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FDIC Enforcement Decisions and Orders

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   [11,957] In the Matter of Reading State Bank, Reading, Kansas, Docket No. 02-086b (8-8-02).

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

(This order was terminated by order of the FDIC dated 5-19-04; see ¶16,384.

   [.1] Management—Qualifications Specified

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

   [.3] Board of Directors—Meetings—Frequency of Meetings Specified

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

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

   [.6] Loans—Special Mention

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

   [.8] Loan—Concentration of Credit—Reduction Required

   [.9] Assets—Charge-off or Collection

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

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

   [.12] Funds Management and Liquidity—Written Plan Required

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

   [.14] Profit Plan and Budget—Preparation of Required

   [.15] Capital—Increase Required

   [.16] Dividends—Dividends Restricted

   [.17] Audit—Program Required

   [.18] Information Technology Plan—Implementation of Required

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

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

In the Matter of
READING STATE BANK
READING, KANSAS
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

FDIC-02-086b

   Reading State Bank, Reading, Kansas ("Bank"), having been advised of its right to a NOTICE OF CHARGES AND OF HEARING detailing the unsafe or unsound banking practices and violations of law and regulations alleged to have been committed by the Bank, as well as of its right to a hearing on the charges under section 8(b) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. §1818(b), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") dated August 1, 2002, with counsel for the Federal Deposit Insurance Corporation ("FDIC"), whereby, solely for the purpose of this proceeding and without admitting or denying the charges of unsafe or unsound banking practices and violations of law and 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 and unsound banking practices and violations of law and 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 institution-affiliated parties, as that term
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   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 and violations of law and regulations:

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

       B. Operating with a board of directors that has failed to provide adequate supervision over and direction to the management of the Bank.

       C. Engaging in hazardous lending and lax collection practices, including, but not limited to:

         1. the failure to obtain proper loan documentation;

         2. the failure to establish and enforce adequate loan repayment programs;

         3. the failure to obtain current and complete financial information; and

         4. the failure to analyze and document borrower repayment ability.

       D. Operating with an excessive level of adversely classified loans and an excessive level of special mention loans.

       E. Operating with an inadequate loan policy.

       F. Failing to identify problem credits and operating with an inadequate allowance for loans and lease losses for the volume, kind, and quality of loans and leases held, and failing to make provision for an adequate allowance for possible loan and lease losses.

       G. Operating with inadequate liquidity in light of the Bank's asset and liability mix, including, but not limited to, operating with an excessive volume of higher cost, out-of-territory, deposits.

       H. Operating with an inadequate funds management policy.

       I. Operating with inadequate policies and procedures to monitor and control interest rate risk.

       J. Operating with an inadequate net interest margin.

       K. Operating with an inadequate audit program.

       L. Operating with inadequate information technology policies and procedures.

       M. Violating laws and/or regulations, and contravening standards, guidelines, and policy statements, including:

         1. the legal lending limit restrictions of the State of Kansas as set forth in section 9-1104, K.S.A.;

         2. the prior approval requirements for loans to bank insiders as set forth in section 215.4(b) of Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. §215.4(b);

         3. the record-keeping requirements of section 215.8 of Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. §215.8;

         4. the reporting requirements of section 215.9 of Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. §215.9;

         5. the appraisal requirements of Part 323 of the FDIC Rules and Regulations, 12 C.F.R. §323.3;

         6. the appraisal and evaluation requirements of the State of Kansas, section 17-11-21, K.A.R.;

         7. the loan documentation requirements of the State of Kansas, section 17-11-18, K.A.R.;

         8. the requirements of Part 103 of the Treasury Department's Financial Record-keeping and Reporting of Currency and Foreign Transactions Regulation, 31 C.F.R. Part 103 §§ 18–38, specifically section 103.34, 31 C.F.R. §103.34;

         9. the Bank Secrecy Act compliance requirements of section 326.8 of the FDIC Rules and Regulations, 12 C.F.R. §326.8;

