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[¶12,034] In the Matter of Community Bank of Lawndale, Chicago, Illinois, Docket
No. 03-025b (4-4-03).
A cease and desist order was issued, based on findings by the FDIC that
it had reason to believe that respondent was engaged in unsafe and
unsound practices.
[.1] Management—Qualifications Specified
[.2] Management—Management Plan Required
[.3] Capital/Asset Ratio—Maintenance Required
[.4] Strategic Plan—Preparation of Required
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[.5] Profit Plan—Preparation of Plan Required
[.6] Bank Records—Restore to a Complete and Accurate State
[.7] Audit—Written Policy Required
[.8] Violations of Law—Correction of Violations Required
[.9] Bank Operations—Employee Compensation Program—Review
[.10] Shareholders—Disclosure of Cease and Desist Order Required
[.11] Board of Directors—Compliance with Cease and Desist Order
[.12] Progress Report—Written Report Required
In the Matter of
COMMUNITY BANK OF LAWNDALE
CHICAGO, ILLINOIS
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-03-025b
OBRE NO. 2003-BBTC-08
Community Bank of Lawndale, Chicago, Illinois ("Bank"),
having been advised of its right to a NOTICE OF CHARGES AND OF HEARING
detailing the unsafe or unsound banking practices and violations of
law, rule, or regulation alleged to have been committed by the Bank,
and of its right to a hearing on the charges under section 8(b) of the
Federal Deposit Insurance Act ("Act"), 12 U.S.C. §1818(b), and
under 38 Ill. Adm. Code §392.30, regarding hearings before the State
of Illinois Office of Banks and Real Estate ("OBRE"), and having
waived those rights, entered into a STIPULATION AND CONSENT TO THE
ISSUANCE OF AN ORDER TO CEASE AND DESIST ("STIPULATION") with
representatives of the Federal Deposit Insurance Corporation
("FDIC") and OBRE, dated March 25, 2003, 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, rule, or
regulation, the Bank consented to the issuance of an ORDER TO CEASE AND
DESIST ("ORDER") by the FDIC and OBRE.
The FDIC and OBRE considered the matter and determined that they had
reason to believe that the Bank had engaged in unsafe or unsound
banking practices and had violated laws, rules, or regulations. The
FDIC and OBRE, therefore, accepted the STIPULATION and issued the
following:
ORDER TO CEASE-AND-DESIST
IT IS HEREBY ORDERED, that the Bank, its institution-affiliated
parties, as that term is defined in section 3(u) of the 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,
rule, or regulation:
A. Operating with a board of directors which fails to provide
adequate supervision over and direction to the management of the Bank
to prevent unsafe or unsound banking practices and violations of law,
rule, or regulation.
B. Operating with management whose policies and practices are
detrimental to the Bank and jeopardize the safety of its deposits.
C. Operating with an inadequate level of capital protection for the
kind and quality of assets held.
D. Operating with inadequate earnings.
E. Operating with an inadequate allowance for loan and lease losses for
the volume, kind, and quality of loans and leases held.
F. Failing to keep accurate books and records.
G. Operating with inadequate internal routines and controls.
H. Operating with an inadequate audit program.
I. Operating with an excessive level of adversely classified loans,
delinquent loans, nonaccrual loans, and lax collection practices.
J. Violating laws, rules, or regulations, including:
• Section 215.4(e) of Regulation O of the Board of Governors of the
Federal Reserve System ("Regulation O"), 12 C.F.R. §215.4(e).
• Section 23A of the Federal Reserve Act ("section 23A"), 12 U.S.C.
§371c(a)(3) and section 35.2(a)(3) of
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the Illinois Banking Act, 205
ILCS 5/35.2(a)(3).
• Section 103.27(a)(1) of the Treasury Department's Financial
Recordkeeping and Reporting of Currency and Foreign Transactions
Regulation, 31 C.F.R. §103.27(a)(1).
• Section 16(6) of the Illinois Banking Act, 205 ILCS 5/16(6).
• Section 364.101(a) of the FDIC Rules and Regulations, 12 C.F.R.
§364.101(a).
• Section 304.3(a) of the FDIC Rules and Regulations, 12 C.F.R.
§304.3(a).
• Section 350.7(b) of the FDIC Rules and Regulations, 12 C.F.R.
§350.7(b).
• Section 326.4 of the FDIC Rules and Regulations, 12 C.F.R. §326.4.
K. Failing to adequately document business expenses for senior
executive officers.
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 120 days from the effective date of this ORDER, the Bank
shall have and retain qualified management. At a minimum, such
management shall include a new chief executive officer with proven
ability in managing a bank of comparable size and experience in
upgrading a low quality loan portfolio. Such person(s) shall be
provided the necessary written authority to implement the provisions of
this ORDER. The qualifications of management shall be assessed on its
ability to:
(i) Comply with the requirements of this ORDER;
(ii) Operate the Bank in a safe and sound manner;
(iii) Comply with applicable laws, rules, and regulations; and
(iv) Restore all aspects of the Bank to a safe and sound condition,
including asset quality, capital adequacy, earnings, management
effectiveness, and liquidity.
