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[¶16,301]Docket No. FDIC-01-131b (1-22-02)
In the Matter of
CITIZENS COMMUNITY BANK
OF DECATUR
DECATUR, ILLINOIS
(Insured State Nonmember Bank)
MODIFICATION OF ORDER TO CEASE AND DESIST
FDIC-01-131b
OBRE No. 2001-BBTC-35-a
The ORDER TO CEASE AND DESIST ("ORDER") issued by the
Federal Deposit Insurance Corporation ("FDIC") and the Office of
Banks and Real Estate for the State of Illinois ("OBRE") on
November 16, 2001 against Citizens Community Bank of Decatur, Decatur,
Illinois ("Bank") is modified as follows:
A. Paragraph 1(a) of the ORDER is modified by deleting the present
paragraph 1(a) and inserting the following paragraph 1(a):
1. (a) Within 90 days from the effective date of this ORDER, the Bank
shall have and retain qualified management. At a minimum, such
management shall include a chief executive officer with proven ability
in managing a bank of comparable size and experience and a new senior
operations officer with an appropriate level of accounting, internal
control and bookkeeping experience for the type and complexity of the
Bank's operations. Such persons shall be provided the necessary
written authority to implement the provisions of this ORDER. The
qualifications of management shall be assessed on their ability to:
(i) Comply with the requirements of this ORDER;
(ii) Maintain and supervise accounting procedures and account
reconcilements in a safe and sound manner;
(iii) Operate the Bank in a safe and sound manner;
(iv) Comply with applicable laws and regulations; and
(v) Restore all aspects of the Bank and its operations to a safe and
sound condition, including asset quality, capital adequacy, earnings,
management effectiveness, and internal controls.
B. Paragraph 3 of the ORDER is eliminated.
C. Paragraph 4 of the ORDER is modified
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by deleting the present
paragraph 4 and inserting the following paragraph 4:
4. (a) Within 30 days from the last day of each calendar quarter
following the effective date of this ORDER, the Bank shall determine
from its Report of Condition and Income its level of Tier 1 leverage
capital as a percentage of its average total assets ("capital
ratio") for that calendar quarter. If the capital ratio is less than
10.0 percent, exclusive of a fully funded Allowance for Loan and Lease
Losses account, the Bank shall, within 30 days of the date of this
required determination, submit to the Regional Director and
Commissioner for approval, a written capital plan acceptable to the
Regional Director and Commissioner. The capital plan should address
both internal and external sources of capital augmentation, including
capital infusions, retention of earnings, restrictions on asset growth,
asset sales, and business combinations to maintain a ratio of Tier 1
capital to average total assets ("Tier 1 leverage capital ratio")
of at least 10.0 percent, exclusive of a fully funded ALLL account. For
purposes of this ORDER, the term "Tier 1 capital" shall have the
same meaning ascribed to it in Appendix A of Part 325 of the FDIC's
Rules and Regulations, 12 C.F.R. Part 325, App. A, and the term
"average total assets" shall have the same meaning ascribed to it
in Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325.
(b) No more than 15 days after the receipt of any comment from the
Regional Director and Commissioner, and after consideration of such
comment, the board of directors shall approve the written capital plan
and/or any modification thereto made after consideration of any comment
from the Regional Director and Commissioner. Thereafter, the Bank shall
follow the written capital plan. Any subsequent modification to the
capital plan shall be immediately submitted to the Regional Director
and Commissioner for review and comments and shall be subject to the
requirements of this paragraph.
(c) The Bank's board of directors shall maintain in its minutes a
complete written record of all actions taken by the Bank to comply with
the capital requirements of this paragraph, including the board's
deliberations with respect to any comments from the Regional Director
and Commissioner regarding the Bank's written capital plan and the
board's approval of the written capital plan.
(d) Notwithstanding any other provision of this paragraph, if the Bank
fails to increase its capital ratio to at least 10.0 percent,
calculated as of the end of any calendar quarter following the
effective date of this ORDER, within the timeframes contained in its
approved capital plan or if the Bank fails to submit an acceptable
capital plan to the Regional Director and Commissioner within 30 days
of the date of the determination required by subparagraph (a), the Bank
shall increase its capital ratio to at least 10.0 percent within 45
days of receipt of a written notice from the Regional Director and the
Commissioner that the Bank has either failed to successfully implement
its capital plan or has failed to submit a capital plan acceptable to
the Regional Director and Commissioner.
