Federal Deposit
Insurance Corporation

{{4-1-90 p.A-1041}}
   [¶5084] FDIC Docket No. FDIC-85-329k (3-17-87)

   Civil money penalties assessed against bank directors and officers for making improper loans, extending credit on terms that were not substantially the same as those terms prevailing at the time for comparable transactions, and for extending and renewing credit for transactions involving more than the normal risk of repayment.

   [.1] Civil Money Penalties—Amount of Penalty—Statutory Standard
   In determining the amount of a civil money penalty, the FDIC is required to take into account "the appropriateness of the penalty with respect to the size of the financial resources and good faith of the...person charged, the gravity of the violation, the history of previous violations, and such other matters as justice may require."

   [.2] Civil Money Penalties—Purpose
   The purpose of civil money penalties is to deter the commission of illegal acts.

{{4-1-90 p.A-1042}}
   [.3] Civil Money Penalties—Factors Determining Liability—Violation of Lending Limits
   Civil money penalties are appropriately assessed against bank officers who made improper loans, extended credit on terms not substantially the same as those prevailing at the time for comparable transactions, and extended and renewed credit in transactions involving more than the normal risk of repayment.

   [.4] Civil Money Penalties—Amount of Penalty—Good Faith Compliance
   A civil money penalty of a lesser amount may be assessed against one bank officer who has made a showing of some affirmative acts of good faith with respect to preventing the violations of law, and who was not among the beneficiaries of the improper loans involved in the proceedings.

In the Matter of * * * , individually and
as an executive officer and * * * and,
individually and as directors of * * * BANK


(INSURED STATE NONMEMBER BANK)
DECISION AND ORDERFDIC-85-329k

DECISION
   The Board of Directors ("Board") of the Federal Deposit Insurance Corporation ("FDIC") has reviewed the record and finds that the Administrative Law Judge's ("ALJ's") Recommended Decision (appended hereto) is in all material respects fully supported by the law and the evidence. We therefore adopt the Administrative Law Judge's Recommended Decision and incorporate it herein by reference.
   The Board adopts the following Order as an appropriate remedial measure against Respondents * * * and * * *, individually and as directors of * * * Bank * * *, * * * , for having violated Regulation O, 12 C.F.R. Part 215. The Order requires * * * to pay a penalty of $2,000, and * * * to pay a penalty of $3,000 within sixty (60) days.

ORDER

   After taking into account the appropriateness of each penalty with respect to the financial resources and good faith of Respondent * * * and Respondent * * * , the gravity of the violation of each Respondent, the history of previous violations of each Respondent, and such other matters as justice may require, it is:
   ORDERED, that by reason of the violations found herein, a penalty of $2,000 is assessed against * * * and penalty of $3,000 is assessed against * * * pursuant to section 18(j)(3) of the Federal Deposit Insurance Act. 12 U.S.C. § 1828(j)(3).
   FURTHER ORDERED, that these assessments shall be paid within sixty (60) days from the date of this Order.
   FURTHER ORDERED, that the civil money penalties set forth in this Order shall not be paid directly or indirectly by the * * * Bank * * * , but shall be paid by the persons named above.
   By direction of the Board of Directors.
   Dated at Washington, D.C., this 17th day of March, 1987.
/s/ Hoyle L. Robinson
Executive Secretary

Findings of Fact, Conclusions of Law, and
Recommended Decision of the
Administrative Law Judge

FDIC-85-329k

   On November 25, 1985, the Federal Deposit Insurance Corporation (hereinafter FDIC), acting through its Board of Directors and its Executive Secretary, issued a notice of assessment of civil money penalties and of hearing to the above named Respondents. With respect to the Respondents * * * and * * * these proceedings have abated by reason of the Respondents' deaths. The Respondent * * * did not request a hearing. The Respondents * * *, * * * , * * * , * * * , and * * * each requested a hearing, but later settled their dispute with the FDIC. There remain only two Respondents involved in these proceedings, * * * and * * * , each of whom contest a proposed assessment of a $3,000 civil penalty.
   On September 5, 1986, a hearing was held before the undersigned in * * *. The remaining Respondents each appeared pro se. The parties have been given the appropriate time set forth in the Regulations for the filing of post hearing briefs, proposed findings of fact, and proposed conclusions of law, as well as the filing of any reply {{4-1-90 p.A-1043}}briefs. The undersigned, having considered the entire record and the arguments of the parties, now makes his findings a fact and conclusions of law, recommends a decision and proposes an order to the Board of Directors of the FDIC.

