of a temporary order to cease and desist, the practices are likely to cause significant dissipation of the Bank's assets or earnings, and are likely to weaken the condition of the Bank and otherwise prejudice the interests of the Bank's depositors prior to the completion of the administrative proceedings instituted pursuant to the foregoing NOTICE.
   WHEREFORE, the FDIC finds that, for the protection of the Bank and the interests of its depositors, it shall issue a TEMPORARY ORDER pursuant to section 8(c) of the Act, 12 U.S.C. §1818(c), against the Bank.
   Pursuant to delegated authority.
   Dated at Washington, D.C. this 22nd day of June, 1999.
   Mark S. Schmidt
   Associate Director
   Division of Supervision

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