(This order was terminated by order of the FDIC dated 5-26-04; see ¶16,386.)
[.1] Management—Qualifications Specified
[.2] Board of Directors—Written Plan Required
[.3] Loan Policy—Preparation or Revision of Policy Required
[.4] Violations of Law—Corrections of Violations Required
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[.5] Funds Management and Liquidity—Preparation or Revision of Funds Management Policy Required
[.6] Bank Operations—Internal Review and Control Procedures—Establish
[.7] Gramm-Leach—Bliley Act (GLBA)—Compliance Required
[.8] Information Technology Plan—Implementation of Required
[.9] Compliance Officer—Retain/Give Written Authority
[.10] Compliance Program—Written Policy Required
[.11] Golden Parachute Payments—Prohibited
[.12] Compliance Committee—Establishment Required
[.13] Progress Report—Written Report Required
In the Matter of
ELDERTON STATE BANK
ELDERTON, PENNSYLVANIA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-03-131b
ELDERTON STATE BANK, ELDERTON, PENNSYLVANIA ("Insured
Institution"). 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 Insured Institution and of its right to a hearing on
the alleged charges under section 8(b)(1) of 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
7, 2003, whereby solely for the purpose of this proceeding and without
admitting or denying the alleged charges of unsafe or unsound banking
practices and violations of law and/or regulations, the Insured
Institution 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 Insured Institution had engaged in unsafe or unsound
banking practices and had committed violations of law 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 Insured Institution, its directors,
officers, employees, agents, and other 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 or unsound banking practices and violations of law
and/or regulations:
(a) engaging in hazardous lending practices;
(b) operating with inadequate provisions for liquidity;
(c) operating with inadequate internal routine and controls policies;
(d) engaging in violations of applicable Federal laws and/or
regulations and in contravention of FDIC Statements of Policy and
Interagency Guidelines, as more fully set forth on pages 23-32 of the
FDIC Report of Examination of the Insured Institution (Risk Management)
as of September 30, 2002 ("Report of Examination (Risk
Management)");
(e) operating with management whose policies and practices are
detrimental to the Insured Institution and jeopardize the safety of its
deposits;
(f) operating with a board of directors which has failed to provide
adequate supervision over and direction to the active management of the
Insured Institution; and
(g) engaging in violations of applicable Federal consumer laws and/or
regulations as more fully set forth at pages 9 through 19 of FDIC
Report of Examination of the Insured Institution (Compliance) as of
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January 21, 2003 ("Report of Examination (Compliance)").
IT IS FURTHER ORDERED that the Insured Institution, its
institution-affiliated parties, and its successors and assigns, take
affirmative action as follows:
[.1]1. (a) The Insured Institution shall have and retain qualified
management. Each member of management shall have qualifications and
experience commensurate with his or her duties and responsibilities at
the Insured Institution. The qualifications of management shall be
assessed on its ability to:
(i) Comply with the requirements of this ORDER;
(ii) Improve and thereafter maintain the Insured Institution in a safe
and sound manner;
(iii) Comply with all applicable Federal and State laws and
regulations, and FDIC, Interagency and FFIEC policy statements;
(iv) Restore all aspects of the Insured Institution to a safe and sound
condition, including asset quality, management effectiveness, liquidity
and sensitivity to market risk; and
(v) Implement an effective compliance program including written
policies and procedures, and standards for compliance monitoring,
auditing and training.
(b) During the life of this ORDER, the Insured Institution shall
notify the Regional Director in writing of any resignation and/or
termination of any members of its board of directors and/or any of its
executive officers within 15 days of the event. In addition, the
Insured Institution shall comply with section 32 of the Act, 12 U.S.C.
§1831i, which includes a requirement that the Insured Institution
shall notify the Regional Director in writing at least 30 days prior to
any individual assuming a new position as a senior executive officer or
any additions to the board of directors of the Insured Institution.
[.2]2. (a) Within 60 days from the effective date of this ORDER, the board
of directors shall develop a written analysis and assessment of the
composition and functions of the board of directors ("Directors'
Plan"), which shall include, at a minimum;
(i) an evaluation of each member of the board of directors to
determine whether those individuals and the board as a whole have the
ability, experience, independence, and other qualifications which are
necessary to perform the duties of the board, including providing
effective oversight and guidance of management and staff to ensure
adherence to the board's policies and to maintain the Insured
Institution in a safe and sound condition and in compliance with laws
and regulations;
(ii) a written plan of action to enhance the effectiveness of the board
by either adding new members to the board with the necessary ability,
experience, independence and other qualifications, or requiring
additional education and training for existing members of the board, or
both;
(iii) an evaluation of the effectiveness of the reporting currently
provided to the board of directors; and
(iv) a review of the effectiveness of the current board of director
committee structure.
(b) The Directors' Plan and any subsequent modifications thereto
shall be submitted to the Regional Director for review and comment
within 15 days of completion and/or modification. Within 30 days from
the receipt of any comments, and after considering such comments, the
board of directors shall approve the Directors' Plan and/or any
subsequent modification thereto, which approval shall be recorded in
the minutes of the board of directors. Thereafter, the board of
directors of the Insured Institution shall implement and follow the
Directors' Plan and/or any subsequent modifications thereto.
[.3]3. Within 60 days from the effective date of this Order, the Insured
Institution shall revise, adopt and implement a written lending policy
to provide effective guidance and control over the Insured
Institution's lending function. Such policy and its implementation
shall be in a form and manner acceptable to the Regional Director as
determined at subsequent examinations and/or visitations.