STATUTORY AND REGULATORY
PROVISIONS

   [.1] Section 18(j)(3) of the Federal Deposit Insurance Act [12 U.S.C. § 1828(j)], as pertinent here, provides for the imposition of civil monetary penalty on any officer, director, employee, agent, or other person participating in the conduct or affairs of a nonmember insured bank for violations of sections 23A of 22(h) of the Federal Reserve Act, or any lawful regulation issued pursuant thereto. Such penalty shall not be more than $1,000 per day for each day during which such a violation continues. Once imposed, such penalty may be compromised, modified, or remitted by the FDIC in its discretion. In determining the amount of the penalty, the FDIC is required to take into account "the appropriateness of the penalty with respect to the size of financial resources and good faith of the... person charged, the gravity of the violation, the history of previous violations, and such other matters as justice may require". The statute further provides for a hearing at the request of an individual against whom a monetary penalty is sought to be assessed.
   The FDIC has adopted regulations to implement section 18(j) of the Federal Deposit Insurance Act, which are codified at 12 C.F.R. Part 308, Subpart H.

THE RECORD

   The record upon which the findings of fact, conclusions of law, and recommended decision are based consists of the following:
   1. The transcript of the hearing held before the undersigned on September 5, 1986. This transcript consists of one volume including 171 numbered pages.
   2. Sixty five numbered exhibits submitted the Federal Deposit Insurance Corporation, described in its original exhibit list dated April 25, 1986, and in a supplement to that list dated August 29, 1986.
   3. Three numbered exhibits submitted by the Respondent * * * , described as follows:

   Exhibit 1 is a letter from * * * Company to * * * Bank dated March 15, 1983 (1 page).
   Exhibit 2 is a list entitled "notes sold to * * * Bank," undated (3 pages).
   Exhibit 3 is a list entitled "deposits on reserve account," also undated, (1 page).

ISSUES

   The general issue before the undersigned is whether civil monetary penalties could be properly assessed against the Respondents under the provisions of section 18(j) of the Federal Deposit Insurance Act. The specific issues include whether the record establishes the alleged violations of section 22(h) of the Federal Reserve Act (12 U.S.C. 375b) and the implementing regulations (Regulation O) adopted by the board of governors of the Federal Reserve System (12 C.F.R. part 215); and whether the appropriate factors set forth in the Federal Deposit Insurance Act and the Regulations were considered in assessing these penalties.

THE VIOLATIONS

   There is little factual controversy involved in this case. The record clearly establishes that the Respondents * * * and * * * were members of the Board of Directors of the * * * Bank * * * at the time that the violations of Regulation O set forth in the FDIC's proposed findings of fact took place. No objection or reply was received with respect to the findings proposed by the FDIC. These findings are expressly based on the stipulations accepted by the Respondents and on uncontroverted evidence of record. Accordingly, these findings have been adopted by the undersigned herein, with minor corrections of apparent typographical errors. The conclusions of law proposed by counsel for the FDIC flow directly from the proposed findings and are also adopted by the undersigned. There is therefore no question but that grounds {{4-1-90 p.A-1044}}for assessment of civil money penalties against the two remaining Respondents are well established.
   It is noted that Respondent * * * declined to testify and the only evidence submitted by him consists of three documents offered as exhibits prior to the hearing. No showing was made, however, as to how these documents significantly contradict any evidence submitted by the FDIC.
   Respondent * * * did testify at considerable length. In general, his testimony indicated that neither he nor any relative or related business entity was the beneficiary of any of the improper loans or banking violations cited by the FDIC. Moreover, he testified that in acting as a board member he had relied heavily on the advice of Respondent * * * , vice president of the Bank, and the Respondent * * * the only attorney on the Board of Directors (transcript, page 137). In his cross examination of one of the FDIC's witnesses, Mr. * * * also sought to establish that he had questioned certain of the improper loans in conversations with the FDIC examiner (transcript, pages 65, et seq.). Nevertheless, Mr. * * * has not submitted any evidence that really refutes his responsibility and participation, as a member of the Board of Directors, in the violations.

