(This order was terminated by order of the FDIC dated 7-31-03; see ¶16,347.)
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.
[.1] Strategic Plan—Preparation of Plan Required
[.2] Management—Qualifications Specified
[.3] Management—Management Report Required
[.4] Capital—Increase Required
[.5] Loan Loss Reserve—Establishment of or Increase Required
[.6] Earnings Plan—Written Earnings Plan Required
[.7] Assets—Charge-off or Collection
[.8] Loans—Risk Position—Reduction of Adversely Classified Lines of Credit
Required
[.9] Loans—Extensions of Credit—To Borrowers with Existing Adversely
Classified Credits
[.10] Assets—Problem Assets—Individual Written Plans Required
[.11] Loan Policy—Preparation or Revision of Policy Required
[.12] Loans—Internal Review Procedure
[.13] Violations of Law—Correction of Violations Required
[.14] Bank Operations—Internal Routine and Control Procedures—Written Plan
Required
[.15] Reports of Condition and Income—Amendment Required
[.16] Assets—Special Mention—Eliminate Deficiencies
[.17] Dividends—Dividends Restricted
[.18] Brokered Deposits—Restricted
{{5-31-01 p.C-5097}}
[.19] Loan Report—Written Report Required
[.20] Shareholders—Disclosure of Cease and Desist Order Required
[.21] Board of Directors—Committee to Review Compliance with Cease and
Desist Order Required
In the Matter of
LBS BANK – NEW YORK
NEW YORK CITY, NEW YORK
Insured State Nonmember Bank
ORDER TO CEASE AND DESIST
FDIC-00-118b
LBS Bank – New York, New York City, New York ("Bank"),
having been advised of its right to a Notice of Charges and of Hearing
detailing the unsafe and unsound banking practices and violation of law
and/or regulations alleged to have been committed by the bank and of
its right to a hearing on the 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 Federal Deposit Insurance
Corporation ("FDIC"), dated March 30, 2001, whereby, solely for
the purpose of this proceeding and without admitting or denying the
alleged charges of unsafe or unsound banking practices and violation 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 committed a violation of law 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 successors, assigns,
directors, officers, employees, agents, and other
"institution-affiliated parties," as defined in section 3(u) of
the Act, 12 U.S.C. §1813(u), CEASE AND DESIST from the following
unsafe or unsound banking practices and violation:
(a) Engaging in hazardous lending and lax collection practices;
(b) Operating the Bank with an excessive volume of poor quality assets;
(c) Operating the Bank with an inadequate allowance for loan and lease
losses;
(d) Operating the Bank with inadequate internal routine and controls;
(e) Operating the Bank in such a manner as to produce unsatisfactory
earnings;
(f) Engaging in a violation of applicable Federal laws and/or
regulations, as more fully set forth on page 31 of the joint Report of
Examination of the Bank by the FDIC and New York State Banking
Department ("Banking Department") as of December 31, 1999;
(g) Operating the Bank with management whose policies and practices are
detrimental to the Bank and jeopardize the safety of its deposits; and
(h) Operating the Bank with a board of directors which has failed to
provide adequate supervision over and direction to the operating
management of the Bank.
IT IS FURTHER ORDERED that the Bank take AFFIRMATIVE action as follows:
[.1] 1. (a) Within 60 days from the effective date of this ORDER, the board
of directors of the Bank shall develop and submit to the Regional
Director of the New York Regional Office of the FDIC ("Regional
Director") a three-year Strategic Business Plan ("Business
Plan"), which includes at a minimum:
(i) objectives and specific strategies for serving the identified
targeted markets;
(ii) strategies for managing the various types of risks facing the
Bank;
(iii) a minimum of three years of pro-forma quarterly financial
statements, supported by the underlying financial and economic
assumptions;
(iv) projections as to growth, capital, deposit sources, and general
investment plans;
(v) a realistic estimate of the date by which the Bank shall achieve
satisfactory profitability (earnings that are sufficient to support
operations and maintain adequate capital and allowance levels after
consideration is given to asset quality,
{{5-31-01 p.C-5098}}
growth, and other factors
affecting the quality, quantity, and trend of earnings); and
(vi) a plan to eliminate from the books of the Bank assets blocked by
the Office of Foreign Asset Control ("OFAC-blocked assets") and
accrued interest thereon referred to in Pages 21 and 33 of the joint
Report of Examination of the Bank by the FDIC and Banking Department as
of December 31, 1999.
