(This order was terminated by order of the
FDIC dated 6-19-03; see ¶16,339.)
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] Capital—Increase Required
[.2] Dividends—Dividends Restricted
[.3] Assets—Charge-off or Collection
[.4] Loan Loss Reserve—Establishment of or Increase Required
[.5] Loans—Extensions of Credit—To Borrowers with Existing Adversely
Classified Credits
[.6] Management—Qualifications Specified
[.7] Loan Policy—Preparation or Revision of Policy Required
[.8] Loan Review Committee—Establish
[.9] Funds Management and Liquidity—Preparation or Revision of Funds
Management Policy Required
[.10] Strategic Plan—Preparation of Required
[.11] Shareholders—Disclosure of Cease and Desist Order Required
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In the Matter of
MCCLAVE STATE BANK
MCCLAVE, COLORADO
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC 01-065b
The McClave State Bank, McClave, Colorado ("Bank"), through
its board of directors, having been advised of its right to the
issuance and service of 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 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 July 2, 2001, whereby,
solely for the purpose of this proceeding and without admitting or
denying the alleged charges of unsafe or unsound banking practices, 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 violated laws and/or regulations. The FDIC,
therefore, accepted the CONSENT AGREEMENT and issued the following:
ORDER TO CEASE AND DESIST
IT IS ORDERED, that the Bank and institution-affiliated parties of
the Bank cease and desist from the following unsafe or unsound banking
practices and violations of laws and/or regulations:
(a) Operating the Bank with an inadequate level of capital protection
for the kind and quality of assets held by the Bank;
(b) Operating the Bank with an excessive level of poor quality assets;
(c) Operating the Bank with an excessive level of adversely classified
assets;
(d) Failing to provide an adequate allowance for loan and lease losses;
(e) Renewing or extending credit which is inadequately secured;
(f) Refinancing credits to borrowers in weak financial positions
without improving collateral margins or establishing structured
repayment programs;
(g) Renewing or extending the due dates of loans without collection in
cash of interest due or obtaining adequate additional collateral to
secure credit advanced for the purpose of paying interest;
(h) Operating the Bank without adequate supervision and direction by
the Bank's board of directors over the management of the Bank;
(i) Engaging in hazardous lending practices;
(j) Engaging in lax collection practices;
(k) Renewing or extending credit without adequate and appropriate
supporting documentation;
(l) Operating the Bank with a heavy reliance on short-term potentially
volatile deposits as a source for funding longer-term investments;
(m) Operating the Bank without adequate liquidity or proper regard for
funds management;
(n) Failing to accurately reflect the condition of the Bank in
published statements and Consolidated Reports of Condition and Income;
(o) Operating the Bank with inadequate earnings to fund growth, support
dividend payments and augment capital.
IT IS FURTHER ORDERED, that the Bank shall take affirmative action as
follows:
[.1]1. (a) Within 30 days after the effective date of this ORDER, and for
so long thereafter as this ORDER is outstanding, the Bank shall achieve
and maintain Tier 1 capital equal to or greater than 8 percent of its
adjusted average total assets after establishing an adequate allowance
for loan and lease losses as required herein.
(b) If such ratio is less than 8 percent as determined at an
examination by the FDIC or the Colorado State banking department
("State"), the Bank shall, within 60 days after receipt of a
written notice of the capital deficiency from the Regional Director of
the FDIC's Dallas Regional Office ("Regional Director") or the
State Bank Commissioner ("Commissioner"), present to the Regional
Director and the Commissioner a plan to
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increase the Tier 1 capital of
the bank or to take other measures to bring the ratio to 8 percent.
After the Regional Director and Commissioner respond to the plan, the
board of directors of the Bank shall adopt the plan, including any
modifications or amendments requested by the Regional director and
Commissioner.
Thereafter, to the extent such measures have not previously been
initiated, the Bank shall immediately initiate measures detailed in the
plan, to increase its Tier 1 capital by an amount sufficient to bring
the ratio to 8 percent within 90 days after the Regional Director and
Commissioner respond to the plan. Such increase in Tier 1 capital and
any increase in Tier 1 capital necessary to meet the ratio required by
this ORDER may be accomplished by:
(i) The sale of securities in the form of common stock; or
(ii) The direct contribution of cash subsequent to December 31, 2000 by
the directors and/or shareholders of the Bank or by the Bank's holding
company, or
(iii) Receipt of an income tax refund or the capitalization subsequent
to December 31, 2000 of a bona fide tax refund certified as being
accurate by a certified public accounting firm; or
(iv) Any other method approved by the Regional Director and the
Commissioner.
