Federal Deposit
Insurance Corporation

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   [¶10,132] In the Matter of Milton Tri-County Bank, Milton, West Virginia, Docket No. FDIC-90-236b (11-8-90).

   Bank ordered to cease and desist from failing to provide adequate supervision: operating with management whose policies are detrimental to the Bank; operating with an excessive volume of adversely classified assets; engaging in hazardous lending and lax collection policies; failing to operate with adequate internal controls; operating with inadequate liquidity; operating with inadequate equity capital; engaging in practices which produce inadequate operating income and excessive loan losses; failing to maintain an adequate loan loss reserve; and engaging in violations of federal and state law. (This order was terminated by order of the FDIC dated 2-12-92; see ¶ 15,393.)

   [.1] Management—Qualifications—Compliance
   [.2] Primary Capital—Increase—Methods
   [.3] Loans—Adversely Classified—Eliminate/Reduce—Schedule
   [.4] Loans—Adversely Classified—Reduce—Written Plan—Review
   [.5] Budget and Earnings Forecast—Minimum Requirements—Review
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   [.6] Loan Loss Reserve—Minimum Requirements—Review
   [.7] Loan Policy—Minimum Requirements
   [.8] Technical Exceptions—Correct/Eliminate
   [.9] Dividends—Restricted
   [.10] Violations of Law—Correct/Eliminate
   [.11] Bank Operations—Internal Routine and Control Procedures
   [.12] Funds Management and Liquidity Policy—Minimum Requirements
   [.13] Shareholders—Disclosure—Cease and Desist Order
   [.14] Compliance—Progress Reports—Frequency

In the Matter of

MILTON TRI-COUNTY BANK
MILTON, WEST VIRGINIA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

   Milton Tri-County Bank, Milton, West Virginia ("Bank"), having been advised of its right to a written Notice of Charges and of Hearing detailing unsafe or unsound banking practices and violations of applicable laws and regulations alleged to have been committed by the Bank and of its right to a hearing regarding such 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 a representative of the Legal Division of the Federal Deposit Insurance Corporation ("FDIC"), dated November 2, 1990, whereby solely for the purpose of this proceeding and without admitting or denying any of the alleged charges of unsafe or unsound banking practices and violations of applicable laws and regulations, the Bank 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 Bank had engaged in unsafe or unsound banking practices and had committed violations of applicable laws and regulations. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

   IT IS HEREBY ORDERED, that the Bank and its institution-affiliated parties, as such term is defined in section 3(u) of the Act 12 U.S.C. § 1813(u), cease and desist from the following unsafe or unsound banking practices and violations of laws and regulations:
   A. Failing to provide adequate supervision and direction over the affairs of the Bank by the board of directors of the Bank to prevent unsafe or unsound practices and violations of laws and regulations;
   B. Operating the Bank with management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits;
   C. Operating the Bank with an excessive volume of adversely classified assets;
   D. Engaging in hazardous lending and ineffective and lax collection practices, including but not limited to: (i) failing to provide an adequate loan policy for the Bank; (ii) failing to properly implement an effective system of loan documentation and credit information; and (iii) extending credit through wire transfers against uncollected funds without adequate written procedures and controls;
   E. Failing to operate with adequate internal controls and accounting systems to prevent unsafe and unsound practices;
   F. Operating the Bank with inadequate liquidity and with an excessive amount of volatile liabilities funding long-term assets;
   G. Operating the Bank with equity capital that is inadequate for the kind and quality of assets held by the Bank;
   H. Engaging in practices which produce inadequate operating income and excessive loan losses;
   I. Failing to provide and maintain an adequate reserve for loan losses for the volume, kind and quality of loans held by the Bank; and
   J. Engaging in violations of applicable Federal and state laws and regulations, as more fully described on pages 6-1 and 6-2 of the joint FDIC and West Virginia Division of Banking ("State") Report of Examination of the Bank as of May 29, 1990.
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   IT IS FURTHER ORDERED that the Bank and its institution-affiliated parties take affirmative action as follows:

   [.1] 1. 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 a qualified senior loan officer. Such persons shall be provided the necessary written authority to implement the provisions of this ORDER. The qualification 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, and liquidity. So long as this ORDER remains in effect, the Bank shall notify the Regional Director of the FDIC's Atlanta Regional Office ("Regional Director") and the West Virginia Commissioner of Banking ("Commissioner") in writing of any changes in management. Such notification shall be in addition to any application and prior approval requirements established by section 32 of the Act, 12 U.S.C. § 1831i, and implementing regulations; must include the names and qualifications of any replacement personnel; and must be provided at least 30 days prior to the individual assuming the new position.

