Each depositor insured to at least $250,000 per insured bank



Home > Regulation & Examinations > Bank Examinations > FDIC Enforcement Decisions and Orders




FDIC Enforcement Decisions and Orders

ED&O Home | Search Form | Text Search | ED&O Help


{{8-31-03 p.C-5389}}

   [11,908] In the Matter of The Bank of Bolivar, Bolivar, Tennessee, Docket No. 01-125b (4-3-02).

(This order was terminated by order of the FDIC dated 6-23-03; see ¶16,340.)

   A cease and desist order was issued, based on findings by the FDIC that it had reason to believe that respondent had engaged in unsafe and unsound practices.

   [.1] Management—Qualifications Specified

   [.2] Capital—Maintain Tier 1 Capital

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

   [.4] Profit Plan—Preparation of Plan Required

   [.5] Assets—Charge-off or Collection

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

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

   [.8] Loan Review and Grading System—Establishment of Required

   [.9] Payments—Restricted

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

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

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

   [.13] Dividends—Dividends Restricted

   [.14] Audit—Internal Audit—Minimum Procedures Specified

   [.15] Shareholders—Disclosure of Cease and Desist Order Required
{{8-31-03 p.C-5390}}

In the Matter of
THE BANK OF BOLIVAR
BOLIVAR, TENNESSEE
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

FDIC-01-125b

   The Bank of Bolivar, Bolivar, Tennessee ("Bank"), having received a Notice of Charges and of Hearing issued by the Federal Deposit Insurance Corporation ("FDIC") on November 20, 2001, detailing the unsafe or unsound banking practices and violations of law and/or regulations alleged to have been committed by the Bank and having been further advised of its right to a hearing, scheduled to commence on April 8, 2002, on the alleged charges under section 8(b)(1) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. §1818(b)(1), and Part 308 of the FDIC's Rules of Practice and Procedure, 12 C.F.R. Part 308, 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 March 29, 2002, whereby solely for the purpose of this proceeding and without admitting or denying the alleged charges of unsafe or unsound banking practices and violations 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 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 and unsound banking practices and violations:

       (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 internal routine and controls policies;

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

       (g) operating in such a manner as to produce low earnings;

       (h) operating in violation of section 39 of the FDI Act, 12 U.S.C. §1831p-1, and section 364 of FDIC Rules and Regulations, 12 C.F.R. §364; section 303.102(a) of FDIC Rules and Regulations, 12 C.F.R. §303.102(a); sections 323.3(b) and 323.4 of FDIC Rules and Regulations, 12 C.F.R. §§ 323.3(b) and 323.4; sections 326.8(b) and (c) of FDIC Rules and Regulations, 12 C.F.R. §§ 326.8(b) and c; sections 353.3(a) and (f) of FDIC Rules and Regulations, 12 C.F.R. §§ 353.3(a) and (f); section 362.1 of FDIC Rules and Regulations, 12 C.F.R. §362.1; section 365 of FDIC Rules and Regulations, 12 C.F.R. §365; and sections 103.22(d)(3)(ii), 6(i), 11(iii), and 103.27(a) of United States Treasury Department Rules and Regulations, 31 C.F.R. §§ 103.22(d)(3)(ii), 6(i), 11(iii), and 103.27(a).

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

       (j) operating with a board of directors which has failed to provide adequate supervision over and direction to the active management of the Bank.

   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 30 days from the effective date of this ORDER, and thereafter during the life of this ORDER, the Bank shall have management qualified to restore the Bank to a sound condition. Such management shall include a chief executive officer, a chief financial officer, and an experienced senior lending officer responsible for supervising the Bank's overall lending function.

   (b) Management shall be assessed on its ability to:

       (i) Comply with the requirements of this ORDER;
    {{6-30-02 p.C-5391}}

       (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 risks; and

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

   (c) (i) During the life of this ORDER, the Bank shall notify the Regional Director of the Memphis Regional Office ("Regional Director") and the Commissioner of Financial Institutions for the State of Tennessee ("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) within 15 days of the event.

