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   [11,865] In the Matter of Citizens Community Bank of Decatur, Decatur, Illinois, Docket No. 01-131b (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 modified by orders of the FDIC dated 1-22-02 and 10-8-04; see ¶16,301 and 16,396.)

   [.1] Management—Qualifications Specified

   [.2] Reconciliation of Books and Records—Examination Required

   [.3] Reconciliation of Books and Records—Maintain

   [.4] Capital—Increase Required

   [.5] Interest Rate Risk Policy—Plan Required

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

   [.7] Profit Plan—Preparation of Plan Required

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

   [.9] Loans—Risk Position—Reduction of Adversely Classified Lines of Credit Required

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

   [.11] Loans—Special Mention

   [.12] Audit—Program Required

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

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

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

In the Matter of
CITIZENS COMMUNITY BANK OF DECATUR
DECATUR, ILLINOIS
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

FDIC-01-131b
OBRE No. 2001-BBTC-35

   Citizens Community Bank of Decatur, Decatur, Illinois ("Bank"), having been advised of its right to a NOTICE OF CHARGES AND OF HEARING ("NOTICE") detailing the unsafe or unsound banking practices and violations of law, rule or regulation alleged to have been committed by the Bank, and of its right to a hearing on the charges under section 8(b) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. §1818(b), and under 38 Ill. Adm. Code, Section 392.30, regarding hearings before the Office of Banks and Real Estate for the State of Illinois ("OBRE"), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("STIPULATION") with representatives of the Federal Deposit Insurance Corporation ("FDIC") and OBRE dated October 25, 2001, whereby, solely for the purpose of this proceeding and without admitting or denying the charges of unsafe and unsound banking practices and violations of law, rule or regulation, the Bank consented to the issuance of an ORDER TO CEASE AND DESIST ("ORDER") by the FDIC and OBRE.

   The FDIC and OBRE considered the matter and determined that they had reason to believe that the Bank had engaged in unsafe or unsound banking practices and violations of law, rule or regulation. The FDIC and OBRE, therefore, accepted the STIPULATION and the FDIC and OBRE issued the following:

ORDER TO CEASE AND DESIST

   IT IS HEREBY ORDERED, that the Bank, its institution-affiliated parties, as that term is defined in section 3(u) of the Act, 12 U.S.C. §1813(u), and its successors and assigns, cease and desist from the following unsafe or unsound banking practices:
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   A. Operating with inadequate internal routines and controls;

   B. Failing to accurately maintain books and records;

   C. Operating with inadequate financial audit programs;

   D. Operating with an inadequate level of capital protection for the volume, kind and quality of loans and leases held;

   E. Operating with an inadequate allowance for loan and lease losses ("ALLL") for the volume, kind, and quality of loans and leases held;

   F. Operating with an excessive level of adversely classified assets, assets listed as "Special Mention", delinquent loans and non-accrual loans;

   G. Engaging in hazardous lending and lax collection practices, including, the failure to obtain proper loan documentation, the failure to establish and enforce adequate loan repayment programs, and other poor credit administration practices;

   H. Operating with inadequate earnings to maintain acceptable levels of capital;

   I. Violating laws, rules and regulations;

   J. Operating with an inadequate investment policy;

   K. Operating with an inadequate asset liability management policy;

   L. Operating with inadequate liquidity in light of the Bank's asset and liability mix;

   M. Failing to adequately monitor and control interest rate risk;

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

   O. Operating with a board of directors which has failed to provide adequate supervision over and direction to management.

   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 have and retain qualified management. At a minimum, such management shall include a new chief executive officer with proven ability in managing a bank of comparable size and experience. 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:

       (i) Comply with the requirements of this ORDER;

       (ii) Operate the Bank in a safe and sound manner;

       (iii) Comply with applicable laws, rules and regulations; and

       (iv) Restore all aspects of the Bank to a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness, and liquidity.

   (b) During the life of this ORDER, the Bank shall notify the Regional Director of the Chicago Regional Office of the FDIC ("Regional Director") and the Commissioner of OBRE ("Commissioner") in writing of any changes in any of the Bank's management. For purposes of this ORDER, "management" is defined as members of the board of directors and "senior executive officers," as that term is defined in section 32 of the FDI Act ("section 32"), 12 U.S.C. §1831(i), and 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 policy making 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 requirement of section 32 and Subpart F of Part 303 of the FDIC Rules and Regulations ("Subpart F"), 12 C.F.R. §§ 303.100-303.104. In addition, prior to the addition of any director or the employment of any senior executive officer, the Bank shall request and obtain the written approval of the Commissioner.

