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FDIC Enforcement Decisions and Orders

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   [11,864] In the Matter of Savanna State Bank, Savanna, Illinois, Docket No. 01-119b (11-16-01).

   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 6-28-02; see ¶16,315.)

   [.1] Capital—Maintain Tier 1 Capital

   [.2] Management—Management Plan Required

   [.3] Management—Qualifications Specified

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

   [.5] Dividends—Dividends Restricted

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

   [.7] Assets—Charge-off or Collection

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

   [.9] Loans—Risk Position—Written Plan Required

   [.10] Loans—Special Mention

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

   [.12] Loans—Collections, Written Policy Required

   [.13] Loan Committee—Duties Specified

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

   [.15] Investments and Investment Policy—Investment Policy, Preparation or Revision Required

   [.16] Violations of Law—Correction of Violations Required
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   [.17] Interagency Policy Statement on External Auditing Programs—Implementation Required

   [.18] Profit Plan—Preparation of Plan Required

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

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

In the Matter of
SAVANNA STATE BANK
SAVANNA, ILLINOIS
An Illinois State Chartered
Nonmember Bank
ORDER TO CEASE AND DESIST

No. 2001-BBTC-31
FDIC-01-119b

   The Savanna State Bank, Savanna, Illinois ("Bank"), having been advised of its right to a NOTICE OF CHARGES AND OF HEARING detailing the unsafe or unsound banking practices and violations of laws and regulations alleged to have been committed by the Bank, and of its right to a hearing on the charges under 38 Ill. Adm. Code, section 392.30, regarding hearings before the Office of Banks and Real Estate for the State of Illinois ("OBRE"), and under section 8(b)(1) of the Federal Deposit Insurance Act (the "FDI Act"), 12 U.S.C. 1818(b)(1), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST (the "STIPULATION") with representatives of OBRE and the Federal Deposit Insurance Corporation ("FDIC"), dated October 22, 2001, whereby solely for the purpose of this proceeding and without admitting
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   nor denying the charges of unsafe or unsound banking practices or violations of laws and regulations, consented to the issuance of an ORDER TO CEASE AND DESIST ("ORDER") by OBRE and the FDIC.

   OBRE and the FDIC considered the matter and determined that, based upon the findings of the examination of the Bank by OBRE dated May 14, 2001 ("OBRE Report"), there was reason to believe that the Bank had engaged in unsafe or unsound banking practices and violations of laws and regulations. OBRE and the FDIC, therefore, accepted the STIPULATION and issued the following:

ORDER TO CEASE AND DESIST

   IT IS HEREBY ORDERED, that the Bank, its institution-affiliated parties, as that term is defined in section 3(u) of the FDI Act, 12 U.S.C. 1813(u), and its successors and assigns, cease and desist from the following unsafe or unsound banking practices and violations of laws and regulations:

       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 establish and enforce adequate loan repayment programs;

         — The failure to obtain current and complete financial information;

         — The failure to enforce loan policy guidelines;

         — The failure to follow acceptable credit administration practices;

         — The failure to follow generally accepted accounting principles and the Financial Institutions Examination Council's (the "FFIEC") Instructions for the Report of Condition and Income for non-accrual loans;

         — The failure to establish and maintain an adequate credit risk grading system and credit review program; and

         — The failure to maintain an adequate internal loan watch list.

       B. Operating with an inadequate level of capital protection for the kind and quality of assets held.

       C. Operating with a high level of adversely classified assets as well as delinquent and nonaccrual loans.

       D. Operating with an inadequate allowance for loan and lease losses for the volume, kind and quality of loans and leases held.