         10. the Interagency Guidelines Establishing Standards for Safety and Soundness set forth in Appendix A to Part 364 of the FDIC Rules and Regulations, 12 C.F.R. §364, Appendix A;

         11. the Interagency Guidelines for Real Estate Lending Policies set forth in Appendix A to Part 365 of the FDIC Rules and Regulations, 12 C.F.R. Appendix A to Part 365;

         12. the Interagency Policy on the Internal Audit and its Outsourcing, reprinted at FDIC Law Regulation, Related Acts at page 5368.01; and

         13. the Joint Agency Policy Statement on Interest Rate Risk, reprinted at Federal Deposit Insurance Corporation Law, Regulation, Related Acts at page 5421.

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

   [.1]1. MANAGEMENT. For purposes of this ORDER, the qualifications of management shall be assessed on its ability to comply with the requirements of this ORDER, operate the Bank in a safe and sound manner, comply with applicable laws and regulations, and restore all aspects of the Bank to a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness, liquidity, and sensitivity to market risk. Furthermore, "senior executive officer" shall be defined as in section 32 of the Act, 12 U.S.C. §1831(i), and section 303.101(b) of the FDIC Rules and Regulations, 12 C.F.R. §303.101(b). Each member of Bank management shall have qualifications and experience commensurate with his or her duties and responsibilities at the Bank.

       a. During the life of this ORDER, the Bank shall notify the Regional Director and the State Bank Commissioner, in writing, of the resignation or termination of any of the Bank's directors or senior executive officers.

       b. Prior to the addition of any individual to the board of directors or the employment of any individual as a senior executive officer, the Bank shall comply with the requirements of section 32, supra, and Subpart F of Part 303 of the FDIC Rules and Regulations, 12 C.F.R. §§ 303.100–303.104.

       c. During the life of this ORDER, the Bank shall retain qualified management.

       d. Within 60 days from the effective date of this ORDER, the Bank shall develop and complete a plan ("Management Plan") for the purpose of providing qualified management for the Bank.

       e. The Management Plan shall include, at a minimum:

         i. identification of both the type and number of officer positions needed to properly manage and supervise the affairs of the Bank;

         ii. identification and establishment of such Bank committees as are needed to provide guidance and oversight to active management;

         iii. evaluation of all Bank officers and staff members to determine whether these individuals possess the ability, experience and other qualifications required to perform present and anticipated duties, including adherence to the Bank's established policies and practices, and restoration and maintenance of the Bank in a safe and sound condition; and

         iv. a plan to recruit and hire any additional or replacement personnel with the requisite ability, experience and other qualifications to fill those officer or staff member positions identified in the Management Plan.

       f. Upon completion of the Management Plan, it shall be submitted to the Regional Director and the State Bank Commissioner for review and comment. Within 30 days of the receipt of any comments from the Regional Director and after due consideration of any recommended changes, the board of directors of the Bank shall meet, approve the Management Plan, and record the approval in its minutes for the meeting. Any subsequent modification of the Management Plan shall require submission to the Regional Director for review and comment prior to approval by the Bank.

       g. Thereafter, the Bank, its directors, officers and employees shall implement and follow the approved Management Plan.

   [.2]2. INDEPENDENT DIRECTORS. The addition of any new Bank directors required by this paragraph may be accomplished, to the extent permissible by state statute or the Bank's by-laws, by means of appointment or election at a regular or special meeting of the Bank's shareholders. For purposes of this ORDER, an independent director shall be any individual who is not an officer of the Bank, any subsidiary, or any of its affiliated organizations; who does not own more than 10 percent of the outstanding shares of the Bank; who is not related by blood or marriage to an officer or director of the Bank or to any shareholder owning more than 10 percent of the Bank's outstanding shares and does not otherwise share a common financial interest with such officer, director or shareholder; who is not indebted to the Bank directly or indirectly, including the indebtedness of any entity in which the individual has a substantial financial interest, in an amount exceeding 10 percent of the Bank's total Tier 1 capital and allowance for loan and lease losses; or who is deemed to be an independent director for purposes of this ORDER by the Regional Director.
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       a. Within 90 days from the effective date of this ORDER, the Bank shall add two new independent members to its board of directors. The Bank shall document its efforts to contact potential candidates for those positions, and the results of those contacts.