(b) The board of directors of the Bank shall assess, on at least a
quarterly basis, the Bank's performance in relation to its Business
Plan, shall determine the cause and implications of any substantial
deviations therefrom, and shall amend the Business Plan on an ongoing
basis as appropriate.
[.2] 2. (a) The Bank shall have and retain qualified management. Each member
of management shall have qualifications and experience commensurate
with his or her duties and responsibilities at the Bank. 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 all applicable laws and regulations;
(iv) restore all aspects of the Bank to a safe and sound condition,
including capital adequacy, asset quality, management effectiveness,
earnings and liquidity; and
(v) successfully implement the Business Plan prepared in accordance
with paragraph 1.
(b) (i) During the life of this ORDER, the Bank shall notify the
Regional Director in writing of any resignations and/or terminations of
any members of its board of directors and/or any of its executive
officers.
(ii) the Bank shall comply with section 32 of the Act, 12 U.S.C.
§1831i, which includes a requirement that the Bank shall notify the
Regional Director in writing at least 30 days prior to any individual
assuming a new position as an executive officer or any additions to its
board of directors.
[.3] 3. (a) To facilitate having and retaining qualified management, the
board of directors of the Bank shall, within 60 days from the effective
date of this ORDER, undertake an in-depth analysis and review of the
Bank's managerial requirements and make a written report
("Management Report") on the Bank's management needs. The
Management Report shall incorporate an analysis of the Bank's
management and staffing requirements and shall, at a minimum:
(i) provide a review of the composition, policies and practices
of the Bank's current operating management;
(ii) provide a recommendation of whether current operating management
should be changed, or the terms and conditions under which current
operating management should be continued;
(iii) provide an evaluation of each Bank officer indicating whether
these officials 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;
(iv) identify both the number and type of positions needed to properly
supervise the Bank's lending functions, giving appropriate
consideration to the Bank's loan volume, customer base and the number
of problem credits;
(v) provide a clear and concise description of the general duties and
responsibilities for each Bank officer and their key support staff;
(vi) identify the skills, experience and compensation required for each
position;
(vii) establish a plan to recruit, hire and/or replace personnel based
on ability and experience;
(viii) establish a plan providing for periodic evaluation of each
individual's job performance; and
(ix) provide for periodic review of the Bank's management and updating
of lending policies and procedures.
(b) The board of directors of the Bank shall obtain the services
of an outside consultant, acceptable to the FDIC, who is knowledgeable
in the area of bank management, lending, collections and personnel
evaluation to assist the board of directors in reviewing the Bank's
management needs and preparing the Management Report. The acceptability
of the consultant shall be based on the consultant's ability to advise
the Bank in each of the areas identified in paragraph 3(a).
(c) Within 90 days from the effective date of this ORDER, the board of
directors of the
{{5-31-01 p.C-5099}}
Bank, with the assistance of the outside consultant,
shall prepare a written plan of implementation ("Plan")
addressing the findings of the Management Report. The Plan shall
specify the actions to be taken by the board of directors and the time
frames for each action.
(d) Within 90 days from the effective date of this ORDER, the board of
directors of the Bank shall prepare a written report ("Written
Report") which shall contain (1) a recitation identifying the
recommendations made by the outside consultant which have been
incorporated in the Management Report and Plan; (2) a recitation
identifying the recommendations made by the outside consultant which
were not incorporated in the Management Report and Plan and the reasons
for not including such recommendations; and (3) a copy of any report
prepared by the outside consultant.
(e) Promptly after preparation of the Management Report, Plan, and
Written Report, but no later than 95 days from the effective date of
this Order, a copy of the Management Report, Plan, and Written Report
shall be submitted to the Regional Director for review and comment.