       E. Operating with inadequate internal routines and controls.

       F. Operating with weak lending guidelines and practices.

       G. Operating with an inadequate audit program.

       H. Operating with an inadequate investment policy.

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

       J. Operating with a board of directors that has failed to exercise adequate supervision over Bank management.

       K. Failing to implement and monitor appropriate Bank policies.

       L. Failing to implement timely corrective measures to resolve continuing asset problems.

       M. Paying excessive dividends in relation to the Bank's capital position, earnings capacity and asset quality.

       N. Failing to obtain an annual external audit, in contravention of the Interagency Policy Statement on External Auditing Programs of Banks and Savings Associations (October 15, 1999).

       O. Failing to conduct periodic asset quality reviews, establish reserves that are sufficient to absorb estimated losses, and provide periodic asset reports with adequate information for management and the directorate to assess the level of asset risk, as set forth in Appendix A to Part 364 of the FDIC Rules and Regulations, 12 C.F.R. Part 364, Appendix A.

       P. Violating laws or regulations, including:

         — Funding or providing loans or extensions of credit to senior officers, employees or directors of the Bank in violation of the requirements provided under Section 17 of the Illinois Banking Act (the
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         "Act"), [205 ILCS 5/37], and 38 Ill. Adm. Code, Part 340;

         — Declaring and paying a dividend in violation of the requirements provided under Section 14(8) of the Act, [205 ILCS 5/14];

         — Funding or providing loans and extensions of credit to executive officers, directors or principal shareholders of the Bank in violation of Section 215.4(b) of Regulation O of the Board of Governors of the Federal Reserve System ("Regulation O"), 12 C.F.R. 215.4(b);

         — Funding or providing loans and extensions of credit to executive officers, directors or principal shareholders of the Bank in violation of Section 215.4(c) of Regulation O, 12 C.F.R. 215.4(c);

         — Funding and providing loans and extensions of credit to executive officers of the Bank in violation of the requirement that such loans or extensions of credit contain a "due and payable clause," as provided by Section 215.5(d)(4) of Regulation O, 12 C.F.R. 215.5(d)(4);

         — Funding or providing loans and extensions of credit to executive officers, directors or principal shareholders of the Bank in violation of Section 215.6 of Regulation O, 12 C.F.R. 215.6;

         — Operating with executive officers who have failed to file written reports of indebtedness at other bank(s) in violation of Section 215.9 of Regulation O, 12 C.F.R. 215.9;

         — Purchasing low-quality assets from an affiliate in violation of Section 35.2(a)(3) of the Act, [205 ILCS 5/35.2], and Section 23A(a)(3) of the Federal Reserve Act, 12 U.S.C. 371c(a)(3);

         — Funding or providing unsecured loans or extensions of credit to an affiliate in violation of Section 35.2(c)(1) of the Act, [205 ILCS 5/35.2], and 23A(c)(1) of the Federal Reserve Act, 12 U.S.C. 371c(c)(1);

         — Funding or providing extensions of credit to executive officers, directors or principal shareholders of the Bank in violation of the requirements of Section 337.3 of the FDIC Rules and Regulations, 12 C.F.R. 337.3, regarding limits on extensions of credit;

         — Failing to obtain an appraisal for a real estate-related financial transaction in violation of Section 323.3(a( of the FDIC Rules and Regulations, 12 C.F.R. 323.3(a); and

         — Failing to file a Suspicious Activity Report relating to an apparent check kiting scheme, as required by Section 353.3 of the FDIC Rules and Regulations, 12 C.F.R. 353.3.

   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 90 days from the effective date of this ORDER, the Bank shall develop and submit to OBRE and the FDIC a plan to maintain its Tier 1 leverage capital ratio at a level of not less than 8 percent of total assets.

   (b) Within 30 days from the last day of each calendar quarter following the effective date of this ORDER, the Bank shall determine from its Report of Condition and Income its level of Tier 1 capital as a percentage of its total assets ("capital ratio") for that calendar quarter. If the capital ratio is less than 8 percent, the Bank shall, within 60 days from the date of the required determination, increase its capital ratio to not less than 8 percent calculated as of the end of that preceding quarterly period. For purposes of this ORDER, Tier 1 capital and total assets shall be calculated in accordance with Part 325 of the FDIC Rules and Regulations ("Part 325"), 12 C.F.R. Part 325.