FACTORS TO BE CONSIDERED IN
ASSESSING THE PENALTIES

   Both the Federal Deposit Insurance Act and the implementing regulations provide that, in determining the amount of the penalty to be assessed, the FDIC must consider "the financial resources and good faith of the insured nonmember bank or its official, the gravity of the violation, any previous violations, and such other matters as justice may require" (12 C.F.R. 308.68). The FDIC contends that the decision to set the particular amount of the penalties is committed to the discretion of the FDIC and is not reviewable, except to the extent that such discretion may be abused by arbitrary or capricious action (at pages 41–42). Counsel for the FDIC cites several cases dealing with judicial review of an action involving the discretion of an administrative agency.
   With respect to the propriety of the penalties assessed against * * * and * * * , two things should be noted. First, as counsel concedes, discretion may be abused and a discretionary action may be set aside if it is found to be arbitrary and capricious. Second, these proceedings precede the final decision of the FDIC. The Administrative Law Judge is recommending a decision to the Board of Directors, not reviewing their final action. It would therefore appear appropriate for this recommendation to include some suggestion as to how discretion in the instant case be exercised. For these reasons, consideration will be given to the propriety of the penalty sought to be assessed.
   Counsel for the FDIC has pointed out that neither Respondent has declared that the amount of the penalty assessed against him is beyond his financial needs. Also counsel correctly maintains that the proposed penalties are quite small in comparison to the maximum amounts which could be assessed for multiple violations and that therefore the seriousness of the violations could hardly be said to have been exaggerated.
   With respect to the element of good faith, however, it is not entirely clear that appropriate consideration was given by the FDIC. In discussing this matter, counsel for the FDIC notes that the record establishes that the various violations should have been known to all members of the Board of Directors. This indeed is true. On the other hand, counsel would imply that bad faith was manifested by certain testimony of Respondent * * * who stated, "Our feeling was why take that business out of the Bank when it would be better loaning money to somebody you knew (insiders) than loaning it to a stranger [emphasis supplied]." The Administrative Law Judge must point out that the underscored parenthetical insertion in that quotation is in no way part of Respondent * * *'s testimony (compare transcript at page 129). It would appear to be a misconstruction of his testimony to construe it as an approbation of illegal insider loans. Rather, it would appear that * * * was merely stating a common sense observation with respect to good lending practices. Presumably the more that is known about a prospective borrower the less likely are prospects of default. In short, the Administrative Law Judge cannot attribute any bad faith to * * * because of statements such as this. His testimony hardly endorses the view that the Bank was the "personal piggy bank" of its officers and directors.
   It must be noted that the record does contain, as is noted above, some suggestion {{4-1-90 p.A-1045}}of attempts by Respondent * * * to question the illegal practices of * * * Bank in question here. His actions were at best, a woefully inadequate attempt to prevent those practices, but they do suggest at least some rudimentary good faith. Moreover, we note that most of the other Respondents were themselves beneficiaries of the illegal practices but * * * was not. Therefore, his situation does not constitute an example of "such other matters as justice may require", one of the factors that must be considered in assessing the penalties.

   [.2] As was pointed out by the FDIC's Assistant Regional Director at the hearing (transcript, pages 100 – 102), the purpose of the penalties is to deter the commission of illegal acts. While an individual may be deterred from an action that does not particularly benefit him or her by a relatively small disincentive, an effective deterrent, presumably requires a stronger penalty if the individual is motivated by personal pecuniary interest. Therefore, efforts at deterrence should be addressed with greater vigor against violators who sought personal gain than against mere passive individuals who failed to prevent the violations.
   Having carefully considered the entire record, the Administrative Law Judge is of the opinion that the record does establish that the Respondent * * * has demonstrated significantly greater good faith than some of the other Respondents and that he received no personal benefit from the illegal practices. The evidence with respect to Respondent * * * , on the other hand, establishes no such facts. Therefore, the Administrative Law Judge will suggest that the order in this case reflect a penalty of $2,000 with respect to Respondent * * * , rather the amount originally proposed, while recommending that the original $3,000 penalty be assessed Respondent * * *.