Within 30 days from receipt of any comment, and after consideration of
such comment, the board of directors of the Bank shall approve the
Management Report and Plan, which approval shall be recorded in the
minutes of the meeting of the board of directors. It shall remain the
responsibility of the board to fully implement the Plan within the time
frames specified in the Plan. In the event the Plan, or any portion
thereof, is not implemented, the board of directors shall immediately
advise the Regional Director, in writing, of the specific reasons for
deviating from the Plan.
[.4] 4. (a) During the life of this ORDER, the Bank shall maintain adjusted
Tier 1 capital equal to or greater than six (6%) percent of the
Bank's adjusted Part 325 total assets.
(b) Any increase in Tier 1 capital necessary to meet the ratio required
by paragraph 4(a) of this ORDER may be accomplished by the following:
(i) the sale of new securities in the form of common stock or
non-cumulative perpetual preferred stock; or
(ii) the direct contribution of cash by the directors or parent bank
holding company of the Bank; or
(iii) any combination of the above or other method acceptable to the
FDIC.
(c) If all or part of the increase in Tier 1 capital required by
paragraph 4(a) of this ORDER is accomplished by the sale of new
securities, the board of directors of the Bank shall forthwith adopt
and implement a plan for the sale of such additional securities,
including the voting of any shares owned or proxies held or controlled
by them in favor of the plan. Should the implementation of the plan
involve a public distribution of Bank securities (including a
distribution limited only to the Bank's existing shareholders), the
Bank shall prepare 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
Federal and State 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 plan and any materials used in the
sale of the securities shall be submitted to the FDIC, Registration and
Disclosure Section, Washington, D.C. 20429. Any changes requested to be
made in the plan or materials by the FDIC shall be made prior to their
dissemination.
(d) In complying with the provisions of paragraph 4 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 from the date such material
development or change was planned or occurred, whichever is earlier,
and shall be furnished to every subscriber and/or purchaser of Bank
securities who received or was tendered the information contained in
the Bank's original offering materials.
(e) For the purposes of this ORDER, the terms "Tier 1 capital"
and "Part 325 total assets" shall have the meanings ascribed to
them in Part 325 of the FDIC's Rules and Regulations, respectively
sections 325.2(t) and 325.2(v), 12 C.F.R. §§ 325.2(t) and (v). The
"Capital Calculations" schedule on page 17 of the joint Report of
Examination of the
{{5-31-01 p.C-5100}}
Bank by the FDIC and Banking Department as of
December 31, 1999 provides the method for determining the ratio of
adjusted Tier 1 capital to adjusted Part 325 total assets as required
by this ORDER.
(f) The Bank shall not lend funds directly or indirectly, whether
secured or unsecured, to any purchaser of Bank stock or to any investor
by any other means for any portion of any increase in Tier 1 capital
required herein.
[.5] 5. (a) Within 45 days from the effective date of this ORDER, the board
of directors of the Bank shall review the adequacy of the Bank's
allowance for loan and lease losses and its allocated transfer risk
reserve (ATRR"). This review shall focus particular attention upon:
(i) results of the Bank's internal loan review, (ii) loan loss
experience; (iii) an estimate of potential loss exposure on each
significant credit; (iv) concentrations of credit in the Bank; and (v)
present and prospective economic conditions.
(b) Immediately upon completing the review required by paragraph 5(a)
of this ORDER, the Bank's board of directors shall adopt a method of
computing the balance of the Bank's allowance for loan and lease
losses that gives consideration to the volume and composition of the
loan portfolio not subject to criticism, as well as to the volume and
composition of criticized loans, including, but not limited to, the
factors referenced in paragraph 5(a). Thereafter, the Bank's board of
directors shall, during the first month of each quarter, reevaluate the
allowance for loan and lease losses and make such additional provisions
for loan and lease losses that are necessary to maintain the allowance
at an adequate level relative to the volume of risk in the Bank's loan
portfolio. All such additional provisions for loan and lease losses
shall be made in the first month of the calendar quarter in which the
deficiency in the allowance is identified, but as of the end of the
preceding calendar quarter, and shall be reflected in the Report of
Condition and the Report of Income filed in the calendar quarter in
which the deficiency is identified with respect to the preceding
calendar quarter. The minutes of the board of directors of the Bank
shall reflect that such reevaluation has been performed, and
documentary proof of the method employed in determining the level of
the allowance shall be maintained for future regulatory review.