   [.2]2. By October 30, 2001, the Bank shall retain an independent certified public accounting firm, acceptable to the Regional Director and the Commissioner, to conduct agreed-upon procedures, including, but not limited to, reconciliation of the financial statements of the Bank, as of October 31, 2001, and direct positive verification of the bank's assets and liabilities as of October 31, 2001.

   (a) At a minimum, the agreed-upon procedures shall determine:

       (i) Whether the Bank has adequate written reconciliation procedures for each account;
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       (ii) Whether the Bank has reconciled all accounts and the date of the most recent reconciliation of each account; and

       (iii) For each and every account of the Bank;

         (1) Whether reconciliations are done in a timely manner based on the risk and volume of activity in each account;

         (2) Whether reconciliations adequately report the dollar amount and the description of any outstanding unreconciled transactions;

         (3) The adequacy of the segregation of duties of the personnel preparing the reconciliations; and

         (4) The collectibility of any unreconciled debits outstanding in excess of 90 days, as of October 31, 2001.

   (b) At a minimum the direct verification shall include all deposits, borrowings, loans and investments with balances in excess of $1,000.

   (c) The Bank shall require, as part of its agreement with the accounting firm, that the accounting firm complete the agreed-upon procedures and direct verification by December 15, 2001. The accounting firm's initial written report, whether in draft or final form, shall be submitted directly to the Regional Director by December 31, 2001.

   (d) Within 10 days of the Bank's receipt of the accounting firm's written report, the Bank shall carry out all of the report's recommendations.

   [.3]3. By December 15, 2001, the Bank shall have fully reconciled its books and records and shall continue to maintain accurate books and records. By December 15, 2001 and every 30 days thereafter, any outstanding debits stale over 90 days, in correspondent bank accounts, unposted accounts and any other accounts, will be immediately eliminated from the Bank's books. Written documentation of the reconciliations and any related entries to the financial statements shall be retained for future regulatory review. Such documentation should include, at a minimum, the date the item was originally processed, the dollar amount of the item, the original description, what research was done to clear the item including copies of any supporting documents, and the manner cleared, such as a correcting entry or a charge off.

   [.4]4. (a) 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 leverage capital as a percentage of its average total assets ("capital ratio") for that calendar quarter. If the capital ratio is less than 8.0 percent, exclusive of a fully funded Allowance for Loan and Lease Losses account, the Bank shall, within 60 days of the date of the required determination, increase its capital ratio to not less than 8.0 percent calculated as of the end of that preceding quarterly period. For purposes of this ORDER, Tier 1 leverage capital and average total assets shall be calculated in accordance with Part 325 of the FDIC Rules and Regulations ("Part 325"), 12 C.F.R. Part 325.

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

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

       (ii) The elimination of all or part of the assets classified "Loss" as of June 11, 2001, 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 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;

       (v) Any other means acceptable to the Regional Director and the Commissioner; or

       (vi) Any combination of the above means.

   (c) 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
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   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 and State securities laws. Prior to the implementation of the plan and, in any event, not less than 20 days prior to the dissemination of such materials, the 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 the Illinois Office of Banks and Real Estate, Bureau of Banks and Trusts, 500 E. Monroe Street, Springfield, Illinois 62701-1532.

   Any changes requested to be made in the materials by the FDIC or the OBRE shall be made prior to their dissemination.

   (d) In complying with the provisions of paragraph 4(c) of this ORDER, until the offering is completed, the Bank shall provide to any subscriber and/or purchaser of Bank securities written notice of any planned or existing development or other changes which are materially different from the information reflected in any offering materials used in connection with the sale of Bank securities. The written notice required by this paragraph shall be furnished within 20 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.

   (e) 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.

   [.5]5. (a) Within 30 days from the effective date of this ORDER, the Bank's board of directors should formulate, and submit to the Regional Director and Commissioner for review and opportunity to comment, a plan for managing interest rate risk in a manner that is appropriate to the size of the institution and the complexity of its assets. The plan shall outline the specific actions that management will take to correct the imbalance in the Bank's interest rate sensitive assets and liabilities and the projected time frame for such actions.

   (b) Within 30 days from the receipt of such comments, and after consideration of all such comments, the Bank shall approve the plan, which approval shall be recorded in the minutes of a board of director's meeting. Thereafter, the Bank shall implement and follow plan.