FINDINGS OF FACT OF THE
ADMINISTRATIVE LAW JUDGE

   On the basis of the entire record, the Administrative Law Judge makes the following findings:

BACKGROUND AND JURISDICTIONAL MATTERS

   1. * * * Bank * * * ("Bank") is a corporation existing and doing business under the laws of the State of * * * , and has its principal place of business in * * *. The Bank is and has been, at all times pertinent to this proceeding, an insured state nonmember bank subject to the Federal Deposit Insurance Act ("the Act") [12 U.S.C. § 1811 – 1831(d)], and the Rules and Regulations of the FDIC (12 C.F.R. Chapter III) and the laws of the State of * * *. (Stip. ¶1).
   2. At all times pertinent to this proceeding, Respondent * * * and * * * each was an "executive officer" of the Bank as that term is defined in section 215.2(d) of Regulation O [12 C.F.R. § 215.2(d)]. (Stip. ¶3; FDIC Exh. 1, p. 23).
   3. At all times pertinent to this proceeding, Respondents * * *, * * *, * * *, * * *, * * *, * * *, * * *, * * *, and * * * each was a "director" of the Bank as that term is defined in section 215.2(c) of Regulation O [12 C.F.R. § 215.2(c)]. (Stip. ¶4).
   4. At all times pertinent to this proceeding, both the making of any loan and the renewal of any loan each, was, and is an "extension of credit" as that term is defined in section 215.3(a) of Regulation O [12 C.F.R. § 215.3(a)]. ( * * * - Tr. 38).
   5. At all times pertinent to this proceeding, a personal guarantee on an extension of credit was and is an "extension of credit" to the person executing the guarantees pursuant to section 215.3(a)(8) of Regulation O [12 C.F.R. § 215.3(a)(8)]. ( * * * - Tr. 73). B. VIOLATIONS OF SECTION 22(h)(3) OF THE FEDERAL RESERVE ACT [12 U.S.C. § 375b(3)] AND SECTION 215.4(a) OF REGULATION O [12 C.F.R. § 215.4(a)(2)]
   6. At all times pertinent to this proceeding, Respondent * * * maintained majority ownership interest in and exercised a controlling influence over the management of * * *. (Stip. ¶5).
   7. At all times pertinent to this proceeding, * * * was a "related interest" of Respondent * * * as that term is defined in section 215.2(k) of Regulation O [12 C.F.R. § 215.2(k)]. (Stip. ¶6).
   8. As of February 19, 1983 the Bank had extended credit to * * * in the amount of $200,000. (Stip. ¶7; FDIC Exh. 2, p. 6).
   9. As of February 19, 1983: (a) $196,000 of the $200,000 of credit outstanding to * * * was unsecured: (Stip. ¶8(a); FDIC Exh. 2, p. 6). (b) a financing statement {{4-1-90 p.A-1046}}which represented the Bank;s lien on machinery and equipment which secured the $4,000 balance of the indebtedness was missing, and could not be located at the February 19, 1983 FDIC examination. (Stip. ¶8(b); FDIC Exh. 2, p. 6). (c) As of February 19, 1983, $196,000 of the $200,000 in outstanding indebtedness was due to the Bank within one year or less. (Stip. ¶8 (c); FDIC Exh. 2, p. 6).
   10. The FDIC classified the above referenced credit to * * * in the amount of $200,000 "substandard" in the FDIC's February 19, 1983 Report of Examination. (Stip. ¶9; FDIC Exh. 2, p. 6; * * * Tr. 27).
   11. Respondent * * * financial position worsened subsequent to the FDIC's examination of February 19, 1983. (FDIC Exh., p. 12; * * * - Tr. 27).
   12. From June 25, 1983 through January 5, 1985, the Bank extended or renewed credit to Respondent * * * individually in the following amounts:

   (Stip. ¶10; FDIC Exh. 1, p. 17; * * * - Tr. 27).

