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   [11,805] In the Matter of State Bank of Seaton, Seaton, Illinois, Docket No. 01-009b (6-4-01)

   A cease and desist order was issued, based on findings by th4e FDIC that it had reason to believe that respondent had engaged in unsafe and unsound practices. (This order terminated by order of the FDIC issued 2-11-03; see ¶16,330.)

   [.1] Management—Qualifications Specified

   [.2] Board of Directors—Outside Directors Added to Board

   [.3] Management—Plan Required

   [.4] Asset/Liability Management—Preparation or Revision of Asset/Liability Management Policy Required

   [.5] Board of Directors—Minutes, CRA and Consumer Matters Recorded

   [.6] Assets—Charge-off or Collection

   [.7] Loan Loss Reserve—Review by Board of Directors Required

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

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

   [.10] Loans—Extensions of Credit—To Borrowers with Existing Adversely Classified Credits
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   [.11] Loan Policy—Preparation or Revision of Policy Required

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

   [.13] Shareholders—Disclosure of Cease and Desist Order Required

In the Matter of
STATE BANK OF SEATON
SEATON, ILLINOIS
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

FDIC-01-009b
OBRE NO. 2001-BBTC-07

   State Bank of Seaton, Seaton, 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 section 8(b) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. §1818(b), and under 38 Ill. Adm. Code, Section 392.30, regarding hearings before the Office of Banks and Real Estate for the State of Illinois ("OBRE"), having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") with representatives of the Federal Deposit Insurance Corporation ("FDIC") and OBRE dated April 27, 2001, whereby, solely for the purpose of this proceeding and without admitting or denying the charges of unsafe or unsound banking practices, the Bank consented to the issuance of an ORDER TO CEASE AND DESIST ("ORDER") by the FDIC and OBRE.

   The FDIC and OBRE considered the matter and determined that there was reason to believe that the Bank had engaged in unsafe or unsound banking practices. The FDIC and OBRE therefore, accepted the CONSENT AGREEMENT and the FDIC and OBRE 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:

   A. Engaging in hazardous lending and lax collection practices, including, but not limited to the following:

       —The failure to obtain proper loan documentation;

       —The failure to obtain adequate collateral;

       —The failure to establish and monitor collateral margins of secured borrowers;

       —The failure to analyze borrower repayment capacity;

       —The failure to establish and enforce adequate loan repayment programs;

       —The failure to obtain current and complete financial information;

       —Other poor credit administration practices.

   B. Operating with an excessive level of adversely classified loans.

   C. Operating with an inadequate allowance for loans and leases held.

   D. Operating with an inadequate loan policy.

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

   F. Operating with a board of directors which has failed to provide adequate supervision over the direction to the management of the Bank to prevent unsafe or unsound banking practices, including, but not limited to the following:

       —The failure to hold regular monthly meetings;

       —The failure to maintain sufficiently detailed corporate minutes;

       —The failure to effectively monitor the activities of the Bank's officers;

       —The failure to regularly review and enforce the Bank's written policies; and

       —The failure to achieve compliance with an FDIC Memorandum of Understanding outstanding since May 14, 1996.

   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 thereafter retain qualified management. Each member of management shall have the qualifications and experience commensurate with his or her
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   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 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 Regional Director of the Chicago Regional Office of the FDIC ("Regional Director") and the Commissioner of OBRE ("Commissioner") 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 Act ("section 32"), 12 U.S.C. §1831(i), and section 303.11(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. In addition to following the requirements of Section 32 of the Act and Subpart F of Part 303 of the FDIC Rules and Regulations, pursuant to the authority granted to the Commissioner in Section 48(6)(b) of the Illinois Banking Act, the Bank shall request and obtain the Commissioner's written approval prior to the addition of any individual to the board of directors or employment of any individual as a senior executive officer.

   [.2]2. Within 45 days from the effective date of this ORDER, the Bank shall develop and implement a written analysis and written plan of action to add to its board of directors 3 new members who are independent directors. As part of the written analysis and plan, the Bank shall develop board succession and membership criteria. The membership criteria shall address, but not be limited to, a retirement policy, residency guidelines, compensation, committee membership and general qualifications.