(c) All increases in the allowance for loan and lease losses, with the
exception of recoveries credited directly to the allowance, shall be
accomplished by charges to operating earnings through the provision for
loan and lease losses.
(d) The Bank shall make certain that the ATRR is and remains adequately
funded pursuant to Section 347.303 of FDIC's regulations (12 CFR
§347.303) and ATRR guidelines established by the Interagency Country
Exposure Review Committee ("ICERC").
[.6] 6. (a) Within 60 days from the effective date of this ORDER, and within
the first 30 days of each calendar year thereafter, the board of
directors of the Bank shall develop a written earnings plan consisting
of goals and strategies for improving the earnings of the Bank for each
calendar year. The written earnings 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 on not less
than a quarterly basis; and
(iv) a description of the operating assumptions that form the basis
for, and adequately support, major projected income and expense
components.
(b) Such written earnings plan and any subsequent modification
thereto shall be submitted to the Regional Director for review and
comment. Within 30 days after the receipt of any comment from the
Regional Director, the board of directors shall approve the written
earnings plan, which approval shall be recorded in the minutes of the
meeting of the board of directors of the Bank. Thereafter, the Bank
shall follow the written earnings plan and/or any subsequent
modification thereto.
[.7] 7. Within 10 days from the effective date of this ORDER, the Bank shall
eliminate from its books, by collection or charge-off, all items or
portions of items classified "Loss" and 50 percent of all items
or portions of items classified "Doubtful" as a result of the
joint Report of Examination of the Bank by the FDIC and Banking
Department as of December 31, 1999, which have
{{5-31-01 p.C-5101}}
not been previously
charged off or collected. In addition, and so long as this ORDER
remains in effect, the Bank shall, within 30 days from the receipt of
any subsequent report of examination of the Bank from the FDIC or
Banking Department, eliminate from its books, by collection or
charge-off, all items or portions of items classified "Loss" and
50 percent of all items or portions of items classified
"Doubtful" in said report of examination. Elimination of these
items through the use of the proceeds of loans or other extensions of
credit made by the Bank does not constitute collection for the purpose
of this ORDER.
[.8] 8. (a) Within 180 days from the effective date of this ORDER, the Bank
shall reduce the remaining total of all items classified
"Doubtful", "Value Impaired", and "Substandard" as a
result of the joint Report of Examination of the Bank by the FDIC and
Banking Department as of December 31, 1999, to not more than 50 percent
of Tier 1 capital and allowance for loan and lease losses, and, within
360 days from the effective date of this ORDER, the Bank shall reduce
the total of such items to not more than 25 percent of Tier 1 capital
and allowance for loan and lease losses, and maintain them at or below
that level.
(b) As used in this ORDER, the word "reduce" means (1) to
collect, (2) to charge-off, or (3) to improve the quality of adversely
classified items sufficiently to warrant removing any adverse
classification, as determined by the FDIC or Banking Department.
Reduction of these items through the use of the proceeds of loans or
other extensions of credit made by the Bank does not constitute
collection for the purposes of this ORDER.
(c) The requirements of paragraphs 7 and 8 are not to be construed as
standards for future operations. In addition to the foregoing, the Bank
shall endeavor to further reduce the total of all adversely classified
items.
[.9] 9. (a) Immediately upon the effective date of this ORDER, the Bank
shall not extend, either directly or indirectly, any new or additional
credit (which, for the purposes of this ORDER, shall include the
granting of renewals or extensions, or the capitalizing of accrued
interest), other than for taxes, insurance, and routine maintenance, to
or for the benefit of any borrower who is obligated in any manner to
the Bank on any extension of credit, or portion thereof, which has been
charged off the books of the Bank, in whole or in part, or to any
affiliate or related interest of, or other person or entity associated
with, any such borrower ("Charged Off Borrower"), so long as any
portion of such extension of credit, whether that portion was charged
off, remains uncollected.