   [.2] 2. (a) Within 120 days from the effective date of this ORDER, the Bank shall increase its primary capital by not less than $800,000. Such increase in primary capital may be accomplished by any one or more of the following:

   (i) The sale of new securities in the form of common stock; or
   (ii) The collection in cash of all or part of assets classified "Loss" or "Doubtful" as of May 29, 1990, and charged off in accordance with paragraph 3 of this ORDER; or
   (iii) The direct contribution of cash by the directors and/or shareholders of the Bank; or
   (iv) The collection in cash of assets previously charged off; or
   (v) Any other means acceptable to the Regional Director and the Commissioner.

   (ii) In complying with the provisions of paragraph 2(b)(i) of this ORDER, the Bank shall provide to any subscriber and/or purchaser of Bank securities, written notice of any planned or existing development or other change which is 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 2(b)(ii) of the ORDER shall be furnished within ten (10) calendar days from the date that such material development or change was planned or occurred, whichever is earlier, and shall be furnished to every purchaser and/or subscriber of Bank stock who received or was tendered the information contained in the Bank's original offering materials.

   [.3] 3. Within 30 days from the effective date of this ORDER, the Bank shall eliminate from its books, by collection, charge-off or other proper entries, all assets or portions of assets classified "Loss" and one-half of all assets or portions of assets classified "Doubtful" by the FDIC and the State as a result of their joint examination of the Bank as of May 29, 1990, which have not been previously collected or charged off, unless otherwise approved in writing by the Regional Director and the Commissioner. Reduction of these assets through use of proceeds of loans made by the Bank does not constitute collection for the purpose of this paragraph.
   4. (a) Within 180 days from the effective date of this ORDER, the Bank shall reduce the aggregate dollar volume of all remaining assets classified "Substandard" and "Doubtful" in the joint FDIC and State Report of Examination of the Bank as of May 29, 1990, to not more than $1,200,000; within 360 days from the effective date of this ORDER, the Bank shall reduce such aggregate total to not more than $700,000; and within 540 days from the effective date of this ORDER, the Bank shall reduce such aggregate total to not more than $500,000. The requirements of this paragraph 4 of the ORDER shall not be construed to establish a standard for future operations of the Bank.

   [.4] (b) Within 90 days from the effective date of this ORDER, the Bank shall submit to the Regional Director and the Commissioner a written plan of action to reduce each line of credit which was adversely classified by the FDIC and the State as of May 29, 1990, and which aggregated $30,000 or more as of that date. Such plan of action shall thereafter be implemented by the Bank and monitored, and progress reports thereon shall be submitted by the Bank to the Regional Director and the Commissioner at 90-day intervals concurrently with the other reporting requirements set forth in paragraph 14 of this ORDER.
   (c) As used in this paragraph 4, "reduce" means to (i) collect, (ii) charge off, or (iii) improve the quality of such assets sufficiently to warrant removal of any adverse classification by the FDIC and the State.

   [.5] 5. (a) Within 30 days after January 1, 1991, the Bank shall prepare a realistic and comprehensive budget and earnings forecast for calendar year 1991 and shall submit this budget and earnings forecast to the Regional Director and the Commissioner for review and comment.
   (b) As long as this ORDER remains in effect, the Bank shall prepare realistic and comprehensive calendar year budgets and earnings forecasts on a consolidated basis as of January 1 of each subsequent year and shall submit them to the Regional Director and the Commissioner for review and comment no later than January 31 of the budget year.
   (c) In preparing the budgets and earnings forecasts required by this paragraph 5 of the ORDER, the Bank shall, at a minimum:

   (i) Identify the major areas in, and means by, which the board of directors will seek to improve the Bank's operating performance; and
   (ii) Describe the operating assumptions that form the basis for, and adequately support, major projected income and expense components.

   [.6] 6. (a) Within 30 days from the effective date of this ORDER, and concurrently with compliance with the requirements of paragraph 3 of this ORDER, the Bank shall {{4-30-91 p.C-641}}establish and thereafter continually maintain an adequate reserve for loan losses in accordance with the prevailing requirements of the Instructions for the Reports of Condition and Income, by charges against current operating income. In complying with the requirements of this paragraph 6(a), the Bank's board of directors shall, at a minimum, review the adequacy of the Bank's reserve for loan losses prior to the end of each calendar quarter. The minutes of the board meeting at which such review is undertaken shall indicate the results of the review, the amount of any recommended increases in the reserve, and the basis for determining the amount of reserve provided.

   (b) Reports of Condition and Income required to be filed by the Bank prior to the effective date of this ORDER and subsequent to May 29, 1990, shall reflect a provision for loan loss reserve necessary to comply with paragraph 6(a) of this ORDER. If necessary to comply with this paragraph 6(b), the Bank shall file amended Reports of Condition and Income within 30 days from the effective date of this ORDER.