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

   [3.]3. (a) Within 30 days from the effective date of this ORDER, the Bank shall retain a bank consultant acceptable to the Regional Director and the Commissioner. The consultant shall develop a written analysis and assessment of the Bank's management and staffing needs ("Management Plan") for the purpose of providing qualified management and staffing for the Bank and with an emphasis on the Bank's loan administration and loan collection needs. The Management Plan shall be developed within 90 days from the effective date of this ORDER. The Management Plan shall include, at a minimum:

       (i) Identification of both the type and number of officer positions needed to properly manage and supervise the affairs of the Bank;

       (ii) Identification and establishment of such Bank committees as are needed to provide guidance and oversight to active management;

       (iii) Evaluation of all Bank officers and staff members to determine whether these individuals possess the ability, experience and other qualifications required to perform present and anticipated duties, including adherence to the Bank's established policies and practices, and restoration and maintenance of the Bank in a safe and sound condition; and
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       (iv) A plan to recruit and hire any additional or replacement personnel with the requisite ability, experience and other qualifications to fill those officer or staff member positions identified by this paragraph of this ORDER.

   (b) The Management Plan and any subsequent modification thereto shall be submitted to the Regional Director and the Commissioner for review and comment upon their completion or receipt. Within 30 days of the receipt of any comment from the Regional Director and the Commissioner and after the consideration of such comments, the Bank shall approve the Management Plan or any subsequent modifications, which approval shall be recorded in the minutes of a board of directors' meeting. Thereafter, the Bank, its directors, officers and employees shall implement and follow the Management Plan and any/or any subsequent modification. A copy of the Management Plan approved by the board of directors shall be submitted to the Regional Director and the Commissioner.

   [.4]4. Within 120 days from the effective date of this ORDER, the Bank's board of directors shall review and revise all of its written policies consistent with sound banking practices, with emphasis placed upon the Investment, Asset/Liability Management, and Liquidity policies. Thereafter the Bank's board of directors shall review the policies at least on an annual basis. The Bank's management shall consistently follow all guidelines set forth in the policies. All deviations from the Bank's policies shall be supported by a written report to the Bank's board of directors detailing how the exception is in the Bank's best interest, and the minutes of the Bank's board of directors shall reflect the board's action on the written report.

   [.5]5. Within 60 days from the effective date of this ORDER, the Bank shall establish a system of minutes and reporting to ensure complete and accurate reporting to and from the Bank's board of directors. The Bank shall ensure that the minutes of the board of directors' meetings detail all board discussions and all presentations to the board, describe all exceptions to Bank policies, and report the specific results of board votes. The Bank shall ensure that all board of directors support packets are maintained to document the information being presented to the board of directors.

   [.6]6. As of the effective date of this ORDER, the Bank shall eliminate from its books, by charge-off or collection, all assets or portions of assets classified "Loss" as of September 30, 2000, that have not been previously collected or charged-off.

   [.7]7. (a) Prior to submission or publication of all Reports of Condition and Income required by the FDIC and OBRE after the effective date of this ORDER, the board of directors of the Bank shall review the adequacy of the Bank's ALLL, provide for an adequate ALLL, and accurately report the same. The minutes of the board meeting at which such review is undertaken shall indicate the findings of the review, the amount of increase in the reserve recommended, if any, and the basis for determination of the amount of ALLL provided. In making these determinations, the board of directors shall consider the Federal Financial Institutions Examination Council's Instructions for the Reports of Condition and Income and any analysis of the Bank's ALLL provided by the FDIC or OBRE.

   (b) While this ORDER is in effect, the Bank shall submit to the Regional Director and the Commissioner the analysis supporting the determination of the adequacy of its ALLL. These submissions may be made at such times as the Bank files the progress reports otherwise required by the ORDER.

   [.8]8. (a) Within 60 days from the effective date of this ORDER, the Bank shall formulate and submit to the Regional Director and the Commissioner for review and comment, a written plan to reduce the Bank's risk position in each asset in excess of $25,000 which is classified "Substandard" or "Doubtful" in the FDIC's Report of Examination as of September 30, 2000. In developing such plan, the Bank shall, at a minimum:

       (i) Review the financial position of each such borrower, including source of repayment, repayment ability, and alternative repayment sources; and

       (ii) Evaluate the available collateral for each such credit, including possible actions to improve the Bank's collateral position.

   (b) Such plan shall include, but not be limited to, the following:

       (i) Dollar levels to which the Bank shall reduce each asset within 6 and 12 months from the effective date of this ORDER; and

       (ii) Provisions for the submission of quarterly written progress reports to the
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       Bank's board of directors for review and notation in minutes of the meetings of the board of directors.

   (c) As used in this paragraph, "reduce" means to (1) collect; (2) charge-off; or (3) improve the quality of such assets so as to warrant removal of any adverse classification by the FDIC.