   (c) Any such increase in Tier 1 capital may be accomplished by the following:

       (i) The sale of common stock and noncumulative perpetual preferred stock constituting Tier 1 capital under Part 325;

       (ii) The elimination of all or part of the assets classified "Loss" in the OBRE Report without loss or liability to the Bank, provided any such collection on a partially charged-off asset shall first be applied to that portion of the asset which was not charged off previously pursuant to this ORDER;

       (iii) The collection in cash of assets previously charged off;

       (iv) The direct contribution of cash by the directors and/or the shareholders of the Bank or its holding company;

       (v) Any other means acceptable to the Commissioner of OBRE ("Commissioner") and the Regional Director of the
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       Chicago Regional Office of the FDIC ("Regional Director"); or

       (vi) Any combination of the above means.

   (d) if all or part of the increase in capital required by this paragraph is to be 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 by or controlled by them in favor of said plan. Should the implementation of the plan involve public distribution of the Bank securities, including a distribution limited only to the Bank's existing shareholders, the Bank shall prepare detailed 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 materials used in the sale of the securities shall be submitted to the FDIC Registration and Disclosure Section, 550 17th Street, N.W., Washington, D.C., 20429, and to OBRE, 500 E Monroe Street, Suite 900, Springfield, Illinois, 62701 for review. Any changes requested to be made in the materials by OBRE or the FDIC shall be made prior to their dissemination.

   (e) In complying with the provisions of this paragraph 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 that 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 of the date any material development or change was planned or occurred, whichever is earlier, and shall be furnished to every purchaser and/or subscriber of the Bank's original offering materials.

   (f) The capital ratio analysis required by this paragraph shall not negate the responsibility of the Bank and its board of directors for maintaining throughout the year an adequate level of capital protection for the kind, quality and degree of market depreciation of assets held by the Bank.

   [.2]2. (a) Within 30 days from the effective date of this ORDER, the Bank shall retain a bank consultant acceptable to the Commissioner and the Regional Director. 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 for the Bank.

   (b) The Bank shall provide the Commissioner and the Regional Director with a copy of the proposed engagement letter or contract with the consultant for review before it is executed. The contract or engagement letter, at a minimum should include:

       (i) A description of the work to be performed under the contract or engagement letter;

       (ii) The responsibilities of the consultant;

       (iii) An identification of the professional standards covering the work to be performed;

       (iv) Identification of the specific procedures to be used when carrying out the work to be performed;

       (v) The qualifications of the employee(s) who are to perform the work;

       (vi) The time frame for the completion of the work;

       (vii) Any restrictions on the use of the reported findings; and

       (viii) A provision for unrestricted examiner access to work papers.

   (c) The Management Plan required by this paragraph shall be developed within 60 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
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       maintenance of the Bank in a safe and sound condition;

       (iv) A review of the compensation level of the Bank's officers and staff members, with consideration given as to whether the current compensation level is adequate to attract and retain qualified employees; and

       (v) 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 the Management Plan.

   (d) The Management Plan shall be submitted to the Commissioner and the Regional Director for review and comment upon its completion. Within 30 days from the receipt of any comment from the Commissioner or the Regional Director and after the adoption of any recommended changes, 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 approved Management Plan.

   [.3]3. (a) Within 90 days from the effective date of this ORDER, the Bank shall have and retain qualified management. Each member of management shall have the qualifications and experience commensurate with his or her duties and responsibilities at the Bank. At a minimum, such management shall include: (i) a president and chief executive officer with proven ability in managing a bank of comparable size and experience in upgrading a low-quality loan portfolio; and (ii) a senior lending officer with an appropriate level of lending, collection, and loan supervision experience for the type and quality of the Bank's loan portfolio. Such persons 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:

       (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 Commissioner and the Regional Director in writing of any changes in any of the Bank's management. For purposes of this ORDER, management includes any "director," as defined in section 303.101(a) of the FDIC Rules and Regulations, 12 C.F.R. 303.101(a), and any "senior executive officer," as defined in section 303.101(b) of the FDIC Rules and Regulations, 12 C.F.R. 303.101(b), including any person identified by the FDIC and OBRE, whether or not hired as an employee, with significant influence over, or who participates in, major policymaking decisions of the Bank.

