Federal Deposit
Insurance Corporation

{{12-31-00 p.C-4830}}
   [¶11,668] In the Matter of Peoples Bank of Fordland, Fordland, Missouri, Docket No. 99-109b (11-17-99)

   A cease and desist order was issued, based on findings by the FDIC that it had reason to believe that respondent had engaged in unsafe and unsound practices. (This order was terminated by order of the FDIC dated 10-27-00; see ¶16,269.)

   [.1] Management—Qualifications Specified
   [.2] Assets—Adversely Classified Assets—Reduction Required
   [.3] Loans—Concentration of Credit—Written Plan Required
   [.4] Loans—Extensions of Credit—To Borrowers with Existing Adversely Classified Credits
   [.5] Technical Exceptions—Correction of Technical Exceptions Required
   [.6] Loan Loss Reserve—Establishment of or Increase in Required
   [.7] Board of Directors—Review Written Loan Policies
   [.8] Profit Plan—Preparation of Plan Required
   [.9] Funds Management and Liquidity—Preparation or Revision of Funds anagement Policy Required
   [.10] Violations of Law—Correction of Violations Required
   [.11] Dividends—Dividends Restricted
   [.12] Audit—Independent Auditors Required
   [.13] Compensation—Directors—Restrictions
   [.14] Assets—Tier 1 Capital
   [.15] Shareholders—Disclosure of Cease and Desist Order Required

{{03-31-00 p.C-4831}}
In the Matter of

PEOPLES BANK OF FORDLAND
FORDLAND, MISSOURI
(Insured State Nonmember Bank)
ORDER TO CEASE
AND DESIST
FDIC-99-109b
   Peoples Bank of Fordland, Fordland, Missouri (``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 regulations alleged to have been committed by the Bank and of its right to a hearing on such 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'') with counsel for the Federal Deposit Insurance Corporation (``FDIC''), dated November 9, 1999, whereby solely for the purpose of this proceeding and without admitting or denying any unsafe or unsound banking practices or violations of 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 violated regulations. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

   IT IS HEREBY ORDERED, that the Bank, its institution-affiliated parties, as that term is defined in section 3(u) of the Act, 12 U.S.C. §1813(u), and its successors and assigns, cease and desist from the following unsafe and unsound banking practices and violations of regulations:

   A. engaging in management policies and practices which are etrimental to the Bank;
   B. engaging in management policies and practices which produce inadequate operating income and excessive loan losses;
   C. failing to provide adequate supervision and direction over the affairs of the Bank to prevent unsafe or unsound practices and violations of regulations;
   D. failing to establish and implement an adequate program of external audits;
   E. engaging in hazardous lending and lax collection practices, including maintaining an excessive volume of adversely classified loans, extending credit which is inadequately secured, extending credit without complete and current financial information, and failing to enforce programs for repayment of loans;
   F. failing to make adequate provisions for loan losses;
   G. operating with an inadequate allowance for loan and lease losses for the volume, kind, and quality of loans held;
   H. operating without adequate liquidity;
   I. operating with an excessive volume of loans subject to adverse classification;
   J. operating with excessive net loan losses;
   K. operating with an excessive volume of overdue loans;

   L. operating with an excessive volume of nonearning assets; and
   M. engaging in violations of applicable regulations.

   [.1]1. (a) (i) No more than 60 days from the effective date of this ORDER, the Bank shall have and thereafter retain qualified management. Each member of management shall have qualifications and experience commensurate with his or her duties and responsibilities at the Bank. The qualifications of management shall be assessed on its ability to: (A) comply with the requirements of this ORDER; (B) operate the Bank in a safe and sound manner; (C) comply with applicable laws and regulations; and (D) restore all aspects of the Bank to a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness, and liquidity.
   (ii) As long as this ORDER remains in effect, the Bank shall comply with the requirements of section 32 of the Act, 12 U.S.C. §1831i, and section 303.102 of the FDIC Rules and Regulations, 12 C.F.R. §303.102, prior to adding or replacing any member of its board of directors, employing any person as a senior executive officer of the Bank, or changing the responsibilities of any senior executive officer so that the person would assume a different {{03-31-00 p.C-4832}} senior executive officer position. The Bank shall also send a copy of the notice required by section 32 of the Act to the Missouri Commissioner of Finance (``Commissioner'').
   (b) To facilitate having and retaining qualified management, the board of directors shall in no more than 30 days from the effective date of this ORDER develop a written analysis and assessment of the Bank's management and staffing needs (``management plan''), which shall include, at a minimum:

