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FDIC Enforcement Decisions and Orders
A cease and desist order was issued, based on findings by the FDIC that it had reason to believe that respondent was engaged in unsafe and unsound practices.
[.1] ManagementQualifications Specified
[.2] CapitalTier 1 Capital Increase/Maintain
[.3] DividendsDividends Restricted
[.4] Loan Loss ReserveEstablishment of or Increase in Required
[.5] AssetsCharge-off or Collection
[.6] AssetsProblem AssetsReduce Substandard Assets
[.7] LoansExtensions of CreditTo Borrowers with Existing Adversely Classified Credits
[.8] LoansCollectionsWritten Policy Required
[.9] LoansSpecial Mention
[.10] Loan CommitteeDuties Specified
[.11] Loan PolicyPreparation or Revision of Policy Required
[.12] Technical ExceptionsCorrection of Technical Exceptions Required
[.13] Board of DirectorsInternal Loan Review and Grading SystemWritten Plan Required
[.14] Profit PlanPreparation of Plan Required
[.15] Violations of LawCorrections of Violations Required
[.16] ShareholdersDisclosure of Cease and Desist Order Required
[.17] Compliance ProgramWritten Compliance Plan Required
[.18] Progress ReportWritten Report Required
In the Matter of
State Bank of Belle Plaine, Belle Plaine, Minnesota ("Bank"), having been advised of its right[s] to a NOTICE OF CHARGES AND OF HEARING detailing the unsafe or unsound banking practices and violations of law and regulation alleged to have been committed by the Bank, as well as their rights to a hearing on the 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") dated November 22, 2004, with counsel for the Federal Deposit Insurance Corporation ("FDIC"), whereby, solely for the purpose of this proceeding and without admitting or denying the charges of unsafe or unsound banking practices and violations of law and regulation, 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 and unsound banking practices and violations of law and regulation. 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 or unsound banking practices and violations
of law and regulation as set forth in the FDIC June 1, 2004 Report of Examination:
A. Operating with a board of directors and management that has failed to provide adequate supervision and direction to the Bank.
B. Operating with an inadequate allowance for loans and lease losses for the volume, kind, and quality of loans and leases held, and/or failing to make provision for an adequate allowance for possible loan and lease losses.
C. Engaging in hazardous lending and lax collection practices, including, but not be limited to:
1. the failure to obtain proper loan documentation;
2. the failure to obtain adequate collateral;
3. the failure to establish and monitor collateral margins of secured borrowers;
4. the failure to establish and enforce adequate loan repayment programs;
5. the failure to obtain current and complete financial information;
D. Operating with an excessive level of adversely classified loans or assets, and/or delinquent loans and/or non-accrual loans.
E. Violating laws and/or regulations, including the legal lending limit restrictions set forth in Section 48.24 of the Minnesota Statutes.
IT IS FURTHER ORDERED, that the Bank, its institution-affiliated parties, and its successors and assigns, take affirmative action as follows:
[.1] 1. MANAGEMENT. For purposes of this Order, the qualifications of management shall be assessed on its ability to comply with the requirements of this ORDER, operate the Bank in a safe and sound manner, comply with applicable laws and regulations, and restore all aspects of the Bank to a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness, liquidity, and sensitivity to market risk. Furthermore, "senior executive officer" shall be defined as in section 32 of the Act, 12 U.S.C. §1831(i), and section 303.101(b) of the FDIC Rules and Regulations, 12 C.F.R. §303.101(b). Each member of Bank management shall have qualifications and experience commensurate with his or her duties and responsibilities at the Bank.
(a) During the life of this ORDER, the Bank shall notify the FDIC Regional Director for the Kansas City Region ("Regional Director"), in writing, of the resignation or termination of any of the Bank's directors or senior executive officers.
(b) 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, supra, and Subpart F of Part 303 of the FDIC Rules and Regulations, 12 C.F.R. §§303.100303.104.
(c) Within 60 days from the effective date of this ORDER, the Bank shall develop and complete a plan ("Management Plan") for the purpose of providing qualified management for the Bank, including but not be limited to, having a senior lending officer within 90 days of the effective date of this ORDER, who has an appropriate level of lending, collection, and loan supervision experience for the type and quality of the Bank's loan portfolio.
(d) The Management Plan shall include, at a minimum:
(i) identification of both the type and number of officer positions needed to properly manage and supervise 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 all Bank officers and staff members 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 restoration and maintenance of the Bank in a safe and sound condition; and
(iv) a plan to recruit and hire any additional or replacement personnel with the requisite ability, experience and other qualifications to fill those officer or other staff member positions identified previously in this ORDER.