[.4]4. Within 60 days from the effective date of this ORDER, the Insured
Institution shall eliminate and/or correct all violations of law and/or
regulations and failure to follow or adhere to FDIC Statements of
Policy and Interagency Guidelines which are set out on pages 23 through
32 of the Report of Examination (Risk Management) and pages 9 through
19 of the Report of Examination (Compliance). In addition, the Insured
Institution shall promptly institute appropriate
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procedures to ensure
that the Insured Institution henceforth complies with all applicable
laws and regulations.
[.5]5. Within 60 days from the effective date of this ORDER, the Insured
Institution shall develop or revise, adopt, and implement a written
liquidity and funds management policy. Such policy and its
implementation shall be a form and manner acceptable to the Regional
Director as determined at subsequent examinations and/or visitations.
[.6]6. Within 60 days from the effective date of this ORDER, the Insured
Institution shall establish and implement internal routine and control
policies applicable to all key areas of the Insured Institution's
operations, including providing comprehensive and ongoing audit
coverage.
[.7]7. Within 90 days from the effective date of this ORDER, the Insured
Institution shall institute procedures to ensure the Insured
Institution's compliance with Section 501(b) of the Gramm-Leach-Bliley
Act ("GLBA").
[.8]8. Within 90 days from the effective date of this ORDER, the Insured
Institution shall develop appropriate information technology policies
covering all aspects of the Insured Institution's technology
infrastructure.
9. Except as otherwise provided in paragraphs 7 and 8 above,
within 30 days from the effective date of this ORDER, the Insured
Institution shall correct the deficiencies noted on pages 3 through 11
in the January 21, 2003 Information Technology Examination.
10. Within 60 days from the effective date of this ORDER, the Board of
Directors shall:
[.9] (a) Appoint an experienced compliance officer to oversee and coordinate
the Insured Institution's overall consumer compliance function. The
Board of Directors shall also ensure that the consumer compliance
officer receives training, as soon as practicable, sufficient to
effectively oversee and coordinate the Insured Institution's overall
consumer compliance function.
[.10] (b) Approve and adopt a written consumer compliance program that
establishes effective operating, auditing and monitoring procedures to
ensure compliance with all consumer protection laws, regulations and
interagency statements of policy. The program should be reviewed and
updated as needed to reflect changes in the Insured Institution's
consumer compliance environment. At a minimum, such written consumer
compliance program should consist of:
(i) Written policies and procedures pertaining to consumer
compliance laws and regulations;
(ii) Monitoring procedures such as internal control questionnaires or
checklists;
(iii) A documented training program for personnel including formalized
training for new hires and refreshers for all employees;
(iv) A consumer compliance audit program; and
(v) Procedures to handle consumer complaints.
(c) Implement internal compliance audit procedures sufficient to
enable the Board of Directors to accurately assess the Insured
Institution's adherence to all applicable consumer protection and fair
lending laws and regulations. Such internal compliance audit procedures
should include an emphasis on ensuring management's effectiveness in
following up and resolving any errors or other problems cited during
internal audits. All audit findings, deficiencies, and recommendations
should be documented, reviewed and addressed in a timely manner. All
written audit reports should be reported in detail to the Board of
Directors.
(d) Direct management to conduct a complete file search dating to the
examination (Compliance) immediately preceding the examination
(Compliance) as of January 21, 2003 to identify all consumers who were
charged an appraisal fee for appraisal-related services that were not
performed. The Insured Institution shall reimburse all such identified
consumers for any fees paid for appraisal services.
(e) Direct management to conduct a complete review of the loan
portfolio to identify all borrowers with properties located in a
Special Flood Hazard Area. The Insured Institution shall provide notice
to all such identified borrowers of the requirement to obtain and
maintain flood insurance, and shall otherwise comply with the
requirements of 12 C.F.R. Part 339.
[.11]11. Immediately upon the effective date of this ORDER, the Insured
Institution shall:
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(a) Not enter into any agreements with present and former
officers of the Insured Institution which constitute "golden
parachute payments, as defined in section 18(k)(4) of the Act, 12
U.S.C. §1828(k)(4);
(b) Rescind all agreements or portion of agreements with present and
former officers of the Insured Institution which constitute "golden
parachute payments";
(c) Cease making any payments to present and former officers of the
Insured Institution which constitute "golden parachute payments";
and
(d) Take whatever legal steps are necessary to obtain reimbursement
from all former officers of the Insured Institution of any payments
which have already been made to them and which constitute "golden
parachute payments".
[.12]12. The board of directors of the Insured Institution shall appoint a
committee (the "Compliance Committee") composed of at least three
directors who are not now and have never been involved in the daily
operations of the Insured Institution, and whose composition is
acceptable to the Regional Director, to monitor the Insured
Institution's compliance with this ORDER. Within 30 days from the
effective date of this ORDER, and at monthly intervals thereafter, such
Compliance Committee shall prepare and present to the Insured
Institution's board of directors a written report of its findings,
detailing the form, content, and manner of any action taken to ensure
compliance with this ORDER and the results thereof, and any
recommendations with respect to such compliance. Such progress reports
shall be included in the minutes of the meeting of the Insured
Institution's board of directors. Nothing contained herein shall
diminish the responsibility of the entire board of directors to ensure
compliance with the provisions of this ORDER.
[.13]13. On the fifteenth day of the second month following the effective
date of this ORDER, and on the fifteenth day of every third month
thereafter, the Insured Institution shall furnish written progress
reports to the Regional Director 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 has
released the Insured Institution in writing from making further
reports.
The provisions of this ORDER shall be binding upon the Insured
Institution, its directors, officers, employees, agents, successors,
assigns, and other institution-affiliated parties of the Insured
Institution.
This ORDER shall become effective immediately upon 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 by the FDIC.
Pursuant to delegated authority.
Dated:
10-7-03
