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   [12,245] In the Matter of Smithfield State Bank of Smithfield, PA., Smithfield, Pennsylvania, Docket No. 04-117b (7-27-04).

   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 5-31-06; see ¶16,456.)

   [.1] Management—Management Report Required

   [.2] Board of Directors— Directors' Plan—Establishment of Plan Required

   [.3] Capital—Capital Restoration Plan Required

   [.4] Interest Rate Risk Policy—Compliance Required

   [.5] Investment Policy—Investment Policy, Preparation or Revision Required

   [.6] Assets—Charge-off or Collection

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

   [.8] Earnings Plan—Written Earnings Plan Required

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

   [.10] Loans—Special Mention

   [.11] Risk Management—Plan Required

   [.12] Board of Directors—Conflicts of Interest—Policy Required

   [.13] Violations of Law—Corrections of Violations Required

   [.14] Report of Examination—Correction of Exceptions Required

   [.15] Reports of Condition and Income—Amendment Required

   [.16] Dividends—Dividends Restricted

   [.17] Golden Parachute Payments—Prohibited

   [.18] Brokered Deposits—Restricted
{{9-30-04 p.12,245.2}}

   [.19] Information Technology Plan—Implementation of Required

   [.20] Information Technology Plan—Minimum Requirements

   [.21] Consumer Laws—Compliance Officer Required

   [.22] Compliance Program—Written Compliance Plan Required

   [.23] Bank Operations—Training Program Required

   [.24] Consumer Laws—Compliance Audit Required

   [.25] Violations of Law—Corrections of Violations Required

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

   [.27] Compliance Committee—Establishment of Required

   [.28] Progress Report—Written Report Required

In the Matter of
SMITHFIELD STATE BANK OF SMITHFIELD, PA.
SMITHFIELD, PENNSYLVANIA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

FDIC-04-117b

   SMITHFIELD STATE BANK OF SMITHFIELD, PA., Smithfield, Pennsylvania ("Insured Institution"), 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 Insured Institution 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 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 July 27, 2004, 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 Insured Institution 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 Insured Institution had engaged in unsafe or unsound banking practices and had committed violations of law and/or regulations. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

ORDER TO CEASE AND DESIST

   IT IS HEREBY ORDERED that the Insured Institution, its directors, officers, employees, agents, and other "institution-affiliated parties," (as that term is defined in section 3(u) of the Act, 12 U.S.C. §1813(u)), and its successors and assigns, CEASE AND DESIST from the following unsafe or unsound banking practices and violations:

       (a) Operating the Insured Institution with management whose policies and practices are detrimental to the Insured Institution and jeopardize the safety of its deposits;

       (b) Failing to provide the Insured Institution with operational personnel who have experience that is adequate to ensure safe and sound operation of the Insured Institution and to ensure compliance with applicable laws and regulations;

       (c) Operating the Insured Institution with a board of directors which has failed to provide adequate supervision over and direction to the active management of the Insured Institution;

       (d) Operating the Insured Institution with inadequate capital in relation to the level of interest rate risk;

       (e) Operating the Insured Institution with inadequate internal routine and controls and unsatisfactory risk management policies and procedures;

       (f) Operating the Insured Institution with an inadequate allowance for loan and lease losses;

       (g) Operating the Insured Institution in such a manner so as to produce unsatisfactory earnings;

       (h) Operating the Insured Institution with excessive concentration of credit in its indirect automobile loan portfolio;
     

       (i) Engaging in hazardous lending and lax underwriting and credit administration;

       (j) Engaging in violations of applicable Federal and State laws and/or regulations and contraventions of Statements of Policy, as more fully set forth on pages 17–21 of the joint Report of Examination of the Insured Institution (Risk Management) by the FDIC and the Commonwealth of Pennsylvania, Department of Banking ("PADOB") as of December 31, 2003 (the "Joint Report of Examination (Risk Management)");

       (k) Operating the Insured Institution with ineffective compliance policies and procedures;

       (l) Engaging in violations of Federal consumer laws and/or regulations as more fully set forth at pages 12 through 22 of the March 31, 2004 Report of Examination of the Insured Institution (Compliance); and

       (m) Operating the Insured Institution with ineffective Information Technology policies and procedures.