(e) Upon completion of the Management Plan, it shall be submitted to the Regional Director for review and comment. Within 30 days of the receipt of any comments from the Regional Director and after due consideration of any recommended changes, the board of directors of the Bank
shall meet, approve the Management Plan, and record the approval in its minutes for the meeting. Any subsequent modification of the Management Plan shall require submission to the Regional Director for review and comment prior to approval by the Bank. Thereafter, the Bank, its directors, officers and employees shall implement and follow the approved Management Plan.
[.2] 2. CAPITAL ADEQUACY. For purposes of this ORDER, "capital ratio" means the level of Tier 1 capital as a percentage of total assets. Tier 1 capital and total assets shall be calculated in accordance with Part 325 of the FDIC Rules and Regulations ("Part 325"), 12 C.F.R. Part 325.
(a) After appropriate entries for an adequate allowance for loan and lease losses ("ALLL") are made in accordance with the requirements of this Order, but no later than 30 days from the effective date of this Order, the Bank shall have and maintain a capital ratio in excess of 8 percent.
(b) Within 30 days from the last day of each calendar quarter following September 30, 2004, the Bank shall determine, from its Reports of Condition and Income, its capital ratio for that calendar quarter. If it is less than 8 percent, within 60 days from said required determination, the Bank shall submit a written plan to the Regional Director, describing the means and timing by which the Bank shall increase such ratio up to or in excess of 8 percent.
(c) The capital ratio analysis required by this paragraph shall not negate the responsibility of the Bank and its board of directors for maintaining throughout the year an adequate level of capital protection for the kind, quality and degree of market depreciation of assets held by the Bank.
[.3] 3. RESTRICTION ON DIVIDENDS. As of the effective date of this ORDER, the Bank shall pay no cash dividends without the prior written consent of the Regional Director.
[.4] 4. ALLOWANCE FOR LOAN AND LEASE LOSSES. For purposes of this ORDER and in making the determinations mandated by this paragraph, the board of directors of the Bank shall consider the Federal Financial Institutions Examination Council's Instructions for the Reports of Condition and Income, the Interagency Statement of Policy on the Allowance for Loan and Lease Losses ("ALLL") and any analysis of the Bank's ALLL provided by the FDIC.
(a) Prior to the submission of all Reports of Condition and Income required by the FDIC after the effective date of this ORDER, the board of directors of the Bank shall review the adequacy of the Bank's ALLL, provide for an adequate ALLL, and accurately report the same. The minutes of the board meeting at which such review is undertaken shall indicate the findings of the review, the amount of increase in the ALLL recommended, if any, and the basis for determination of the amount of ALLL provided.
(b) While this ORDER is in effect, the Bank shall submit to the Regional Director the analysis supporting the determination of the adequacy of its ALLL. These submissions may be made at such times as the Bank files the progress reports otherwise required by this ORDER.
(c) ALLL entries required by this paragraph shall be made prior to any Tier 1 capital determinations required by this ORDER.
[.5] 5. ASSET CHARGE-OFF. Elimination or reduction of assets with the proceeds of other Bank extensions of credit is not considered collection for the purpose of this paragraph. As of 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" as of June 1, 2004, that have not been previously collected or charged off.
[.6] 6. REDUCTION OF SUBSTANDARD ASSETS. For purposes of this ORDER and as used in this paragraph, "reduce" means to collect, charge off, or improve the quality of "Substandard" assets so as to warrant removal of any adverse classification by the FDIC. Furthermore, in developing the plan mandated by this paragraph, the Bank shall, at a minimum, review the financial position of each such borrower, including source of repayment, repayment ability, and alternative repayment sources, and evaluate the available collateral for each such credit, including possible actions to improve the Bank's collateral position.
(a) Within 60 days from the effective date of this ORDER, the Bank shall submit to
the Regional Director, for review and comment, a written plan to reduce the Bank's risk position in each asset in excess of $100,000 which is classified "Substandard" in the FDIC's Report of Examination as of June 1, 2004. Within 30 days from the receipt of any comment from the Regional Director, and after due consideration of any recommended changes, the Bank shall approve the plan, which approval shall be recorded in the minutes of a board of directors' meeting. Thereafter, the Bank shall implement and follow this plan.
(b) The plan mandated by this paragraph shall include, but not be limited to, the following:
(i) the dollar levels to which risk in each classified asset will be reduced;
(ii) a description of the risk reduction methodology to be followed, including the anticipated plans for satisfying any deficiencies or deviations in such loans from the Bank's revised loan policy as required by this ORDER;
(iii) provisions for the Bank's submission of monthly written progress reports to its board of directors;
(iv) provisions mandating board review of said progress reports; and
(v) provisions for the mandated review to be recorded by notation in the minutes of the board of directors' meetings.
