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FDIC Enforcement Decisions and Orders
{{2-29-04 p.C-5246}} 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.
[.1] ManagementQualifications Specified
[.2] ManagementManagement Plan Required
[.3] Board of DirectorsMeetingsFrequency of Meetings
Specified
[.4] Education ProgramMinimum Requirements
[.5] CapitalMaintain Tier 1 Capital
[.6] AssetsCharge-off or Collection
[.7] LoansExtensions of CreditTo Borrowers with Existing Adversely
Classified Credits
[.8] LoansInternal Review Procedure
[.9] Loan PolicyPreparation or Revision of Policy Required
[.10] Loan Loss ReserveEstablishment of or Increase Required
[.11] Budget PlanPreparation Required
[.12] Strategic PlanPreparation of Required
[.13] Asset/Liability ManagementPreparation or Revision of
Asset/Liability Management Policy Required
[.14] DividendsDividends Restricted
In the Matter of
Community Spirit Bank, Red Bay, Alabama ("Bank"), having
been advised of its right to a Notice of Charges and of Hearing
detailing unsafe or unsound banking practices alleged to have been
committed by the Bank and of its right to a hearing on the alleged
charges under §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 October
19, 2001.
The Superintendent of the Alabama State Banking Department ("Alabama
Banking Department") may issue an order to cease and desist pursuant
to the Alabama Banking Code, Ala. Code Section 5-2A-12.
Whereby solely for the purpose of this proceeding and without admitting
or denying any of the charges of unsafe or unsound banking practices,
the Bank has consented to the issuance of an ORDER TO CEASE AND DESIST
("ORDER") by the FDIC and the Alabama Banking Department. The
FDIC and the Alabama Banking Department considered the matter and
determined that they had reason to believe that the Bank had engaged in
unsafe or unsound banking practices. The FDIC and the Alabama Banking
Department, 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 §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:
(a) operating with inadequate management
(b) operating with inadequate equity capital and reserves in relation
to the volume and quality of assets held by the Bank;
(c) operating with a large volume of poor quality loans;
(d) operating with an inadequate allowance for loan and lease losses;
(e) following hazardous lending and lax collection practices; and
(f) operating in such a manner as to produce operating losses.
IT IS HEREBY ORDERED, that the Bank, its institution-affiliated
parties, and its successors and assigns take affirmative action as
follows:
Within 120 days of the effective date of this ORDER, the Bank
shall have and retain qualified management.
[.1] (a) Each member of management shall have qualifications and experience
commensurate with his or her duties and responsibilities at the Bank.
Each member of management shall be provided appropriate written
authority from the Bank's board of directors ("Board") to
implement the provisions of this ORDER. At a minimum, management shall
include the following:
(i) a chief executive officer with proven ability in managing a
bank of comparable size and in effectively implementing lending,
investment and operating policies in accordance with sound banking
practices;
(ii) a senior lending officer with a significant amount of appropriate
lending, collection, and loan supervision experience, and experience in
upgrading a low quality loan portfolio;
(iii) a chief operations officer with a significant amount of
appropriate experience in managing the operations of a bank of similar
size and complexity in accordance with sound banking practices.
(b) The qualifications 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 but not limited to, asset quality, capital adequacy,
earnings, management effectiveness, risk management and liquidity.
(c) During the life of this ORDER, the Bank shall notify the
Regional Director of the FDIC's Atlanta Regional Office ("Regional
Director") and the Superintendent of Banks, Alabama Banking
Department ("Superintendent") (collectively, "Supervisory
Authorities") in writing when it proposes to add any individual to
the Board or employ any individual as a senior executive officer. The
notification must be received at least 30 days before such addition or
employment is intended to become effective and should include a
description of the background and experience of the individual or
individuals to be added or employed.
(d) The Bank may not add any individual to its Board or employ any
individual as a senior executive officer unless the Alabama Banking
Department provides written approval of such individual and the
Regional Director does not issue a notice of disapproval of such
individual pursuant to §32 of the Act, 12 U.S.C. §1831i.