   IT IS FURTHER ORDERED that the Insured Institution take AFFIRMATIVE action as follows:

   [.1] 1. (a) To ensure both compliance with this ORDER and to facilitate having and retaining qualified management, the board of directors of the Insured Institution shall, within 60 days from the effective date of this ORDER, undertake an in-depth analysis and review of the Insured Institution's managerial requirements and make a written report ("Management Report") on the Insured Institution's management needs. The Management Report shall incorporate an analysis of the Insured Institution's management and staffing requirements and shall, at a minimum:

       (i) provide a review of the composition, policies and practices of the Insured Institution's current operating management;

       (ii) provide a recommendation of whether current operating management should be changed, or the terms and conditions under which current operating management should be continued including, but not limited to, the chief executive officer, chief financial officer, senior lending officer, and compliance officer;

       (iii) provide an evaluation of each Insured Institution officer indicating whether these officials possess the ability, experience and other qualifications required to perform present and anticipated duties, including adherence to the Insured Institution's established policies and practices and maintenance of the Insured Institution in a safe and sound condition;

       (iv) identify both the number and type of positions needed to properly supervise the Insured Institution's lending functions, giving appropriate consideration to the Insured Institution's loan volume, customer base and the number of problem credits;

       (v) provide a clear and concise description of the general duties and responsibilities for each Insured Institution officer and their key support staff;

       (vi) identify the skills, experience and compensation required for each position;

       (vii) establish a plan providing for periodic evaluation of each individual's job performance; and

       (viii) provide for periodic review of the Insured Institution's management and updating of lending policies and procedures.

   (b) The board of directors of the Insured Institution shall obtain the services of an outside consultant, acceptable to the FDIC and the PADOB, who is knowledgeable in the area of bank management, lending, interest rate risk, investments and personnel evaluation to assist the board of directors in reviewing the Insured Institution's management needs and preparing the Management Report. The acceptability of the consultant shall be based on the consultant's ability to advise the Insured Institution in each of the areas identified in paragraph 1(a).

   (c) Within 75 days from the effective date of this ORDER, the board of directors of the Insured Institution, with the assistance of the outside consultant, shall prepare a written plan of implementation ("Plan") addressing the findings of the Management Report. The Plan shall specify the actions to be taken by the board of directors and the time frames for each action.

   (d) Within 90 days from the effective date of this ORDER, the board of directors of the Insured Institution shall prepare a written report ("Written Report") which shall contain (i) a recitation identifying the recommendations made by the outside consultant which have been incorporated in the Management Report and Plan; (ii) a recitation  identifying the recommendations made by the outside consultant which were not incorporated in the Management Report and Plan and the reasons for not including such recommendations; and (iii) a copy of any report prepared by the outside consultant.

   (e) Promptly after preparation of the Management Report, Plan, and Written Report, but no later than 95 days from the effective date of this Order, a copy of the Management Report, Plan, and Written Report shall be submitted to the Regional Director of the New York Regional Office of the FDIC ("Regional Director") and the Director of the Bureau of Supervision and Enforcement of PADOB ("PA-Director") for review and comment. Within 30 days from receipt of any comment, and after consideration of such comment, the board of directors of the Insured Institution shall approve the Management Report and Plan, which approval shall be recorded in the minutes of the meeting of the board of directors. It shall remain the responsibility of the board of directors to fully implement the plan within the specified time frames. In the event the Plan, or any portion thereof, is not implemented, the board of directors shall immediately advise the Regional Director, in writing, of the specific reasons for deviating from the Plan.

   (f) During the life of this ORDER, the Insured Institution shall notify the Regional Director in writing of any resignations and/or terminations of any members of its board of directors and/or any of its executive officers.

   (g) The Insured Institution shall comply with section 32 of the Act, 12 U.S.C. §1831i(a)–(f), which includes a requirement that the Insured Institution shall notify the Regional Director in writing at least 30 days prior to any individual assuming a new position as a senior executive officer or any additions to its board of directors.