(b) Immediately upon the effective date of this ORDER, the Bank shall
not extend, either directly or indirectly, any new or additional
credit, other than for taxes, insurance, and routine maintenance, to or
for the benefit of any borrower who is obligated in any manner to the
Bank on any loan or other extension of credit that has been adversely
classified, in whole or in part, as a result of the joint Report of
Examination of the Bank by the FDIC and Banking Department as of
December 31, 1999, or as a result of any subsequent examination of the
Bank by the FDIC or Banking Department, or to any affiliate or related
interest of, or other person or entity associated with, any such
borrower ("Classified Borrower"), so long as such loan or other
extension of credit remains classified or uncollected. This paragraph
9(b) shall not prohibit the Bank from renewing all or any part of an
extension of credit to a Classified Borrower, after collection in cash
of interest accrued on the entire extension of credit as of the date of
renewal or extension.
(c) The prohibitions of paragraph 9(a) and 9(b) shall not apply to any
extension of credit to a charged off or Classified Borrower, if:
(i) the Bank's failure to extend further credit to a charged off
or Classified Borrower would be substantially detrimental to the best
interests of the Bank;
(ii) the extension of credit fully complies with the requirements of
the Bank's written lending and collection policies and procedures
which have been revised, adopted, and implemented pursuant to paragraph
12 of this ORDER;
(iii) any extension of credit regardless of amount, with respect to any
problem asset, as defined in paragraph 10 of this ORDER, is supported
by a current appraisal which at a minimum complies in all respects with
the requirements of Part 323 of the FDIC's Rules and Regulations, 12
C.F.R. Part 323;
(iv) a comparison with the written program adopted pursuant to
paragraph 10 of
{{5-31-01 p.C-5102}}
this ORDER shows that the Bank's formal program to
eliminate the basis of criticism of said problem asset is not
compromised; and,
(v) prior to extending any credit to a charged off Borrower, or a
Classified Borrower whose outstanding loans or other extensions of
credit exceed $100,000, a majority of the Bank's full board of
directors approves the extension of credit and certifies, in writing,
the specific reasons why failure to so act would be substantially
detrimental to the best interests of the Bank. A copy of the board's
certification shall be maintained in the credit file of the charged off
or Classified Borrower, and shall also be submitted promptly to the
Regional Director.
All documentation related to the Bank's decision to extend
credit to a charged off or Classified Borrower shall be maintained by
the Bank.
[.10] 10. Within 30 days from the effective date of this ORDER, the Bank's
board of directors shall adopt and implement a written program for each
problem asset. Subsequent to the effective date of this ORDER, within
30 days after any asset of the Bank becomes a problem asset, the board
of directors of the Bank shall adopt and implement a written program
for each such problem asset. For the purposes of this ORDER, a
"problem asset" means any asset: (i) including any partially
unfunded commitment; (ii) any unfunded commitment which exceed $100,000
and:
(a) Has been adversely classified or listed for "Special
Mention" as a result of the joint Report of Examination of the Bank
by the FDIC and Banking Department as of December 31, 1999, or is
adversely classified or listed for "Special Mention" as a result
of any subsequent examination of the Bank; or
(b) Has been accorded a sub-investment quality rating and/or has been
designated a work-out or watch list asset, or some equivalent
designation, as the result of an internal asset review and rating
procedure performed by the Bank or by another party on behalf of the
Bank; or
(c) Is past due in excess of 120 days and/or has been placed in either
a nonaccrual or nonearning status by the Bank; or
(d) Has been partially charged off.
Such program shall include, at a minimum, an assessment of the
status of each problem asset, the proposed action to eliminate the
cause or causes of the asset's being a problem asset, and the time
frame for its accomplishment. Once adopted, a copy of each program
shall be forwarded to the Regional Director.
