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[¶12,093] In the Matter of Oakland State Bank, Oakland, Iowa, Docket No. 03-144b
(9-16-03)
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] ManagementQualifications Specified
[.2] CapitalMaintain Tier 1 Capital
[.3] DividendsDividends Restricted
[.4] Loan Loss ReserveEstablish of or Increase in Required
[.5] AssetsCharge-off or Collection
[.6] AssetsAdversely Classified AssetsReduction Required
[.7] LoansExtensions of CreditTo Borrowers with Existing Adversely Classified Credits
[.8] LoansCollectionsWritten Policy Required
[.9] Loan PolicyPreparation or Revision of Policy Required
[.10] Technical ExceptionsCorrection of Technical Exceptions Required
[.11] Funds Management and LiquidityPreparation or Revision of Funds Management Policy Required
[.12] Profit Plan and BudgetPreparation of Plan Required
[.13] Violations of LawCorrections of Violations Required
[.14] ShareholdersDisclosure of Cease and Desist Order Required
[.15] Progress ReportWritten Report Required
In the Matter of
OAKLAND STATE BANK
OAKLAND, IOWA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-03-144b
Oakland State Bank, Oakland, Iowa ("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 September 12, 2003, 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
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of an ORDER TO CEASE
AND DESIST ("ORDER") by the FDIC.
The FDIC considered the matter and determined that it had reasons to
believe that the Bank had engaged in unsafe or 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 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. Operating with an inadequate level of capital protection for the
kind and quality of assets held.
D. Operating with an inadequate allowance for loans and lease losses
for the volume, kind, and quality of loans and leases held, and/or
failing to make provision for an adequate allowance for possible loan
and lease losses.
E. 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 obtain adequate collateral;
3. the failure to establish and monitor collateral margins of secured
borrowers;
4. the failure to establish and enforce adequate loan repayment
programs;
5. the failure to obtain current and complete financial information;
and
6. other poor credit administration practices.
F. Operating with an excessive level of adversely classified loans
or assets, and/or delinquent loans and/or non-accrual loans.
G. Operating with an inadequate loan policy.
H. Operating with inadequate policies to monitor and control asset
growth.
I. Violating laws and/or regulations, including:
1. 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;
2. the collateral requirements of section 23A of the Federal Reserve
Act 12 U.S.C. §371c(c)(1)(A)(B)(C) or (D); and
3. the requirements/prohibitions of section 323.3(a) of the FDIC Rules
and Regulations, 12 C.F.R. §323.3(a).
J. Failing to adequately comply with the guidelines
establishing the standards for safety and soundness, set forth in
Appendix A to Part 364 of the FDIC Rules and Regulations, 12 C.F.R.
Part 364, Appendix A.
IT IS FURTHER ORDERED, that the 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 Superintendent of Banking, 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
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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 previously in this
ORDER.
(f) Upon completion of the Management Plan, it shall be submitted
to the Regional Director and the Superintendent of Banking 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] CAPITAL MAINTENANCE. 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) After appropriate entries for an adequate allowance for loan
and lease losses ("ALLL") are made in accordance with the
requirements of this Order, but no later than 30 days from the
effective date of this ORDER, the Bank shall have and maintain a
capital ratio in excess of 7 percent.
(b) During the period this ORDER is in effect, if the capital ratio
declines below 7 percent, the Bank shall, within 60 days after the date
on which the said ratio so declined, submit a written plan to the
Regional Director and the Superintendent of Banking for approval
describing the means and timing by which the Bank shall increase such
ratio up to or in excess of 7 percent. Upon receiving written
notification of the approval of the plan, the Bank shall increase its
capital ratio to equal or exceed 7 percent in accordance with the
approved plan and shall thereafter maintain its capital ratio at or in
excess of such level while this ORDER is in effect.
(c) 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.
[.3]3. 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 Superintendent of
Banking.
[.4] ALLOWANCE FOR LOAN AND LEASE LOSSES. For purposes of this
ORDER and in making the determinations 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 ("ALLL") and any analysis of
the Bank's allowance for loan and lease losses provided by the FDIC.
(a) Within 10 days from the effective date of this ORDER, the Bank
shall replenish its ALLL in the amount of at least $575,000.
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(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 March 31, 2003, 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 FDIC after the effective date of this ORDER, the board
of directors of the Bank shall review the adequacy of the Bank's ALLL,
provide for an adequate 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) While this ORDER is in effect, the Bank shall submit to the
Regional Director and Superintendent of Banking the analysis supporting
the determination of the adequacy of its ALLL. These submissions may be
made at such times as the Bank files the progress reports otherwise
required by this ORDER.
(e) ALLL entries required by this paragraph shall be made prior to any
Tier 1 capital determinations required by this ORDER.
[.5]5. 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. 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"
as of March 31, 2003, that have not been previously collected or
charged off.
[.6]6. 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 $100,000 which is classified
"Substandard" in the FDIC's Report of Examination as of March
31, 2003. Thereafter, the Bank shall implement and follow this plan. A
copy of the plan shall be submitted to the Regional Director and the
Superintendent of Banking 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.
[.7] 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.
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[.8]8. REDUCTION OF
DELINQUENCIES. Within 60 days from the
effective date of this ORDER, the Bank shall adopt and implement a
written plan for the reduction and collection of delinquent loans.
