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



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



FDIC Enforcement Decisions and Orders

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


{{1-31-05 p.C-5836}}

   [12,082] In the Matter of Centennial Bank, Ogden, Utah, Docket No. 03-163b (8-27-03).

   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. (This order was terminated by order of the FDIC dated 12-28-04; see ¶16,408.)

   [.1] Management—Qualifications Specified

   [.2] Board of Directors—Increase Participation in Bank Affairs Required

   [.3] Capital—Tier I Capital Increase/Maintain

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

   [.5] Assets—Charge-off or Collection

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

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

   [.8] Strategic Plan—Preparation of Plan Required

   [.9] Profit Plan—Preparation of Plan Required

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

   [.11] Funds Management and Liquidity—Preparation or Revision of Funds Management Policy Required
{{10-31-03 p.C-5837}}

   [.12] Bank Operations—Internal Controls, Correction of Weaknesses Required

   [.13] Dividends—Dividends Restricted

   [.14] Security Controls—Information Security Program

   [.15] Progress Report—Written Progress Report Required

In the Matter of
CENTENNIAL BANK
OGDEN, UTAH
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

FDIC-03-163b

   Centennial Bank, Ogden, Utah ("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/or regulations alleged to have been committed by the Bank and of its right to a hearing on the alleged charges under section 8(b)(1) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. §1818(b)(1), and Utah Code Ann. §7.1.307, 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 August 26, 2003, and with counsel for the Department of Financial Institutions for the State of Utah ("Department") dated August 26, 2003, 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 and the Department.

   The FDIC and the Department 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 and the Department, 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 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 of law and/or regulation:

       (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 which has failed to provide adequate supervision over and direction to the active management of the Bank;

       (c) operating with inadequate capital in relation to the kind and quality of assets held by the Bank;

       (d) operating with an inadequate loan valuation reserve;

       (e) operating with a large volume of poor quality assets;

       (f) engaging in inadequate lending and ineffective collection practices;

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

       (h) operating in violation of section 23B of the Federal Reserve Act, 12 U.S.C. §371c-1, made applicable to state nonmember insured institutions by section 18(j)(1) of the Act, 12 U.S.C. §1828(j)(1), as more fully described in the Report of Examination dated March 17, 2003; and operating in violation of sections 215.4(a),and 215.4(b), of Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. §§ 215.4(a), and 215.4(b), made applicable to state nonmember institutions by section 18(j)(2) of the Act, 12 U.S.C. §1828(j)(2), as more fully described in the Report of Examination dated March 17, 2003; and operating violation of Utah Code Section 7-3-19, and Utah Administrative Code Rule R331-24-3, as more fully described in the Report of Examination dated March 17, 2003; and operating in violation of Section 32 of the Act, 12 U.S.C. 1831i, as more fully described in the Report of Examination dated March 17,2003; and operating in violation of section 323.3 of the FDIC's Rules and Regulations 12 C.F.R. 323.3, as
    {{10-31-03 p.C-5838}}

       more fully described in the Report of Examination dated March 17,2003; and operating in violation of section 103.22, and 103.63 of the Rules and Regulations of the Department of the Treasury, 31 C.F.R. §103.22 and 103.63, as more fully described in the Report of Examination dated March 17, 2003;

       (i) operating with inadequate provisions for liquidity and funds management;

       (j) operating with inadequate internal routine and controls policies; and

       (k) operating with an inadequate information security program;

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

   [.1].1 The Bank shall have and retain qualified management.

       (a) Each member of management shall have qualifications and experience commensurate with his or her duties and responsibilities at the Bank. Management shall include a chief executive officer with proven ability in managing a Bank of comparable size, improving earnings, and other matters needing particular attention. Management shall also include a senior lending officer with significant appropriate lending, collection, and loan supervision experience and experience in upgrading a low quality loan portfolio. Each member of management shall be provided appropriate written authority from the Bank's board of directors to implement the provisions of this ORDER.

       (b) 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 and regulations; and

         (iv) 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.

       (c) During the life of this ORDER, the Bank shall notify the Regional Director of the FDIC's San Francisco Regional Office ("Regional Director") and the Commissioner, Department of Financial Institutions for the State of Utah ("Commissioner") in writing when it proposes to add any individual to the Bank's board of directors or employ any individual as a senior executive officer. The notification must be received at least 30 days before such addition or employment is intended to become effective and should include a description of the background and experience of the individual or individuals to be added or employed.