[.11] 11. Within 60 days from the effective date of this ORDER, the Bank
shall revise, adopt, and implement written lending and collection
policies and procedures to provide effective guidance and control over
the lending function of the Bank. A copy of the proposed policy shall
be forwarded to the Regional Director. At a minimum,, the policy shall
include the following:
(a) Establishment of a nonaccrual loan policy, which complies with
Call Report Instructions for loans past-due 90 days or more;
(b) Standards for extending credit to Bank directors, officers,
shareholders and their related interests which take into account
applicable Federal and State laws and regulations governing such
extensions of credit;
(c) A provision that establishes lending limits for each loan officer
and procedures for the approval of loans in excess of these limits;
(d) Guidelines for adequate financial analysis of borrowers in relation
to the size and complexity of requested loan;
(e) Guidelines for an adequate loan proposal including, but not limited
to, an adequate analysis of items such as loan purpose, repayment
source, collateral, financial information including balance sheet
and income statement, financial projections, cash flows, and background
of borrower;
(f) A requirement that all loans or extensions of credit that, when
aggregated with all other extensions of credit to that borrower, either
directly or indirectly, would exceed $250,000, shall be reviewed by and
receive the prior approval of the board of directors of the Bank or a
loan committee entirely comprised of a majority of the members of the
board of directors;
(g) A requirement that all loans shall have a declared source of
repayment and a written repayment schedule;
(h) The establishment of minimum credit standards;
(i) Guidelines under which loans may be renewed or have their due dates
extended
{{5-31-01 p.C-5103}}
(1) without full collection of interest thereon, and (2) by
acceptance of separate notes in payment of interest, unless prohibited
by paragraph 9 of the ORDER;
(j) Limitations on the amount of advances in relation to the value of
collateral securing the credit, and a description of the documentation
required by the Bank for each type of secured credit;
(k) Standards which ensure that all required documentation, including
that associated with collateral, has been received prior to
disbursement of loan proceeds;
(l) Standards under which unsecured loans may be granted;
(m) A listing of types of loans which are permitted and those which are
prohibited;
(n) A provision to the effect that deviations from the written lending
policies and procedures shall require the prior approval of the board
of directors of the Bank;
(o) Guidelines for procedures for the issuance, control, maintenance of
records of, and accounting for, bankers acceptances, standby letters of
credit, and all other contingent liabilities of the Bank, including but
not limited to, trade letters of credit and commitments;
(p) A provision specifically outlining the collection procedures to be
taken by the Bank when borrowers fail to make timely payments;
(q) Guidelines for the approval and processing of all overdrafts;
(r) Guidelines for the determination of loan product pricing; and
(s) Procedures for obtaining, maintaining and reviewing complete and
current credit files on each borrower;
(t) Guidelines for obtaining and reviewing appraisals of real estate or
other collateral, as well as for ordering reappraisals when needed; and
(u) Procedures for insuring compliance with Part 323 of FDIC's
regulations (12 CFR Part 323).
All references to "loans" shall be deemed to include all
other forms of extensions of credit.
[.12] 12. (a) Within 45 days from the effective date of this ORDER, the board
of directors of the Bank shall adopt and implement an internal loan
review and grading system ("System") to periodically review the
Bank's loan portfolio and identify and categorize problem credits. At
a minimum, the System shall provide for:
(i) identifying the overall quality of the loan portfolio;
(ii) the identification and amount of each delinquent loan;
(iii) an identification or grouping of loans that warrant the special
attention of management;
(iv) for each loan identified, a statement of the amount and an
indication of the degree of risk that the loan will not be fully repaid
according to its terms and the reason(s) why the particular loan merits
special attention;
(v) an identification of credit and collateral documentation
exceptions;
(vi) the identification and status of each violation of law, rule or
regulation;
(vii) an identification of loans not in conformance with the Bank's
lending policy, and exceptions to the Bank's lending policy;
(viii) an identification of insider loan transactions;
(ix) a mechanism for reporting periodically, but in any event no less
than quarterly, to the board of directors on the status of each loan
identified and the action(s) taken by operating management; and
(x) guidelines for (1) ensuring that all significant loans are reviewed
by individuals who are not part of, or influenced by anyone associated
with, the loan origination or approval process, (2) establishing
frequency of reviews, and (3) determining scope of review for
significant loans and those with major credit risks.
(b) A copy of the reports submitted to the board of directors, as
well as documentation of the action taken by the Bank to collect or
strengthen assets identified as problem credits, shall be kept with the
minutes of the board of directors.