[.7] 7. PROHIBITION OF ADDITIONAL LOANS TO CLASSIFIED BORROWERS. As of the effective date of this ORDER, the Bank shall not, directly or indirectly extend any additional credit to, or for the benefit of, any borrower who is already obligated in any manner to the Bank on any extensions of credit (or portion thereof) that has been charged-off the books of the Bank or classified "Loss", so long as such credit remains uncollected. Additionally, the Bank shall not, directly or indirectly, extend any additional credit to, or for the benefit of, any borrower whose loan or other credit has been classified "Substandard" or is listed for Special Mention, and remains uncollected, unless its board of directors adopts a detailed written statement giving the reasons why such potential action is in the best interest of the Bank. A copy of such statement shall be placed in the appropriate loan file and shall be incorporated in the minutes of the applicable board of directors' meeting.
[.8] 8. REDUCTION OF DELINQUENCIES. Within 60 days from the effective date of this ORDER, the Bank shall adopt and implement a written plan for the reduction and collection of delinquent loans. The plan shall include, but not be limited to, provisions which:
(a) prohibit the extension of credit for the payment of interest;
(b) delineate the areas of responsibility for the Bank's assigned loan officers and employees;
(c) establish acceptable guidelines for the collection of delinquent credits;
(d) establish dollar levels to which the Bank shall reduce delinquencies within three and six months from the effective date of this ORDER; and
(e) provide for the submission of monthly written progress reports to the Bank's board of directors for review and notation in minutes of the meetings of the board of directors.
[.9] 9. SPECIAL MENTION. Within 45 days from the effective date of this ORDER, the Bank shall correct all deficiencies in the assets listed for "Special Mention" in the FDIC Report of Examination as of June 1, 2004. "Correct" shall include documented attempts to correct deficiencies, and the reasons such attempts have not been successful.
[.10] 10. LOAN COMMITTEE. Within 30 days from the effective date of this ORDER, the Bank shall appoint a loan committee, which shall meet regularly, not less frequently than on a monthly basis. The loan committee shall include at least one director who is not an officer of the Bank, or any bank subsidiary.
(a) The loan committee shall, at a minimum, perform the following functions:
(i) evaluate, grant and/or approve loans in accordance with the Bank's loan policy as amended to comply with this ORDER;
(ii) provide a thorough written explanation of any deviations from the loan policy which shall:
(A) address how such exceptions are in the Bank's best interest;
(B) be included in the minutes of the corresponding committee meeting; and
(C) be maintained in the borrower's credit file;
(iii) review and monitor the status of
repayment and collection of overdue and maturing loans, of all loans classified "Substandard" in the FDIC's Report of Examination as of June 1, 2004, or subsequent regulatory examination, and of all loans included on the Bank's internal watch list; and
(iv) maintain written minutes of the committee meetings, including a record of the review and status of the loans considered.
(b) All loan committee minutes shall be made available to the Bank's board of directors at their next scheduled meeting.
[.11] 11. LOAN POLICY. Within 60 days from the effective date of this ORDER, and annually thereafter, the board of directors of the Bank shall review the Bank's loan policy and procedures for adequacy and, based upon this review, shall make all appropriate revisions to the policy necessary to strengthen lending procedures and abate additional loan deterioration.
(a) The initial revisions to the Bank's loan policy required by this paragraph, at a minimum, shall include provisions:
(i) establishing officer and loan committee lending limits and limitations on the aggregate level of credit to any one borrower which can be granted without the prior approval of the Bank's board;
(ii) establishing review and monitoring procedures to ensure that all lending personnel are adhering to established lending procedures and that the directorate is receiving timely and fully documented reports on loan activity, including any deviations from established policy;
(iii) requiring that all extensions of credit originated or renewed by the Bank:
(A) be supported by current credit information and collateral documentation, including lien searches and the perfection of security interests;
(B) have current financial information, profit and loss statements or copies of tax returns, and cash flow projections, which information shall be maintained throughout the term of the loan; and
(C) have a clearly defined and stated purpose and a predetermined and realistic repayment source and schedule;
(iv) establishing standards for extending unsecured credit;
(v) incorporating limitations on the amount that can be loaned in relation to established collateral values, including the requirement that the source of the valuations be identified and that such collateral valuations be completed prior to the disbursement of loan proceeds and be performed on a periodic basis over the term of the loan;
(vi) requiring the establishment and maintenance of a loan grading system and internal loan watch list;
(vii) requiring accurate reporting of past due loans to the loan committee on at least a monthly basis;
(viii) establishing standards for collection efforts for past due loans;
(ix) establishing guidelines for timely recognition of loss through charge-off;
(x) requiring loan committee review and monitoring of the status of repayment and collection of overdue and maturing loans, as well as loans classified "Substandard" in Regulatory Reports of Examination;
(xi) requiring a written plan to lessen the risk position in each line of credit identified as a problem credit on the Bank's internal loan watch list;
(xii) prohibiting the extension of a maturity date, advancement of additional credit, or renewal of a loan to a borrower whose obligations to the Bank were classified "Substandard," "Doubtful," whether in whole or in part, in Regulatory Reports of Examination without the full collection in cash of accrued and unpaid interest, unless the loans are well secured and/or are adequately supported by current and complete financial information, and the renewal or extension has first been approved in writing by a majority of the Bank's board of directors;
(xiii) requiring a non-accrual policy in accordance with the Federal Financial Institutions Examination Council's Instructions for the Consolidated Reports of Condition and Income;
(xiv) prohibiting the capitalization of interest or loan-related expenses unless the board of directors provides, in writing, a detailed explanation of why said deviation is in the best interest of the Bank;
(xv) establishing limitations on the maximum amount of an overdraft to be paid without the prior written approval of the
Bank's loan committee, and imposing appropriate limitations on the use of the Cash Items account;
(xvi) addressing concentrations of credit; and
(xvii) requiring that collateral appraisals be completed prior to the making of secured extensions of credit.