(a) The plan shall include, but not be limited to, provisions
which:
(i) prohibit the extension of credit for the payment of interest;
(ii) delineate areas of responsibility;
(iii) establish acceptable guidelines for the collection of delinquent
credits; and
(iv) provide for the submission of monthly written progress reports to
the Bank's board of directors for review and notation in minutes of
the meetings of the board of directors.
(b) A copy of the written plan shall be submitted to the Regional
Director and the Superintendent of Banking upon its completion.
Thereafter, the Bank shall implement and follow the plan.
[.9]9. LOAN POLICY. Within 90 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) In making the initial review of the Bank's loan policy
required by this paragraph, the Bank, at a minimum, shall add
provisions, or ensure it provides for:
(i) establishing officer lending limits and limitations on the
aggregate level of credit to any one borrower which can be granted
without the prior approval of the Bank's loan committee;
(ii) 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;
(iii) 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, which information
shall be maintained throughout the term of the loan; and
(C) have a clearly defined and stated purpose and a predetermined and
realistic repayment source and schedule;
(iv) incorporating limitations on the amount that can be loaned
in relation to established collateral values, including the requirement
that the source of the valuations be identified and that such
collateral valuations be completed prior to the disbursement of loan
proceeds and be performed on a periodic basis over the term of the
loan;
(v) establishing limitations on the maximum volume of loans in relation
to total assets;
(vi) requiring the establishment and maintenance of a loan grading
system and internal loan watch list;
(vii) requiring that extensions of credit to any of the Bank's
executive officers, directors, or principal shareholders, or to any
related interest of such person, be thoroughly reviewed for compliance
with all provisions of Regulation O and Part 337 of the FDIC's Rules
and Regulations, 13 C.F.R. Part 337;
(viii) requiring accurate reporting of past due loans to the loan
committee on at least a monthly basis;
(ix) establishing standards for collection efforts for past due loans;
(x) establishing guidelines for timely recognition of loss through
charge-off;
(xi) requiring loan committee review and monitoring of the status of
repayment and collection of overdue and maturing loans, as well as all
loans classified "Substandard" and "Doubtful" in Regulatory
Reports of Examination;
(xii) requiring a written plan to lessen the risk position in each line
of credit identified as a problem credit on the Bank's internal loan
watch list;
(xiii) 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
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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;
(xiv) prohibiting the capitalization of interest or loan-related
expenses unless the board of directors provides, in writing, a detailed
explanation of why said deviation is in the best interest of the Bank;
(xv) addressing concentrations of credit and diversification of risk,
including goals for portfolio mix, establishment of limits within 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;
(xvi) requiring that collateral appraisals be completed prior to the
making of secured extensions of credit, and that no less than annual
collateral valuations be performed for all secured loans; and
(xvii) establishing review and monitoring procedures for compliance
with the FDIC's regulation on appraisals, 12 C.F.R. Part 323.
(b) The Bank shall inform the Regional Director and the
Superintendent of Banking, in writing, how it intends to ensure
compliance. Thereafter, the Bank shall implement and follow the written
loan policy.
[.10]10. TECHNICAL EXCEPTIONS. Within 60 days from the effective
date of this ORDER, the Bank shall correct the technical exceptions
listed in the FDIC Report of Examination as of March 31, 2003.
"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.
[.11]11. FUNDS MANAGEMENT
PLAN. Within 60 days from the effective
date of this ORDER, the Bank shall adopt and implement a written plan
addressing liquidity, contingent funding, and asset liability
management. A copy of the revised plan shall be submitted to the
Regional Director and the Superintendent of Banking upon its
completion. Thereafter, the Bank shall implement and follow the plan.
Annually during the life of this ORDER, the Bank shall review this plan
for adequacy and, based upon such review, shall make appropriate
revisions to the plan that are necessary to strengthen funds management
procedures and maintain adequate provisions to meet the Bank's
liquidity needs.
[.12]12. 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, 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 adopt and implement a written profit plan and a
realistic/comprehensive budget for all categories of income and expense
for calendar years 2003, 2004, and 2005. A copy of the plan and budget
shall be submitted to the Regional Director and the Superintendent of
Banking upon their completion. 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
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.
[.13]13. VIOLATIONS OF LAW AND
REGULATION. Within 60 days from
the effective date of this ORDER, the Bank shall: (a) correct the
violations of law and regulations and the deficiencies in compliance
with the guidelines establishing the standards for safety and soundness
set forth in Appendix A to Part 364 of the FDIC Rules and
Regulations, 12 C.F.R. Part 364, Appendix A, as set forth in the
FDIC's Report of Examination as of March 31, 2003; and (b) implement
procedures to ensure future compliance with all applicable laws,
regulations and guidelines.
[.14]14. DISCLOSURE TO
SHAREHOLDERS. Following the effective date
of this ORDER, the Bank shall send to its shareholders,
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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.
[.15]15. PROGRESS REPORTS. Within 60 days of the effective date
of this ORDER, the Bank shall furnish a written progress report to the
Regional Director and the Superintendent of Banking detailing the form
and manner of all actions taken to secure compliance with this ORDER,
and the results thereof. In addition, the Bank shall furnish such
subsequent or additional reports on request of either the Regional
Director or the Superintendent of Banking. All progress reports and
other written responses to this ORDER shall be reviewed by the board of
directors of the Bank, signed by each of them, and made a part of the
minutes of the board meeting.
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