(b) During the life of this ORDER, and 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 and Subpart F of Part 303 of the FDIC
Rules and Regulations, 12 C.F.R. §§ 303.100-303.104. For purposes of
this ORDER, "senior executive officer" is defined as in section
32 of the Act ("section 32"), 12 U.S.C. §1831(i), and section
303.101(b) of the FDIC Rules and Regulations, 12 C.F.R. §303.101(b)
and includes any person identified by the FDIC and OBRE, whether or not
hired as an employee, with significant influence over, or who
participates in, major policymaking decisions of the Bank. Further, the
Bank shall request and obtain the written approval of the Commissioner
of OBRE ("Commissioner") prior to the addition of any individual
to the board of directors and the employment of any individual as a
senior executive officer.
[.2]2. (a) Within 60 days from the effective date of this ORDER, the
Bank's board of directors shall develop a written analysis and
assessment of the Bank's management and staffing needs ("Management
Plan") for the purpose of providing qualified management and
staffing for the Bank.
(b) 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 evaluation of those staff
members involved in the Bank's accounting and bookkeeping activities
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 by this paragraph of
this ORDER.
(c) Within 30 days from the completion of the Management Plan, the
Bank shall approve the Management Plan, which approval shall be
recorded in the minutes of the board of directors meeting. Thereafter,
the Bank shall implement and follow the
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Management Plan. A copy of the
Management Plan shall be submitted to the Regional Director of the
Chicago Regional Office of the FDIC ("Regional Director") and the
Commissioner.
[.3]3. (a) Within 30 days from the last day of each calendar quarter
following the effective date of this ORDER and commencing with the
calendar quarter ending June 30, 2003, the Bank shall determine from
its Report of Condition and Income its level of Tier 1 capital as a
percentage of its total assets ("capital ratio") for that
calendar quarter. If the capital ratio is less than 7.0 percent, the
Bank shall, within 60 days of the date of the required determination,
increase its capital ratio to not less than 7.0 percent calculated as
of the end of that preceding quarterly period. For purposes of this
ORDER, Tier 1 capital and total assets shall be calculated in
accordance with Part 325 of the FDIC Rules and Regulations ("Part
325"), 12 C.F.R. Part 325.
(b) Any such increase in Tier 1 capital may be accomplished by the
following:
(i) The sale of common stock and noncumulative perpetual
preferred stock constituting Tier 1 capital under Part 325; or
(ii) The elimination of all or part of the assets classified
"Loss" as of June 30, 2002 without loss or liability to the Bank,
provided any such collection on a partially charged-off asset shall
first be applied to that portion of the asset which was not charged off
pursuant to this ORDER; or
(iii) The collection in cash of assets previously charged off; or
(iv) The direct contribution of cash by the directors and/or the
shareholders of the Bank; or
(v) Any other means acceptable to the Regional Director and the
Commissioner; or
(vi) Any combination of the above means.
(c) If all or part of the increase in capital required by this
paragraph is to be accomplished by the sale of new securities, the
board of directors of the Bank shall adopt and implement a plan for the
sale of such additional securities, including the voting of any shares
owned or proxies held by or controlled by them in favor of said plan.
Should the implementation of the plan involve public distribution of
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 and state securities laws.
Prior to the implementation of the plan and, in any event, not less
than 20 days prior to the dissemination of such materials, the
materials used in the sale of the securities shall be submitted to the
FDIC Registration and Disclosure Section, 550 17th Street, N.W.,
Washington, D.C. 20429 and to Scott D. Clarke, Assistant Commissioner,
Office of Banks and Real Estate, 500 East Monroe, Springfield, Illinois
62701, for their review. Any changes requested to be made in the
materials by the FDIC or OBRE shall be made prior to their
dissemination.
(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 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
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.
[.4]4. Within 90 days from the effective date of this ORDER, the Bank shall
formulate and adopt a realistic, comprehensive strategic plan. The plan
required by this paragraph shall contain an assessment of the Bank's
current financial condition and market area, and a description of the
operating assumptions that form the basis for major projected income
and expense components.
[.5]5. (a) Within 90 days from the effective date of this ORDER, the Bank
shall adopt and implement a written profit plan
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and a realistic,
comprehensive budget for all categories of income and expense for
calendar year 2003. Thereafter, for every calendar year during the life
of this ORDER, and beginning with calendar year 2004, the Bank shall
prepare a written profit plan and a realistic, comprehensive budget for
all categories of income and expense and shall complete each plan and
budget at least 90 days prior to the beginning of the applicable
calendar year. The plans 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 shall contain a description of the operating assumptions
that form the basis for major projected income and expense components.
A copy of each plan and budget shall be submitted to the Regional
Director and Commissioner upon its completion.
