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[¶11,749] In the Matter of Admire Bank, Emporia, Kansas, Docket No. 00-117b (12-21-00)
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 1-18-02; see ¶16,300.)
[.1] Management—Qualifications Specified
[.2] Assets—Adversely Classified Assets—Reduction Required
[.3] Loan Loss Reserve—Establishment of or Increase Required
[.4] Capital—Maintain Tier 1 Capital
[.5] Loans—Risk Position—Written Plan Required
[.6] Loans—Extensions of Credit—To Borrowers with Existing Adversely Classified Credits
[.7] Bank Operations—Transactions—Restricted
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[.8] Loan Policy—Preparation or Revision of Policy Required
[.9] Loans—Risk Position—Reduction of Adversely Classified Lines of Credit
Required
[.10] Loans—Special Mention
[.11] Profit Plan—Preparation of Plan Required
[.12] Funds Management and Liquidity—Preparation or Revision of Funds
Management Policy Required
[.13] Violations of Law—Correction of Violations Required
[.14] Dividends—Dividends Restricted
[.15] Shareholders—Disclosure of Cease and Desist Order Required
In the Matter of
ADMIRE BANKE
MPORIA, KANSAS
(Insure State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-00-117b
Admire Bank, Emporia, Kansas ("Bank"), having been advised
of its right to a Notice of Charges and of Hearing detailing the unsafe
or unsound banking practices and violations of law and/or regulations
alleged to have been committed by the Bank and of its right to a
hearing on such alleged 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 December 14, 2000, whereby solely for the purpose
of this proceeding and without admitting or denying any unsafe or
unsound banking practices or violations of law and/or 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 laws 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 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 law
and/or regulations:
A. failing to provide adequate supervision and direction over the
affairs of the Bank to prevent unsafe or unsound practices and
violations of law and/or regulations;
B. operating with management whose policies and practices are
detrimental to the Bank;
C. operating with an excessive volume of adversely classified assets;
D. engaging in hazardous lending and lax collection practices,
including maintaining an excessive volume of adversely classified
loans;
E. operating with an inadequate allowance for loan and lease losses for
the volume, kind, and quality of loans held;
F. failing to submit Reports of Condition and Income in accordance with
prevailing instructions.
G. operating with deficient or inadequate loan documentation, including
but not limited to current financial statements, insurance coverage,
title searches or legal opinions, and cash flow and/or operating
information;
H. engaging in practices which produce inadequate operating income; and
I. engaging in violations of applicable laws and regulations.
IT IS FURTHER ORDERED, that the Bank, its institution-affiliated
parties, and its successors and assigns, take affirmative action as
follows:
[.1] 1. (a) (i) No more than 60 days from the effective date of this ORDER,
the Bank shall have and thereafter retain qualified man
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agement. Such
management shall include a qualified chief executive officer who shall
be given stated written authority by the Bank's board of directors,
including responsibility for implementing and maintaining the policies
of the Bank. The chief executive officer shall have an appropriate
level of experience, particularly in the areas of lending, collections,
and loan supervision, to perform the duties assigned to that individual
by the Bank's board of directors. The Bank shall promptly notify the
Regional Director of the FDIC's Kansas City Regional Office
("Regional Director") of the identity of said chief executive
officer. Prior to the addition of any individual to the board of
directors or the employment of any individual as a senior executive
officer, the Bank shall comply with the requirements of section 32 of
the act, 12 U.S.C. §1831i, and section 303.102 of the FDIC Rules and
Regulations, 12 C.F.R. §303.102.
(ii) The assessment of whether the Bank has "qualified
management" shall be based upon management's conduct, both
individual and joint, with respect to the Bank in: (A) complying with
the requirements of this ORDER; (B) complying with applicable laws and
regulations; and (C) not engaging in any unsafe or unsound banking
practice which has an adverse effect on the Bank's asset quality,
capital adequacy, earnings, liquidity, or sensitivity to market risk.
(b) No more than 30 days from the effective date of this ORDER, the
board of directors shall 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 in particular the chief
executive 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.
(c) The written management plan and any subsequent modification
thereto shall be submitted to the Regional Director for review and
comment. No more than 30 days from the receipt of any comment from the
Regional Director, and after consideration of such comment, the board
of directors shall approve the written management plan and/or any
subsequent modification thereto which approval shall be recorded in the
minutes of the board of directors. Thereafter, the Bank and its
institution-affiliated parties shall implement and follow the written
management plan and/or any subsequent modification.