(c) If all or part of the increase in Tier 1 capital required by
this ORDER is to be accomplished by the sale of new securities, the
Bank's board of directors shall adopt and implement a plan for the
sale of such additional securities, including soliciting proxies and
the voting of any shares or proxies owned or controlled by them in
favor of the plan. Should the implementation of the plan involve a
public distribution of the Bank's 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 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, Disclosure and Securities
Operation Unit, Washington, D.C. 20429, for review. Any changes
requested to be made in the plan or the materials by the FDIC shall be
made prior to their dissemination. If the increase in Tier 1 capital is
to be provided by the sale of noncumulative perpetual preferred stock,
then all terms and conditions of the issue shall be presented to the
Regional Director for prior approval.
(d) In complying with the provisions of this ORDER and until such time
as any such public offering is terminated, the Bank shall provide to
any subscriber and/or purchaser of the Bank's securities written
notice of any planned or existing development or other change which is
materially different from the information reflected in any offering
materials used in connection with the sale of the Bank's securities.
The written notice required by this paragraph shall be furnished within
10 days after the date such material development or change was planned
or occurred, whichever is earlier, and shall be furnished to every
purchaser and/or subscriber who received or was tendered the
information contained in the Bank's original offering materials.
(e) In addition to the requirements of subparagraphs 1(a) and (b), the
Bank shall comply with the FDIC's Statement of Policy on Risk-Based
Capital found in Appendix A to Part 325 of the FDIC Rules and
Regulations, 12 C.F.R. Part 325, App. A.
(f) For the purposes of this ORDER, all terms relating to Tier 1
capital shall be calculated according to the methodology set forth in
the report of examination.
(g) Nothing contained in this Order shall abrogate the responsibilities
of the FDIC pursuant to section 38 of the "Act", 12 U.S.C.
§1831o.
[.2]2. While this ORDER is in effect, the Bank shall neither declare nor
pay, directly or indirectly, any cash dividend to shareholders without
the prior written consent of the Regional Director and the
Commissioner.
[.3]3. (a) Within 30 days after the effective date of this ORDER, the Bank
shall, to the extent that it has not previously done so, eliminate from
its books, by charge-off or collection, all assets or portions of
assets classified Loss and one-half of the assets classified Doubtful
by the FDIC as a result of its examination of the Bank as of December
31, 2000. Reduction of these assets through proceeds of loans made by
the Bank
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shall not be considered "collection" for the purpose of
this paragraph.
(b) Within 90 days after the effective date of this ORDER, the
Bank shall submit a written plan to the Regional Director and the
Commissioner to reduce the remaining assets classified Doubtful and
Substandard as of December 31, 2000. At a minimum, the plan shall
include the following:
(i) A schedule providing quarterly goals to reduce the remaining
adversely classified assets as of December 31, 2000 to levels
representing not more than a specified percentage of Tier 1 capital
plus the allowance for loan and lease losses as reported each quarter
by the Bank in its Consolidated Reports of Condition and Income and
shall include no less than six consecutive quarterly target dates;
(ii) An explanation showing the complete rationale used by the Bank in
constructing the reduction schedule, and,
(iii) A provision requiring, at a minimum, quarterly reviews by the
Bank's board of directors whereby the extent of the Bank's compliance
with the plan is expressly addressed, with the results of each review
to be recorded in the corporate minutes of the Bank's board of
directors.
(c) Upon written notice from the Regional Director or the
Commissioner that the submitted plan is not acceptable, the Bank shall,
within 30 days after receipt of such notice, submit amendments to the
plan to the Regional Director and the Commissioner, including any
modifications or amendments requested by the Regional Director or
Commissioner. Upon written notice that the plan is accepted, it shall
be adopted by the Bank's board of directors. The Bank shall then
immediately initiate measures detailed in the plan to the extent such
measures have not been initiated.
