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FDIC Enforcement Decisions and Orders

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   [11,858] In the Matter of Peoples Bank, Paragould, Arkansas, Docket No. 01-124b (10-23-01).

   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 was terminated by order of the FDIC dated 5-4-04; see ¶16,381.)

   [.1] Management—Qualifications Specified

   [.2] Management—Management Report Required

   [.3] Capital—Increase Required

   [.4] Profit Plan—Preparation of Plan Required

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

   [.6] Assets—Charge-off or Collection

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

   [.8] Loan Policy—Preparation or Revision of Policy Required

   [.9] Real Estate Activities—Other Real Estate (ORE), Management Policy Required
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   [.10] Loans—Internal Review Procedure

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

   [.12] Reports of Condition and Income—Amendment Required

   [.13] Information Systems—Management—Qualifications Specified

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

   [.15] Dividends—Dividends Restricted

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

In the Matter of
PEOPLES BANK
PARAGOULD, ARKANSAS
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

FDIC-01-124b

   Peoples Bank, Paragould, Arkansas ("Bank"), having been advised of its right to a Notice of Charges and of Hearing detailing the unsafe or unsound banking practices and violations and/or contraventions 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)(1) of the Federal Deposit Insurance Act ("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 TO CEASE AND DESIST ("CONSENT AGREEMENT") with counsel for the Federal Deposit Insurance Corporation ("FDIC"), dated October 19, 2001, whereby solely for the purpose of this proceeding and without admitting or denying the alleged charges of unsafe or unsound banking practices and violations and/or contraventions 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 violations and/or contraventions 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 directors, officers, employees, agents, and other 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, violations and/or contraventions:

       (a) Engaging in hazardous lending and lax collection practices;

       (b) Operating with inadequate capital in relation to the kind and quality of assets held by the Bank;

       (c) Operating with a large volume of poor quality loans;

       (d) Operating with an inadequate loan valuation reserve;

       (e) Operating with inadequate provisions for liquidity;

       (f) Operating in such a manner as to produce operating losses;

       (g) Operating in violation of section 39 of the FDI Act, 12 U.S.C. §1831p-1; Part 365 of the FDIC Rules and Regulations, 12 C.F.R. §365; Section 323.3(a)(1) of the FDIC Rules and Regulations, 12 C.F.R. §323.3(a)(1); Section 326.8 of the FDIC Rules and Regulations, 12 C.F.R. §326.8;, and Section 103.22(b)(1) of the Treasury Department's Financial Recordkeeping Regulations, 31 C.F.R. §103.22(b)(1);

       (h) Operating with management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits;

       (i) Operating with a board of directors which has failed to provide adequate supervision over and direction to the active management of the Bank; and

       (j) Operating with inadequate internal routine and control policies.

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

   [.1] 1. (a) Within 60 days from the effective date of this ORDER, the Bank shall
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   have management qualified to restore the Bank to a sound condition. Such management shall include an experienced chief executive officer and an experienced senior leading officer responsible for supervising the Bank's overall lending function. The chief executive officer and the senior lending official may be the same individual.

   (b) Present management shall be assessed on its ability to:

       (i) Comply with the requirements of this ORDER;

       (ii) Improve and thereafter maintain the Bank in a safe and sound condition, including asset quality, capital adequacy, liquidity adequacy, earnings adequacy, and sensitivity to market risk;

       (iii) Comply with all applicable State and Federal laws, regulations, and policy statements.

   (c) During the life of this ORDER, the Bank shall notify the Regional Director of the Memphis Regional Office ("Regional Director") and the Bank Commissioner for the State of Arkansas ("Commissioner") in writing of any resignations and/or terminations of any members of its board of directors and/or any of its senior executive officer(s).

   (d) The Bank shall comply with section 32 of the Act, 12 U.S.C. §1831i.