   (c) Prior to the addition of any director or the employment of any senior executive officer, the Bank shall comply with the requirements of section 32 of the FDI Act ("Section 32"), 12 U.S.C. 1831(i), and Subpart F of Part 303 of the FDIC Rules and Regulations ("Subpart F"), 12 C.F.R. Part 303, Subpart F. In addition, prior to the addition of any director or the employment of any senior executive officer including any person identified by the FDIC and OBRE, whether or not hired as an employee, with significant influence over, or who participates in, major policymaking decisions of the Bank, the Bank shall request and obtain the written approval of the Commissioner.

   [.4]4. Within 90 days from the effective date of this ORDER, the Bank shall add to its board of directors two new members who are independent directors. For purposes of this ORDER, a person who is an independent director shall be an individual: (a) who is not an officer of the Bank or any of its affiliated organizations; (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 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
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   the extent permissible by Illinois law and the Bank's bylaws, by means of appointment or by election at a regular or special meeting of the Bank's shareholders.

   [.5]5. As of the effective date of this ORDER, the Bank shall pay no cash dividends that would result in a Tier 1 capital ratio of less than 8 percent, without the prior written consent of the Commissioner and the Regional Director.

   [.6]6. (a) 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 who is already obligated in any manner to the Bank on any extensions of credit (including any portion thereof) that have been charged off the books of the Bank or classified "Loss" so long as such credits remain uncollected.

   (b) 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," or is listed for special Mention in the OBRE Report 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.

   [.7]7. 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" in the OBRE Report that have not been previously collected or charged off. Any such charged-off asset shall not be rebooked without the prior written consent of the Commissioner and the Regional Director. Elimination or reduction of these assets with the proceeds of other Bank extensions of credit is not considered collection for the purpose of this paragraph.

   [.8]8. (a) Within 30 days from the effective date of this ORDER, the Bank shall make an additional provision for loan and lease losses which, after review and consideration by the Bank's board of directors, reflects the potential for further losses in the remaining loans and leases classified "substandard" and all other loans and leases in the Bank's loan portfolio.

   (b) Within 60 days from the effective date of this ORDER, Reports of Condition and Income required by OBRE and the FDIC and filed by the Bank subsequent to December 31, 2000 shall be amended and refiled if they do not reflect a provision for loan and lease losses and an allowance for loan and lease losses ("ALLL") which are adequate considering the condition of the Bank's loan portfolio, and which, at a minimum, incorporate any adjustment required by this paragraph.

   (c) Prior to submission or publication of all Reports of Condition and Income required by OBRE and the FDIC 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 FFIEC's Instructions for the Reports of Condition and Income and any analysis of the Bank's ALLL provided by OBRE and the FDIC.

   (d) While this ORDER is in effect, the Bank shall submit to OBRE and the FDIC 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 required by this ORDER.

   (e) ALLL entries required by this paragraph shall be made prior to any Tier 1 capital determinations required by this ORDER.

   [.9]9. (a) Within 60 days from the effective date of this ORDER, the Bank shall formulate and submit to the Commissioner and the Regional Director for review and comment, a written plan to reduce the Bank's risk position in each asset in excess of $50,000 which is classified "Substandard" in the OBRE Report. 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.


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

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

       (ii) Provisions for the submission of monthly written progress reports to the 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 and OBRE.

   (d) Within 30 days from the receipt of any comment from the Commissioner or the Regional Director and after the adoption of any recommended changes, 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.