   [.2] 2. (a) Within 90 days from the effective date of this ORDER, the board of directors shall develop a written analysis and assessment of the composition and functions of the board of directors ("Directors' Plan"), which shall include, at a minimum:

       (i) an evaluation of each member of the board of directors to determine whether those individuals and the board of directors as a whole have the ability, experience, independence, and other qualifications which are necessary to perform the duties of the board of directors, including providing effective oversight and guidance of management and staff to ensure adherence to the board of directors' policies and to maintain the Insured Institution in a safe and sound condition; and

       (ii) a written plan of action to enhance the effectiveness of the board of directors by either adding new members to the board of directors with the necessary ability, experience, independence and other qualifications, or requiring additional education and training for existing members of the board, or both.

   (b) The board of directors of the Insured Institution shall obtain the services of an outside consultant, acceptable to the FDIC and the PADOB, who is knowledgeable in the area of bank management, to assist in evaluating the board of directors and preparing the Directors' Plan. This consultant may be the same consultant employed to prepare the Management Report required by paragraph 1(a). In the event that recommendations made by the consultant are not included in the Directors' Plan, the board of directors shall immediately advise the Regional Director and the PA-Director, in writing, of the specific reasons for which the recommendations were excluded from the Directors' Plan.

   (c) The Directors' Plan and any subsequent modifications thereto shall be submitted to the Regional Director and the PA-Director for review and comment. Within 30 days from the receipt of any comments, and after considering such comments, the board of directors shall approve the Directors' Plan and/or any subsequent modification thereto, which approval shall be recorded in the minutes of the board of directors. Thereafter, the board of directors of the Insured Institution shall implement and follow the Directors' Plan and/or any subsequent modifications thereto.

   [.3] 3. Within 30 days from the effective date of this ORDER, the Insured Institution shall develop a written plan to increase the Insured Institution's capital. Capital levels should exceed "well capitalized" status within the meaning of section 325.103(b)(1) ("Capital Restoration Plan"), and specifically the Insured Institution should maintain its leverage ratio as follows: 5.5 percent as of September 30, 2004, 6.0 percent as of December 31, 2004, 6.5 percent as of March 31, 2005, 7.0 percent as of June 30, 2005, and 7.5 percent as of September 30, 2005 and 8.0 percent as of December 31, 2005. For the purposes of this ORDER, the term leverage ratio will have the meanings ascribed to it in Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. §325.2(m).

   [.4] 4. Within 30 days from the effective date of this ORDER, the Insured Institution shall eliminate excessive interest rate risk exposure ("IRR") to rising and declining interest rates. Further, the Insured Institution shall return its IRR exposure to be within the limits and parameters currently established and approved by the Insured Institution's board of directors. In accordance with safe and sound banking practices, the Insured Institution shall also hold, at a minimum, monthly meetings of the Insured Institution's Asset/Liability Committee ("ALCO"), and reports of the Insured Institution's IRR and liquidity positions shall be presented at least monthly to the board of directors. The minimum time periods set forth in this paragraph are not be construed so as to prevent more frequent analyses, ALCO meetings, and reports to the Insured Institution's board of directors. In appropriate circumstances, prudent banking will dictate that more frequent analyses of the Insured Institution's IRR and liquidity positions take place, that more frequent ALCO meeting be held, and/or more frequent reports be made by management to the Insured Institution's board of directors.

   [.5] 5. Within 60 days from the effective date of this ORDER, and annually thereafter, the board of directors of the Insured Institution shall review the Insured Institution's investment policy for adequacy and shall make the necessary revisions to address the actual and contemplated condition of the investment portfolio. The revised policy shall, at a minimum, address the exceptions noted in the Joint Report of Examination (Risk Management) and shall be consistent with the FFIEC's Instructions for Consolidated Reports of Condition and Income and generally accepted accounting principles, and the Insured Institution's loan, liquidity and asset/liability management policies. A copy of the revised policy shall be submitted to the Regional Director and the PA-Director within 5 days of its adoption.