   (e) Within 30 days from the effective date of this ORDER, the board of directors shall establish a committee of the board of directors with the responsibility to ensure that the Bank complies with the provisions of this ORDER. At least two-thirds of the members of such committee shall be independent, outside directors as defined herein. The committee shall report at least monthly to the entire board of directors, and a copy of the report and any discussion relating to the report or the ORDER shall be included in the minutes of the board of directors. Nothing contained herein shall diminish the responsibility of the entire board of directors to ensure compliance with the provisions of this ORDER.

   (f) For the purpose of this ORDER, an "outside director" shall be an individual:

       (i) Who shall not be employed, in any capacity, by the Bank or its affiliates other than as a director of the Bank or an affiliate;

       (ii) Who shall not own or control more than five percent of the voting stock of the Bank or its holding company;

       (iii) Who shall not be indebted to the Bank or any of its affiliates in an amount greater than five percent of the Bank's equity capital and reserves;

       (iv) Who shall not be related to any directors, principal shareholders of the Bank or affiliates of the Bank; and

       (v) Who shall be a resident of, or engage in business in, the Bank's trade area.

   [.2] 2. (a) Within 60 days from the effective date of this ORDER, the board of directors shall review and make a written report ("Management Report") on the Bank's management needs in the lending area. The Management Report shall incorporate an analysis of the Bank's management and staffing requirements and shall, at a minimum:

       (i) 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;

       (ii) Provide a clear and concise description of the general duties and responsibilities for lending officers and their support staff;

       (iii) Identify the skills, experience, and pay required for each position;

       (iv) Provide an evaluation of the Bank's senior management and lending officials, indicating whether Bank officials possess the necessary lending and collection experience and qualifications required to adequately perform present and anticipated duties;

       (v) Establish a plan to recruit, hire, and/or replace personnel based on ability and experience;

       (vi) Establish a plan providing for periodic evaluation of each individual's job performance; and

       (vii) Provide for periodic review of Bank's management and updating of lending policies and procedures.

   (b) The board of directors shall obtain the services of an outside consultant(s), acceptable to the FDIC and the Commissioner, who is knowledgeable in the area of 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(s) shall be based on the consultant's ability to advise the Bank in each of the areas identified in Paragraph 2(a).
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   (c) Within 90 days of the effective date of this ORDER, the board of directors, with the assistance of the outside consultant(s), 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 of the effective date of this ORDER; the board of directors shall prepare a written report ("Written Report") which shall (1) contain a recitation identifying the recommendations made by the outside consultant(s) which have been incorporated in the Management Report and Plan, (2) a recitation identifying the recommendations made by the outside consultant(s) 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(s) prepared by the outside consultant(s).

   (e) A copy of the Management Report, Plan, and Written Report shall be submitted to the Regional Director and the Commissioner for review and comment. Within 30 days from receipt of any comment, and after consideration of such comment, the board of directors shall approve the Management Report and Plan of implementation which approval shall be recorded in the minutes of the meeting of the board of directors. It shall remain the responsibility of the board of directors to fully implement the Plan within the specified time frames. In the event the Plan, or any portion thereof, is not implemented, the board of directors shall immediately advise the Regional Director and Commissioner, in writing, of specific reasons for deviating from the Plan.

   [.3] 3. (a) Within 60 days from the effective date of this ORDER; the Bank shall increase its Tier I capital by no less than $5,000,000. During the life of this ORDER, the Bank shall maintain Tier I capital equal to or greater than eight percent (8.0%) of the Bank's adjusted Part 325 total assets.

   (b) Any increase in Tier I capital necessary to meet the requirements of Paragraph 3(a) of this ORDER may be accomplished by the following:

       (i) The sale of new securities in the form of common stock; or

       (ii) The direct contribution of cash by the directors, shareholders, or parent Bank holding company of the Bank; or

       (iii) Any other method acceptable to the FDIC.