(b) The Bank shall inform the Regional Director, in writing, how it intends to ensure compliance. Thereafter, the Bank shall implement and follow the amended written loan policy.
[.12] 12. TECHNICAL EXCEPTIONS. Within 45 days from the effective date of this ORDER, the Bank shall correct the technical exceptions listed in the FDIC Report of Examination as of June 1, 2004. "Correct" shall include documented attempts to collect missing information. The Bank shall initiate and implement a program to ensure its credit files contain complete, adequate and current documentation.
[.13] 13. INTERNAL LOAN REVIEW AND GRADING. Within 60 days from the effective date of this ORDER, the board of directors shall develop a written internal loan review and grading system ("System") that periodically identifies credit risk in outstanding extensions of credit made by the Bank. At a minimum, the system shall include a quarterly review of individual loans by persons other than the originating loan officer and/or the loan officer responsible for the day-to-day servicing of such loan.
[.14] 14. PROFIT PLAN AND BUDGET. The plan and budget required by this paragraph shall contain formal goals and strategies, consistent with sound banking practices, to improve the Bank's overall Earnings and Net Interest Margin, as well as a description of the operating assumptions that form the basis for major projected income and expense components.
(a) Within 90 days from the effective date of this ORDER, the Bank shall adopt and implement a written profit plan and a realistic/comprehensive budget for all categories of income and expense for calendar year 2005. A copy of the plan and budget shall be submitted to the Regional Director upon their completion. Thereafter, the Bank shall implement and follow the plan and budget.
(b) Within 30 days from the end of each calendar quarter following completion of the profit plan and budget required by this paragraph, the Bank's board of directors shall evaluate the Bank's actual performance against them, record the results of the evaluation, and note any actions taken by the Bank in the minutes of the board of directors' meeting at which such evaluation is undertaken. A written profit plan and budget shall be prepared for each calendar year for which this ORDER is in effect. A copy of the profit plan and budget shall be submitted to the Regional Director for review and comment within 30 days of the end of each year.
[.15] 15. VIOLATIONS OF LAW AND REGULATION. Within 30 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all lending limit violations listed in the FDIC's Report of Examination June 1, 2004, and implement procedures and/or bank policies to ensure future compliance with all applicable laws and regulations.
[.16] 16. DISCLOSURE TO SHAREHOLDERS. Following the effective date of this ORDER, the Bank shall send to its shareholders, or otherwise furnish a description of this ORDER, in conjunction with the Bank's next shareholder communication, and 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, notice or statement shall be sent to the FDIC Registration and Disclosure Section, 550 17th Street, N.W., Room F-6043, Washington, D.C. 20429-9990 for review at least 20 days prior to dissemination to shareholders. Any requests for changes made by the FDIC shall be made prior to dissemination of the description, communication, notice or statement.
[.17] 17. COMPLIANCE WITH ORDER. Within 30 days from the effective date of this ORDER, the Bank's board of directors shall have in place a program that will provide for monitoring of the Bank's compliance with this ORDER. Following the adoption of said program, the Bank's board of directors shall review the Bank's compliance with this ORDER and record its review in the minutes of each regularly scheduled board of directors' meeting.
the Bank shall furnish written progress reports to the Regional Director and the Deputy Commissioner, Financial Exams for the State of Minnesota, signed by each member of the Bank's board of directors, detailing the form and manner of any actions taken to secure compliance with this ORDER. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Regional Director has, in writing, released the Bank from making further reports.
The effective date of this ORDER shall be 10 days after its issuance by the FDIC.
The provisions of this ORDER shall be binding upon the Bank, its institution-affiliated parties, and any successors and assigns thereof.
The provisions of this ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provision has been modified, terminated, suspended, or set aside by the FDIC.
Issued Pursuant to Delegated Authority
Dated: December 14, 2004.
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