(d) For purposes of the plan, the reduction of the level of adversely
classified assets as of December 31, 2000, to a specified percentage of
Tier 1 capital plus the allowance for loan and lease losses may be
accomplished by:
(i) Charge-off;
(ii) Collection;
(iii) Sufficient improvement in the quality of adversely classified
assets so as to warrant removing any adverse classification, as
determined by the FDIC; or
(iv) Increase of Tier 1 capital.
(e) While this ORDER is in effect, the Bank shall eliminate from
its books, by charge-off or collection, all assets or portions of
assets classified Loss as determined at any future examination
conducted by the FDIC or the State.
[.4]4. (a) Within 30 days after the effective date of this ORDER, the Bank
shall establish and thereafter maintain an adequate allowance for loan
and lease losses. Such allowance shall be funded by charges to current
operating income. Prior to the end of each calendar quarter, the
Bank's board of directors shall review the adequacy of the Bank's
allowance for loan and lease losses. Such reviews shall include, at a
minimum, the Bank's loan loss experience, an estimate of potential
loss exposure in the portfolio, trends of delinquent and non-accrual
loans and prevailing and prospective economic conditions. The minutes
of the Bank's board of directors' meetings at which such reviews are
undertaken shall include complete details of the reviews and the
resulting recommended increases in the allowance for loan and lease
losses.
(b) Within 30 days after the effective date of this ORDER, the
Bank shall review Consolidated Reports of Condition and Income filed
with the FDIC on or after December 31, 2000, and amend said reports if
necessary to properly reflect the financial condition of the Bank as of
the date of each such report. In particular, such reports shall contain
an adequate allowance for loan and lease losses. Reports filed after
the effective date of this ORDER shall also accurately reflect the
financial condition of the Bank as of the reporting date.
[.5]5. (a) While this ORDER is in effect, the Bank shall not extend,
directly or indirectly, any additional credit to or for the benefit of
any borrower who has an extension of credit with the Bank that has been
classified Loss, either in whole or in part, and is uncollected, or to
any borrower who is already obligated in any manner to the Bank on any
extension of credit, including any portion thereof, that has been
charged off the books of the Bank and remains uncollected. The
requirements of this paragraph shall not prohibit the Bank from
renewing credit already
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extended to a borrower after full collection,
in cash, of interest due from the borrower.
(b) While this ORDER is in effect, the Bank shall not extend,
directly or indirectly, any additional credit of or for the benefit of
any borrower whose extension of credit is classified Doubtful and/or
Substandard, either in whole or in part, and is uncollected, unless the
Bank's board of directors has signed a detailed written statement
giving reasons why failure to extend such credit would be detrimental
to the best interests of the Bank. The statement shall be placed in the
appropriate loan file and included in the minutes of the applicable
Bank's board of directors' meeting.
[.6]6. The Bank shall have and retain qualified management. At a minimum,
such management shall include a senior lending officer and shall have
an appropriate level of lending, collection, and loan supervision
experience for the type and quality of the Bank's loans. Such person
shall be provided the necessary written authority to implement the
provisions of this ORDER. The qualifications of management shall be
assessed on its ability to:
(a) Comply with the requirements of the ORDER;
(b) Operate the Bank in a safe and sound manner;
(c) Comply with applicable laws and regulations, and
(d) Restore all aspects of the Bank to a safe and sound condition,
including asset quality, capital adequacy, earnings, management
effectiveness, and liquidity. While this ORDER is in effect, the Bank
shall notify the Regional Director and the Commissioner in writing of
any changes in management. The notification must include the name(s)
and background(s) of any replacement personnel and must be provided
prior to the individual(s) assuming the new position(s).
[.7]7. Within 60 days after 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 Bank's lending function. Such policies and their implementation
shall be in a form and manner acceptable to the Regional Director and
the Commissioner, as determined at subsequent examinations, and shall
include, at a minimum, the following:
(a) A provision that deviations from the written lending policies
and procedures require prior approval of the Bank's board of
directors;
(b) A requirement that extensions of credit shall not be refinanced,
reworked or renewed unless current financial information and
documentation have been obtained;
(c) Standards setting forth appropriate limitations on concentrations
of credit;
(d) A requirement that all loans shall have written repayment
understandings;
(e) Guidelines under which loans are renewed or have their due dates
extended;
(i) Without full collection of interest thereon;
(ii) By acceptance of separate notes in payment of interest;
(iii) By capitalization of interest to the balance of the note;
(f) Limitations on the amount advanced in relation to the value of
the collateral securing the credit and the documentation required by
the Bank for each type of secured credit;
(g) A provision specifically outlining the collection procedures to be
taken by the Bank when borrowers fail to make timely payments;
(h) A provision outlining the documentation required on all secured
loans.