(e) Any such increase in Tier 1 leverage capital may be accomplished by
the following:
(i) The sale of common stock and noncumulative perpetual preferred
stock constituting Tier 1 leverage capital under Part 325;
(ii) The elimination of all or part of the assets classified
"Loss" as of June 11, 2001, 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;
(iii) The collection in cash of assets previously charged off;
(iv) The direct contribution of cash by the directors and/or the
shareholders of the Bank;
(v) Any other means acceptable to the Regional Director and the
Commissioner; or
(vi) Any combination of the above means.
(f) 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
the 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
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condition of the Bank and the
circumstances giving rise to the offering, and any other material
disclosures necessary to comply with the Federal and State 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, and to the Illinois Office of Banks and Real
Estate, Bureau of Banks and Trusts, 500 E. Monroe Street, Springfield,
Illinois 62701-1532.
Any changes requested to be made in the materials by the FDIC or the
OBRE shall be made prior to their dissemination.
(g) In complying with the provisions of this paragraph and until the
offering is completed, 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 materials.
(h) 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.
D. The ORDER is modified by adding and incorporating paragraphs 17
through 23 as follows:
17. (a) On or before December 26, 2001, the Bank shall retain a
certified public accounting firm whose ownership shall be
"independent," as that term is defined below, and which is
acceptable to the Regional Director and the Commissioner, to conduct a
comprehensive fraud audit of the Bank by a certified fraud examiner
("CFE") for the purpose of identifying any fraudulent, unusual or
unauthorized activities or transactions perpetrated against the Bank,
whether material or immaterial to the presentation of the Bank's
financial statements, by Bank officers, employees, customers or
directors within the past 18 months. A copy of the accounting firm's
and the CFE's qualifications and the proposed detailed engagement
agreement ("agreement") between the Bank and the accounting firm
shall be submitted to the Regional Director and Commissioner for review
and comment. Within 15 days from the receipt of any comments from the
Regional Director and Commissioner, the Bank shall revise the agreement
to incorporate any comments received from the Regional Director and
Commissioner.
(b) The Bank shall require, as part of its agreement with the
accounting firm retained to perform the fraud audit, that the
accounting firm complete the fraud audit by March 15, 2002. The
agreement shall require that the accounting firm submit its written
audit report, whether in draft or final form, directly to the Regional
Director and the Commissioner by March 29, 2002.
(c) For purposes of this ORDER, an individual or entity who is
independent shall be any individual or entity: (a) who is not an
officer of the Bank, any subsidiary of the Bank, any of its affiliated
organizations, or any company or bank controlled by any director of the
Bank; (b) who does not own more than 5 percent of the outstanding
shares of the Bank; (c) who is not related by blood or marriage to an
officer or director of the Bank or to any shareholder owning more than
5 percent of the Bank's outstanding shares, and who does not otherwise
share a common substantial financial interest with such officer,
director or shareholder; or (d) who is not indebted to the Bank in an
amount exceeding 5 percent of the Bank's total Tier 1 capital and
ALLL, directly or indirectly. For purposes of this paragraph, indirect
indebtedness includes the debt of any person related by blood or
marriage, or of any entity in which the individual has a substantial
financial interest.
18. (a) On or before January 25, 2002, the Bank shall retain a
certified public accounting firm whose ownership shall be
"independent," as that term is defined in this ORDER, and which
is acceptable to the Regional Director and the Commissioner , to
conduct a balance sheet audit of the Bank as of March 31, 2002, for the
purpose of certifying whether the Bank's statement of condition is
fairly presented. A copy of the accounting firm's qualifications and
the proposed detailed
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engagement agreement ("agreement") between
the Bank and the accounting firm shall be submitted to the Regional
Director and Commissioner for review and comment. Within 15 days from
the receipt of any comments from the Regional Director and
Commissioner, the Bank shall revise the agreement to incorporate any
comments received from the Regional Director and Commissioner.
(b) The Bank shall require, as part of its agreement with the
accounting firm retained to perform the audit, that the accounting firm
complete the audit by April 30, 2002. The agreement shall require that
the accounting firm submit its written audit report, whether in draft
or final form, directly to the Regional Director and the Commissioner
by May 15, 2002.
19. (a) On or before December 26, 2001, the Bank shall retain a
certified public accounting firm whose ownership shall be
"independent," as that term is defined in this ORDER, and which
is acceptable to the Regional Director and the Commissioner, to conduct
monthly agreed-upon procedures, including, but not limited to, monthly
reviews of the Bank's month-end account reconcilements beginning with
December 31, 2001, for each balance sheet account for the purposes of
determining the accuracy of the reconcilements. A copy of the
accounting firm's qualifications and the proposed detailed engagement
agreement ("agreement") between the Bank and the accounting firm
shall be submitted to the Regional Director and Commissioner for review
and comment. Within 15 days from the receipt of any comments from the
Regional Director and Commissioner, the Bank shall revise the agreement
to incorporate any comments received from the Regional Director and
Commissioner.