   (i) identification of both the type and number of officer positions needed to manage and supervise properly 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 each Bank officer and staff member 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 maintenance of the Bank in a safe and sound condition; and
   (iv) a plan of action to recruit and hire any additional or replacement personnel with the requisite ability, experience and other qualifications, which the board of directors determines are necessary to fill Bank officer or staff member positions consistent with the board's analysis, evaluation and assessment as provided in paragraphs 1(b)(i) and 1(b)(iii) of this ORDER.

   [.2]2. No more than 10 days from the effective date of this ORDER, the Bank: (a) shall eliminate from its records, by charge-off, collection, or other proper entries, all assets or portions of assets classified ``Loss'' as of June 21, 1999; and (b) shall either (i) eliminate from its records by charge-off, collection, or other proper entries, or (ii) if the asset is an extension of credit or lease, increase its allowance for loan and lease losses by an amount equal to 50 percent of those assets or portions of assets classified ``Doubtful'' as of June 21, 1999, which have not been previously collected, charged off, or otherwise eliminated by other proper entries. Reduction of these assets through use of proceeds of loans made by the Bank does not constitute collection for the purpose of this paragraph.

   [.3]3. (a) No more than 30 days from the effective date of this ORDER, the board of directors shall develop a written plan of action to lessen the Bank's risk position in each line of credit aggregating $50,000 or more which was classified ``Substandard'' or ``Doubtful'' as of June 21, 1999. In developing such plan, the Bank shall, at a minimum:

(i) review the financial position of each such borrower, including source of repayment, repayment ability, and alternative repayment sources; and
(ii) evaluate the available collateral for each such credit, including possible actions to improve the Bank's collateral position.
Based upon such review and evaluation, the written plan of action shall: (A) establish {{03-31-00 p.C-4833}} target dollar levels to which the Bank shall reduce the aggregate dollar volume of ``Substandard'' or ``Doubtful'' classifications within 6 and 12 months from the effective date of this ORDER; and (B) provide for the submission of written monthly progress reports to the Bank's board of directors for review and notation in the board minutes. As used in this paragraph, ``reduce'' means to (1) collect, (2) charge off, or (3) improve the quality of such assets so as to warrant removal of any adverse classification by the FDIC.

   [.4]4. Effective the date of this ORDER, the Bank shall not extend, directly or indirectly, credit to, or for the benefit of, any borrower who has a loan or other extension of credit with the Bank that has been charged off or classified, in whole or in part, ``Loss,'' ``Doubtful,'' or ``Substandard,'' and is uncollected, unless a majority of the Bank's board of directors first (a) determines that such advance is in the best interest of the Bank, (b) determines that the bank has satisfied the requirements set out in paragraph 3 of this ORDER as to such borrower, and (c) approves such advance. A written record of the board of directors' determination and approval of any advance under the terms of this paragraph shall be maintained in the credit file of the affected borrower(s) as well as the minutes of the board of directors. The requirements of this paragraph do not prohibit the Bank from renewing any credit already extended to the borrower.

   [.5]5. No more than 60 days from the effective date of this ORDER, the Bank shall correct the technical deficiencies on loans noted on pages 54 through 57, ``Assets with Credit Data or Collateral Documentation Exceptions,'' of the FDIC's Report of Examination of the Bank as of June 21, 1999.