   13. As of February 15, 1985, the Bank had extended credit to Resident * * * in the amount of $9,100 in the form of an installment loan for the purpose of overdraft check protection. (Stip. ¶11; FDIC Exh. 1, p. 17; * * * - Tr. 37-8).
   14. From June 25, 1983 through February 15, 1985, the Bank extended or renewed credit to Respondent * * * through the aforereferenced extensions of credit, renewals and overdrafts described in paragraphs 12 and 13 above in a total amount of $419,000, subsequent to adverse classification assigned to Respondent * * * s loans in the FDIC's February 19, 1983 Report of Examination. (Stip. ¶12; FDIC Exh. 1, p. 17).
   15. As of February 15, 1985, the balance of Respondent * * * indebtedness to the {{4-1-90 p.A-1047}}Bank was $209,100. (Stip. ¶13; FDIC Exh. 1, p. 17).
   16. Of the $209,100 outstanding indebtedness of Respondent * * * on February 15, 1985, $60,000 was unsecured. The remaining loans were secured by various farm structures, which were considered to be fixtures to real estate and which would have to be dismantled to gain possession in the case of default. (FDIC Exh. 1, p. 12; * * * - Tr. 28).
   17. * * * is the son of Respondent * * * (Stip. ¶14).
   18. On September 14, 1983, the Bank extended credit to * * * , in the amount of $15,000. (Stip. ¶15; FDIC Exh. 1, p. 17; FDIC Exh. 6).
   19. Proceeds of the $15,000 extension of credit to * * * were deposited into the account of * * * account at the Bank, account no. 004730. (Stip. ¶16; FDIC Exh. 1, p. 17; FDIC Exh. 7; FDIC Exh. 8; * * * - Tr. 29).
   20. On September 24, 1984, the Bank extended credit to * * * in the amount of $20,000. (Stip. ¶17; FDIC Exh. 1, p. 17; FDIC Exh. 9).
   21. Proceeds of the September 24, 1984 $20,000 loan to * * * were deposited into * * * checking account at the Bank on September 24, 1984. (Stip. ¶18; FDIC Exh. 11, copy 1).
   22. On September 24, 1984, * * * wrote a check payable to * * * in the amount of $20,000 upon his account at the Bank. (Stip. ¶10; FDIC Exh. 11, copy 2).
   23. On January 23, 1985, the Bank renewed an extension of credit to * * * in the amount of $13,000; this credit originated in the amount of $16,000 on January 28, 1983, and the proceeds were used for the benefit of * * * (Stip. ¶20; FDIC Exh. 1, p. 17).
   24. From September 14, 1983 through February 15, 1985, the Bank extended or renewed credit to * * * through and aforereferenced extensions of credit and renewals described in paragraphs 18 through 23 for a total of $48,000. (FDIC Exh. 1, p. 17).
   25. The $48,000 outstanding indebtedness of * * * on February 15, 1985 was purportedly secured, but the Bank had failed to record its security interest in the farm machinery and equipment put up as collateral. (FDIC Exh. 1, p. 13; * * * - Tr. 29).
   26. * * * s financial statement dated February 13, 1984 indicated a net worth of $43,900 and no determinable source of income. (FDIC Exh. 1, p. 13; FDIC Exh. 13; * * * - Tr. 29–30).
   27. * * * is the daughter of Respondent * * * (Stip. ¶22).
   28. On December 26, 1984, the Bank extended credit to * * * in the amount of $120,000. (Stip. ¶23; FDIC Exh. 1, p. 18; FDIC Exh. 15; FDIC Exh. 16; FDIC Exh. 19).
   29. Proceeds of the December 26, 1984 loan were disbursed in the form of the Bank's check payable to * * * in the amount of $120,000 which was endorsed "for deposit only * * *." (Stip. ¶24; FDIC Exh. 17).
   30. The December 26, 1984 $120,000 extension of credit to * * * was personally guaranteed by Respondent * * *. (Stip. ¶26; FDIC Exh. 18; * * * - Tr. 30).
   31. The December 26, 1984 $120,000 extension of credit to * * * was unsecured; a quit claim deed given by Respondent * * * to * * * purported to be the collateral for the $120,000 loan was not recorded. (Stip. ¶25; FDIC Exh. 1, p. 13; FDIC Exh. 20; * * * - Tr. 30–32).
   32. The credit file for the December 26, 1984 $120,000 extension of credit to * * * did not have any financial information on * * * and listed the purpose of the loan as only "Farm and Ranch". (Stip. ¶25; FDIC Exh. 1, p. 13; * * * - Tr. 30–32).
   33. The Bank will suffer some loss on the direct and indirect loans made or renewed to Respondent * * *. (* * * - Tr. 126).
   34. As of December 12, 1982, Executive Officer * * * was president of * * * and owned 100% interest therein. (Stip. ¶29; * * * - Tr. 33).
   35. On December 12, 1982, the Bank extended credit in the amount of $135,775 to * * *; Executive Office * * * personally guaranteed the loan to * * *. (FDIC Exh. 2; p. 6; * * * - Tr. 33).
   36. As of February 19, 1983, the Bank had not obtained a financial statement or operating information on * * * , and the company's checking account for the month of February 1983 was overdrawn on six occasions in amounts exceeding the credit line of check protection. (Stip. ¶30; FDIC Exh. 2; p. 6).
{{4-1-90 p.A-1048}}
   37. As of February 19, 1983, the FDIC classified `substandard' the full amount of the aforereferenced extension of credit to * * *. (Stip. ¶30; FDIC Exh. 2; p. 6).
   38. As of February 19, 1983, * * * was experiencing serious cash flow problems. (Stip. ¶32; FDIC Exh. 2; p. 6).
   39. Subsequent to February 19, 1983, * * * assets were liquidated, and the balance of the * * * was rewritten as a personal loan to Executive Officer * * * pursuant to his personal guarantee on the * * * loans. (Stip. ¶33; * * * , Tr. 34-5).
   40. On April 21, 1984, the Bank renewed the * * * line in the amount of $130,324. (Stip. ¶33; FDIC Exh. 1, p. 23).
   41. On June 22, 1984, the Bank extended credit to Executive Officer * * * in the amount of $10,000. (Stip. ¶35; FDIC Exh. 1, p. 23).
   42. On January 22, 1985, the Bank renewed a loan in the amount of $3,700 to Executive Officer * * *. (Stip. ¶36; FDIC Exh. 1, p. 23).
   43. As of February 15, 1986, the balance of Executive Officer * * *'s indebtedness to the Bank was $144,024. (Stip. ¶37; FDIC Exh. 1, p. 23).
   44. The entire outstanding balance of Executive Officer * * *'s indebtedness to the Bank was unsecured. (FDIC Exh. 1, p. 10; * * * - Tr. 33).
   45. Executive Office * * *'s only source of income was his salary from the Bank which totaled $24,000. (* * * - Tr. 33).
   46. The Bank eventually experienced a $44,000 loss on the extensions of credit to Executive Officer * * *. ( * * * - Tr. 34).