   [.3]3. MONTHLY BOARD MEETINGS. During the life of this ORDER, the Bank's board of directors shall meet at least monthly. The board shall prepare in advance and shall follow a detailed written agenda at each meeting, which shall include consideration of actions of any committees. Nothing in the foregoing sentence shall preclude the board from considering matters other than those contained in the agenda. Detailed written minutes of all board meetings shall be maintained and recorded on a timely basis.

   [.4]4. LOAN POLICY. Within 30 days from the effective date of this ORDER, and annually thereafter, the board of directors of the Bank shall review the Bank's loan policy and procedures for adequacy and, based upon this review, shall make all appropriate revisions to the policy necessary to strengthen lending procedures and abate additional loan deterioration.

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

       i. establishing review and monitoring procedures to ensure that all lending personnel are adhering to established lending procedures and that the directorate is receiving timely and fully documented reports on loan activity, including any deviations from established policy;

       ii. requiring that all extensions of credit originated or renewed by the Bank;

         A) be supported by current credit information and collateral documentation, including lien searches and the perfection of security interests;

         B) have current financial information, profit and loss statements or copies of tax returns, and cash flow projections including an analysis of repayment ability, which information shall be maintained throughout the term of the loan;

         C) have a clearly defined and stated purpose and a predetermined and realistic repayment source and schedule;

       iii. establishing standards for extending unsecured credit;

       iv. prohibiting the extension of a maturity date, advancement of additional credit or renewal of a loan to a borrower whose obligations to the Bank were classified "Substandard" or "Doubtful", whether in whole or in part, in Regulatory Reports of Examination, without the full collection in cash of accrued and unpaid interest, unless the loans are well secured and/or are adequately supported by current and complete financial information, and the renewal or extension has first been approved in writing by a majority of the Bank's board of directors;

       v. requiring a non-accrual policy in accordance with the Federal Financial Institutions Examination Council's Instructions for the Consolidated Reports of Condition and Income;

       vi. addressing concentrations of credit and diversification of risk, including goals for portfolio mix, establishment of limits with loan and other asset categories, and development of a tracking and monitoring system for the economic and financial condition of specific geographic locations, industries, and groups of borrowers; and

       vii. establishing review and monitoring procedures for compliance with the FDIC's regulation on Real Estate Lending Standards, 12 C.F.R. Part 365.

   b. The Bank shall inform the Regional Director and the State Bank Commissioner, in writing, how it intends to ensure compliance. Thereafter, the Bank shall implement and follow the amended written loan policy.

   [.5]5. REDUCTION OF SUBSTANDARD ASSETS. For purposes of this ORDER and as used in this paragraph, "reduce" means to collect, charge off, or improve the quality of "Substandard" assets so as to warrant removal of any adverse classification by the FDIC. Furthermore, in developing the plan mandated by this paragraph, the Bank shall, at a minimum, review the financial position of each such borrower, including source of repayment, repayment ability, and alternative repayment sources, and evaluate the available collateral for each such credit, including possible actions to improve the Bank's collateral position.

   a. Within 60 days from the effective date of this ORDER, the Bank shall adopt and implement a written plan to reduce the Bank's risk position in each asset in excess of $50,000 which is classified "Substandard" in the FDIC's April 1, 2002 Report
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   of Examination. Thereafter, the Bank shall implement and follow this plan. A copy of the plan shall be submitted to the Regional Director and the State Bank Commissioner upon its completion.

   b. The plan mandated by this paragraph shall include, but not be limited to, the following:

       i. the dollar levels to which risk in each classified asset will be reduced;

       ii. a description of the risk reduction methodology to be followed;

       iii. provisions for the Bank's submission of monthly written progress reports to its board of directors;

       iv. provisions mandating board review of said progress reports; and

       v. provisions for the mandated review to be recorded by notation in the minutes of the board of director's meetings.