   (c) If all or part of the increase in Tier I capital required by Paragraph 3(a) of this ORDER is accomplished by the sale of new securities, the board of directors of the Bank shall 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 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 the 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, Division of Supervision, Registration, Disclosure, & Securities Unit Section, 550 17th Street, N.W., Room F-6043, Washington, D.C., 20429 and to the Commissioner, Sedgwick Center, 400 Hardin Road, Suite 100, Little Rock, Arkansas 72211 for review. Any changes requested to be made in the plan or materials by the FDIC or the Commissioner shall be made prior to their dissemination. If the Regional Director and the Commissioner allow any part of the increase in Tier I capital to be provided by the sale of non-cumulative perpetual preferred stock, then all terms and conditions of the issue, including but not limited to, those terms and conditions relative to the interest rate and any convertibility factor, shall be presented to the Regional Director and Commissioner for prior approval.

   (d) In complying with the provisions of Paragraph 3 of this ORDER, 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 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 days from the date such material development
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   or change was planned or occurred, whichever is earlier, and shall be furnished to every subscriber and/or purchaser of the Bank's securities who received or was tendered the information contained in the Bank's original offering materials.

   (e) For purposes of this ORDER the terms "Tier I capital", "total capital" and "Part 325 total assets" shall have the meanings ascribed to them in Part 325 of the FDIC's Rules and Regulations, respectively, subsections 325.2(t) and 325.2(v), 12 C.F.R. 325.2(t) and (v). The "Capital Calculations" schedule on page 72 of the FDIC Report of Examination provides the method for determining the ratio of Tier I 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 I capital required herein.

   [.4] 4. (a) Within 90 days from the effective date of this ORDER, and within the first 30 days of each calendar year thereafter, the board of directors shall develop a written profit plan consisting of goals and strategies for improving the earnings of the Bank for each calendar year. The written profit 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 profit plan and any subsequent modification thereto shall be submitted to the Regional Director and the Commissioner for review and comment. No more than 30 days after the receipt of any comment from the Regional Director and/or the Commissioner, the board of directors shall approve the written profit plan which approval shall be recorded in the minutes of the board of directors. Thereafter, the Bank, its directors, officers, and employees shall follow the written profit plan and/or any subsequent modification.

   [.5] 5. (a) Within 30 days from the effective date of this Order, the Bank shall establish and shall thereafter maintain, through charges to current operating income, an adequate valuation reserve for loan and lease losses. In determining the adequacy of the valuation reserve for loan and lease losses, the board of directors of the Bank, shall at a minimum, consider the following:

       (i) Prevailing instructions contained in the Federal Financial Institutions Examination Council booklet entitled "Instructions-Consolidated Reports of Condition and Income";

       (ii) The volume and mix of the existing loan portfolio, including the volume and severity of nonperforming loans and adversely classified credits, as well as an analysis of net charge-offs experienced on previously adversely classified loans;

       (iii) The extent to which loan renewals and extensions are used to maintain loans on a current basis and the degree of risk associated with such loans;

       (iv) The trend in loan growth, including any rapid increase in loan volume within a relatively short time period;

       (v) General and local economic conditions affecting the collectibility of the Bank's loans;

       (vi) Previous loan loss experience by loan type, including the trend of net charge-offs as a percent of average loans over the past several years;

       (vii) Off balance sheet credit risks;

       (viii) The overall risk associated with each concentration of credit together with the degree of risk associated with each related individual borrower; and

       (ix) Any other factors appropriate in determining future valuation reserves.

   (b) Prior to the submission of any Report of Condition or Report of Income, the board of directors of the Bank shall review the adequacy of the Bank's valuation reserve for loan and lease losses. The minutes of the board meetings at which each review is undertaken shall indicate the results of the review, the amount of any increase to the reserve, and the basis for the amount of the valuation reserve. The criteria for the review shall be as set forth in Paragraph 5(a).
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   (c) Notwithstanding the provisions of Paragraph 5(a) and 5(b) above, the Bank shall achieve, within 30 days from the effective date of this ORDER, a valuation reserve for loan and lease losses, after charge off of loans classified "Loss" and required in Paragraph 6(a) below, of not less than $2,862,000, and shall thereafter maintain, through charges to current operating income, an adequate valuation reserve for loan and lease losses.