C. VIOLATIONS OF SECTION 22(h)(1)
OF THE FEDERAL RESERVE ACT [12
U.S.C. § 375b(1)] AND SECTION 215.4(c)
OF REGULATION O [12 C.F.R. § 215.4(c)]

   47. Under section 22(h)(1) of the Federal Reserve Act [12 U.S.C. § 375b(1)] and section 215.4(c) of Regulations O [12 C.F.R. § 215.4(c)] the Bank could extend credit to Respondent * * * and related interests up to the lower of the lending limit imposed by section 32 of * * * Banking Act [ * * * Ann. Stat. Ch. 17, ¶339 ( * * * 1986)] or section 215.2(f) of Regulations O [12 C.F.R. § 215.2(f)]. (FDIC Exh. 1, p. 20; * * * - Tr. 35].
   48. During all times pertinent to this proceeding the lending limit imposed by section 32 of * * * Banking Act ( * * * Ann. Stat. Ch. 17, ¶339 ( * * * 1986)] was lower than that imposed by section 21.2(f) of Regulations O and was, therefore, the applicable lending limits for the purposes of section 215.4(c) of Regulation O. (FDIC Exh. 1, p. 24; * * * - Tr. 35-6).
   49. For loans made prior to January 1, 1984, the Bank's lending limit under section 215.4(c) of Regulations O was $236,700, which represents 15% of the Bank's total capital and surplus as of December 31, 1983. (Stip. ¶38; FDIC Exh. 1, p. 20; * * * - Tr. 36).
   50. Effective January 1, 1984, the Bank's lending limit imposed by section 32 of * * * Banking Act was 20% of the Bank's total capital and surplus. (Stip. ¶39; FDIC Exh. 1, p. 20; * * * - Tr. 36).
   51. For purposes of the February 15, 1985 FDIC examination, the Bank's lending limit under section 215.4(c) of Regulation O was $315,600, which represents 20% of the Bank's total capital and surplus on December 31, 1984. (FDIC Exh. 1, p. 20; * * * - Tr. 36–37).
   52. As of December 26, 1984, the outstanding indebtedness of Respondent * * * and his related interest, * * * , was $248,000, with an additional checking account overdraft protection of approximately $10,000. (Stip. ¶40; * * * - Tr. 37).
   53. The extension of credit to * * * in the amount of $120,000 on December 26, 1984 described in paragraph 29 above caused the outstanding indebtedness of Respondent * * * and his related interest to exceed $315,600. (Stip. ¶41; FDIC Exh. 1, p. 18; * * * - Tr. 37).
   54. The January 5, 1985 extension of credit to * * * in the amount of $60,000 described in paragraph 12 caused the outstanding indebtedness of Respondent * * * and his related interest to further exceed $315,600. (Stip. ¶42; FDIC Exh. 1, p. 18; * * * - Tr. 38).
   55. The January 23, 1985 renewal of credit to * * * described in paragraph 23 caused the outstanding indebtedness of Respondent * * * and his related interest to further exceed $315,600. (Stip. ¶43; FDIC Exh. 1, p. 18; * * * - Tr. 38).