(c) Within 60 days from the effective date of this ORDER the Bank's
board of directors shall establish and appoint a loan committee to
review and approve in advance all extensions of credit and/or renewals
that, when aggregated with all other extensions of credit to that
borrower, either directly or indirectly, exceed or would exceed
$100,000. The review shall include financial, income
{{5-31-01 p.C-5104}}
and, cash flow
information, collateral values and lien information, repayment terms,
past performance by the borrower, the purpose of the extension, and
whether the extension complies with the Bank's loan policy and
applicable laws, rules, and regulations. The loan committee shall meet
at least monthly and shall maintain written minutes which detail the
information reviewed by the loan committee, its conclusions, approvals,
denials, recommendations, and reasons for the approval of any credit
which does not fully comply with the review requirements set forth in
this paragraph. At least monthly, the loan committee shall submit its
written minutes to the board of directors.
[.13] 13. Within 60 days from the effective date of this ORDER, the Bank
shall eliminate and/or correct the violation of law and/or regulation,
as described on page 31 of the joint Report of Examination of the Bank
by the FDIC and Banking Department as of December 31, 1999. In
addition, the Bank shall take all steps necessary to ensure future
compliance with all applicable Federal and State laws and regulations.
[.14] 14. Within 90 days from the effective date of this ORDER, the Bank's
board of directors shall revise, adopt and implement written policies
and procedures to provide effective guidance and control over the
internal routine and controls of the Bank, in accordance with safe and
sound banking practices. Among other provisions, the revised policies
and procedures shall specifically provide for correction of all
internal routine and controls deficiencies scheduled as a result of the
joint Report of Examination of the Bank by the FDIC and Banking
Department as of December 31, 1999. Such policy and its implementation
shall be in a form and manner acceptable to the Regional Director as
determined at subsequent examinations and/or visitations.
[.15] 15. (a) Within 30 days from the effective date of this ORDER, the Bank
shall review all Reports of Condition and Income filed with the FDIC on
and after December 31, 1999 and shall amend and file with the FDIC
amended Reports of Condition and Income which accurately reflect the
financial condition of the Bank as of the date of each such Report.
(b) In addition to the above and during the life of this ORDER, the
Bank shall file with the FDIC, Consolidated Reports of Condition and
Income which accurately reflect the financial condition of the Bank as
of the reporting period. In particular such Reports shall include any
adjustment in the Bank's books made necessary or appropriate as a
consequence of any FDIC or Banking Department examination of the Bank
during that reporting period and the results of the joint Report of
Examination of the Bank by the FDIC and Banking Department as of
December 31, 1999.
[.16] 16. Within 60 days from the effective date of this ORDER, the Bank
shall take all necessary steps to eliminate all deficiencies noted in
all assets scheduled as "Special Mention" as a result of the
joint Report of Examination of the Bank by the FDIC and Banking
Department as of December 31, 1999, and within 60 days after receipt of
each subsequent report of examination from the FDIC or Banking
Department, the Bank shall take the necessary steps to eliminate all
deficiencies noted in all assets scheduled as "Special Mention"
in each such report of examination.
[.17] 17. The Bank shall not declare or pay dividends in any amount except as
follows:
(a) That such declarations and payments are made in accordance with
applicable State and Federal laws and regulations;
(b) That after payment of such dividends, the ratio of adjusted Tier 1
capital to adjusted Part 325 total assets of the Bank will be not less
than six (6%) percent;
(c) That such declaration and payment of dividends shall be approved in
advance by the board of directors of the Bank; and
(d) That such declaration and payment of dividends shall be approved in
advance, in writing, by the Regional Director.
[.18] 18. While this ORDER is in effect, the Bank shall not accept, renew, or
rollover brokered deposits other than as and to the extent permitted
pursuant to section 29 of the Act, 12 U.S.C. §1831f, as amended, and
the FDIC's Rules and Regulations, including section 337.6, 12 C.F.R.
§337.6, as amended and supplemented. For the purposes of this ORDER,
the term "brokered deposits" shall have the same meaning as is
found in section 337.6(a)(1) of the FDIC's Rules and Regulations, as
amended.