   (d) In the event that the Regional Director and/or the Commissioner determine, at subsequent examinations and/or visitations, that the Bank's valuation reserve for loan and lease losses is inadequate, the Bank shall amend its Consolidated Reports of Condition and Income in accordance with Paragraph 12.

   (e) The requirements of Paragraph 5(c) above are not to be construed as a standard for future operations.

   [.6] 6. (a) Within 10 days from the effective date of this ORDER, the Bank shall eliminate from its books, by charge-off or collection, all assets classified "Loss" as of March 31, 2001, that have not been previously collected or charged off. Reduction of these assets through proceeds of other loans made by the Bank is not considered collection for the purpose of this paragraph.

   (b) 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 approval a written plan of action directed at reducing the Bank's risk position in each line of credit or other asset which were classified "Substandard" and each line of credit or asset listed as "Special Mention" as of March 31, 2001, and which aggregated $100,000 or more. Such plan shall include but not be limited to, the following:

       (i) Target dollar levels to which the Bank will reduce each line of credit or other asset within three months, six months, and twelve months from the effective date of this ORDER; and

       (ii) Provisions for the submissions of monthly written progress reports under this Paragraph 6 to the Bank's board of directors for review and recordation in the board minutes.

   (c) As used in Paragraph 6(b) the word "reduce" means (1) to collect, (2) to charge off, or (3) to sufficiently improve the quality of assets adversely classified to warrant removing any adverse classification, as determined by the FDIC.

   [.7] 7. (a) Beginning with the effective date of this ORDER, the Bank shall not make any further extension of credit to any borrower whose loans are charged off, in whole or in part, or are adversely classified "Loss" or "Doubtful" as of March 31, 2001, and remain uncollected.

   (b) Beginning with the effective date of this ORDER, the Bank shall not make any further extension of credit to any borrower thereof whose loans in the aggregate exceed $100,000 and are adversely classified "Substandard" as of March 31, 2001, unless such extension has been approved by a majority of the Bank's board of directors in advance and the Bank's board of directors has detailed in the written minutes of the meeting how it has affirmatively determined all of the following:

       (i) That the extension of credit is in full compliance with the Bank's loan policy;

       (ii) That it is necessary to protect the Bank's interest or that the extension of credit is adequately secured;

       (iii) That based upon credit analysis, the customer is deemed to be creditworthy; and

       (iv) That all necessary loan documentation is on file, including current financial and cash flow information and satisfactory appraisal, title, and lien documents.

   The minutes shall also include the following information about the extension of credit:

       (i) The amount adversely classified as of March 31, 2001;

       (ii) The current balance;

       (iii) The amount of credit requested;

       (iv) A description of the collateral and its value securing the credit; and

       (v) A full description of the documentation presented to the board of directors including the date of the borrower's most recent financial information and the borrower's current income or cash flow data.

   (c) Beginning with the effective date of this ORDER, the Bank shall not renew any loan without the full collection of interest due. The issuance of separate notes to the borrowing customer or a third party, the proceeds of which pay interest due, shall not satisfy the requirements of this paragraph
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   unless these separate notes receive prior board approval in the same manner as outlined in Paragraph 7(b) above.