{{4-1-90 p.A-1049}}
D. VIOLATIONS OF SECTION 22(h)(1)
OF THE FEDERAL RESERVE ACT [12
U.S.C. § 375b(4)] AND SECTION 215.4(d)
OF REGULATION O [12 U.S.C.
§ 215.4(d)]
   56. From September 22, 1984 through September 24, 1984, Respondent * * *'s checking account was overdrawn in the amount of $5,642. (Stip. ¶44; FDIC Exh. 1, p. 30; FDIC Exh. 12).
   57. From September 28, 1984 through October 4, 1984, Respondent * * *'s checking account was overdrawn in amounts from $3,179 to $3,309. (Stip. ¶45; FDIC Exh. 1, p. 30; FDIC Exh. 12).
   58. From November 16, 1984 through November 20, 1984, Respondent * * *'s checking account was overdrawn in amounts from $298 to $3,351. (Stip. ¶46; FDIC Exh. 1, p. 30).
   59. Some of the overdrafts noted above in paragraphs 55 through 57 remained outstanding and uncovered for more than five business days. ( * * * - Tr. 39).
   60. Respondent * * * was out of town during the time periods referenced in paragraphs 55 through 57 above. (Stip. ¶47; FDIC Exh. 1, p. 30).
   61. Respondent * * * paid a service charge for the overdrafts described in paragraphs 55 through 57 above. (Stip. ¶48; FDIC Exh. 1, p. 30).
   62. Directors, Officers and Employees Overdraft Reports dated October 10, 1984, November 14, 1984, and December 12, 1984 which listed the overdrafts described in paragraphs 55 through 57 above were presented to the Bank's board of directors on those dates. (Stip. ¶49; FDIC Exh. 1, p. 25–27; FDIC Exh. 25; FDIC Exh. 26; FDIC Exh. 27).
   63. Respondent * * * did not have a written, preauthorized interest-bearing extension of credit plan for overdrafts with a specified method of repayment. (FDIC Exh. 1, p. 30; * * * - Tr. 40).
   64. Respondent * * * did not have a written, preauthorized plan for the transfer of funds from another account at the Bank to cover overdrafts of his checking account. (FDIC Exh. 1, p. 30; * * * - Tr. 40).

E. VIOLATIONS OF SECTION 22(h) OF
THE FEDERAL RESERVE ACT [12
U.S.C. § 375b(2) AND SECTION 337.3(b)
OF FDIC RULES AND REGULATIONS
[12 C.F.R. § 337.3(b)]