[.8]8. (a) Within 30 days after the effective date of this ORDER, the
Bank's board of directors shall establish a loan review committee to
periodically review the Bank's loan portfolio and identify and
categorize problem credits. The committee shall file a report with the
Bank's board of directors at each board meeting. This report shall
include the following information:
(i) The overall quality of the loan portfolio;
(ii) The identification, by type and amount, of each problem or
delinquent loan;
(iii) The identification of all loans not in conformance with the
Bank's lending policy; and
(iv) The identification of all loans to officers, directors, principal
shareholders or their related interests.
(b) At least 50 percent of the members of the loan review
committee shall be directors not employed in any capacity by the Bank
other than as a director.
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[.9]9. (a) Within 60 days after the effective date of this ORDER, the Bank
shall amend its written funds management policy and shall submit its
amended policy to the Regional Director and the Commissioner.
(b) The funds management policy shall be in a form and manner
acceptable to the Regional Director and the Commissioner and shall
include, at a minimum, the following.
(i) An asset/liability management strategy to achieve an
acceptable rate sensitivity balance between investments and funding
sources;
(ii) A plan to decrease the reliance of the Bank on short-term,
potentially volatile liabilities for funding longer-term assets; and
(iii) Procedures which will enable the Bank's board of directors and
the management to monitor the Bank's liquidity position and maintain
liquidity at an adequate level.
(c) Within 30 days after the Regional Director and the
Commissioner have issued their response, the policy including any
modifications or amendments requested by the Regional Director or
Commissioner, shall be adopted by the Bank's board of directors.
Thereafter, the Bank shall immediately initiate the measures detailed
in the policy to the extent such measures have not been previously
initiated.
[.10]10. Within 60 days after the effective date of this ORDER, the Bank's
board of directors shall do the following:
(a) Develop, adopt, and implement a written strategic business
plan outlining the Bank's future scope of operations and direction
that shall include, at a minimum:
(i) Short-term goals to comply with the terms of this ORDER and
correct all regulatory criticisms;
(ii) An operating plan for the next 18 months in order to accomplish
short-term goals; and
(iii) Long-term goals for growth, capital maintenance, profitability,
and service to the community.
(b) Submit the plan to the Regional Director and the Commissioner
for their review and comment.
(c) Within 60 days after the Regional Director and Commissioner have
issued their comments to the plan, the Bank shall adopt the plan
including any modifications requested by the Regional Director and
Commissioner. Thereafter, the Bank shall initiate the measures detailed
in the plan to the extent such measures have not been previously
initiated.
[.11]11. After 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 also
(2) in conjunction with its notice or proxy statement preceding the
Bank's next shareholder meeting. The description shall fully describe
the ORDER in all material respects. The description and any
accompanying communication, statement, or notice shall be sent to the
FDIC, Registration, Disclosure and Securities Operations Unit,
Washington, D.C. 20429, for review at least 20 days prior to
dissemination to shareholders. Any changes requested by the FDIC shall
be made prior to dissemination of the description, communication,
notice, or statement.
12. Within 30 days after the end of the first calendar quarter
following the effective date of this ORDER, and within 30 days after
the end of each successive calendar quarter, the Bank shall furnish
written progress reports to the Regional Director and the Commissioner
detailing the form and manner of any actions taken to secure compliance
with this ORDER and the results thereof. Such reports may be
discontinued when the corrections required by this ORDER have been
accomplished and the Regional Director and the Commissioner have
released the Bank in writing from making additional reports.
13. The effective date of this ORDER shall be 10 days after the date of
its issuance. This ORDER shall be binding upon the Bank and all
institution-affiliated parties of the Bank. The provisions of this
ORDER shall remain effective and enforceable except to the extent that,
and until such time as, any provision of this ORDER shall have been
modified, terminated, suspended, or set aside by the FDIC. Pursuant to
delegated authority.
Dated at Dallas, Texas, this 2nd day of July, 2001.