   [.2]2. Within 30 days from the effective date of this ORDER, the board of directors shall increase its participation in the affairs of the Bank, assuming full responsibility for the approval of sound policies and objectives for the supervision of all of the Bank's activities, and the development and implementation of appropriate strategic planning, consistent with the role and expertise commonly expected for directors of Banks of comparable size. This participation shall include meetings to be held no less frequently than monthly at which, at a minimum, the following areas shall be reviewed and approved: reports of income and expenses; new, overdue, renewal, insider, charged-off, and recovered loans; investment activity; operating policies; and individual committee actions. Board minutes shall document these reviews and approvals, including the names of any dissenting directors.

   [.3]3. (a) Within 90 days from the effective date of this ORDER, the Bank shall have Tier 1 capital in such an amount as to equal or exceed seven and one half (7.5) percent of the Bank's total assets. Thereafter, during the life of this ORDER, the Bank shall maintain Tier 1 capital in such an amount as to equal or exceed seven and one half (7.5) percent of the Bank's total assets.

   (b) Within 90 days from the effective date of this ORDER, the Bank shall develop and adopt a plan to meet the minimum risk-based capital requirements as described in the FDIC Statement of Policy on Risk-Based Capital contained in Appendix A to Part 325 of the FDIC Rules and Regulations, 12 C.F.R. Part 325, Appendix A. The Plan shall be in a form and manner acceptable to the Regional Director as determined at subsequent examinations.

   (c) The level of Tier 1 capital to be maintained during the life of this ORDER pursuant to subparagraph 3(a) shall be in addition to a fully funded allowance for loan and lease losses, the adequacy of which shall be
{{10-31-03 p.C-5839}}

   satisfactory to the Regional Director and Commissioner as determined at subsequent examinations and/or visitations.

   (d) Any increase in Tier 1 capital necessary to meet the requirements of Paragraph 3 of this ORDER may be accomplished by the following:

       (i) the sale of common stock; or

       (ii) the sale of noncumulative perpetual preferred stock; or

       (iii) the direct contribution of cash by the board of directors, shareholders, and/or parent holding company; or

       (iv) any other means acceptable to the Regional Director and the Commissioner; or

       (v) any combination of the above means.

   Any increase in Tier 1 capital necessary to meet the requirements of Paragraph 3 of this ORDER may not be accomplished through a deduction from the Bank's allowance for loan and lease losses.

   (e) If all or part of the increase in Tier 1 capital required by Paragraph 3 of this ORDER is accomplished by the sale of new securities, the board of directors shall forthwith take all necessary steps to 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 fifteen (15) 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, Accounting and Securities Section, 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 increase in Tier 1 capital is provided by the sale of noncumulative perpetual preferred stock, then all terms and conditions of the issue, including but not limited to those terms and conditions relative to interest rate and convertibility factor, shall be presented to the Regional Director and the Commissioner for prior approval.

   (f) In complying with the provisions of Paragraph 3 of this ORDER, the Bank shall provide to any subscriber and/or purchaser of the Bank's securities, a 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 ten (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.

   (g) For the purposes of this ORDER, the terms "Tier 1 capital" and "total assets" shall have, the meanings ascribed to them in Part 325 of the FDIC Rules and Regulations, 12 C.F.R. §§ 325.2(t) and 325.2(v).

   [.4]4. Within 30 days from the effective date of this ORDER, the Bank shall establish and thereafter maintain an adequate allowance for loan and lease losses.