(d) Within 90 days from the effective date of this ORDER, the Bank
shall increase the number of board of director members who are
independent with respect to the Bank. For purposes of this ORDER, a
candidate who is independent with respect to the Bank shall be any
individual (a) who is not an officer of the Bank or any of its
affiliated organizations, and who does not own more than 5 percent of
the outstanding shares of the Bank, (b) who is not related by blood,
marriage, or common financial interest to an officer of the Bank, or to
any stockholder owning more than 5 percent of the Bank's outstanding
shares, and (c) who is not indebted to the Bank, directly or indirectly
(including the indebtedness of any entity in which the individual has a
substantial financial interest) in an amount exceeding 5 percent of the
Bank's total equity capital and allowances for loan and lease losses.
[.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 30, 2000; 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 "Doubt
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ful" as of
June 30, 2000, 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) 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, 2000, 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 the submission of 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.
4. (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.
[.4] (b) After appropriate entries for an adequate allowance are made in
accordance with the requirements of paragraph 3 of this ORDER, but no
later than December 31, 2000, the Bank shall have and maintain Tier 1
capital at or in excess of 6 percent of the Bank's total assets
("Tier 1 leverage capital ratio"). From and after December 31,
2000, for purposes of calculating the Tier 1 leverage capital ratio,
Tier 1 capital and total assets shall be the dollar amount reported in
the Bank's most recent Report of Condition and Income.
(c) During the period this ORDER is in effect, if the Tier 1 leverage
capital ratio declines below 6 percent, the Bank shall, within 60 days
after the date on which the said ratio so declined, submit a written
plan to the Regional Director and the Kansas State Bank Commissioner
for approval describing the means and timing by which the Bank shall
increase such ratio up to or in excess of 6 percent. Upon receiving
written notification of the approval of the plan, the Bank shall
increase its Tier 1 leverage capital ratio to equal or exceed 6 percent
in accordance with the approved plan and shall thereafter maintain its
Tier 1 leverage capital ratio at or in excess of such level while this
ORDER is in effect.
(d) The Bank's board of directors shall maintain in its minutes a
written record of all actions taken by the Bank to comply with the
capital requirements of paragraphs 4(b) and 4(c) of this ORDER.
[.5] 5. (a) Within 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
March 31, 2000. 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
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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.
(b) The written plan of action described by paragraph 5(a) and any
subsequent modification thereto shall be submitted to the Regional
Director and the Kansas State Bank Commissioner for review and comment.
No more than 30 days after the receipt of any comment from the Regional
Director, the board of directors shall approve the written plan of
action, which approval shall be recorded in the minutes of the board of
directors. Thereafter, the Bank and its institution-affiliated parties
shall follow the written plan of action and/or any subsequent
modification.
[.6] 6. 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 5 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.
[.7] 7. (a) Except as provided in paragraph 7(b), effective the date of this
ORDER, the Bank shall not: (i) add, directly or indirectly, accrued but
uncollected interest to the principal balance of any extension of
credit; or (ii) make any extension of credit, the proceeds of which are
used, or to be used, directly or indirectly, to pay any accrued but
uncollected interest owed to the Bank. The type of transaction referred
to in this subparagraph (a) is hereafter collectively referred to as an
"accrued interest transaction."
(b) The Bank may engage in an accrued interest transaction if a
majority of the Bank's board of directors first (i) determines that
such transaction is in the best interest of the Bank and is in
compliance with the requirements of paragraph 5 of this ORDER, if
applicable; and (ii) approves such action. A written record of the
board of directors' determination and approval of any such accrued
interest transaction, together with a written explanation of the
reason(s) for such determination and approval, shall be maintained in
the credit file of the affected borrower(s), as well as the minutes of
the board of directors.
(c) For purposes of this paragraph 7, the term "extension of
credit" shall have the same meaning as set forth in section 215.3 of
the Federal Reserve Board Regulation O, 12 C.F.R. §215.3.
[.8] 8. No more than 30 days from the effective date of this ORDER, the Bank
shall revise its written loan policies, and shall establish, among
other things, adequate controls to evaluate and monitor extensions of
credit to officers, directors and principal shareholders of the Bank.
The revised written loan policies and any subsequent modification
thereto shall be submitted to the Regional Director and the Kansas
State Bank Commissioner for review and comment. No more than 30 days
after the receipt of any comment from the Regional Director, the board
of directors shall approve the written loan policies and/or any
subsequent modification thereto which approval shall be recorded in the
minutes of the board of directors. Thereafter, the Bank and its
institution-affiliated parties shall follow the written loan policies
and/or subsequent modification thereto.
