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FDIC Enforcement Decisions and Orders


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   [11,770] In the Matter of Bank of Chestnut, Chestnut, Illinois, Docket No. 00-131b (3-9-01).

   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 terminated by order of the FDIC dated 1-30-03; see ¶16,327.)

   [.1] Management—Qualifications Specified

   [.2] Violations of Law—Correction of Violations Required

   [.3] Assets—Adversely Classified Assets—Reduction Required

   [.4] Loan Loss Reserve—Establishment of or Increase Required

   [.5] Loans—Extensions of Credit—To Borrowers with Existing Adversely Classified Credits

   [.6] Loans—Risk Position—Reduction of Adversely Classified Lines of Credit Required

   [.7] Loans—Overdue—Written Plan for Reduction Required

   [.8] Technical Exceptions—Correction of Technical Exceptions Required

   [.9] Funds Management and Liquidity—Preparation or Revision of Funds Management Policy Required

   [.10] Profit Plan—Preparation of Plan Required

   [.11] Board of Directors—Committee to Review Performance of Profit Plan

   [.12] Board of Directors—Committee to Review Compliance with Cease and Desist Order Required

In The Matter of
BANK OF CHESTNUT
CHESTNUT, ILLINOIS
An Illinois State Chartered Nonmember Bank
ORDER TO CEASE AND DESIST

FDIC-00-131b

No. 2000-BBTC-25

   The Bank of Chestnut, Chestnut, Illinois ("Bank"), having been advised of its right to a NOTICE OF CHARGES AND OF HEARING detailing the unsafe or unsound banking practices alleged to have been committed by the Bank, and of its right to a hearing on the charges under 38 Ill. Adm. Code, section 392.30, regarding hearings before the Office of Banks and Real Estate for
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   the State of Illinois ("OBRE"), and under section 8(b)(1) of the Federal Deposit Insurance Act (the "FDI 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 OF CEASE AND DESIST (the "STIPULATION") with representatives of OBRE and the Federal Deposit Insurance Corporation ("FDIC"), whereby solely for the purpose of this proceeding and without admitting nor denying the charges of unsafe or unsound banking practices, consented to the issuance of an ORDER OF CEASE AND DESIST ("ORDER") by OBRE and the FDIC.

   The FDIC and OBRE considered the matter and determined that, based upon the findings of the examination of the Bank as of June 30, 2000, there was reason to believe that the Bank had engaged in unsafe or unsound banking practices. OBRE and 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 or unsound banking practices:

   1. Violating the provisions of Section 32 of the Act with respect to the extension of credit in excess of 20% of the Bank's unimpaired capital and unimpaired surplus.

   2. Violating of the provisions of Section 18 of the Act with respect to a change in control of the bank.

   3. Engaging in unsafe and unsound lending and collection practices, including, but not limited to, the following:

       a. Failing to follow written loan policy guidelines;

       b. Failing to obtain current and complete financial information from borrowers;

       c. Failing to obtain adequate loan collateral and to establish and monitor collateral margins; and

       d. Failing to establish and enforce loan repayment programs.

   4. Operating with an excessive and unsafe level of adversely classified assets (loans).

   5. Operating with an excessive and unsafe level of delinquent and nonaccrual loans.

   6. Operating with an excessive and unsafe level of loan losses.

   7. Operating with an inadequate allowance for loan and lease losses ("ALLL") in light of the volume, character and quality of loans held.

   8. Operating with an unsafe level of liquid assets.

   9. Operating with inadequate earnings.

   10. Operating with management whose policies and practices are detrimental to the Bank and which jeopardizes the safety of its deposits.

   IT IS FURTHER ORDERED, that the Bank, its institution-affiliated parties, and its successors and assigns, take affirmative action as follows:

   [.1]1. (a) During the life of this ORDER, the Bank shall have and retain qualified management. Each member of management shall have the qualifications and experience commensurate with his or her duties and responsibilities at the Bank. The qualifications of Bank management shall be assessed on its ability to: (i) cause the Bank to comply with the requirements of this ORDER; (ii) operate the Bank in a safe and sound manner; (iii) comply with applicable laws and regulations; and (iv) restore all aspects of the Bank to a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness, and liquidity.

   (b) During the life of this ORDER, the Bank shall notify the Commissioner and the Regional Director of the Chicago Regional Office of the FDIC ("Regional Director") in writing of any changes in the Bank's management. For purposes of this ORDER, "management" is defined as members of the board of directors and "senior executive officers," as that term is defined in section 32 of the FDI Act ("section 32"), 12 U.S.C. §1831(i), and section 303.101(b) of the FDIC Rules and Regulations, 12 C.F.R. §303.101(b). 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 Subpart F of Part 303 of the FDIC Rules and Regulations, 12 C.F.R. §§ 303.100–303.104.

   [.2] 2. Within thirty (30) days of the effective date of this Order, the Bank shall eliminate a violation of Section 32 of the Act, as identified on page five (5) of the
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   Commissioner's June 30, 2000 Report of Examination (the "Examination Report");

   3. Within thirty (30) days of the effective date of this Order, the Bank shall cause an application to be submitted to the Commissioner to effectuate a change in control as provided under Section 18 of the Act;

   [.3] 4. Within ten (10) days of the effective date of this Order, the Bank shall either collect or change off and eliminate from its books all assets, or portions thereof, which have been previously classified as "loss" pursuant to the Examination Report. Any such asset, or portion thereof, that has been charged off shall not be re-instated as an asset of the Bank without the prior written consent of the Commissioner and the Regional Director;