[.2] (e) To facilitate having and retaining qualified management, the Board
shall, in no more than 90 days from the effective date of this ORDER,
develop and approve a written analysis and assessment of the Bank's
management and staffing needs ("Management Plan"), which shall
include, at a minimum the following:
(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, chief lending officer, and chief operating officer
to determine whether these individuals possess the ability, experience
and other qualifications required to perform present and anticipated
duties, including but not limited to adherence to the Bank's
established policies and practices, and maintenance of the Bank in a
safe and sound condition;
(iv) a plan of action to recruit and hire any additional or replacement
personnel with the requisite ability, experience and other
qualifications the Board determines are necessary to fill Bank officer
or staff member positions consistent with the Management Plan as
provided in this paragraph and other parts of this ORDER; AND
(v) an organizational chart.
(f) The written Management Plan and any subsequent modification
thereto shall be submitted to the Supervisory Authorities for review
and comment. No more than 30 days from the receipt of any comment from
the Supervisory Authorities, and after consideration of any such
comment, the Board shall approve the written Management Plan and/or any
subsequent modification, which approval shall be recorded in the
minutes of the Board. Such Management Plan and its implementation shall
be satisfactory to the Supervisory Authorities as determined at their
initial review and at subsequent examinations and/or visitations.
[.3] (a) Within 30 days from the effective date of this ORDER, the Board
shall increase its participation in the affairs of the Bank, assuming
full responsibility for the approval of sound policies and objectives
and for the supervision of all of the Bank's activities, consistent
with the role and expertise commonly expected for directors of banks of
comparable size. This participation shall include meetings to be held
no less frequently than monthly at which, at a minimum, the following
areas shall be reviewed and approved: reports of income and expenses;
new, overdue, renewal, insider, charged-off, and recovered loans;
investment activity; operating policies; and individual committee
actions. Board minutes shall document these reviews and approvals,
including but not limited to, the names of any dissenting directors.
[.4] (b) The Board shall develop and adopt an education program for each of
its members ("Education Program"). The Education Program shall
include, at a minimum, the following:
(i) specific training in the areas of lending, operations, and
compliance with laws, rules and regulations applicable to banks
chartered in the State of Alabama;
(ii) specific training in the duties and responsibilities of the Board
in connection with the safe and sound operation of the Bank; and
(iii) a provision for periodic training.
(c) The Education Program shall be submitted to the Supervisory
Authorities for review within 90 days from the effective date of this
ORDER. The Board's actions as required by this paragraph shall be
satisfactory to the Supervisory Authorities at their initial review and
as determined at subsequent examinations and/or visitations. The Board
shall document training activities in the minutes of the next Board
meeting following completion of any training.
[.5] (a) By December 31, 2001, the Bank shall have Tier 1 capital in such an
amount as to equal or exceed seven percent (7%)of the Bank's total
assets. Thereafter, during the life of this ORDER, the Bank shall
maintain Tier 1 capital in such an amount as to equal or exceed seven
percent (7%) of the Bank's total assets.
(g) Within 60 days from the effective date of this ORDER, the Bank
shall develop and adopt a plan to meet the minimum risk-based capital
requirements as described in the FDIC Statement of Policy on Risk-Based
Capital contained in Appendix A to Part 325 of the FDIC Rules and
Regulations, 12 C.F.R. Part 325, Appendix A. This plan shall be in a
form and manner acceptable to the Supervisory Authorities as determined
at subsequent examinations.
(h) The level of Tier1 capital to be maintained during the life of this
ORDER pursuant to subparagraph 3(a) shall be in addition to a fully
funded allowance for load and lease losses, the adequacy of which shall
be satisfactory to the Supervisory Authorities as determined at
subsequent examinations and/or visitations.