   Additionally, within 30 days from the effective date of this ORDER, the board of directors shall develop or revise, adopt and implement a comprehensive policy for determining the adequacy of the allowance for loan and lease losses. For the purpose of this determination, the adequacy of the reserve shall be determined after the charge-off of all loans or other items classified "Loss." The policy shall provide for a review of the allowance at least once each calendar quarter. Said review should be completed at least ten (10) days prior to the end of each quarter, in order that the findings of the board of directors with respect to the loan and lease loss allowance may be properly reported in the quarterly Reports of Condition and Income. The review should focus on the results of the Bank's internal loan review, loan loss experience, trends of delinquent and non-accrual loans, an estimate of potential loss exposure of significant credits, concentrations of credit, and present and prospective economic conditions. A deficiency in the allowance shall be remedied in the calendar quarter it is discovered, prior to submitting the
{{10-31-03 p.C-5840}}

   Report of Condition, by a charge to current operating earnings. The minutes of the board of directors meeting at which such review is undertaken shall indicate the results of the review. Upon completion of the review, the Bank shall increase and maintain its allowance for loan and lease losses consistent with the allowance for loan and lease loss policy established. Such policy and its implementation shall be satisfactory to the Regional Director and Commissioner as determined at subsequent examinations.

   [.5]5. (a) Within 30 days from the effective date of this ORDER, the Bank shall eliminate from its books, by charge-off or collection, all assets classified "Loss" in the FDIC's Report of Examination dated March 17, 2003, that have not been previously collected or charged off. Elimination of these assets through proceeds of other loans made by the Bank is not considered collection for the purpose of this paragraph.

   (b) Within 120 days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" in the FDIC's Report of Examination dated March 17, 2003, that have not previously been charged off to not more than two million dollars ($2,000,000) and, within 240 days from the effective date of this ORDER, the Bank shall further reduce assets classified "Substandard" in the FDIC's Report of Examination dated March 17, 2003, that have not previously been charged off to not more than one million five hundred thousand dollars ($1,500,000).

   (c) The requirements of subparagraph 5(a) and 5(b) of this ORDER are not to be construed as standards for future operations, and in addition to the foregoing, the Bank shall eventually reduce the total of all adversely classified assets. Reduction of these assets through proceeds of other loans made by the Bank is not considered collection for the purpose of this paragraph. As used in Paragraph 5(b) the word "reduce" means:

       (i) to collect;

       (ii) to charge-off; or

       (iii) to sufficiently improve the quality of assets adversely classified to warrant removing any adverse classification, as determined by the FDIC and the Department.

   [.6]6. (a) Beginning with the effective date of this ORDER, the Bank shall not extend, directly or indirectly, any additional credit to, or for the benefit of, any borrower who has a loan or other extension of credit from the Bank that has been charged off or classified, in whole or in part, "Loss" and is uncollected. Subparagraph 6(a) of this ORDER shall not prohibit the Bank from renewing or extending the maturity of any credit in accordance with the Financial Accounting Standards Board Statement Number 15 ("FASB 15").

   (b) Beginning with the effective date of this ORDER, the Bank shall not extend, directly or indirectly, any additional credit to, or for the benefit of, any borrower who has a loan or other extension of credit from the Bank that has been classified, in whole or part, "Substandard" without the prior approval of a majority of the board of directors or the loan committee of the Bank.

   [.7]7. (a) Within 90 days from the effective date of this ORDER, the Bank shall revise, adopt, and implement written lending and collection policies to provide effective guidance and control over the Bank's lending function, which policies shall include specific guidelines for placing loans on a non-accrual basis. In addition, the Bank shall obtain adequate and current documentation for all loans in the Bank's loan portfolio. Such policies and their implementation shall be in a form and manner acceptable to the Regional Director and the Commissioner as determined at subsequent examinations and/or visitations.

   (b) The initial revisions to the Bank's loan policy and practices, required by this paragraph, at a minimum, shall include the following:

       (i) provisions, consistent with FDIC instructions for the preparation of Reports of Condition and Income, under which the accrual of interest income is discontinued and previously accrued interest is reversed on delinquent loans;

       (ii) provisions which prohibit the capitalization of interest or loans related expense unless the board of directors supports in writing and records in the minutes of the corresponding board of directors meeting why an exception thereto is in the best interests of the Bank;

       (iii) provisions which require complete loans documentation, realistic repayment terms and current credit information adequate to support the outstanding indebtedness of the borrower. Such documentation shall include current financial information, profit and loss statements or copies of tax returns and cash flow projections;


{{10-31-03 p.C-5841}}

       (iv) provisions which incorporate limitations on the amount that can be loaned in relation to established collateral values.

