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   [16,301]Docket No. FDIC-01-131b (1-22-02)

In the Matter of
CITIZENS COMMUNITY BANK
OF DECATUR

DECATUR, ILLINOIS
(Insured State Nonmember Bank)
MODIFICATION OF ORDER TO CEASE AND DESIST

FDIC-01-131b

OBRE No. 2001-BBTC-35-a

   The ORDER TO CEASE AND DESIST ("ORDER") issued by the Federal Deposit Insurance Corporation ("FDIC") and the Office of Banks and Real Estate for the State of Illinois ("OBRE") on November 16, 2001 against Citizens Community Bank of Decatur, Decatur, Illinois ("Bank") is modified as follows:

   A. Paragraph 1(a) of the ORDER is modified by deleting the present paragraph 1(a) and inserting the following paragraph 1(a):

   1. (a) Within 90 days from the effective date of this ORDER, the Bank shall have and retain qualified management. At a minimum, such management shall include a chief executive officer with proven ability in managing a bank of comparable size and experience and a new senior operations officer with an appropriate level of accounting, internal control and bookkeeping experience for the type and complexity of the Bank's operations. Such persons shall be provided the necessary written authority to implement the provisions of this ORDER. The qualifications of management shall be assessed on their ability to:

       (i) Comply with the requirements of this ORDER;

       (ii) Maintain and supervise accounting procedures and account reconcilements in a safe and sound manner;

       (iii) Operate the Bank in a safe and sound manner;

       (iv) Comply with applicable laws and regulations; and

       (v) Restore all aspects of the Bank and its operations to a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness, and internal controls.

   B. Paragraph 3 of the ORDER is eliminated.

   C. Paragraph 4 of the ORDER is modified
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   by deleting the present paragraph 4 and inserting the following paragraph 4:

   4. (a) Within 30 days from the last day of each calendar quarter following the effective date of this ORDER, the Bank shall determine from its Report of Condition and Income its level of Tier 1 leverage capital as a percentage of its average total assets ("capital ratio") for that calendar quarter. If the capital ratio is less than 10.0 percent, exclusive of a fully funded Allowance for Loan and Lease Losses account, the Bank shall, within 30 days of the date of this required determination, submit to the Regional Director and Commissioner for approval, a written capital plan acceptable to the Regional Director and Commissioner. The capital plan should address both internal and external sources of capital augmentation, including capital infusions, retention of earnings, restrictions on asset growth, asset sales, and business combinations to maintain a ratio of Tier 1 capital to average total assets ("Tier 1 leverage capital ratio") of at least 10.0 percent, exclusive of a fully funded ALLL account. For purposes of this ORDER, the term "Tier 1 capital" shall have the same meaning ascribed to it in Appendix A of Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325, App. A, and the term "average total assets" shall have the same meaning ascribed to it in Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325.

   (b) No more than 15 days after the receipt of any comment from the Regional Director and Commissioner, and after consideration of such comment, the board of directors shall approve the written capital plan and/or any modification thereto made after consideration of any comment from the Regional Director and Commissioner. Thereafter, the Bank shall follow the written capital plan. Any subsequent modification to the capital plan shall be immediately submitted to the Regional Director and Commissioner for review and comments and shall be subject to the requirements of this paragraph.

   (c) The Bank's board of directors shall maintain in its minutes a complete written record of all actions taken by the Bank to comply with the capital requirements of this paragraph, including the board's deliberations with respect to any comments from the Regional Director and Commissioner regarding the Bank's written capital plan and the board's approval of the written capital plan.

   (d) Notwithstanding any other provision of this paragraph, if the Bank fails to increase its capital ratio to at least 10.0 percent, calculated as of the end of any calendar quarter following the effective date of this ORDER, within the timeframes contained in its approved capital plan or if the Bank fails to submit an acceptable capital plan to the Regional Director and Commissioner within 30 days of the date of the determination required by subparagraph (a), the Bank shall increase its capital ratio to at least 10.0 percent within 45 days of receipt of a written notice from the Regional Director and the Commissioner that the Bank has either failed to successfully implement its capital plan or has failed to submit a capital plan acceptable to the Regional Director and Commissioner.