   [.6] 6. Within 10 days from the effective date of this ORDER, the Insured Institution shall eliminate from its books, by collection or charge-off, all items or portions of items classified "Loss" as a result of the Joint Report of Examination (Risk Management), which have not been previously charged off or collected. In addition, and so long as this ORDER remains in effect, the Insured Institution shall, within 30 days from the receipt of any subsequent report of examination of the Insured Institution from the FDIC or the PADOB, eliminate from its books, by collection or charge-off, all items or portions of items classified "Loss" in said report of examination. Elimination of these items through the use of the proceeds of loans or other extensions of credit made by the Insured Institution does not constitute collection for the purposes of this ORDER.

   [.7] 7. (a) Immediately upon the effective date of this ORDER, the Insured Institution shall increase the allowance for loan and lease losses by $2,017,000 with a charge to operating earnings through the provision for loan and lease losses.

   (b) Within 45 days from the effective date of this ORDER, the board of directors of the Insured Institution shall adopt a method of computing the balance of the Insured Institution's allowance for loan and lease losses that gives consideration to the volume and composition of the loan portfolio not subject to criticism, as well as to the volume and composition of criticized loans, including, but not limited to, (i) results of the Insured Institution's internal loan review; (ii) loan loss experience; (iii) an estimate of potential loss exposure on the indirect automobile loan concentration; (iv) concentrations of credit in the Insured Institution; and (v) present and prospective economic conditions consistent with the July 25, 2001 Interagency Policy Statement on Allowance for Loan and Lease Losses Methodologies. A copy of the methodology shall be submitted to the Regional Director and the PA-Director within 5 days of its adoption.

   (c) Thereafter, the Insured Institution's board of directors shall, during the first month of each quarter, review the allowance for loan and lease losses and make such additional provisions for loan and lease losses that are necessary to maintain the allowance at an adequate level relative to the volume of risk in the Insured Institution's loan portfolio. All such additional provisions for loan and lease losses shall be made in the first month of the calendar quarter in which the deficiency in the allowance is identified, but as of the end of the preceding calendar quarter, and shall be reflected in the Report of Condition and the Report of Income filed in the calendar quarter in which the deficiency is identified with respect to the preceding calendar quarter. The minutes of the board of directors of the Insured Institution shall reflect that such review has been performed, and documentary proof of the method employed in determining the level of the allowance shall be maintained for future regulatory review.

   (d) All increases in the allowance for loan and lease losses, with the exception of recoveries credited directly to the allowance, shall be accomplished by charges to operating earnings through the provision for loan and lease losses.

   [.8] 8. (a) Within 60 days from the effective date of this ORDER, and within the first 30 days of each calendar year thereafter, the board of directors of the Insured Institution shall develop a written earnings plan consisting of goals and strategies for improving the earnings of the Insured Institution for each calendar year. The written earnings plan shall include, at a minimum:

       (i) identification of the major areas in, and means by, which the board of directors will seek to improve the Insured Institution's operating performance;

       (ii) realistic and comprehensive budgets;

       (iii) a budget review process to monitor the income and expenses of the Insured Institution to compare actual figures with budgetary projections on not less than a quarterly basis; and

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

   (b) Such written earnings plan and any subsequent modification thereto shall be submitted to the Regional Director and the PA-Director for review and comment. Within 30 days after the receipt of any comment from the Regional Director and the PA-Director, the board of directors shall approve the written earnings plan, which approval shall be recorded in the minutes of the meeting of the board of directors of the Insured Institution. Thereafter, the Insured Institution shall follow the written earnings plan and/or any subsequent modification thereto.

   [.9] 9. Immediately upon the effective date of this ORDER, the Insured Institution shall not extend, either directly or indirectly, any additional credit to, or for the benefit of, either: (i) any borrower who is already obligated in any manner to the Insured Institution on any extensions of credit (including any portion thereof) that has been charged off the books of the Insured Institution or classified "Loss" as reflected on pages 24 and 25 of the Joint Report of Examination (Risk Management) so long as such credit remains uncollected; or (ii) any borrower whose loan or other credit has been classified "Substandard", "Doubtful" or is listed as Special Mention and is uncollected unless the Insured Institution's board of directors has adopted, prior to such extension of credit, a detailed written statement giving the reasons why such extension of credit is in the best interest of the Insured Institution. A copy of the statement shall be placed in the appropriate loan file and shall be incorporated in the minutes of the applicable board of directors' meeting.