   [.10]10. Within 60 days from the effective date of this ORDER, the Bank shall correct all deficiencies in the loans listed for "Special Mention" in the OBRE Report.

   [.11]11. Within 60 days from the effective date of this ORDER, the Bank shall correct the technical exceptions identified in the OBRE Report.

   [.12]12. (a) Within 60 days from the effective date of this ORDER, the Bank shall formulate and submit to the Commissioner and the Regional Director for review and comment a written plan for the reduction and collection of delinquent and nonaccrual loans. Said plan shall include, at a minimum, provisions which prohibit the extension of credit for the payment of interest; prohibit the extension and/or renewal of loan terms and loan payments, especially in regard to classified borrowers, without prior board approval; delineate areas of responsibility for loan officers, and establish acceptable guidelines for the collection of delinquent credits. Such plan shall include, but not be limited to, the following:

       (i) Dollar levels to which the Bank shall reduce delinquencies within six and twelve months from the effective date of this ORDER; and

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

   (b) Within 30 days from receipt of any comment from the Commissioner or the Regional Director, and after the adoption of any recommended changes, the Bank shall approve the plan, which approval shall be recorded in the minutes of a board of directors' meeting. Thereafter, the Bank shall implement and follow the plan.

   [.13]13. As of the effective date of this ORDER, the Bank's loan committee shall meet at least twice a month. The loan committee shall, at a minimum, perform the following functions:

   (a) Evaluate, grant, and/or approve loans in accordance with the Bank's loan policy. The loan committee shall provide a thorough written explanation of any deviations from the loan policy, which statement shall address how said exceptions are in the Bank's best interest and shall be reflected in the minutes of the corresponding committee meeting.

   (b) Review and monitor the status of repayment and collection of overdue and maturing loans, as well as all other loans classified "Substandard" in the OBRE Report, and any subsequent examinations conducted by OBRE or the FDIC or that are included on the Bank's internal watch list.

   (c) Review and give prior written approval for all advances, renewals, or extensions of credit to any borrower or the borrower's related interests when the aggregate volume of credit extended to the borrower and the borrower's related interests exceeds $100,000. For purposes of this ORDER, the term "related interest" is defined pursuant to Section 215.2(n) of Regulation O, 12 C.F.R. 215.2(n).

   (d) Review all applications for new loans and renewals of existing loans to Bank directors, executive officers, and their related interests, and prepare a written opinion as to whether the credit is in conformance with the Bank's loan policy and all applicable laws and regulations. Such applications, renewals, and written opinions shall be referred to the Bank's board of directors for consideration, with the interested party abstaining from participation in any such consideration.

   (e) Maintain written minutes of the committee meetings that include a record of the review and status of the aforementioned loans.
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   [.14]14. (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 shall be submitted to the Commissioner and the Regional Director for review and comment upon completion.

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

       (i) Establishing a system to clearly define each loan risk grade used by the Bank and shall include risk grades that align with the regulatory categories of "substandard," "doubtful" and "loss";

       (ii) Establishing and maintaining a formal, objective and documented loan grading system;

       (iii) Establishing a nonaccrual policy in accordance with the FFIEC Instructions for the Consolidated Reports of Condition and Income, to include charging off accrued interest when placing a loan on nonaccrual status; and

       (iv) Establishing review and monitoring procedures to ensure that all lending personnel are adhering to established lending policies and procedures, and that the directorate is receiving timely and fully documented reports on loan activity, including any deviations from established policy.

   (c) Within 60 days from the receipt of any comments from the Commissioner or the Regional Director, after the adoption of any recommended changes, 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. The Bank shall notify the Commissioner and the Regional Director, in writing, of the manner in which it intends to implement this policy and ensure compliance therewith.

   [.15]15. (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 written investment guidelines for adequacy, and shall make revisions which, at a minimum, address the exceptions noted in the OBRE Report, and are consistent with the FDIC's Supervisory Policy Statement on Investment Securities and End-User Derivatives Activities (May 26, 1998).