   [.4] 5. Within ten (10) days of the effective date of this Order, the Bank shall replenish the ALLL reserve to an amount of no less than $242,000. Prior to the submission of any Reports of Condition and Income required by the Commissioner or the FDIC, the Board shall review the adequacy of the ALLL reserve and accurately report the same. The minutes of the Board meeting at which such review is undertaken shall indicate the findings of that review, the amount of increase to the ALLL reserve recommended by the Board, if any, and the basis for any Board recommendation or determination;

   [.5] 6. 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 person who is already obligated in any manner to the Bank for any extension of credit that has either previously been charged off or has been classified as "Loss," so long as such an extension of credit remains uncollected;

   7. 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 person who is already obligated in any manner to the Bank for an extension of credit that has previously, as of the most recent examination report, been classified as "Substandard", or been classified in any manner by the Bank's Board, so long as such an extension of credit remains uncollected, unless the Bank's Board of Directors have reviewed and approved an additional extension of credit. The Bank's credit extension records shall contain a written statement signed by a majority of the members of the Bank's Board stating the reason or reasons why an additional extension of credit is in the Bank's financial interest;

   [.6] 8. Within forty-five (45) days of the effective date of this Order, the Bank shall formulate and submit to the Commissioner and the Regional Director a written plan to reduce the Bank's risk position with respect to each line of credit aggregating $25,000 or more and which has previously been classified as "Substandard" in the Examination Report. In connection with formulating such a written plan, the Bank shall, at a minimum:

       a. Review the financial position of each such borrower, including the anticipated source of repayment, repayment ability and any alternative repayment source;

       b. Review the available collateral for each such line of credit, including reasonable alternatives to improve the Bank's collateral collection position; and

       c. Establish goals to reduce, within six months from the effective date of this Order, each line of credit aggregating $25,000 or more and which has previously been classified as "Substandard" by a specific dollar amount.

   Either the Commissioner or the Regional Director may provide comments or recommendations to the Bank with respect to the written plan and the Bank's Board shall review any comment or recommendation received within ten (10) days, or no later than the next regularly scheduled Board meeting. The minutes of the Board meeting at which such review is undertaken shall indicate the findings of that review, and the basis for any Board determination regarding implementation of the comments or recommendations. Within ninety (90) days from the effective date of this Order, the Bank shall implement the written plan;

   [.7] 9. Within sixty (60) days of the effective date of this Order, the Bank shall formulate and implement a plan to reduce the volume of delinquent loans. Such a plan shall, at a minimum:

       a. Prohibit an extension of credit for the purpose of servicing or making interest or principal payments on existing loans;

       b. Prohibit an extension or renewal of any delinquent loan without first collecting all accrued interest due on such loan;

       c. Establish goals to reduce, within six months from the effective date of this Or-
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       der, the amount of loans delinquent in excess of 30 days; and

       d. Establish procedures to prepare and submit monthly progress reports to the Bank's Board detailing the Bank's progress in reducing the amount of loans delinquent in excess of 30 days.

   [.8] 10. Within sixty (60) days of the effective date of this Order, the Bank shall submit a written report to the Commissioner and the Regional Director documenting the efforts initiated to correct the technical exceptions identified in the Examination Report;

   [.9] 11. Within sixty (60) days of the effective date of this Order, the Bank shall adopt and implement a written liquidity policy. The liquidity policy shall, at a minimum:

       a. Identify a desired amount of liquid assets as a percentage of deposits; and

       b. Identify a strategy for achieving and maintaining an adequate amount of liquid assets without excessive reliance or dependence upon borrowed funds.

   [.10]12. Within ninety (90) days of the effective date of this Order, the Bank shall implement a written profit plan. Such plan shall be premised upon realistic and comprehensive budgets for all categories of income and expenses for the calendar year, 2001. A copy of the profit plan shall be submitted to the Commissioner and the Regional Director for comment. The written plan shall, at a minimum:

       a. Identify formal goals and strategies, consistent with safe and sound banking practices, designed to improve the Bank's overall earnings;

       b. Address strategies to improve the Bank's short term and long term earnings; and

       c. Identify all operating assumptions that form the basis for major projected income and expense components.

   [.11] 13. Commencing with the next calendar quarter following the implementation of a written profit plan, the Bank's Board shall review and evaluate the Bank's performance in relation to the plan. The results of the evaluation and any actions undertaken by the Board shall be recorded in the Board's minutes;

   [.12] 14. Within thirty (30) days of the effective date of this Order, the Bank's Board shall develop, adopt and implement a plan to monitor the Bank's compliance with the provisions of this Order. The Bank's Board shall record in its minutes all actions initiated to achieve compliance with the provisions of this Order;

   15. Within thirty (30) days of each calendar quarter following the effective date of this Order, the Bank shall submit to the Commissioner and the Regional Director a written progress report. That written report shall be signed by each Board member and shall describe the form and manner of any actions initiated to achieve compliance with the provisions of this Order. The Commissioner and the Regional Director may terminate the submission of such reports to their respective offices at their discretion;

   16. All communications regarding this Order shall be addressed to:

   Dennis A. Grace
District Supervisor
Office of Banks and Real Estate
500 East Monroe Street
Springfield, Illinois 62701

   Scott M. Polakoff
Regional Director
Federal Deposit Insurance Corporation
500 W. Monroe, Suite 3300
Chicago, Illinois 60661

   17. The Commissioner retains jurisdiction and authority to enter such additional Orders as may be necessary and appropriate.

   The effective date of this ORDER shall be 10 days after its issuance by the Commissioner and the FDIC.

   The provisions of this ORDER shall be binding upon the Bank 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 Commissioner and the FDIC.

   Pursuant to delegated authority.

   ORDERED THIS 9th DAY OF MARCH, 2001



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