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

   (d) (i) To ensure both compliance with this ORDER and qualified management for the Bank, the board of directors, within 90 days from the effective date of this ORDER, shall review and make a written report ("Management Report") on the Bank's needs in all areas of management, including lending, collections, and personnel evaluation. The Management Report shall incorporate an analysis of the Bank's management and staffing requirements and shall at a minimum address (1) both the number and type of positions needed to properly manage the Bank and to properly supervise the Bank's lending function, giving appropriate consideration to the Bank's loan volume, customer base,and the number of credits, (2) a clear and concise description of the needed skills, experience, and pay for each job, including the general duties and responsibilities for lending officers and their support staff; (3) an evaluation of present management, including 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; (4) a plan to recruit, hire, or replace personnel with requisite ability and experience; (5) a periodic evaluation of each individual's job performance; and (6) the establishment and implementation of procedures to periodically review Bank management and update all operating policies, including the lending policy.

   (e) The board of directors shall obtain the services of an outside consultant(s), acceptable to the Regional Director and the Commissioner, who is knowledgeable in all areas of management, including the areas of lending, collections, and personnel evaluation, to assist the board of directors in reviewing the Bank's management needs and drafting 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 1(d).

   (f) Within 120 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.

   (g) Within 120 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).

   (h) 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, which approval shall be recorded in the minutes of the meeting of the board of directors. It shall remain the responsibility of the board to fully implement the Plan within the specified time frames. In the event the Plan, or any portion thereof, is not implemented, the board shall immediately advise the Regional Director and the Commissioner, in writing, of specific reasons for deviating from the Plan.

   (i) (i) Beginning with the effective date of this ORDER, the board of directors shall obtain the services of an outside consultant who shall assist the Bank in devising an education program for the Bank's directors. Within 90 days from the effective date of this ORDER, the board of directors shall,
{{6-30-02 p.C-5392}}

   with the assistance of the consultant, develop and adopt an education program that shall include, at a minimum,

       (a) specific training in the areas of lending, operations, and compliance with applicable Federal and State laws, rules, and regulations;

       (b) specific training in the duties and responsibilities of the board of directors in connection with the safe and sound operation of the Bank; and

       (c) provisions for periodic training.

   (ii) The education program shall be submitted to the Regional Director and the Commissioner for review and comment. Within 30 days after receipt and consideration of such comments, the board of directors shall implement the education program and shall document the training activities in the minutes of the meetings of the board of directors.

   (j) 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 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.

   (k) For the purposes 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 5. 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 5 percent of the Bank's equity capital and reserves;

       (iv) Who shall not be related to any directors, principal shareholders, 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) On or before June 30, 2002, the Bank shall have and maintain Tier I capital equal to or greater than seven percent (7%) of the Bank's adjusted Party 325 total assets. On or before September 30, 2002, the Bank shall have Tier I capital equal to or greater than eight percent (8%) of the Bank's adjusted Part 325 total assets. Thereafter, during the life of this ORDER, the Bank shall maintain Tier I capital equal to or greater than eight percent (8%) of the Bank's adjusted Part 325 total assets.

   (b) Any increase in Tier I capital necessary to meet the ratio required by Paragraph 2(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 2(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, Registration, Disclosure, & Securities Unit, 550 17th Street, N.W., Room F-6053, Washington, D.C. 20429 for review. Any changes requested to be made in the plan or materials by the FDIC shall be made prior to their dissemination. If the Regional Director allows any part of the increase in Tier I capital to be provided by the sale of noncumulative perpetual preferred stock, then all terms and conditions of the issue, including but not limited to those
{{6-30-02 p.C-5393}}

   terms and conditions relative to the interest rate and any convertibility factor, shall be presented to the Regional Director for prior approval.

   (d) In complying with the provisions of Paragraph 2 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 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", 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 pages 95 and 96 of the 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.

   [.3]3. (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 and 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 3(a).