[.19] 19. (a) Within 90 days from the effective date of this ORDER, the board
of directors of the Bank shall prepare and submit to the Regional
Director a written report
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regarding loans ("Loan Report") made by
the Bank to the following entities since 1990: (i) GLOBTRADE; (ii)
ADRIA INVESTMENT, INC.; (iii) ADRIA MANAGEMENT, INC.; (iv) ISKRA USA,
INC.; (v) ISKRA COMMERCE MT (vi) DORA FOODS, INC.; (vii) KOPO
INTERNATIONAL, INC.; (viii) SZ ACRONI, D.O.O.; (ix) CINCHEM USA, INC.;
(x) SLOVENSKE ZELEZARNE; (xi) CINKARNE CELJE; and (xii) LINDEN
IMPORTING CO., INC.
(b) The Loan Report shall include:
(i) the date of each loan;
(ii) the name and title of any bank employee, loan committee or other
Bank body that approved the loan;
(iii) any obligor or borrower of each loan;
(iv) the original principal amount of the loan;
(v) any guarantor of the loan;
(vi) the stated purpose of the loan;
(vii) any person, partnership, corporation, or other entity to whom
loan proceeds were disbursed and the amounts of such disbursements;
(viii) description of collateral securing the loan;
(ix) source(s) of repayment, i.e., the identification of any person,
partnership, corporation, or other entity and its attendant source of
cash flow;
(x) any renewals and/or extensions of the loan;
(xi) current balance of the loan;
(xii) as attachments, a copy of any related loan application, loan
analysis, credit report, financial statement, income statement, cash
flow statement, loan proposal, the minutes of any meeting at which the
loan or related proposal was discussed and/or voted upon, the internal
loan review rating, and attestation by the board of directors of the
Bank to the internal loan review rating assigned; and a statement by
the board of directors of the Bank that each loan meets the credit
quality standards established in the Bank's loan policy. If the board
is unable to make such statement, the board should identify the steps
the Bank will take to have the loans comply with the credit quality
standards of the loan policy, and the time frame in which this will be
accomplished.
(c) With respect to each of the borrowers and/or guarantors, the
board of directors of the Bank shall review any information in the
Bank's files, and any information publicly or legally available to it,
in order to include in the Loan Report information about the entities
listed in paragraph 20(a) regarding:
(i) type of legal entity (corporation, partnership, sole
proprietorship, etc);
(ii) nature of business; and
(iii) name of any person or entity with legal or equitable ownership
interest and amount of such ownership interest in the entity.
(d) The Loan Report shall also identify the legal or equitable
interest, if any, of Bojan Bevc in:
(i) each entity listed in paragraph 19(a);
(ii) Nova Ljubljanska Banka d.d.; and
(iii) any other entity that has a banking relationship with the Bank,
its operations or profit.
(e) The Loan Report shall describe the date and nature of any
written or oral lending and/or borrowing agreements Bojan Bevc has with
the Bank or Nova Ljubljanska Banka d.d.
(f) The Loan Report shall be updated (current status of each loan,
including any payoff, renewal and/or extension, and new loans) and
presented quarterly to the Regional Director.
[.20] 20. Following the effective date of this ORDER, the Bank shall send to
Nova Ljubljanska Banka d.d., the Bank's sole shareholder, a
description of this ORDER. The description shall fully describe the
ORDER in all material respects.
[.21] 21. The Bank's board of directors shall appoint a committee (the
"Compliance Committee") composed of at least three directors who
are not now and have never been involved in the daily operations of the
Bank, and whose composition is acceptable to the Regional Director, to
monitor the Bank's compliance with this ORDER. Within 30 days from the
effective date of this ORDER, and at monthly intervals thereafter, such
Compliance Committee shall prepare and present to the Bank's board of
directors a written report of its findings, detailing the form,
content, and manner of any action taken
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to secure compliance with this
ORDER and the results thereof, and any recommendations with respect to
such compliance. Such progress reports shall be included in the minutes
of the meeting of the Bank's board of directors.
22. By the 30th day after the end of the calendar quarter following the
effective date of this ORDER, and by the 15th day after the end of
every calendar quarter thereafter, the Bank shall furnish written
progress reports to the Regional Director detailing the form, content,
and manner of any actions taken to secure compliance with this ORDER,
and the results thereof.
The effective date of this ORDER shall be immediately upon the date of
issuance.
The provisions of this ORDER shall be binding upon the Bank, its
successors, assigns, directors, officers, employees, agents, and other
institution-affiliated parties.
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.
Dated: 3/30/01