   [.8] 8. (a) Within 60 days from the effective date of this ORDER, the Bank shall review its written loan policy and make whatever changes may be necessary to provide for the safe and sound administration of all aspects of the lending function. At a minimum the loan policy shall:

       (i) Address the collection of adequate loan documentation or evidence thereof as is required by sound banking practices before disbursement of the loan proceeds to borrowers or before renewal or extensions of existing loans;

       (ii) Provide guidance for the identification of primary and secondary sources of repayment, the establishment of and adherence to realistic amortization programs, and proper and adequate loan documentation or evidence thereof as is required by sound banking practices before disbursement of the loan proceeds to borrowers or before renewal or extensions of existing loans;

       (iii) Establish real estate appraisal guidelines that conform with the Interagency Appraisal and Evaluation Guidelines, as found in Financial Institution Letter 69-92, dated September 20, 1992;

       (iv) With respect to loans secured by raw land and development loans, establish loan-to-value guidelines which are consistent with the Interagency Guidelines for Real Estate Lending Policies as codified to 12 C.F.R. Appendix A to Part 365; and

       (v) Address the Bank's concentration in agricultural loans to ensure that the concentration is consistent with safe and sound banking practices, taking into account the risks of such lending, the experience of Bank personnel, and whether the Bank has a sufficient number of personnel to manage the portfolio.

   (b) Evidence of the review and establishment of procedures to ensure compliance with the loan policy shall be reduced to writing. The policy and its implementation shall be in a form and manner acceptable to the Regional Director and the Commissioner as determined at subsequent examinations and/or visitations.

   [.9] 9. (a) Within 90 days from the effective date of this ORDER, the board of directors shall develop a plan for managing the Other Real Estate ("ORE") and other assets taken by the Bank for debts previously contracted ("other assets"). The written ORE and other assets plan shall include, at a minimum:

       (i) A quarterly review of the ORE and other assets portfolio by the ORE committee to be appointed by the board;

       (ii) Realistic and comprehensive budgets for each piece of ORE and other assets, including projections of the Bank's cost of marketing the ORE and other assets, and the Bank's costs of carrying the ORE and other assets on its books (e.g., upkeep, repairs, and insurance costs);

       (iii) A determination by the ORE committee for each piece of ORE and other assets that the property is listed with a real estate broker or otherwise made widely available for sale in an appropriate manner, and that the proposed selling price is realistic;

       (iv) Guidelines to ensure that periodic appraisals are obtained for the ORE and that progress reports are obtained from all real estate brokers marketing the ORE, including a projected sales time frame for each piece of ORE;

       (v) Guidelines to ensure that all taxes and insurance premiums are timely paid;

       (vi) An identification of any ORE or other assets that warrant the special attention of management;

       (vii) An identification of documentation exceptions on any ORE or other assets; and

       (viii) An identification of all ORE or other assets not in conformance with the Bank's ORE and other assets policies.

   (b) Reports from the ORE committee shall be submitted to the board of directors on at least a quarterly basis and a copy of such reports, as well as documentation of the action taken by the Bank to facilitate the timely sale of ORE and other assets, shall be made part of the minutes of the board of directors.

   [.10] 10. (a) Within 30 days of the effective date of this ORDER, the board shall establish 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) The identification of the overall quality of the loan portfolio;
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       (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; and

       (ix) A mechanism for reporting periodically, no less than quarterly, to the board of directors on the status of each loan identified and the action(s) taken by management.

   (b) A copy of the reports submitted to the board, 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 should include financial, income, 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 twice 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. At least two-thirds of the members of the loan committee shall be independent, outside directors as defined in Paragraph 1(f) of this ORDER.

   [.11] 11. Within 60 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of law which are set out on pages 36-40 of the Report of Examination of the Bank as of March 31, 2001. In addition, the Bank shall henceforth comply with all applicable laws and regulations.

   [.12] 12. (a) Within 30 days from the effective date of this ORDER, the Bank shall review all Consolidated Reports of Condition and Income filed with the FDIC on and after March 31, 2001 and shall amend and file with the FDIC amended Consolidated Reports of Condition and Income which accurately reflect the financial condition and the capital account 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 that accurately reflect the financial condition and the capital account 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 State or FDIC examination of the Bank during that reporting period.