   (c) Notwithstanding the provisions of Paragraph 3(a) and 3(b) above, the Bank shall achieve, within 30 days of the effective date of this ORDER, a valuation reserve for loan and lease losses, after charge-off of loans classified "Loss" as required in Paragraph 5(a) below, of not less than $1,500,000, 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.
{{6-30-02 p.C-5394}}

   (e) The requirements of Paragraph 3(c) above are not to be construed as a standard for future operations.

   [.4]4. (a) Within 60 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 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 lessening the Bank's risk position in each line of credit which was classified "Substandard" or "Doubtful" 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 5 to the Bank's board of directors for review and recordation in the board minutes.

   (c) Within 90 days of the effective date of this ORDER, the Bank shall sufficiently reduce or otherwise improve assets subject to Special Mention as of March 31, 2001, to warrant removal from the Special Mention category.

   (d) As used in Paragraph 5 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.

   [.6]6. (a) Beginning with the effective date of this ORDER, the Bank shall not make any further extension of credit, including renewals, to any borrower whose loans:

       (i) are charged off, in whole or in part;

       (ii) are adversely classified "Loss" or "Doubtful" as of March 31, 2001; or

       (iii) exceed, in the aggregate, $50,000 and are adversely classified "Substandard" as of March 31, 2001,

   unless the Bank's failure to make a further extension of credit or renewal to a particular borrower would be detrimental to the best interests of the Bank.

   (b) If the Bank makes any further extension of credit or renewal pursuant to this subparagraph, such further extension of credit or renewal shall be approved in advance by a majority of the Bank's board of directors, or a designated committee thereof, who shall certify, in writing:

       (i) Why the failure of the Bank to extend such credit would be detrimental to the best interests of the Bank;

       (ii) That the Bank's position would be improved thereby;

       (iii) How the Bank's position would be improved;

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

       (v) The current balance;
    {{6-30-02 p.C-5395}}

       (vi) The amount of credit requested;

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

       (viii) A full description of the documentation to support the creditworthiness and repayment ability of the borrower, including the date of the borrower's most recent financial information and the borrower's current income or cash flow data.

   The signed certification shall be made a part of the minutes of the Bank's board or designated committee, and a copy of the signed certification shall be retained in the borrower's credit file.

   (c) Beginning with the effective date of this ORDER, the Bank shall not review 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 unless these separate notes receive prior board approval in the same manner as outlined in Paragraph 6(b).

   (d) If the Bank's board of directors designates a committee to comply with the provisions of this paragraph, at least two-thirds of the members of such committee shall be independent outside directors as defined in Paragraph 1(k).

   (e) The requirements of paragraphs 6(a) and (b) shall not prohibit the Bank from renewing credit to any borrower whose loans are subject to these paragraphs unless the renewal includes the advancement of new funds, includes an extension of the payment schedule that is longer than the terms of the original loan, does not contain a principal reduction plan, lowers the payment amount from that provided in the original loan, is accompanied by any release of collateral or guarantors, or involves the renewal of a loan for which payments were extended two or more times within any twelve (12) month time frame.

   [.7]7. (a) Within 60 days from the effective date of this ORDER, the Bank shall revise, adopt, and implement its written loan policy to provide guidelines and procedures for the safe and sound administration of all aspects of the lending function. The written loan policy shall be submitted to the Regional Director and the Commissioner for review. Such policy shall be revised to include provisions required in other paragraphs of this ORDER and shall further include, but is not necessarily limited to, the following:

       (i) Lending authority of each loan officer and lending authority of the loan or executive committee;

       (ii) Responsibility of the board of directors in reviewing, ratifying, or approving loans;

       (iii) Guidelines for the collection and maintenance, prior to the disbursement of loan proceeds or the renewal of existing loans, of proper and adequate loan documentation, including, but not necessarily limited to, documents necessary to perfect the Bank's lien position, evaluate its lien priority, and provide a supportable valuation for all collateral pledged;

       (iv) Guidelines under which unsecured loans will be granted;