   [.6]6. (a) Within 30 days from the effective date of this ORDER, the Bank's board of directors shall formulate, and submit to the Regional Director and Commissioner for review and comment, a plan for improving and maintaining liquidity, which shall include reducing the dependency upon volatile liabilities to fund loans and long-term assets. Annually thereafter during the life of this ORDER, the Bank shall review this plan for adequacy and, based upon such review, shall make appropriate revisions in the plan to maintain adequate provisions to meet the Bank's liquidity needs. The liquidity plan should address, at a minimum, the following:

       (i) Target levels to which the Bank will reduce its net noncore funding dependency ratio and improve its liquidity ratio within 6 and 12 months from the date of the plan;

       (ii) Provide monthly calculations of both ratios to the board of directors for review and approval at its regular meetings;

       (iii) Provide monthly reports to the board of directors listing wholesale funding, brokered deposits, and other borrowings, including the amount and rate; and

       (iv) Provide monthly reports to the board of directors which list the maturity distribution of the investment portfolio, the level of depreciation within the portfolio, and a list of unpledged securities which could be sold to meet an unexpected liquidity need.

   (b) Within 30 days from the receipt of comments from the Regional Director and Commissioner, and after consideration of all such comments, the Bank shall approve the plan, which approval shall be recorded in the minutes of a board of director's meeting. Thereafter, the Bank shall implement and follow the plan.

   [.7]7. (a) Within 90 days from the effective date of this ORDER, the Bank shall adopt and implement 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 contain formal goals and strategies, consistent with sound banking practices, to reduce discretionary expenses
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   and 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. A copy of the plan shall be submitted to the Regional Director and Commissioner upon its completion.

   (b) Prior to the end of each calendar quarter, 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.

   [.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) Prior to submission or publication of all Reports of Condition and Income required by 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 Federal Financial Institutions Examination Council's Instructions for the Reports of Condition and Income and any analysis of the Bank's ALLL provided by the FDIC or OBRE.

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

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

   [.9]9. (a) Within 45 days from the effective date of this ORDER, the Bank shall formulate, and submit to the Regional Director and Commissioner for review and comment, a written plan to reduce the Bank's risk position in each asset in excess of $25,000 which is classified "Substandard" in the FDIC's Report of Examination dated June 11, 2001 and the OBRE Report of Examination as of March 31, 2001. In developing such plan, the Bank shall, at a minimum:

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

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

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

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

       (ii) Provisions for the submission of 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 comments from the Regional Director and Commissioner and after consideration of such comments, 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 30 days from the effective date of this ORDER, and annually thereafter, the board of directors shall review the Bank's investment and asset liability management policies and procedures for adequacy and, based upon this review, shall make all appropriate revisions to the policies necessary to strengthen investment and asset liability management procedures and abate additional deterioration in these areas. The revised policies and any subsequent modifications shall be submitted to the Regional Director and Commissioner upon their
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   completion. At a minimum, the Bank shall correct the investment and asset liability management weaknesses set forth in the FDIC Report of Examination dated June 11, 2001 and OBRE Report of Examination as of March 31, 2001.

   [.11]11. (a) Within 30 days from the effective date of this ORDER, the Bank shall correct all deficiencies in the loans listed for "Special Mention" in the FDIC Report of Examination dated June 11, 2001 and the OBRE Report of Examination as of March 31, 2001.

   (b) Within 30 days from the effective date of this ORDER, the Bank shall correct the technical exceptions listed in the FDIC Report of Examination dated June 11, 2001 and the OBRE Report of Examination as of March 31, 2001.

   [.12]12. Within 30 days from the effective date of this ORDER, the Bank's board of directors shall adopt and implement a comprehensive written audit program. The Bank shall thereafter implement and enforce an effective system of internal audits. The internal auditor shall make written monthly reports and describe any action taken as a result thereof. A copy of the audit program should be submitted to the Regional Director and Commissioner upon its completion.

   [.13]13. (a) Within 10 days from the effective date of this ORDER, the Bank shall eliminate or correct all violations of laws, rules or regulations listed on pages 34 and 35 of the FDIC Report of Examination dated June 11, 2001 and on pages 12 and 13 of the OBRE Report of Examination as of March 31, 2001.

   (b) Within 30 days from the effective date of this ORDER, the Bank shall implement procedures to ensure future compliance with all applicable laws, rules and regulations.

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

   [.15]15. (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.

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

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

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

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

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

   Pursuant to delegated authority.

   Dated: November 16, 2001.



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