(i) Any increase in Tier 1 capital necessary to meet the requirements
of Paragraph 3 of this ORDER may be accomplished by the following:
(i) sale of common stock; or
(ii) sale of noncumulative perpetual preferred stock; or
(iii) direct contribution of cash by the Board, shareholders, and/or
parent holding company; or
(iv) any other means acceptable to the Supervisory Authorities; or
(v) any combination of the above means.
Any increase in Tier 1 capital necessary to meet the requirement
of Paragraph 4 of this ORDER may not be accomplished through a
deduction from the Bank's allowance for loan and lease losses.
(j) If all or part of any necessary increase in Tier 1 capital required
by this Paragraph 3 is accomplished by the sale of new securities, the
Board shall forthwith take all necessary
steps to adopt and implement a
plan for the sale of such additional securities, including the voting
of any shares owned or proxies held or controlled by them in favor of
the plan. Should the implementation of the plan involve a public
distribution of the Bank's securities (including a distribution
limited only to the Bank's existing shareholders), the Bank shall
prepare offering materials fully describing the securities being
offered, including an accurate description of the financial condition
of the Bank and the circumstances giving rise to the offering, and any
other material disclosures necessary to comply with any applicable
securities laws. Prior to the implementation of the plan and, in any
event, not less than 15 days prior to the dissemination of such
materials, the plan and any 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 the Alabama
Banking Department, 401 Adams Avenue, Suite 680, Montgomery, AL 36130,
for review. Any changes requested to be made in the plan or materials
shall be made prior to their dissemination.
(k) In complying with the provisions of Paragraph 3 of this ORDER, the
Bank shall provide to any subscriber and/or purchaser of the Bank's
securities, a 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 days from the date such material development or
change was planned or occurred, whichever is earlier, and shall be
furnished to every subscriber and/or purchaser of the Bank's
securities who received or was tendered the information contained in
the Bank's original offering materials.
(l) For the purposes of this ORDER, the terms "Tier 1 capital"
and "total assets" shall have the meanings as described to them
in Part 325 of the FDIC Rules and Regulations, 12 C.F.R. §§ 325.2(t)
and 325.2(v).
Within 10 days from the effective date of this ORDER, the Bank
shall eliminate from its books, by charge-off or collection, all assets
or portions of assets classified "Loss" and 50 percent (50%) of
those assets classified "Doubtful" in the June 18, 2001 Joint
Report of Examination ("Report") that have not been previously
collected or charged-off. (If an asset classified "Doubtful" is a
loan or lease, the Bank may, in the alternative, increase its allowance
for loan and lease losses by an amount equal to 50 percent (50%) of
the loan or lease classified "Doubtful".) Elimination of any of
these assets through proceeds of other loans made by the Bank is not
considered collection for purposes of this Paragraph.
(a) By March 31, 2002, the Bank shall have reduced the assets
classified "Substandard" and those assets classified
"Doubtful" in the Report that have not previously been charged
off to not more than $4,700,000.
(b) By September 30, 2002, the Bank shall have reduced the assets
classified "Substandard" and those assets classified
"Doubtful" in the Report that have not previously been charged
off to not more than $3,500,00.
(c) By March 31, 2003, the Bank shall have reduced the assets
classified, "Substandard" and those assets classified
"Doubtful" in the report that have not been previously been
charged off to not more than $2,500,000.
(d) The requirements of subparagraphs 5(a), 5(b), and 5(c) of this
ORDER are not to be construed as standards for future operations and,
in addition to the foregoing, the Bank shall eventually reduce the
total of all adversely classified assets. Reduction of these assets
through proceeds of other loans made by the Bank is not considered
collection for the purpose of this paragraph. As used in subparagraphs
5(a), 5(b), and 5(c) the word "reduce" means:
(i) to collect;
(ii) to charge-off; or
(iii) to sufficiently improve the quality of assets adversely
classified to warrant removing any adverse classification, as
determined by the Supervisory Authorities.