       (v) Maintenance and review of complete and current credit files on each borrower, including, but not necessarily limited to, current financial information that is adequate to support the outstanding indebtedness of each borrower, which financial information may include, but is not necessarily limited to, detailed balance sheets, profit and loss statements, complete copies of recent tax returns, cash flow projections, and recent credit reports;

       (vi) Guidelines for the identification of primary and secondary sources of repayment;

       (vii) The establishment of and adherence to realistic amortization programs;

       (viii) Guidelines for rates of interest and the terms of repayment for specific types of secured and unsecured loans;

       (ix) Guidelines establishing criteria for granting renewals and extensions of loans, including the required use of written extension agreements; quarterly management reports indicating which loans have been extended, the length of the extension, the reason for the extension, whether interest was paid current, and the loan officer responsible for approving the extension; and an annual loan extension report which shall be presented to the Bank's board of directors for review and documented in the minutes;

       (x) Limitations on the amount advanced
    {{6-30-02 p.C-5396}}

       in relation to the value of the collateral;

       (xi) Collateral valuations, performed by an independent party or supported by purchase invoices, for each type of secured loan;

       (xii) Guidelines for obtaining and reviewing real estate appraisals as well as for ordering reappraisals, when needed;

       (xiii) Appropriate and adequate collection procedures including, but not limited to, actions to be taken against borrowers who fail to make timely payments;

       (xiv) Limitations on the extension of credit through overdrafts and other provisions required by paragraph 9 of this ORDER;

       (xv) Guidelines which, at a minimum, address the goals for portfolio mix and risk diversification and cover the Bank's plans for monitoring and taking appropriate corrective action, if deemed necessary, on any concentrations that may exist;

       (xvi) Guidelines addressing the Bank's loan review and grading system ("Watch list");

       (xvii) Guidelines addressing the Bank's review of the allowance for loan and lease losses;

       (xviii) Guidelines for adequate safeguards to minimize potential environmental liability;

       (xix) Prior approval of loans to directors, officers, and principal shareholders and their related interests in compliance with applicable laws and regulations; and

       (xx) Procedures for allowing exceptions to the loan policy.

   The policy and its implementation shall be in a form and manner acceptable to the Regional Director and Commissioner as determined at subsequent examinations and/or visitations.

   (b) Beginning with the effective date of this ORDER, the Bank shall adopt and implement a written policy for placing loans on nonaccrual status which conforms with the requirements contained in the Instructions for Preparation for Reports of Condition and Income published by the Federal Financial Institutions Examination Council.

   (c) Beginning with the effective date of this ORDER, the Bank shall develop and implement a program to correct the technical exceptions detailed on pages 92 through 94 of the March 31, 2001, Report of Examination.

   [.8]8. (a) Within 30 days of the effective date of this ORDER, the board shall establish a 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;

       (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, for loans of $100,000 or more, 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 30 days from the effective date of this ORDER, the Bank's board of directors shall establish and appoint a directors' loan committee to review and approve in advance all extensions of credit, excluding renewals, that when aggregated with all other extensions of credit to that borrower, either directly or indirectly, exceed or would exceed $50,000. With respect to renewals, the directors' loan committee shall review and approve in advance all renewals in excess of $100,000. The review shall include whether
{{6-30-02 p.C-5397}}

   the extension or renewal complies with all provisions of the Bank's loan policy and applicable laws, rules, and regulations. The directors' loan committee shall meet at least twice monthly and shall maintain written minutes which detail the information reviewed by the directors' loan committee, its conclusions, approvals, denials, recommendations, and reasons for the approval of any credit which does not fully comply with the Bank's loan policy. At least monthly, the directors' loan committee shall submit its written minutes to the board of directors. At least two-thirds of the members of the directors' loan committee shall be independent, outside directors as defined in Paragraph 1(k) of this ORDER.

