(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] ManagementQualifications Specified
[.2] CapitalMaintain Tier 1 Capital
[.3] Loan Loss ReserveEstablishment of or Increase Required
[.4] Profit PlanPreparation of Plan Required
[.5] AssetsCharge-off or Collection
[.6] LoansExtensions of CreditTo Borrowers with Existing Adversely
Classified Credits
[.7] Loan PolicyPreparation or Revision of Policy Required
[.8] Loan Review and Grading SystemEstablishment of Required
[.9] PaymentsRestricted
[.10] Violations of LawCorrection of Violations Required
[.11] Funds Management and LiquidityPreparation or Revision of Funds
Management Policy Required
[.12] Reports of Condition and IncomeAmendment Required
[.13] DividendsDividends Restricted
[.14] AuditInternal AuditMinimum Procedures Specified
[.15] ShareholdersDisclosure 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;
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(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.