   (d) Within 30 days from the receipt of any comments from the Regional Director and the Commissioner, the Bank shall approve the written plan, which approval shall be recorded in the minutes of a board of directors' meeting. Thereafter, the Bank shall implement and follow this written plan.

   [.9]9. Within 60 days from the effective date of this ORDER, the Bank shall correct the technical exceptions listed in the FDIC Report of Examination of September 30, 2000.

   [.10]10. As of the effective date of this ORDER, the Bank shall not extend, directly or indirectly, any additional credit to, or for the benefit of, any borrower whose loan or other credit has been classified "Substandard" in the FDIC September 30, 2000 Report of Examination and is uncollected unless the Bank's board of directors has adopted, prior to such extension of credit, a detailed written statement giving the reasons why such extension of credit is in the best interest of the Bank. A copy of the statement shall be placed in the appropriate loan file and shall be incorporated in the minutes of the applicable board of directors' meeting.

   [.11]11. (a) Within 60 days from the effective date of this ORDER, and annually thereafter, the board of directors of the Bank shall review the Bank's loan policy and procedures for adequacy and, based upon this review, shall make all appropriate revisions to the policy necessary to strengthen lending procedures and abate additional loan deterioration. The revised written loan policy and any subsequent modifications shall be submitted to the Regional Director and the Commissioner for review and comment upon their completion.

   (b) The initial revisions to the Bank's loan policy required by this paragraph, at a minimum, shall include provisions:

       (i) Requiring that all extensions of credit originated or renewed by the Bank be supported by current credit information and collateral documentation, including lien searches and the perfection of security interests; have a clearly defined and stated purpose; and have a predetermined and realistic repayment source and schedule. Credit information and collateral documentation shall include current financial information, profit and loss statements or copies of tax returns, and cash flow projections, and shall be maintained throughout the term of the loan with loan officer notations and comments;

       (ii) Requiring loan committee review and monitoring of the status of repayment and collection of overdue and maturing loans, as well as those loans which were classified "Substandard" in the FDIC Report of Examination of the Bank as of September 30, 2000;

       (iii) Requiring the establishment and maintenance of a loan grading system and internal loan watch list; and

       (iv) Requiring a written plan to lessen the risk position in each line of credit identified as a problem credit on the Bank's internal loan watch list.

   (c) Within 30 days from the receipt of any comments from the Regional Director and the Commissioner and after consideration of any comments, the board of directors shall approve the written loan policy and any subsequent modification thereto, which approvals shall be recorded in the minutes of a board of directors meeting. Thereafter, the Bank shall implement and follow the written loan policy and any subsequent modifications thereto.

   [.12]12. (a) Within 30 days from the effective date of this ORDER, the Bank's board of directors shall develop, adopt, and implement a program that will provide for monitoring of the Bank's compliance with this ORDER.

   (b) Following the required date of compliance with subparagraph (a) above, the Bank's board of directors shall review the Bank's compliance with this ORDER and record its review in the minutes of each regularly scheduled monthly board of directors meeting.

   13. Within 30 days of the end of each calendar quarter following the effective date of this ORDER, the Bank shall furnish to the Regional Director and the Commissioner written progress reports signed by each member of the Bank's board of directors, detailing the actions taken to secure compliance with the ORDER and the results thereof. Such reports
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   may be discontinued when the corrections required by this ORDER have been accomplished and the Regional Director and the Commissioner have, in writing, released the Bank from making further reports.

   [.13]14. Following the effective date of this ORDER, the Bank shall send to its shareholders or otherwise furnish a description of this ORDER: (1) in conjunction with the Bank's next shareholder communication; and (2) in conjunction with its notice or proxy statement preceding the Bank's next shareholder meeting. The description and any accompanying communication, notice, or statement shall be sent to the FDIC Registration and Disclosure Section, 550 17th Street, NW, Washington, D.C. 20429 and to Scott D. Clarke, Assistant Commissioner, Office of Banks and Real Estate, 500 East Monroe, Suite 900, Springfield, Illinois 62701, for review at least 20 days prior to dissemination to shareholders. Any changes requested to be made by the FDIC and OBRE shall be made prior to dissemination of the description, communication, notice, or statement.

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

   The provisions of this ORDER shall be binding upon the Bank, its institution-affiliated parties, and any successors and assigns thereof.

   The provisions of this ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provisions of this ORDER shall have been modified, terminated, suspended, or set aside by the FDIC and OBRE.

   Pursuant to delegated authority.

   Dated: June 4, 2001.

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