   (e) Any such increase in Tier 1 leverage capital may be accomplished by the following:

       (i) The sale of common stock and noncumulative perpetual preferred stock constituting Tier 1 leverage capital under Part 325;

       (ii) The elimination of all or part of the assets classified "Loss" as of June 11, 2001, 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;

       (iii) The collection in cash of assets previously charged off;

       (iv) The direct contribution of cash by the directors and/or the shareholders of the Bank;

       (v) Any other means acceptable to the Regional Director and the Commissioner; or

       (vi) Any combination of the above means.

   (f) 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 the 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
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   condition of the Bank and the circumstances giving rise to the offering, and any other material disclosures necessary to comply with the 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 the Illinois Office of Banks and Real Estate, Bureau of Banks and Trusts, 500 E. Monroe Street, Springfield, Illinois 62701-1532.

   Any changes requested to be made in the materials by the FDIC or the OBRE shall be made prior to their dissemination.

   (g) In complying with the provisions of this paragraph and until the offering is completed, 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.

   (h) 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.

   D. The ORDER is modified by adding and incorporating paragraphs 17 through 23 as follows:

   17. (a) On or before December 26, 2001, the Bank shall retain a certified public accounting firm whose ownership shall be "independent," as that term is defined below, and which is acceptable to the Regional Director and the Commissioner, to conduct a comprehensive fraud audit of the Bank by a certified fraud examiner ("CFE") for the purpose of identifying any fraudulent, unusual or unauthorized activities or transactions perpetrated against the Bank, whether material or immaterial to the presentation of the Bank's financial statements, by Bank officers, employees, customers or directors within the past 18 months. A copy of the accounting firm's and the CFE's qualifications and the proposed detailed engagement agreement ("agreement") between the Bank and the accounting firm shall be submitted to the Regional Director and Commissioner for review and comment. Within 15 days from the receipt of any comments from the Regional Director and Commissioner, the Bank shall revise the agreement to incorporate any comments received from the Regional Director and Commissioner.

   (b) The Bank shall require, as part of its agreement with the accounting firm retained to perform the fraud audit, that the accounting firm complete the fraud audit by March 15, 2002. The agreement shall require that the accounting firm submit its written audit report, whether in draft or final form, directly to the Regional Director and the Commissioner by March 29, 2002.

   (c) For purposes of this ORDER, an individual or entity who is independent shall be any individual or entity: (a) who is not an officer of the Bank, any subsidiary of the Bank, any of its affiliated organizations, or any company or bank controlled by any director of the Bank; (b) who does not own more than 5 percent of the outstanding shares of the Bank; (c) who is not related by blood or marriage to an officer or director of the Bank or to any shareholder owning more than 5 percent of the Bank's outstanding shares, and who does not otherwise share a common substantial financial interest with such officer, director or shareholder; or (d) who is not indebted to the Bank in an amount exceeding 5 percent of the Bank's total Tier 1 capital and ALLL, directly or indirectly. For purposes of this paragraph, indirect indebtedness includes the debt of any person related by blood or marriage, or of any entity in which the individual has a substantial financial interest.

   18. (a) On or before January 25, 2002, the Bank shall retain a certified public accounting firm whose ownership shall be "independent," as that term is defined in this ORDER, and which is acceptable to the Regional Director and the Commissioner , to conduct a balance sheet audit of the Bank as of March 31, 2002, for the purpose of certifying whether the Bank's statement of condition is fairly presented. A copy of the accounting firm's qualifications and the proposed detailed
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   engagement agreement ("agreement") between the Bank and the accounting firm shall be submitted to the Regional Director and Commissioner for review and comment. Within 15 days from the receipt of any comments from the Regional Director and Commissioner, the Bank shall revise the agreement to incorporate any comments received from the Regional Director and Commissioner.

   (b) The Bank shall require, as part of its agreement with the accounting firm retained to perform the audit, that the accounting firm complete the audit by April 30, 2002. The agreement shall require that the accounting firm submit its written audit report, whether in draft or final form, directly to the Regional Director and the Commissioner by May 15, 2002.

   19. (a) On or before December 26, 2001, the Bank shall retain a certified public accounting firm whose ownership shall be "independent," as that term is defined in this ORDER, and which is acceptable to the Regional Director and the Commissioner, to conduct monthly agreed-upon procedures, including, but not limited to, monthly reviews of the Bank's month-end account reconcilements beginning with December 31, 2001, for each balance sheet account for the purposes of determining the accuracy of the reconcilements. A copy of the accounting firm's qualifications and the proposed detailed engagement agreement ("agreement") between the Bank and the accounting firm shall be submitted to the Regional Director and Commissioner for review and comment. Within 15 days from the receipt of any comments from the Regional Director and Commissioner, the Bank shall revise the agreement to incorporate any comments received from the Regional Director and Commissioner.