(a) Beginning with the effective date of this ORDER, the Band
shall not extend, directly or indirectly, any additional credit to, or
for the benefit of, any borrower who has a loan or other extension of
credit from the Bank that has been charged off or classified,
in whole or in part, "Loss" or "Doubtful" and is uncollected. The
requirements of this paragraph shall not prohibit the Bank from
renewing (after collection in cash of interest due from the borrower)
any credit already extended to any borrower.
(b) Additionally, during the life of this ORDER, the Bank shall not
extend, directly or indirectly, any additional credit to, or for the
benefit of, any borrower who has a loan or other extension of credit
from the Bank that has been classified, in whole or part,
"Substandard" and is uncollected.
(c) Paragraph 6(b) shall not apply if the Bank's failure to extend
further credit to a particular borrower would be detrimental to the
best interests of the Bank. Prior to the extending of any additional
credit pursuant to this paragraph, either in the form of a renewal,
extension, or further advance of funds, such additional credit shall be
approved by a majority of the Board or a designated committee thereof,
who shall certify in writing as follows:
(i) why the failure of the Bank to extend such credit would be
detrimental to the best interests of the Bank;
(ii) that the Bank's position would be improved thereby; and
(iii) how the Bank's position would be improved.
The signed certification shall be made a part of the minutes of
the Board or its designated committee and a copy of the signed
certification shall be retained in the borrower's credit file.
(a) Within 90 days from the effective date of this ORDER, the Bank
shall adopt an effective internal loan review and grading system to
provide for the periodic review of the Bank's loan portfolio in order
to identify and categorize the Bank's loans, and other extensions of
credit which are carried on the Bank's books as loans, on the basis of
credit quality. The Bank shall also within 90 days from the effective
date of this ORDER, submit the written internal loan review and grading
system to the Supervisory Authorities for review. Such system and its
implementation shall be satisfactory to the Supervisory Authorities as
determined at their initial review and at subsequent examinations
and/or visitations. At a minimum, the grading system shall provide for
the following:
(i) specification of standards and criteria for assessing the
credit quality of the Bank's loans;
(ii) application of loan grading standards and criteria to the Bank's
loan portfolio;
(iii) categorization of the Bank's loans into groupings based on the
varying degrees of credit and other risks which may be presented under
the applicable grading standards and criteria, but in no case, will a
loan be assigned a rating higher than that assigned by examiners at the
last examination of the Bank;
(iv) assessment of the likelihood that each loan exhibiting credit and
other risks will not be repaid according to its terms and conditions;
(v) identification of any loan that is not in conformance with the
Bank's loan policy;
(vi) identification of any loan which presents any unsafe or unsound
banking practice or condition or is otherwise in violation of any
applicable State or Federal law, regulation, or statement of policy;
and
(vii) requirement of a written report to be made to the Board and Audit
Committee, not less than quarterly after the effective date of this
ORDER. The report shall identify the status of those loans that exhibit
credit and other risks under the applicable grading standards/criteria
and the prospects for full collection and/or strengthening of the
quality of any such loans.
(b) The Bank shall also hire, appoint, or contract with a
qualified individual to administer the loan review system. The Bank
shall evaluate the following qualities of the proposed loan review
officer: training in loan review/examination procedure, knowledge of
loan documentation requirements, loan review/examination experience,
ability to comply with the requirements of this ORDER and the Bank's
written loan and loan review policies, and knowledge of applicable laws
and regulations and sound lending/banking procedures.
Within 90 days from the effective date of this ORDER, the Bank
shall revise, adopt, and implement a written lending and collection
policy to provide effective guidance and control over the Bank's
lending function, which policy shall include, at a minimum, revisions
to address all items of criticism enumerated on pages 21 and 22 of the
Report.
In addition, the Bank shall obtain adequate and current
documentation for all loans in the Bank's loan portfolio. Such policy
and its implementation shall be in a form and manner acceptable to the
Supervisory Authorities as determined at subsequent examinations and/or
visitations.