(b) The written profit plan shall address, at a minimum:
(i) Realistic growth and margin assumptions;
(ii) Realistic core deposit growth projections and strategies
associated therewith;
(iii) Maintenance of an adequate Allowance for Loan and Lease
Losses ("ALLL"); and
(iv) Clear assignment of responsibilities for implementing the written
profit plan.
(c) Within 30 days from the end of each calendar quarter following
completion of the profit plans and budgets required by this paragraph,
the Bank's board of directors shall evaluate the bank's actual
performance in relation to the plan and budget, record the results of
the evaluation, and note any actions taken by the Bank in the minutes
of the board of directors' meeting at which such evaluation is
undertaken.
[.6]6. The Bank shall immediately allocate the necessary resources to
return the Bank's books and records to a complete and accurate state.
By April 30, 2003, the Bank shall restore its books and records to a
complete and accurate state and shall continue to maintain accurate
books and records. All account differences existing as of December 31,
2002 that are unresolved by April 30, 2003 shall be immediately charged
off from the Bank's books. During the life of this ORDER, all
accounting differences for entries dated subsequent to December 31,
2002 shall be charged off from the Bank's books if not reconciled and
balanced within 90 days of the date of the entry.
[.7]7. Within 90 days from the effective date of this ORDER, the Bank's
board of directors shall adopt and implement a comprehensive written
audit program. At a minimum, the audit program shall provide that: (a)
the internal auditor make written monthly reports of audit findings
directly to the Bank's board of directors, which findings and any
action taken as a result of the findings shall be recorded in the
minutes of the meetings of the board; and (b) the Bank provide the
Regional Director and Commissioner with a copy of all external audit
reports within 10 days of the Bank's receipt of such report(s). The
Bank shall thereafter implement and enforce an effective system of
internal and external audits. A copy of the audit program should be
submitted to the Regional Director and Commissioner upon its
completion.
[.8]8. (a) Within 30 days from the effective date of this ORDER, the Bank
shall eliminate and/or correct all violations of law, rule, and
regulation listed in the Joint Report of Examination as of June 30,
2002 ("Joint Report").
(b) Within 30 days from the effective date of this ORDER, the Bank
shall implement procedures to ensure future compliance with all
applicable laws, rules, and regulations.
[.9]9. Within 90 days from the effective date of this ORDER, the Bank shall
review the business expenses paid to its executive officers from
January 1, 2002 to the present, and if sufficient documentation is not
evident to support the Bank's payment of an expense, the Bank shall
either obtain reimbursement from the executive officer who received the
payment or the Bank shall issue an IRS Form 1099 for the payment to the
executive officer.
[.10]10. Following the effective date of this ORDER, the Bank shall send to
its shareholders and to the shareholders of Sable Bancshares, Inc.
("Bank Holding Company") a copy or description of this ORDER; (1)
in conjunction with the Bank's and the Bank Holding Company's next
shareholder communications; and (2) in conjunction with the Bank's and
the Bank Holding Company's notice or proxy statement preceding their
next shareholder meetings. The description shall fully describe this
ORDER in all material respects. The description and
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any accompanying
communication, notice, or statement shall be sent to the FDIC
Registration and Disclosure Section, 550 17th Street, N.W., Washington,
D.C. 20429 and to Scott D. Clarke, Assistant Commissioner, Office of
Banks and Real Estate, 500 East Monroe, Springfield, Illinois 62701,
for review at least 20 days prior to dissemination to shareholders. Any
changes requested to be made by the FDIC and OBRE shall be made prior
to dissemination of the description, communication, notice, or
statement.
[.11]11. (a) Within 60 days from the effective date of this ORDER, the
Bank's board of directors shall have in place a program that will
provide for monitoring of the Bank's compliance with this ORDER.
(b) Following the required date of compliance with subparagraph
(a) of this paragraph, the Bank's board of directors shall review the
Bank's compliance with this ORDER and record its review in the minutes
of each regularly scheduled board of directors' meeting.
[.12]12. Within 30 days from the end of each calendar quarter
following the effective date of this ORDER, the Bank shall furnish to
the Regional Director and Commissioner written progress reports signed
by each member of the Bank's board of directors, detailing the actions
taken to secure compliance with the ORDER and the results thereof. Such
reports may be discontinued when the corrections required by this ORDER
have been accomplished and the Regional Director and Commissioner have,
in writing, released the Bank from making further reports.
The effective date of this ORDER shall be 10 calendar days after its
issuance by the FDIC and OBRE.
The provisions of this ORDER shall be binding upon the Bank, its
institution-affiliated parties, and any successors and assigns thereof.
The provisions of this ORDER shall remain effective and enforceable
except to the extent that, and until such time as, any provision has
been modified, terminated, suspended, or set aside by the FDIC and
OBRE.
Pursuant to delegated authority.
Dated: April 4th, 2003.