       (v) provisions which specify the circumstances and conditions under which real estate appraisals must be conducted by an independent third party;

       (vi) provisions which establish standards for unsecured credit;

       (vii) provisions which establish officer lending limits;

       (viii) provisions that require extensions of credit to any of the Bank's executive officers, directors, or principal shareholders, or to any related interest of such persons, to be approved in advance by a majority of the entire board of directors in accordance with section 215.4(b) of Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. §215.4(b);

       (ix) provisions which prohibit concentrations of credit in excess of 25 percent of the Bank's total equity capital and reserves to any borrower and that borrower's related interests;

       (x) provisions which require the preparation of a loan "watch list" which shall include relevant information on all loans in excess of $50,000 which are classified "Substandard" or "Doubtful" in the FDIC's Report of Examination dated March 17, 2003, or by the FDIC or Utah Department of Financial Institutions in subsequent Reports of Examination and all other loans in excess of $100,000 which warrant individual review and consideration by the board of directors as determined by the loan committee or active management. The loan "watch list" shall be presented to the board of directors for review at least monthly with such review noted in the minutes; and

       (xi) the board of directors shall adopt procedures whereby officer compliance with the revised loan policy is monitored and responsibility for exceptions thereto assigned. The procedures adopted shall be reflected in minutes of a board of directors meeting at which all members are present and the vote of each is noted.

   [.8]8. Within 180 days of the effective date of this ORDER, the Bank shall develop and submit to the Regional Director and the Commissioner a written three-year strategic plan. Such plan shall include specific goals for the dollar volume of total loans, total investment securities, and total deposits as of December 31, 2004, December 31, 2005, and December 31, 2006. For each time frame, the plan will also specify the anticipated average maturity and average yield on loans and securities; the average maturity and average cost of deposits; the level of earning assets as a percentage of total assets; and the ratio of net interest income to average earning assets. The plan shall be in a form and manner acceptable to the Regional Director and the Commissioner as determined at subsequent examinations and/or visitations.

   [.9]9. Within 90 days from the effective date of this ORDER, the Bank shall formulate and implement a written profit plan. This plan shall be forwarded to the Regional Director and the Commissioner for review and comment and shall address, at a minimum, the following:

   (a) goals and strategies for improving and sustaining the earnings of the Bank, including:

       (i) an 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; and

       (iv) a description of the operating assumptions that form the basis for, and adequately support, major projected income and expense components.

   (b) coordination of the Bank's loan, investment, and operating policies, and budget and profit planning, with the funds management policy.

   [.10]10. Within 90 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of law which are more fully set out on pages 14 through 20 in the FDIC's Report of Examination dated March 17, 2003. In addition, the Bank shall take all necessary steps to ensure future compliance with all applicable laws and regulations.

   [.11]11. Within 90 days from the effective date of this ORDER, the Bank shall develop or revise, adopt, and implement a written liquidity
{{10-31-03 p.C-5842}}

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

   [.12]12. Within 90 days from the effective date of this ORDER, the Bank shall adopt and implement a policy for the operation of the Bank in such a manner as to provide adequate internal routine and control policies consistent with safe and sound banking practices. Such policy and its implementation shall be satisfactory to the Regional Director and the Commissioner as determined at subsequent examinations and/or visitations.

   [.13]13. The Bank shall not pay cash dividends without the prior written consent of the Regional Director and the Commissioner.

   [.14]14. Within 90 days from the effective date of this ORDER, the Bank will develop and implement an information security program that complies with Appendix B to Part 364 of the FDIC Rules and Regulations, which implements the requirements stipulated under Section 501(b) of the Gramm-Leach-Bliley Act (GLBA). This information security program will include, at a minimum, the following:

       (a) a comprehensive risk assessment;

       (b) Programs and procedures to comply with the Board-approved Information Security Policy and related IT policies and standards;

       (c) Vendor/service provider oversight program;

       (d) independent testing and monitoring programs; and

       (e) annual reports to the Board regarding the overall status of the compliance with GLBA.

   [.15]15. Within 45 days of the end of the first calendar quarter following the effective date of this ORDER, and within forty-five (45) days of the end of each calendar quarter 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 shall include a copy of the Bank's Report of Condition and the Bank's Report of Income. 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.

   This ORDER shall become effective ten (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 at San Francisco, California, this 27th day of August, 2003.



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






Last Updated 4/16/2005 legal@fdic.gov