By December 31, 2001, the Board shall review the adequacy of the
allowance for loan and lease losses ("Allowance") and establish a
comprehensive policy for determining the adequacy of the Allowance. For
the purpose of this determination, the adequacy of the Allowance shall
be determined after the charge-off of all loans or other items
classified "Loss." The policy shall provide for a review of the
Allowance at least once each calendar quarter. Said review should be
completed at least 10 days prior to the end of each quarter, in order
that the findings of the Board with respect to the Allowance may be
properly reported in the quarterly Reports of Condition and Income. The
review should focus on the results of the Bank's internal loan review,
loan and lease loss experience, trends of delinquent and non-accrual
loans, an estimate of potential loss exposure of significant credits,
concentrations of credit, and present and prospective economic
conditions. A deficiency in the Allowance shall be remedied in the
calendar quarter it is discovered, prior to submitting the Report of
Condition and Income, by a charge to current operating earnings. The
minutes of the Board meeting at which such review is undertaken shall
indicate the results of the review. The Bank's policy for determining
the adequacy of the Allowance and its implementation shall be
satisfactory to the Supervisory Authorities as determined at subsequent
examinations and/or visitations.
(a) By December 31, 2001, the Bank shall formulate and fully
implement a written plan and a comprehensive budget for all categories
of income and expense for the calendar year ending December 31, 2002.
The plan and budget required by this Paragraph shall include formal
goals and strategies, consistent with sound banking practices and
taking into account the Bank's other written policies, to improve the
Bank's net interest margin, increase interest income, reduce
discretionary expenses, improve and sustain earnings of the Bank. The
plan shall include a description of the operating assumptions that form
the basis for, and adequately support, major projected income and
expense components. Thereafter, the Bank shall formulate such a plan
and budget by November 30 of each subsequent year.
(b) The plan and budget required by subparagraph 10(a) of this ORDER
shall be acceptable to the Supervisory Authorities as determined at
subsequent examinations and/or visitations.
(c) Following the end of each calendar quarter, the Board shall
evaluate the Bank's actual performance in relation to the plan and
budget required by subparagraph 10(a) of this ORDER and shall record
the results of the evaluation, and any actions taken by the Bank, in
the minutes of the Board meeting at which such evaluation is
undertaken.
By December 31, 2001, the Bank shall prepare and submit to the
Supervisory Authorities its written strategic plan consisting of
long-term goals designed to improve the condition of the Bank and its
viability and strategies for achieving those goals. The plan shall be
in a form and manner acceptable to the Supervisory Authorities as
determined at subsequent examinations and/or visitations.
By December 31, 2001, the Bank shall revise, adopt, and implement
a written asset/liability management policy to provide effective
guidance and control over the Bank's funds management activities,
which policy shall include, at a minimum, revisions to address all
items of criticism enumerated on pages 18 and 19 of the Report. Such
policy and its implementation shall be in a form and manner acceptable
to the Supervisory Authorities as determined at subsequent examinations
and/or visitations.
The Bank shall not pay cash dividends without the prior written
consent of the Supervisory Authorities.
Within 30 days of the end of the first quarter following the
effective date of this ORDER, and within 30 days of the end of each
quarter thereafter, the Bank shall furnish written progress reports to
the Supervisory Authorities detailing the form and manner of any
actions taken to secure compliance with this ORDER and the results
thereof. Such reports shall include a copy of the Bank's Report of
Condition and the Bank's Report of Income. Such reports may be
discontinued when the corrections required by this ORDER have been
accomplished and the Supervisory Authorities have released the Bank in
writing from making further reports.
This ORDER shall become effective 10 days from the date of its
issuance. 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 in writing by the Supervisory Authorities.
Pursuant to delegated authority.
Dated this 26th day of October, 2001
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Last Updated 4/14/2005 | legal@fdic.gov |