   [.6]6. SPECIAL MENTION. Within 60 days from the effective date of this ORDER, the Bank shall correct all deficiencies in the assets listed for "Special Mention" in the FDIC's April 1, 2002 Report of Examination.

   [.7]7. TECHNICAL EXCEPTIONS. Within 60 days from the effective date of this ORDER, the Bank shall correct the technical exceptions listed in the FDIC's April 1, 2002 Report of Examination. "Correct" shall include documented attempts to collect missing information. The Bank shall initiate and implement a program to ensure its credit files contain complete, adequate and current documentation.

   [.8]8. REDUCTION OF CONCENTRATIONS OF CREDIT. Within 60 days from the effective date of this ORDER, management will review concentrations of credit in order to identify level of risk. The Bank shall formulate and adopt a written plan of action to manage the risk of each concentration. This will be accomplished, where appropriate, through strengthened administration or risk reduction.

   [.9]9. ASSET CHARGE-OFF. Elimination or reduction of assets with the proceeds of other Bank extensions of credit is not considered collection for the purpose of this paragraph.

   a. As of the effective date of this ORDER, the Bank shall eliminate from its books, by charge-off or collection, all assets or portions of assets classified "Loss" in the FDIC's April 1, 2002 Report of Examination, that have not been previously collected or charged off.

   [.10]10. PROHIBITION OF ADDITIONAL LOANS TO CLASSIFIED BORROWERS. As of the effective date of this ORDER, the Bank shall not, directly or indirectly extend any additional credit to, or for the benefit of, any borrower who is already obligated in any manner to the Bank on any extensions of credit (or portion thereof) that has been charged-off the books of the Bank or classified "Loss", so long as such credit remains uncollected. Additionally, the Bank shall not, directly or indirectly, extend any additional credit to, or for the benefit of, any borrower whose loan or other credit has been classified "Substandard" or "Doubtful", or is listed for Special Mention, and remains uncollected, unless its board of directors adopts a detailed written statement giving the reasons why such potential action is in the best interest of the Bank. A copy of such statement shall be placed in the appropriate loan file and shall be incorporated in the minutes of the applicable board of directors' meeting.

   [.11]11. ALLOWANCE FOR LOAN AND LEASE LOSSES. For purposes of this ORDER and in making the determination mandated by this paragraph, the board of directors of the Bank shall consider the Federal Financial Institutions Examination Council's Instructions for the Reports of Condition and Income, the Interagency Statement of Policy on the Allowance of Loan and Lease Losses, and any analysis of the Bank's allowance for loan and lease losses ("ALLL") provided by the FDIC.

   a. Within 30 days from the effective date of this ORDER, the Bank shall replenish its ALLL in the amount of at least $160,000.

   b. Within 30 days from the effective date of this ORDER, Reports of Condition and Income required by the FDIC and filed by the Bank subsequent to December 31, 2001, shall be amended and re-filed if they do not reflect a provision for loan and lease losses which is adequate in view of the condition of the Bank's loan portfolio, and which, at a minimum, incorporate the adjustments required by this paragraph.

   c. Prior to the submission of all Reports of Condition and Income required by the
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   FDIC after the effective date of this ORDER, the board of directors of the Bank shall review the adequacy of the Bank's 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 ALLL recommended, if any, and the basis for determination of the amount of ALLL provided.

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

   [.12]12. FUNDS MANAGEMENT PLAN. Within 30 days from the effective date of this ORDER, the Bank shall submit to the Regional Director and the State Bank Commissioner, for review and comment, a written plan addressing liquidity and contingent funding so as to reduce the Bank's dependence on higher cost, out-of-territory deposits. Within 30 days from the receipt of all such comments from the Regional Director, and after due consideration of any recommended changes, the Bank shall approve the plan, which approval shall be recorded in the minutes of a board of directors' meeting. Thereafter, the Bank shall implement and follow the plan.