   (d) Within 30 days from the effective date of this ORDER, the Bank's board of directors shall establish and appoint an officers' loan committee to review and approve in advance all renewals of extensions of credit between $25,000 and $100,000. The review shall include whether the renewal complies with all provisions of the Bank's loan policy and applicable laws, rules, and regulations. The officers' loan committee shall meet at least twice monthly and shall maintain written minutes which detail the information reviewed by the officers' loan committee, its conclusions, approvals, denials, recommendations, and reasons for the approval of any renewal which does not fully comply with the Bank's loan policy. At least monthly, the officers' loan committee shall submit its written minutes to the board of directors.

   [.9]9. Beginning with the effective date of this ORDER, the Bank shall not permit final payment of any demand item on any customer account that, when aggregated with all other overdrafts to that customer, exceed or would exceed, directly or indirectly, $1,000, unless payment of the demand item has been reviewed and approved in advance by the Bank's board of directors or designated committee as provided in Paragraph 6(b). The board's or the committee's review should include whether final payment of the demand item complies with safe and sound banking practices and/or the Bank's loan policy regarding overdrafts. The board of directors, or its designated committee, shall include in the minutes of the meeting where the review is undertaken, its conclusions, approvals, denials, recommendations, and reasons for the approval of any final payment that creates an overdraft that does not fully comply with the Bank's loan policy.

   [.10]10. (a) 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 47 to 54 of the March 31, 2001, Report of Examination. In addition, the Bank shall henceforth comply with all applicable laws and regulations.

   (b) With respect to the Bank's violation of section 39 of the FDI Act, 12 U.S.C. §1831p-1, the Bank shall be deemed to have corrected this violation if it complies with all of the provisions of this ORDER.

   [.11]11. (a) Within 60 days from the effective date of this ORDER, the Bank shall formulate and adopt a written liquidity and funds management policy. The written liquidity and funds management policy shall be submitted to the Regional Director and the Commissioner for review. 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 policy and its implementation shall be in a form and manner acceptable to the Regional Director and Commissioner as determined at subsequent examinations and/or visitations.

   (b) Within 60 days from the effective date of this ORDER the Bank's board of directors shall establish and appoint an asset/liability committee to review and monitor progress under this paragraph 11. The asset/liability committee shall report monthly to the Bank's board of directors. The asset/liability report shall be maintained as part of the minutes of the Bank's board of directors meetings.

   [.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
{{6-30-02 p.C-5398}}

   reflect the financial condition 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 which accurately reflect the financial condition 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. 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.

   [.14]14. (a) Within 90 days from the effective date of this ORDER, the Bank shall develop a written internal audit plan ("Audit Plan") that, at a minimum, complies with the Interagency Policy Statement on the Internal Audit Function and its Outsourcing. The Bank's board of directors shall appoint an audit committee consisting entirely of outside directors, as that term is defined in paragraph 1(k). The audit committee shall report monthly to the Bank's board of directors. The audit committee report shall be maintained as part of the minutes of the meetings of the board of directors. Copies of the Audit Plan shall be submitted to the Regional Director and the Commissioner. The Audit Plan and its implementation shall be in a form and manner acceptable to the Regional Director and Commissioner as determined at subsequent examinations and/or visitations.

   (b) The Bank shall obtain annually an independent external audit of the Bank's financial statements and an internal control attestation. The external audit reports and accompanying management letters shall be presented to the Bank's board of directors and shall be made a part of the minutes of the meetings of the board of directors. The board of directors shall respond to the external audit findings within 15 days of receipt of the findings. Copies of the annual external audit and the Bank's response to the audit shall be provided to the Regional Director and the Commissioner.

   [.15]15. 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, or (ii) in conjunction with its notice or proxy statement preceding the Bank's next shareholder meeting, whichever occurs first. 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 for review at least 20 days prior to dissemination to shareholders. Any changes requested by the FDIC shall be made prior to dissemination of the description, communication, notice, or statement.

   16. On or before May 15, 2002, and on the fifteenth 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 the Commissioner have released 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: April 3, 2002.

ED&O Home | Search Form | Text Search | ED&O Help

Last Updated 9/10/2003 legal@fdic.gov