   [.13] 13. (a) Within 90 days from the effective date of this ORDER, the Bank shall develop and implement procedures to address and correct the deficiencies noted in the May 21, 2001, Information Systems Report of Examination, particularly those relating to audit coverage, security administrations, and management oversight.

   (b) Within 90 days from the effective date of this ORDER, the Bank shall appoint an information systems (IS) manager qualified to correct the deficiencies noted in paragraph 13(a) above. The IS manager may be an individual or group.

   (c) The IS manager shall be assessed on his ability to:

       (i) Comply with the requirements of this ORDER; and

       (ii) Improve and thereafter maintain the information systems operation in a safe and secure manner.


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   (d) The IS manager shall have:

       (i) A sound knowledge of bank accounting practices and recordkeeping requirements;

       (ii) A firm understanding of management concepts and practices and the fundamental principles of internal control;

       (iii) The ability to communicate tactfully (orally and in writing) with senior management;

       (iv) A general understanding of systems design and project management concepts;

       (v) A general knowledge of operating systems, automated applications, methods of storing and retrieving data files, i.e., programming, file organization and documentation, direct access storage devices, and controls customarily used in information systems;

       (vi) The ability to identify general installation security measures and work flow, including risk analysis and threat assessment; and

       (vii) A working knowledge of data processing technology.

   (e) Within 60 days from the effective date of this ORDER, the Bank shall formulate and implement a functional audit program of the Bank's data processing operations. The program shall include the appointment of an Internal Information System Auditor or Information System Audit Manager, who shall be independent from the IS Manager. The Internal Information System Auditor or Information System Audit Manager shall have:

       (i) The knowledge of, and expertise in, information systems auditing concepts and techniques;

       (ii) The ability to direct, plan, schedule, and supervise specific IS audit functions;

       (iii) The ability to investigate IS functions thoroughly and document the results of the investigation;

       (iv) The ability to communicate tactfully (orally and in writing) with those subject to the audit and the Bank's senior management; and

       (v) The ability to derive, summarize, and report criticisms effectively and constructively.

   [.14] 14. Within 60 days from the effective date of this ORDER, the Bank shall formulate and adopt a written liquidity and funds management policy. Such policy shall include the establishment of acceptable ranges of ratios in the following areas: volatile liability dependence, total loans to total deposits, and temporary investments to volatile liabilities. In addition, the liquidity policy shall incorporate a funds management program which designates acceptable levels for: volatile liabilities, including borrowings; asset mix, including temporary funds and investments, long-term investment securities and classes of obligors, and loans to deposits; and rate-sensitive assets as a percent of rate-sensitive liabilities. The written liquidity and funds management policy shall be submitted to the Regional Director and the Commissioner for review and comment.

   [.15] 15. While this ORDER is in effect, the Bank shall not declare or pay any cash dividends on its capital stock without the prior written approval of the Regional Director and the Commissioner.

   [.16] 16. Following the effective date of this ORDER, the Bank shall send to its shareholders or otherwise furnish a description of this ORDER, (i) in conjunction with the Bank's next shareholder communication, and also (ii) 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, Division of Supervision, Registration, Disclosure, & Securities Unit, 550 17th Street, N.W., Room F-6043, Washington, D.C., 20429 and to the Commissioner, Sedgwick Center, 400 Hardin Road, Suite 100, Little Rock, Arkansas 72211, for review at least 20 days prior to dissemination to shareholders. Any changes requested by the FDIC and/or the Commissioner shall be made prior to dissemination of the description, communication, notice, or statement.

   17. On the 15th day of the second month following the effective date of this ORDER, and on the 15th day of every third month thereafter, 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 Commissioner have released
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   the Bank in writing from making further reports.

   The provisions of this ORDER shall be binding upon the Bank, its directors, officers, employees, agents, successors, assigns, and other institution-affiliated parties of the Bank.

   This ORDER shall become effective 10 days from the date of its issuance.

   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: October 23, 2001.

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Last Updated 8/29/2004 legal@fdic.gov