   [.13]13. FUNDS MANAGEMENT POLICY. Within 30 days from the effective date of this ORDER, and annually there after, the board of directors of the Bank shall review the Bank's funds management policy for adequacy and shall make the necessary revisions to address the Bank's asset/liability and liquidity positions and strategies.

   a. At a minimum, the revisions to the policy shall:

       i. provide policies and procedures that address funding concentration in or excessive reliance on any single source or type of funding, such as brokered funds, deposits obtained through the Internet or other types of advertising, and other similar rate sensitive or credit sensitive deposits;

       ii. establish a method to measure/monitor rate sensitivity and conform with the Interagency Statement of Policy on Interest Rate Risk referenced above in this ORDER;

       iii. establish a method to measure and monitor the extent of the Bank's unfunded loan commitments;

       iv. establish an acceptable range for dependence on less stable funding sources;

       v. establish acceptable parameters for borrowing federal funds, including limits concerning dollar amounts and maturities and specifying authorized sources/lenders; and

       vi. establish systems to monitor the interest rates paid on deposits to determine whether such rates exceed the interest rate limitations set forth in section 337.6(b)(2) of the FDIC Rules and Regulations, 12 C.F.R. §337.6(b)(2).

   b. The Bank's policy, when revised as required by this paragraph, shall be submitted to the Regional Director and the State Bank Commissioner for review and comment. Within 30 days from the receipt of any recommended changes, the Bank shall approve the policy, which approval shall be recorded in the minutes of the board of director's meeting. Thereafter, the Bank shall implement and follow the policy.

   [.14]14. PROFIT PLAN AND BUDGET. The plan and budget required by this paragraph shall contain formal goals and strategies, consistent with sound banking practices, to reduce discretionary expenses and to improve the Bank's overall earnings and net interest income, as well as a description of the operating assumptions that form the basis for major projected income and expense components.

   a. Within 60 days from the effective date of this ORDER, the Bank shall submit to the Regional Director and the State Bank Commissioner, for review and comment, a written profit plan and a realistic/comprehensive budget for all categories of income and expense for calendar year 2002. Within 30 days from the receipt of any comments from the Regional Director, and after adoption of any recommended changes, the Bank shall approve the plan and budget, which approval shall be recorded in the minutes of the board of directors' meeting. Thereafter, the Bank shall implement and follow the plan and budget.

   b. Within 30 days from the end of each calendar quarter following completion of the profit plan and budget required by this paragraph, the Bank's board of directors shall evaluate the Bank's actual performance against them, record the results of the evaluation, and note any actions taken by the Bank in the minutes of the board of
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   directors' meeting at which such evaluation is undertaken.

   c. A written profit plan and budget shall be prepared for each calendar year for which this ORDER is in effect. A copy of the profit plan and budget shall be submitted to the Regional Director and the State Bank Commissioner for review and comment within 30 days of the end of each year.

   [.15]15. CAPITAL ADEQUACY. For purposes of this ORDER, "capital ratio" means the level of Tier 1 capital as a percentage of total assets. Tier 1 capital and total assets shall be calculated in accordance with Part 325 of the FDIC Rules and Regulations ("Part 325"), 12 C.F.R. Part 325.

   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 Reports of Condition and Income, its capital ratio for that calendar quarter. If it is less than 6 percent, within 60 days from said required determination, the Bank shall submit a written plan to the Regional Director and the State Bank Commissioner, describing the means and timing by which the Bank shall increase such ratio up to or in excess of 6 percent.

   b. Any increase in Tier 1 capital may be accomplished by the following:

       i. the sale of common stock and non-cumulative perpetual preferred stock;

       ii. the elimination of all or part of the assets classified "Loss" in the FDIC's April 1, 2002 Report of Examination, without incurring 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

       vi. any combination of the above.