   [.6]6. (a) As used in this ORDER, ``allowance for loan and lease losses'' (``allowance'') means the same as the term in section 325.2(a) of the FDIC Rules and Regulations, 12 C.F.R. §325.2(a), and in the Instructions for Preparation of Reports of Condition and Income (``Instructions'').
   (b) The Bank shall have and maintain an adequate allowance in accordance with the requirements of the Instructions.
   (c) Reports of Condition and Income required to be submitted by the Bank as of each Report date, as that term is used in the Instructions, between and including June 30, 1999, and the effective date of this ORDER, shall, at a minimum, reflect an allowance maintained in accordance with the Instructions. If necessary to comply with this paragraph, the Bank shall file amended Reports of Condition and Income within 10 days from the effective date of this ORDER.
   (d) Prior to filing any Report of Condition and Income required to be filed by the Bank after the effective date of this ORDER, the board of directors of the Bank shall: (i) review the adequacy of the Bank's allowance, (ii) provide for an adequate allowance, and (iii) accurately report the allowance in any such Report of Condition and Income. The minutes of the board meeting at which such review is undertaken shall indicate the results of the review, including any increases in the allowance, and the basis for determining the amount of allowance provided.

   [.7]7. No more than 30 days from the effective date of this ORDER, the board of directors shall review the Bank's written loan policies and shall record the results of such review in the board of directors minutes. Thereafter, the Bank and its institution-affiliated parties shall follow the written loan policies.

   [.8]8. (a) No more than 60 days from the effective date of this ORDER, the board of directors shall develop a written profit plan {{03-31-00 p.C-4834}}consisting of goals and strategies for improving the earnings of the Bank, which written profit 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 Bank's operating performance;
   (ii) realistic and comprehensive budgets;
   (iii) a budget review process to monitor the income and expenses of the Bank to compare actual figures with budgetary projections; and
   (iv) a description of the operating assumptions that form the basis for, and adequately support, major projected income and expense components.

   [.9]9. (a) No more than 30 days from the effective date of this ORDER, the board of directors shall develop a written funds management policy hich shall, at a minimum:

   (i) establish adequate recordkeeping systems to track the volume of (A) rate-sensitive assets and (B) rate-sensitive liabilities (rate-sensitive assets and liabilities are generally defined as those that either mature or can be repriced during a specified time period (90 days, 180 days, 1 year);
   (ii) establish a range of acceptable ratios for rate-sensitive assets to rate-sensitive liabilities sufficient to protect the Bank against excessive interest-rate risk and ensure that an adequate net interest margin is maintained;
   (iii) establish adequate recordkeeping systems to track the volume of (A) stable or core deposits and (B) volatile deposits;
   (iv) establish guidelines for offsetting a substantial portion of the Bank's volatile deposits and borrowings with liquid, short-term assets;
   (v) establish investment guidelines for funds derived from negotiable-rate certificates of deposit and borrowings, including a maximum large liability dependency ratio (a large liability dependency ratio means the percentage of loans plus other long-term earning assets that may be funded by negotiable-rate certificates of deposit and borrowings);
   (vi) establish a range of acceptable loan- to-deposit ratios, taking into account seasonal deposit fluctuations;
   (vii) establish a borrowing policy which addresses: (A) when or under what conditions the Bank may borrow, (B) maximum amounts that may be borrowed, (C) a list of acceptable creditors, and (D) which officers are authorized to borrow;
   (viii) establish contingency plans for meeting large, unexpected withdrawals, which should include: (A) curtailing lending activity with priority given to specific types of credit and (B) establishing lines of credit with other financial institutions which will advance funds on short notice; and
   (ix) establish a funds-management committee to meet at least monthly to determine how best to allocate the Bank's available funding sources among various asset categories after reviewing: (A) the Bank's liquidity position, (B) outstanding commitments such as loan commitments and letters of credit, and (C) the Bank's rate-sensitivity position and net interest margin.

   [.10]10. No more than 60 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of regulations committed by the Bank as described on pages 29 and 30 of the FDIC's Report of Examination of the Bank as of June 21, 1999.