   (a) A description of the general fields of lending in which the Bank shall engage, the types of loans and collateral considered desirable and types of loans and collateral considered undesirable;
   (b) An identification of the geographical trade area from which the Bank's loans should be generated;
   (c) Guidelines enumerating the specific responsibilities of the board of directors in reviewing and approving loans and periodically reviewing major lines of credit and delinquent credits;
   (d) The lending authority of each loan officer;
   (e) The lending authority of a loan or executive committee, if any, and the composition of such committee;
   (f) Guidelines under which unsecured loans will be granted;
   (g) Guidelines for rates of interest and terms of repayment for unsecured loans and secured loans;
   (h) Limitations on the amount of secured loans that will be made in relation to the market value of the collateral or security pledged, and an identification of the type of supporting documentation required by the Bank for each type of secured loan;
   (i) The maintenance and review of complete and current credit files on each borrower;
   (j) Appropriate and adequate collection procedures, including but not limited to the action to be taken against borrowers who fail to make timely payments;
   (k) Specific policies governing charge-offs;
   (l) Guidelines establishing limitations on the maximum volume of loans in relation to total deposits of the Bank;
   (m) Establishment of criteria and guidelines for the acceptance and review of financial statements;
   (n) Guidelines for the processing and disposition of "other real estate" held;
   (o) Specific policies governing loans to executive officers, directors, principal shareholders and their interests;
   (p) Prohibition of or appropriate limitations on extensions of credit through overdrafts, cash items held against deposit accounts, and wire transfers against uncollected funds on deposit;
   (q) Written documentation of the borrower's ability to repay each extension of credit or renewal thereof and the establishment of a written repayment plan for each loan which takes into consideration the source of repayment; and
   (r) A prohibition against: (i) the addition of uncollected interest to the unpaid balance of any loan on which such interest is due; (ii) the extension of credit by means of a separate note for uncollected interest due on any loan unless the new extension is supported by additional tan- {{4-30-91 p.C-642}}gible collateral which adequately and completely secures the loan; (iii) continuing to accrue interest on any loan delinquent in principal or interest payments 90 days or more; and (iv) any other device that essentially avoids recognition of overdue loans and/or artificially inflates the income of the Bank.

   [.9] 9. As of the effective date of this ORDER, the Bank shall not pay any cash dividends without the prior written consent of the Regional Director and the Commissioner.

   [.10] 10. Within 30 days from the effective date of this ORDER, the Bank shall take all necessary steps, consistent with sound banking practices, to eliminate and/or correct all violations of law and regulations committed by the Bank, as described on pages 6–1 and 6–2 of the joint FDIC and State Report of Examination of the Bank as of May 29, 1990. In addition, the Bank shall adopt appropriate procedures to ensure its future compliance with all applicable laws and regulations.

   [.11] 11. Within 120 days from the effective date of this ORDER, the Bank shall correct the internal routine and control deficiencies described on page 6-b of the joint FDIC and State Report of Examination of the Bank as of May 29, 1990.

   [.12] 12. (a) Within 60 days from the effective date of this ORDER, the Bank shall review its written funds management policy to include, at a minimum:

   (i) The Bank's liquidity needs and plans for insuring that such needs are met on an ongoing basis;
   (ii) goals and strategies for managing and reducing the Bank's dependence on volatile liabilities to fund long-term assets; and
   (iii) monthly monitoring by the Bank's board of directors of the Bank's performance in meeting the needs and goals established pursuant to paragraphs 12(a)(i) and (ii) above.

   [.13] 13. Following the effective date of this ORDER, the Bank shall send to its shareholders or otherwise furnish a description of this ORDER (1) in conjunction with the Bank's next shareholder communication and also (2) in conjunction with its notice or proxy statement preceding the Bank's next shareholder meeting. The description shall fully describe this ORDER in all material respects. The description and any accompanying communication, statement or notice shall be sent to the FDIC, Registration and Disclosure Unit, Washington, D.C. 20429, and to the Commissioner, for review at least 20 days prior to dissemination to shareholders. Any changes requested to be made by the FDIC or the Commissioner shall be made prior to dissemination of the description, communication, notice or statement.

   [.14] 14. Within 90 days from the effective date of this ORDER, and every 90 days thereafter, unless and until each and every corrective action required by this ORDER has been accomplished, 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 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. All progress reports and other written responses to this ORDER shall be reviewed by the board of {{5-31-93 p.C-643}}directors of the Bank and made a part of the minutes of the appropriate board meeting.
   15. The provisions of this ORDER shall become effective ten (10) days from the date of its issuance and shall be binding upon the Bank and its institution-affiliated parties. Further, 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.
   Dated at Atlanta, Georgia, this 8th day of November, 1990.
   Pursuant to delegated authority.