   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 Bank securities, including a distribution limited only to the Bank's existing shareholders, the Bank shall prepare detailed offering materials fully describing the securities being offered, including an accurate description of the financial condition of the Bank and the circumstances giving rise to the offering, and other material disclosures necessary to comply with Federal securities laws. Prior to the implementation of the plan and, in any event, not less than 20 days prior to the dissemination of such materials, the materials used in the sale of the securities shall be submitted to the FDIC Registration and Disclosure Section, 550 17th Street, Room F-6043, N.W., Washington, D.C. 20429, for its review. Any changes to be made in the materials requested by the FDIC shall be made prior to their dissemination. If the Regional Director allows any part of the increase in Tier 1 capital to be provided by the sale of non-cumulative perpetual preferred stock, then all terms and conditions of the issue, including but not limited to, those terms and conditions relative to the interest rate and any convertibility factor, shall be presented to the Regional Director for prior approval.

   d. In complying with the provisions of this paragraph, the Bank shall provide to any subscriber and/or purchaser of Bank securities written notice of any planned or existing development or of other changes that are materially different from the information reflected in any offering materials used in connection with the sale of Bank securities. The written notice required by this paragraph shall be furnished within 10 calendar days of the date any material development or change was planned or occurred, whichever is earlier, and shall be furnished to every purchaser and/or subscriber of the Bank's original offering materials.

   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.
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   [.16]16. RESTRICTION ON DIVIDENDS. As of the effective date of this ORDER, the Bank shall not declare or pay any cash dividend, capital distribution or earnings distribution, without the prior written consent of the Regional Director and the State Bank Commissioner.

   [.17]17. AUDITS. Within 60 days from the effective date of this ORDER, the Bank's board of directors shall adopt and implement a comprehensive written audit program, which shall include the Bank's information technology operations. A copy of the audit program shall be submitted to the Regional Director and the State Bank Commissioner upon its completion. The Bank shall thereafter implement and enforce an effective system of internal and external audits. The internal auditor shall make written monthly reports of audit findings directly to the Bank's board of directors. The minutes of the meetings of the board of directors shall reflect consideration of these reports and describe any action taken as a result thereof.

   [.18]18. INFORMATION TECHNOLOGY. Within 60 days from the effective date of this ORDER, the Bank shall develop a detailed plan to implement or otherwise address the specific recommendations set forth in the FDIC's April 1, 2002 Information Technology Examination of the Bank. Upon completion of that plan, the board of directors of the Bank shall meet, approve, and record its approval in the minutes of said meeting. Thereafter, the Bank's directors, officers and employees, shall implement and follow the approved information technology plan. A copy of the information and technology plan shall be submitted to the Regional Director and the State Bank Commissioner.

   [.19]19. VIOLATIONS OF LAW AND REGULATION. Within 30 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of law and regulation and contraventions of policy listed in the FDIC's April 1, 2002 Report of Examination. Within 60 days from the effective date of this ORDER, the Bank shall implement procedures to ensure future compliance with all applicable laws, regulations, and policies.

   [.20]20. DISCLOSURE TO SHAREHOLDERS. Following the effective date of this ORDER, the Bank shall send to its shareholders, or otherwise furnish a description of this ORDER, in conjunction with the Bank's next shareholder communication, and 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., Room F-6043, Washington, D.C. 20429 for review at least 20 days prior to dissemination to shareholders. Any requests for changes made by the FDIC shall be made prior to dissemination of the description, communication, notice or statement.

   21. PROGRESS REPORTS. On the last day of the second month following the effective date of this ORDER, and on the last day of every third month thereafter, the Bank shall furnish written progress reports to the Regional Director and the State Bank Commissioner, 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 has, in writing, released the Bank from making further reports.

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

   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 provision has been modified, terminated, suspended, or set aside by the FDIC.

   Issued Pursuant to Delegated Authority

   Dated: August 8, 2002

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