   [.10] 10. (a) Within 60 days from the effective date of this ORDER, the board of directors of the Insured Institution shall adopt and implement a written program for an accurate accounting and administration of the Insured Institution's indirect automobile loan portfolio, including automobile repossessions and subsequent automobile sales. The written program shall incorporate, but not be limited to, recommendations described on pages 8 and 9 of the Joint Report of Examination (Risk Management); as well as include hiring a qualified loan officer for the workout of problem credits; developing management information systems to track indirect auto loan activity in accordance with the March 1, 1999 Interagency Guidance on Subprime Lending Policy Statement; developing internal and external audit functions and accounting policies to accurately account for repossessed automobile assets and gains on sales of bank-financed automobiles; and elimination of residual loan balances.

   (b) Within 60 days from the effective date of this ORDER, the board of directors of the Insured Institution shall implement a written program pursuant to The Uniform Retail Credit Classification and Account Management Policy, which specifically addresses the indirect automobile loan portfolio.

   [.11] 11. Within 60 days from the effective date of this ORDER, the Insured Institution shall revise, adopt, and implement written lending and collection policies and procedures that incorporate the underwriting and credit administration recommendations discussed in the Joint Report of Examination (Risk Management) and which provide effective guidance and control over the lending function of the Insured Institution. A copy of the revised policy shall be submitted to the Regional Director and the PA-Director within 5 days of its adoption.

   [.12] 12. Within 60 days from the effective date of this ORDER, the Insured Institution shall develop, adopt and implement written policies and procedures designed to bring to the attention of each member of the board conflicts of interests which may exist in approving loans or other transactions in which officers, directors or principal stockholders of the Insured Institution ("Insiders") are involved. Such policies and procedures, shall, at a minimum, ensure that each member of the board has been apprised of any potential conflict prior to making a decision and has acted specifically on any loan or other transaction in which Insiders and/or their related interests as defined in Regulation O, 12 C.F.R. §215.2(n), are, directly or indirectly, involved. The results of board deliberations as to potential conflicts shall be reflected in the minutes of the meeting.

   [.13] 13. Within 60 days from the effective date of this ORDER, the Insured Institution shall eliminate and/or correct all violations of law and/or regulations and contraventions of Statements of Policy, as described on pages 17–21 of the Joint Report of Examination (Risk Management). In addition, the Insured Institution shall take all steps necessary to ensure future compliance with all applicable Federal and State laws and regulations.

   [.14] 14. Within 30 days from the effective date of this ORDER, the Insured Institution shall correct violations and/or criticism noted in the Joint Report of Examination (Risk Management) related to its current Bank Secrecy Act Compliance Plan and ensure that it complies in all material respects with BSA, Part 353 and section 326.8 of the FDIC's Rules and Regulations, 12 C.F.R. Part 353, §326.8 and 18 Pa. C.S.A. §5111. Thereafter, the Insured Institution shall comply in all material respects with the plan including:

   (a) Provide for a test for compliance with BSA pursuant to section 326.8 of the FDIC's Rules and Regulations, 12 C.F.R. §326.8, using a qualified, trained, and experienced third party, such as an independent public accountant or specialist in this subject matter, who is not, in any manner, affiliated with the Insured Institution. Thereafter, such independent testing shall be conducted on an annual basis. Written reports documenting the testing results and providing recommendations for improvement shall be prepared and presented to the Insured Institution's board of directors and noted in official board minutes; and

   (b) The Board of Directors shall monitor and confirm the completion of actions taken by management to comply with the terms of this paragraph. The Board of Directors shall certify in writing to the Regional Director when all of the above actions have been accomplished. All actions taken by the Board of Directors pursuant to this paragraph shall be duly noted in the minutes of its meeting.

   [.15] 15. (a) Within 30 days from the effective date of this ORDER, the Insured Institution shall review all Reports of Condition and Income filed with the FDIC on and after December 30, 2003 as well as year-to-date 2004 reports and shall amend and file with the FDIC amended Reports of Condition and Income which accurately reflect the financial condition of the Insured Institution as of the date of each such report.