   (b) A copy of the revised policy guidelines shall be submitted to the Commissioner and the Regional Director for review and comment. Within 30 days of the receipt of any comments from the Commissioner or the Regional Director, and after the adoption of any recommended changes, the Bank shall approve the policy, which approval shall be recorded in the minutes of the board of directors' meeting. Thereafter, the Bank shall implement and follow the policy.

   [.16]16. (a) Within 60 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of laws or regulations listed in the OBRE Report.

   (b) Within 60 days from the effective date of this ORDER, the Bank shall implement procedures to ensure future compliance with all applicable laws and regulations.

   [.17]17. (a) Within 60 days from the effective date of this ORDER, the Bank shall conform to the Interagency Policy Statement on External Auditing Programs of Banks and Savings Associations (October 15, 1999). The steps taken by the Bank to implement the Interagency Policy shall be recorded in its board of directors' minutes and forwarded to the Commissioner and the Regional Director for review and comment.

   (b) Within 30 days from the receipt of any comment from the Commissioner or the Regional Director, and after the adoption of any recommended changes, the Bank shall continue to implement the Interagency Policy. The adoption of any such comments and changes should be recorded in the minutes of the board of directors' meeting.

   (c) Within 60 days from the effective date of this ORDER, and annually thereafter, the Bank shall provide for an external audit of its financial statements and operating procedures to be performed by an independent public accounting firm acceptable to the Commissioner and the Regional Director.

   (d) During the life of this ORDER, the Bank shall forward copies of any external audit reports required by this paragraph to
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   the Commissioner and the Regional Director within 10 days from the Bank's receipt of such reports.

   [.18]18. (a) By November 30, 2001, the Bank shall formulate and submit to the Commissioner and the Regional Director for review and comment a written profit plan and a realistic, comprehensive budget for all categories of income and expense for calendar year 2002. The plan required by this paragraph shall include formal goals and strategies, consistent with sound banking practices, to improve the Bank's overall earnings, and shall contain a description of the operating assumptions that form the basis for major projected income and expense components.

   (b) The written profit plan shall address, at a minimum, the following:

       (i) Strategies to improve the Bank's earnings; and

       (ii) All assumptions used in preparing the plan.

   (c) At the end of each calendar quarter following the effective date of this ORDER, the Bank's board of directors shall evaluate the Bank's actual performance in relation to the plan and budget required by this paragraph and record the results of the evaluation, and any actions taken by the Bank, in the minutes of the board of directors meeting at which such evaluation is undertaken.

   (d) The written profit plan and budget required by this ORDER shall be prepared and submitted to the Commissioner and the Regional Director for review and comment 30 days prior to the end of each calendar year for which this ORDER is in effect. Within 30 days of receipt of all such comments from the Commissioner or the Regional Director and after adoption of any recommended changes, the Bank shall approve the plan, which approval shall be recorded in the minutes of a board of directors' meeting. Thereafter, the Bank shall implement and follow the plan.

   [.19]19. 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 shall fully describe the ORDER in all material respects. The description and any accompanying communication, notice, or statement shall be sent to the FDIC Registration and Disclosure Section, 550 17th Street, N.W., Washington, D.C., 20429, and to OBRE, 500 E. Monroe Street, 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.

   [.20]20. (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.

   21. Within 10 days after each board meeting following the effective date of the ORDER, the Bank shall submit to the Commissioner and the Regional Director the board packet from said board meeting.

   22. Within 30 days from the end of each calendar quarter following the effective date of this ORDER, the Bank shall furnish to the Commissioner and the Regional Director 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 may be discontinued when the corrections required by this ORDER have been accomplished and the Commissioner and the Regional Director have, in writing, released the Bank from making further reports.

   23. The effective date of this ORDER shall be 10 days after its issuance.

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

   25. 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 OBRE and the FDIC.

   Pursuant to delegated authority.

   Dated this 16th day of November, 2001.

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