   (b) At a minimum, the agreed-upon procedures shall determine:

       (i) Whether reconciliations are accurately prepared and adequately documented;

       (ii) Whether reconciliations are done in a timely manner based on the risk and volume of activity in each account;

       (iii) Whether reconciliations adequately report the dollar amount and the description of any outstanding unreconciled transactions;

       (iv) The adequacy of the segregation of duties of the personnel preparing the reconciliations; and

       (v) The collectibility of any unreconciled debits outstanding in excess of 90 days, as of the month-end period reviewed.

   (c) The requirement for month-end reviews of account reconcilements by a certified public accounting firm shall remain in place until terminated in writing by the Regional Director and Commissioner.

   (d) The Bank shall require, as part of its agreement with the accounting firm retained to perform the agreed-upon procedures, that the accounting firm submit written reports detailing the findings of its monthly reviews directly to the Regional Director and the Commissioner within 30 days of each month-end period.

   (e) Beginning with the December 31, 2001, account reconcilements and continuing for every monthly reconcilement during the life of this ORDER, any outstanding debits stale over 90 days will be immediately eliminated from the Bank's books. Written documentation of the reconciliations and any related entries to the financial statements shall be retained for future regulatory review. Such documentation should include, at a minimum, the date the item was originally processed, the dollar amount of the item, the original description, what research was done to clear the item including copies of any supporting documents, and the manner cleared, such as a correcting entry or a charge-off.

   20. While this ORDER is in effect, the Bank shall not declare or pay any dividends without the prior written consent of the Regional Director and the Commissioner.

   21. As of November 26, 2001, the Bank will not increase its total assets by more than 1 percent during any consecutive three month period without first providing at least 30 days advance written notice to the Regional Director and the Commissioner. Such written notice shall include the funding source to support the projected growth as well as the anticipated use of funds. This growth plan shall not be implemented without the prior written consent of the Regional Director and Commissioner. "Total assets" has the meaning ascribed to that term by the Instructions for the Consolidated Reports of Condition and Income.

   22. (a) As of November 26, 2001, the Bank will not solicit any uninsured deposits without
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   first providing at least 30 days advance written notice to the Regional Director and Commissioner. Furthermore, within 10 days of the end of each month while this ORDER is in effect, the Bank will provide the Regional Director and Commissioner with written notice (including depositor name, account number and uninsured dollar amount) of its uninsured deposits as of each month-end. For purposes of this ORDER, the phrase "uninsured deposits" will include any deposit accounts exceeding the FDIC deposit insurance limits as set forth in Part 330 of the FDIC's Rules and Regulations, 12 C.F.R. Part 330, notwithstanding the existence of assets pledged by the Bank to secure the deposits.

   (b) The term "solicit" is defined herein as paying interest on new or renewed liabilities at a rate that would increase the Bank's weighted average cost of funds to a level that exceeds by more than 25 basis points the prevailing rates of interest on deposits in the Bank's market area or in the market area in which such deposits are being offered.

   23. As of November 26, 2001, the Bank will not accept, renew or roll over any insured deposit if the effective yield on any such deposit, at the time that such deposit is accepted, renewed or rolled over, exceeds by more than 25 basis points the effective yield paid on deposits of comparable size and maturity in such Bank's normal market area for deposits accepted from within its normal market area or the national rate paid on deposits of comparable size and maturity for deposits accepted outside the Bank's normal market area.

   The provisions of this MODIFICATION OF ORDER TO CEASE AND DESIST shall be binding upon the Bank, its institution-affiliated parties, and its successors and assigns.

   Except as specifically modified herein, all of the terms and conditions of the ORDER heretofore issued against the Bank on November 16, 2001 and which became effective on November 26, 2001 shall remain in full force and effect.

   The provisions of this MODIFICATION OF ORDER TO CEASE AND DESIST shall remain effective and enforceable except to the extent that, and until such time as, any provisions of this MODIFICATION OF ORDER TO CEASE AND DESIST shall have been modified, terminated, suspended or set aside by the FDIC and OBRE.

   Pursuant to delegated authority.

   Dated this 22nd day of January, 2002.

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