   (b) In addition to the above and during the life of this ORDER, the Insured Institution shall file with the FDIC, Consolidated Reports of Condition and Income which accurately reflect the financial condition of the Insured Institution as of the reporting period. In particular such reports shall include any adjustment in the Insured Institution's books made necessary or appropriate as a consequence of any FDIC or PADOB examination of the Insured Institution during that reporting period and the results of the Joint Report of Examination (Risk Management).

   [.16] 16. The Insured Institution shall not declare or pay dividends in any amount except as follows:

   (a) That such declarations and payments are made in accordance with applicable State and Federal laws and regulations;

   (b) That such declaration and payment of dividends shall be approved in advance by the board of directors of the Insured Institution and shall only be made if the Insured Institution is in compliance with the capital provision in paragraph 3.

   [.17] 17. Immediately upon the effective date of this ORDER, the Insured Institution shall:

   (a) not enter into any agreements with present and former officers of the Insured Institution which constitute "golden parachute payments", as defined in section 18(k)(4) of the Act, 12 U.S.C. §1828(k)(4);

   (b) rescind all agreements or portions of agreements with present and former officers of the Insured Institution which constitute "golden parachute payments";

   (c) cease making any payments to present and former officers of the Insured Institution which constitute "golden parachute payments"; and

   (d) take whatever legal steps are necessary to obtain reimbursement from all former officers of the Insured Institution of any payments which have already been made to them and which constitute "golden parachute payments".

   [.18] 18. While this ORDER is in effect, the Insured Institution shall not accept, renew, or rollover brokered deposits other than as and to the extent permitted pursuant to section 29 of the Act, 12 U.S.C. §1831f, as amended, and the FDIC's Rules and Regulations, including section 337.6, 12 C.F.R. §337.6, as amended and supplemented. For the purposes of this ORDER, the term "brokered deposits" shall have the same meaning as is found in section 337.6(a)(2) of the FDIC's Rules and Regulations, as amended.

   [.19] 19. Within 90 days from the effective date of this ORDER, the Insured Institution shall develop appropriate information technology policies covering all aspects of the Insured Institution's technology infrastructure including, but not limited to, the main banking application, the local area network, and microcomputer. After initial approval of these board policies, the board should review and approve the policies annually to adequately reflect the current IT infrastructure.

   [.20] 20. Except as otherwise provided in paragraph 19 above and paragraph 20(c) below, within 60 days from the effective date of this ORDER, the Insured Institution shall correct the deficiencies noted on pages 3 through 8 in the January 20, 2004 Information Technology Examination and address the following:

   (a) Reduce dependency on a single employee by instituting a training program for employees in computer systems and software; and

   (b) Develop and test a disaster recovery plan commensurate with the size and complexity of the institution; and

   (c) Relocate the critical computer equipment located at the main office and branches to a secure, climate controlled, limited access area to be completed within a reasonable period of time not to exceed 90 days; and

   (d) Initiate an independent review of the Insured Institution's entire system to correct any encoding errors and adopt procedures to ensure that all data entered on the system is accurate; and

   (e) Implement a vendor oversight program with procedures requiring annual review of the service providers and vendors performance; and

   (f) Implement a formal process for tracking all deficiencies and exceptions noted in external and internal audit reports and regulatory Reports of Examination with periodic status reports to the board. Each deficiency should be identified, the source of the deficiency and date noted, responsibility for correction assigned, and date for corrective action to be implemented.

   [.21] 21. Within 60 days from the effective date of this ORDER, the Insured Institution shall appoint an experienced compliance officer to oversee and coordinate the Insured Institution's overall consumer compliance function. The board of directors shall also ensure that the consumer compliance officer receives training, as soon as practicable, sufficient to effectively oversee and coordinate the Insured Institution's overall consumer compliance function as well as sufficient time and resources to carry out the other responsibilities of a Compliance Officer. The compliance officer shall provide periodic reports, at least quarterly, to the board of directors on the Insured Institution's consumer compliance efforts. All compliance-related discussions must be adequately documented in board minutes.

