In the Matter of
SAN JOSE TRI-COUNTY BANK SAN JOSE, ILLINOIS (Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
San Jose Tri-County Bank, San Jose, Illinois ("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, rule, or regulation alleged to have been committed by the Bank,
and of its right 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 ("STIPULATION") with
representatives of the Federal Deposit Insurance Corporation
("FDIC") dated December 9, 2004, 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, rule, or
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 or unsound banking
practices and violations of law, rule, or regulation. The FDIC,
therefore, accepted the STIPULATION 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
or unsound banking practices and violations of law,
rule, or regulation:
A. Operating with an inadequate level of capital protection for the
kind and quality of assets held.
B. Operating with an excessive level of adversely classified assets.
C. Operating with an inadequate Allowance for Loan and Lease Losses
("ALLL") for the volume, kind, and quality of loans and leases
D. Operating with inadequate diversification of risk.
E. Violating Regulation O of the Board of Governors of the Federal
Reserve System, 12 C.F.R. Part 215.
IT IS FURTHER ORDERED, that the Bank, its institution-affiliated
parties, and its successors and assigns, take affirmative action as
[.1] 1. (a) By March 31, 2005, the Bank shall increase its Leverage Capital
Ratio, as that term is defined in Part 325 of the FDIC Rules and
Regulations, 12 C.F.R. Part 325, to not less than 8.0 percent.
(b) Within 30 days from the last day of each calendar quarter
following the date of required compliance with paragraph 1(a) of this
ORDER, the Bank shall determine from its Report of Condition and Income
its Leverage Capital Ratio for that calendar quarter. If the Leverage
Capital Ratio is less than 8.0 percent, the Bank shall, within 60 days
of the date of the required determination, increase its Leverage
Capital Ratio to not less than 8.0 percent calculated as of the end of
that preceding quarterly period.
(c) Any increase in Tier 1 capital may be accomplished by the
(i) The sale of common stock and noncumulative perpetual preferred
stock constituting Tier 1 capital under Part 325; or
(ii) The elimination of all or part of the assets classified
"Loss" or one-half of "Doubtful" as of November 1, 2004,
without loss or liability to the Bank, provided any such collection on
a partially charged-off asset shall first be applied to that portion of
the asset which was not charged-off pursuant to this ORDER; or
(iii) The collection in cash of assets previously charged off; or
(iv) The direct contribution of cash by the directors and/or the
shareholders of the Bank; or
(v) Any other means acceptable to the Regional Director or Acting
Regional Director of the Chicago Regional Office of the FDIC
("Regional Director"); or
(vi) Any combination of the above means.
(d) If all or part of the increase in capital required by this
paragraph is to be accomplished by the sale of new securities, the
board of directors of the Bank shall adopt and implement a plan for the
sale of such additional securities, including the voting of any shares
owned or proxies held by or controlled by them in favor of said plan.
Should the implementation of the plan involve public distribution of
Bank securities, including a distribution limited only to the Bank's
existing shareholders, the Bank shall prepare detailed 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 other material
disclosures necessary to comply with Federal securities laws. Prior to
the implementation of the plan and, in any event, not less than 20 days
prior to the dissemination of such materials, the 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, for
their review. Any changes requested to be made in the materials by the
FDIC shall be made prior to their dissemination.
(e) In complying with the provisions of this paragraph, the Bank shall
provide to any subscriber and/or purchaser of Bank securities 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
calendar days of the date any material development or change was
planned or occurred, whichever is earlier, and shall be furnished to
every purchaser and/or subscriber of the Bank's original offering
(f) 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.
formulate and submit to the Regional Director for review and
comment a written plan to eliminate the amount of loans or other
extensions of credit advanced, directly or indirectly, which were
identified in the list of loans provided to the Bank by FDIC examiners
on or about December 7, 2004. No new loans or other extensions of
credit shall be granted to or for the benefit of such obligors without
first providing the Regional Director 15 days prior written
notification of the anticipated action. Such plan shall include, but
not be limited to:
(i) Dollar levels to which the Bank shall reduce each extension of
credit within six and twelve months from the effective date of this
(ii) Provisions 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. As used in this ORDER,
"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) Within 30 days from receipt of any comment from the Regional
Director on any written plan required by this ORDER, and after the
adoption 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
[.3] 3. The Bank shall not enter into any transactions with any affiliate,
as that term is defined in section 2(k) of the Bank Holding Company
Act, 12 U.S.C. §1841(k), without the prior written approval of the
[.4] 4. The Bank shall not enter into any transactions with Earl F.
McNaughton, any member of Earl F. McNaughton's immediate family, as
that term is defined in section 225.41(b)(3) of Regulation Y of the Board
of Governors of the Federal Reserve System, 12 C.F.R. §225.41(b)(3),
Anne M. Mounts, or any related interest of those individuals, as that
term is defined in section 215.2(n) of Regulation O of the Board of
Governors of the Federal Reserve System, 12 C.F.R. §215.2(n),
without the prior written approval of the Regional Director.
[.5] 5. The Bank shall not declare or pay any cash dividend without the
prior written consent of the Regional Director.
[.6] 6. (a) Within 30 days from the effective date of this ORDER, the Bank
shall replenish its ALLL in the amount of at least $460,000.
(b) Within 60 days from the effective date of this ORDER, the Bank
shall make an additional provision for loan and lease losses which,
after review and consideration by the board of directors, reflects the
potential for further losses in the remaining loans or leases
classified "Substandard" and all other loans and leases in its
portfolio. In making this determination, the board of directors shall
consider the Federal Financial Institutions Examination Council
("FFIEC") Instructions for the Reports of Condition and Income
and any analysis of the Bank's ALLL provided by the FDIC.
(c) Within 30 days from the effective date of this ORDER, Reports of
Condition and Income required by the FDIC and filed by the Bank
subsequent to November 1, 2004, but prior to the effective date of this
ORDER, shall be amended and refiled if they do not reflect a provision
for loan and lease losses and an ALLL which are adequate considering
the condition of the Bank's loan portfolio, and which, at a minimum,
incorporate the adjustments required by this paragraph.
(d) Prior to submission or publication 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. In making these determinations, the board of directors
shall consider the FFIEC Instructions for the Reports of Condition and
Income and any analysis of the Bank's ALLL provided by the FDIC.
(e) ALLL entries required by this paragraph shall be made prior to any
Tier 1 capital determinations required by this ORDER.
[.7] 7. Within 60 days of the effective date of this ORDER, the Bank shall
obtain an appraisal of all antiques, collectibles, and
artwork owned by the Bank from an independent appraiser. The
Bank shall not sell or otherwise transfer ownership or possession of any
of these objects at less than the value of such objects as reflected in
this appraisal without the prior written approval of the Regional
[.8] 8. (a) By March 31, 2005, the Bank shall eliminate and/or correct all
violations of law, rule, and regulation listed in the FDIC and Illinois
Department of Financial & Professional Regulation Report of Examination
as of November 1, 2004.
(b) By March 31, 2005, the Bank shall implement procedures to
ensure future compliance with all applicable laws, rules, and
[.9] 9. Within 30 days from the end of each calendar quarter following the
effective date of this ORDER, the Bank shall furnish to the Regional
Director written progress reports signed by each member of the Bank's
board of directors, detailing the actions taken to secure compliance
with the 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, in writing, released the
Bank from making further reports.
This ORDER is effective immediately.
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.