(b) At a minimum, the agreed-upon procedures shall determine:
(i) Whether reconciliations are accurately prepared and adequately
documented;
(ii) Whether reconciliations are done in a timely manner based on the
risk and volume of activity in each account;
(iii) Whether reconciliations adequately report the dollar amount and
the description of any outstanding unreconciled transactions;
(iv) The adequacy of the segregation of duties of the personnel
preparing the reconciliations; and
(v) The collectibility of any unreconciled debits outstanding in excess
of 90 days, as of the month-end period reviewed.
(c) The requirement for month-end reviews of account
reconcilements by a certified public accounting firm shall remain in
place until terminated in writing by the Regional Director and
Commissioner.
(d) The Bank shall require, as part of its agreement with the
accounting firm retained to perform the agreed-upon procedures, that
the accounting firm submit written reports detailing the findings of
its monthly reviews directly to the Regional Director and the
Commissioner within 30 days of each month-end period.
(e) Beginning with the December 31, 2001, account reconcilements and
continuing for every monthly reconcilement during the life of this
ORDER, any outstanding debits stale over 90 days will be immediately
eliminated from the Bank's books. Written documentation of the
reconciliations and any related entries to the financial statements
shall be retained for future regulatory review. Such documentation
should include, at a minimum, the date the item was originally
processed, the dollar amount of the item, the original description,
what research was done to clear the item including copies of any
supporting documents, and the manner cleared, such as a correcting
entry or a charge-off.
20. While this ORDER is in effect, the Bank shall not declare or
pay any dividends without the prior written consent of the Regional
Director and the Commissioner.
21. As of November 26, 2001, the Bank will not increase its total
assets by more than 1 percent during any consecutive three month period
without first providing at least 30 days advance written notice to the
Regional Director and the Commissioner. Such written notice shall
include the funding source to support the projected growth as well as
the anticipated use of funds. This growth plan shall not be implemented
without the prior written consent of the Regional Director and
Commissioner. "Total assets" has the meaning ascribed to that
term by the Instructions for the Consolidated Reports of Condition and
Income.
22. (a) As of November 26, 2001, the Bank will not solicit any
uninsured deposits without
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first providing at least 30 days advance
written notice to the Regional Director and Commissioner. Furthermore,
within 10 days of the end of each month while this ORDER is in effect,
the Bank will provide the Regional Director and Commissioner with
written notice (including depositor name, account number and uninsured
dollar amount) of its uninsured deposits as of each month-end. For
purposes of this ORDER, the phrase "uninsured deposits" will
include any deposit accounts exceeding the FDIC deposit insurance
limits as set forth in Part 330 of the FDIC's Rules and Regulations,
12 C.F.R. Part 330, notwithstanding the existence of assets pledged by
the Bank to secure the deposits.
(b) The term "solicit" is defined herein as paying interest on
new or renewed liabilities at a rate that would increase the Bank's
weighted average cost of funds to a level that exceeds by more than 25
basis points the prevailing rates of interest on deposits in the
Bank's market area or in the market area in which such deposits are
being offered.
23. As of November 26, 2001, the Bank will not accept, renew or roll
over any insured deposit if the effective yield on any such deposit, at
the time that such deposit is accepted, renewed or rolled over, exceeds
by more than 25 basis points the effective yield paid on deposits of
comparable size and maturity in such Bank's normal market area for
deposits accepted from within its normal market area or the national
rate paid on deposits of comparable size and maturity for deposits
accepted outside the Bank's normal market area.
The provisions of this MODIFICATION OF ORDER TO CEASE AND DESIST shall
be binding upon the Bank, its institution-affiliated parties, and its
successors and assigns.
Except as specifically modified herein, all of the terms and conditions
of the ORDER heretofore issued against the Bank on November 16, 2001
and which became effective on November 26, 2001 shall remain in full
force and effect.
The provisions of this MODIFICATION OF ORDER TO CEASE AND DESIST shall
remain effective and enforceable except to the extent that, and until
such time as, any provisions of this MODIFICATION OF ORDER TO CEASE AND
DESIST shall have been modified, terminated, suspended or set aside by
the FDIC and OBRE.
Pursuant to delegated authority.
Dated this 22nd day of January, 2002.