   [.22] 22. Within 60 days from the effective date of this ORDER, the Insured Institution shall approve and adopt a written consumer compliance program that establishes effective operating, auditing and monitoring procedures to ensure compliance with all applicable consumer protection laws, regulations and interagency statements of policy. Said program should enable the board of directors to ensure that the Insured Institution is in compliance with all applicable consumer laws and regulations. The program should be reviewed and updated as needed to reflect changes in the Insured Institution's consumer compliance environment. At a minimum, such written consumer compliance program should consist of:

   (a) Written policies and procedures to ensure compliance with applicable consumer laws and regulations, including, but not limited to non-discriminatory lending criteria;

   (b) For each affected department, branch or business line, internal controls that monitor adherence to the policies and procedures in (a) above, including, but not limited to, internal control questionnaires and checklists which test and measure compliance with applicable requirements related to marketing, disclosures, calculations and document retention for consumer deposit and loan products; and

   (c) A documented consumer compliance training program for applicable personnel that includes formal training for new employees assigned to consumer compliance functions and periodic refresher training for all employees assigned to consumer compliance functions (including distribution of applicable updates to consumer compliance laws and regulations; and

   (d) Procedures to handle consumer complaints.

   [.23] 23. Within 60 days from the effective date of this ORDER, the Insured Institution shall adopt and implement policies and procedures that ensure that loan officers and other loan department personnel at all branches receive appropriate training, and have a clear understanding of antidiscrimination laws and regulations, and that all lending personnel are aware of and strictly adhere to established criteria, and apply all standards consistently to all applicants, said policy should establish a procedure for monitoring any exceptions made to the established lending policy.

   [.24] 24. Within 60 days from the effective date of this ORDER, the board of directors must enhance the Insured Institution's consumer compliance audit program to ensure that current procedures are sufficient to enable the board to accurately assess adherence to all applicable consumer protection and fair lending laws and regulations. Audit findings and recommendations must be documented in a written report and provided to the board of directors or audit committee. Detailed written responses that specifically address audit findings must also be provided in a timely manner. The board of directors must ensure proper follow-up and resolution to consumer compliance audit findings.

   [.25] 25. Within 90 days from the effective date of this ORDER, the Insured Institution must correct and/or address all violations of laws and regulations contained within the March 31, 2004 FDIC Compliance Report.

   [.26] 26. Following the effective date of this ORDER, the Insured Institution shall send to its shareholders or otherwise furnish a description of this ORDER (i) in conjunction with the Insured Institution's next shareholder communication, and also (ii) in conjunction with its notice or proxy statement preceding the Insured Institution's next shareholder meeting. The description shall fully describe the ORDER in all material respects. The description and any accompanying communication, statement, or notice shall be sent to the FDIC, Division of Supervision, Registration, Disclosure & Securities Unit, 550 17th Street, N.W., Room F-6043, Washington, D.C. 20429 for review at least 20 days prior to dissemination to shareholders. Any changes requested to be made by the FDIC shall be made prior to dissemination of the description, communication, notice or statement.

   [.27] 27. The Insured Institution's board of directors shall appoint a committee (the "Compliance Committee") composed of at least three directors who are not now and have never been involved in the daily operations of the Insured Institution, and whose composition is acceptable to the Regional Director, to monitor the Insured Institution's compliance with this ORDER. Within 30 days from the effective date of this ORDER, and at monthly intervals thereafter, such Compliance Committee shall prepare and present to the Insured Institution's board of directors a written report of its findings, detailing the form, content, and manner of any action taken to ensure compliance with this ORDER and the results thereof, and any recommendations with respect to such compliance. Such progress reports shall be included in the minutes of the meeting of the Insured Institution's board of directors. Nothing contained herein shall diminish the responsibility of the entire board of directors to ensure compliance with the provisions of this ORDER.

   [.28]28. By the 30th day after the end of the calendar quarter following the effective date of this ORDER, and by the 15th day after the end of every calendar quarter thereafter, the Insured Institution shall furnish written progress reports to the Regional Director and the PA-Director detailing the form, content, and manner of any actions taken to secure compliance with this ORDER, and the results thereof.

   The effective date of this ORDER shall be immediately upon the date of issuance.

   The provisions of this ORDER shall be binding upon the Insured Institution, its successors, assigns, directors, officers, employees, agents, and other institution-affiliated parties.

   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: July 27, 2004



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