   [.11]11. The Bank shall not pay or declare any cash dividends without the prior written consent of the Regional Director and the Commissioner.

   [.12]12. (a) No more than 30 days from the effective date of this ORDER, the Bank shall engage an independent certified or licensed public accountant, with sufficient banking expertise, to perform a balance sheet audit and render an opinion. ``Audit'' shall mean an examination of the balance sheet (and any accompanying footnotes), accounting records, and other supporting evidence of the Bank in accordance with generally accepted auditing standards and of sufficient scope to enable the auditor to express an opinion whether the Bank's balance sheet is fairly presented in accordance with generally accepted accounting principles (GAAP). A copy of the Bank's proposed engagement letter with the auditor detailing the scope of the audit to be performed shall be submitted to the Regional Director and the Commissioner for their approval prior to engagement of the auditor. The audit shall be completed no later than December 31, 1999, and an opinion rendered within a reasonable time thereafter.
   (b) The Bank shall promptly provide the Regional Director and the Commissioner with a copy of the audit report and opinion, including any management letter, received from the auditor.
   (c) No more than 60 days from the receipt of the report and opinion of the auditor, the Bank shall prepare a written response thereto, detailing the form and manner of any action taken or to be taken by the Bank to correct any deficiencies noted in such report and opinion. Such written response shall be reviewed and approved by the board of directors and such review and approval shall be recorded in the minutes of the board of directors.

   [.13]13. During 1999, the Bank shall not compensate any Bank director or senior executive officer, as defined in 12 C.F.R. §303.14, in an amount exceeding one hundred five (105) percent of the annual compensation for that director or senior executive officer approved by the board of directors as of December 11, 1998, without the prior written consent of the Regional Director and the Commissioner. During subsequent years, while this ORDER is in effect, the Bank shall not compensate any Bank director or senior executive officer in an amount exceeding one hundred five (105) percent of the annual compensation of that officer or director for the previous year without the prior written consent of the Regional Director and the Commissioner. In addition, as of the effective date of this ORDER, if any bonuses above and beyond base salary are paid, they must be approved in advance by the Bank's board of directors, the Regional Director and the Commissioner. For the purpose of this paragraph, ``compensate'' and ``compensation'' refer to any and all salaries, bonuses, and other benefits of every kind and nature whatsoever, whether paid directly or indirectly.

   [.14]14. (a) As used in this ORDER:

   (i) ``Tier 1 or core capital'' (``Tier 1 capital'') means the same as the term in section 325.2(t) of the FDIC Rules and Regulations, 12 C.F.R. §325.2(t).
   (ii) ``Noncumulative perpetual preferred stock'' means the same as the term in section 325.2(o) of the FDIC Rules and Regulations, 12 C.F.R. §325.2(o).
   (iii) ``Total assets'' means the same as the term in section 325.2(v) of the FDIC Rules and Regulations, 12 C.F.R. §325.2(v).
   (iv) ``Securities'' means common and noncumulative perpetual preferred stock.

   [.15]15. Following the effective date of this ORDER, the Bank shall send to its shareholders a description of this ORDER, (a) in conjunction with the Bank's next shareholder communication, and also (b) 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, statement, or notice shall be sent to the FDIC, Registration and Disclosure Section, 550 17th Street, N.W. (F-6043), Washington, D.C. 20429-9990, for review at least 20 days prior to dissemination to shareholders. Any changes requested by the FDIC shall be made prior to dissemination of the description, communication, notice, or statement.

   16. The Bank shall furnish written progress reports to the Regional Director and the Commissioner detailing the form and manner of any action taken to secure compliance with this ORDER and the results thereof every 90 days, beginning 60 days from the effective date of this ORDER. In addition, the Bank shall furnish such reports on request of either the Regional Director or the Commissioner. All progress reports and other written responses to this ORDER shall be reviewed by the board of directors of the Bank and made a part of the minutes of the board meeting.