[.9] 9. No more than 30 days from the effective date of this ORDER, the Bank
shall formulate and implement a plan of action for each of the
concentrations of credit as noted on pages 67-70 of the FDIC's Report
of Examination of the Bank as of March 31, 2000. Each such plan of
action shall identify the level of risk to the bank and how that risk
will be managed through strengthened administration, or reduction, in
order to minimize the related risk. Each such plan shall
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be submitted
to the Regional Director and the Kansas State Bank Commissioner for
review and comment. The Bank's board of directors shall incorporate
any such comment from the Regional Director into its plans, and
thereafter shall implement and follow such plans. The Bank's board of
directors shall record its actions taken pursuant to this paragraph in
the minutes of the board of directors.
10. No more than 60 days from the effective date of this ORDER, the
Bank shall correct the exceptions on loans noted on pages 64-66 of the
FDIC's Report of Examination of the Bank as of March 31, 2000.
[.10] 11. No more than 60 days from the effective date of this ORDER, the
Bank shall correct the cited deficiencies in the loans listed for
"Special Mention" on pages 60-63 of the FDIC's Report of
Examination of the Bank as of March 31, 2000.
[.11] 12. (a) No more than 30 days from the effective date of this ORDER, the
Bank shall develop a written profit plan 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.
(b) The written profit plan and any subsequent modification
thereto shall be submitted to the Regional Director and the Kansas
State Bank Commissioner for review and comment. No more than 30 days
after the receipt of any comment from the Regional Director, the board
of directors shall approve the written profit plan and any subsequent
modification thereto, which approval shall be recorded in the minutes
of the board of directors. Thereafter, the Bank and its
institution-affiliated parties shall follow the written profit plan
and/or any subsequent modifications thereto.
[.12] 13. (a) No more than 30 days from the effective date of this ORDER, the
Bank shall develop a written funds management policy, which shall, at a
minimum:
(i) establish adequate recordkeeping systems to track the volume
of the (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 re-priced during a specified time period,
e.g. 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 insure 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 the 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
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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.
(b) The funds management policy shall be coordinated with the
Bank's loan, investment, operating, and budget and profit planning
policies.
(c) The written funds management policy and any subsequent modification
thereto shall be submitted to the Regional Director and the Kansas
State Bank Commissioner for review and comment. No more than 30 days
from the receipt of any comment from the Regional Director, the board
of directors shall approve the written funds management policy and any
subsequent modification thereto, which approval shall be recorded in
the minutes of the board of directors. Thereafter, the Bank and its
institution-affiliated parties shall follow the written funds
management policy and/or any subsequent modification thereto.
[.13] 14. No more than 60 days from the effective date of this ORDER, the
Bank shall eliminate and/or correct all violations of law and
regulations committed by the Bank as described on pages 23-34 of the
FDIC's Report of Examination of the Bank as of March 31, 2000. In
addition, the Bank's board of directors shall review and, as
necessary, amend the policies of the Bank to ensure adequate procedures
are in place to minimize the possibility of future violations of law
and/or regulations. All actions taken in connection with such review
shall be set forth in the minutes of the Bank's board of directors.
All such revised policies shall be submitted to the Regional Director
and the Kansas State Bank Commissioner for review and comment. Any
comment by the Regional Director shall be incorporated into the
policies of the Bank. The Bank shall thereafter follow the revised
policies.
[.14] 15. The Bank shall not pay or declare any cash dividends without the
prior written consent of the Regional Director and the Kansas State
Bank Commissioner.
[.15] 16. 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 to be made by the
FDIC shall be made prior to dissemination of the description,
communication, notice or statement.
17. The Bank shall furnish written progress reports to the Regional
Director and the Kansas State Bank Commissioner detailing the form and
manner of any action taken to secure compliance with this ORDER, and
the results thereof every 90 days, beginning 90 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 Kansas State Bank
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.
18. All technical words or terms used in this ORDER, for which meanings
are not specified or otherwise provided for by the provisions of this
ORDER, shall, insofar as applicable, have meanings as defined in
Chapter 3 of Title 12 of the Code of Federal Regulations or
the Act, as such definitions may be amended after the execution of this
ORDER, and any such technical words or terms used in this ORDER and
undefined in said Code of Federal Regulations of the Act
shall have meanings that accord with their best custom and usage in the
banking industry.
19. This ORDER shall become effective 10 days from the date of its
issuance.
20. The provisions of this ORDER shall be binding upon the Bank and its
institution-affiliated parties, successors and assigns.
21. 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 this 21st day of December, 2000.