   65. Under the Bank's prior approval lending limit, as set forth in section 337.3(b) of the FDIC Rules and Regulations, the Bank could extend credit to executive officers and their related interests and to directors and their related interest up to 5% of the Bank's capital and unimpaired surplus without prior approval of a disinterested majority of the entire board of directors of the Bank. (Stip. ¶50; FDIC Exh. 1, p. 20; * * * - Tr. 41).
   66. The Bank's prior approval lending limit under section 337.3(b), at all times pertinent to this proceeding was $213,950, which represents 5% of the Bank's capital and unimpaired surplus as of December 31, 1984. (Stip. ¶50; FDIC Exh. 1, p. 20; * * * - Tr. 41).
   67. At all times pertinent to this proceeding, Respondent * * * maintained a majority ownership interest and exercised a controlling influence over * * * (Stip. ¶51).
   68. At all times pertinent to this proceeding, Respondent * * * was vice-president and a 50% owner of * * *. (Stip. ¶52; FDIC Exh. 1, p. 22; FDIC Exh. 49; FDIC Exh. 50).
   69. At all times pertinent to this proceeding, Respondent * * * was a partner in * * * , and executed promissory notes on behalf of * * *. (Stip. ¶53; FDIC Exh. 1, p. 22; FDIC Exh. 49).
   70. At all times pertinent to this proceeding, * * * , * * * and * * * each was a "related interest" of Respondent * * * as that term is defined in section 215.2(k) of Regulation O [12 C.F.R. § 215.1(k)]. (Stip. ¶54; FDIC Exh. 1, p. 21–22).
   71. On February 7, 1984, the Bank extended credit to Respondent * * * in the amount of $15,000; as of February 15, 1985, the balance of this credit was $5,000. (Stip. ¶55; FDIC Exh. 1, p. 21).
   72. On December 31, 1984, the Bank extended credit to Respondent * * * in the amount of $35,000; as of February 15, 1985, the balance of this credit was $35,000. (Stip. ¶56; FDIC Exh. 1, p. 21).
   73. * * * is the wife of Respondent * * *. (Stip. ¶57; FDIC Exh. 1, p. 21).
{{4-1-90 p.A-1050}}
   74. From June 18, 1983 through January 4, 1985, the Bank extended credit to * * * in the following amounts:

   (Stip. ¶58; FDIC Exh. 1, p. 21).

   75. From June 18, 1983 through January 4, 1985, the Bank extended or renewed credit to * * * in the amount of $222,000; as of February 15, 1985, the outstanding balance of credit to * * * from the Bank was $143,000. (Stip. ¶59; FDIC Exh. 1, p. 21).
   76. Proceeds of the loans made by the Bank to * * * described above in paragraphs 74 and 75 above were deposited into the joint checking accounts of * * * and Respondent * * *, and were used for business purposes. (Stip. ¶63; FDIC Exh. 1, p. 21; FDIC Exh. 45).
   77. From May 23, 1983 through October 22, 1984 the Bank extended credit to * * * in the following amounts:

   (Stip. ¶60; FDIC Exh. 1, p. 21).

   78. From May 22, 1983 through October 22, 1984, the Bank extended credit to * * * in the amount of $6,000; as of February 15, 1985, the outstanding balance of credit to * * * was $3,000. (Stip. ¶61; FDIC Exh. 1, p. 21).
   79. On March 7, 1984, the Bank extended credit to * * * , in the amount of $150,000; as of February 15, 1985, the outstanding balance of credit to * * * was $150,000. (Stip. ¶62; FDIC Exh. 1, p. 22; * * * - Tr. 42).
   80. * * * is a partner in * * *. (Stip. ¶64; FDIC Exh. 1, p. 22).
   81. On January 15, 1985, the Bank extended credit in the amount of $50,000 to * * *; under the terms of the note executed by * * * , the purpose of the loan was for a "Business Oil Lease", and the loan was secured by certificate of deposit no. 14915 in the name of Respondent * * *. (Stip. ¶65; FDIC Exh. 51; FDIC Exh. 53).
   82. The proceeds of the $50,000 loan to * * * were transferred to an account of the * * * Company of the * * * Bank and went to the ultimate benefit of Respondent * * * (Stip. ¶65; FDIC Exh. 52).
   83. As of February 5, 1985, the outstanding balance of the credit to * * * was $50,000. (FDIC Exh. 1, p. 22; * * * - Tr. 43).
   84. From May 11, 1984 through February 6, 1985, the Bank extended credit to * * * as follows:
{{4-1-90 p.A-1051}}

   (Stip. ¶67; FDIC Exh. 1, p. 22; FDIC Exh. 48).

   85. The loans to * * * referenced in paragraph 83 above equal $139,500; as of February 15, 1985, the outstanding balance of credit to * * * was $139,500. (Stip. ¶68; FDIC Exh. 1, p. 22A; * * * - Tr. 44).
   86. On December 23, 1983, the Bank extended credit to * * * in the amount of $50,000, on December 23, 1984, the Bank extended the due date of this credit to June 30, 1985. (Stip. ¶69; FDIC Exh. 1, p. 23).
   87. On February 4, 1985, the Bank extended credit to * * * in the amount of $150,000. (Stip. ¶70; FDIC Exh. 1, p. 23).
   88. Respondent * * * guaranteed the extensions of credit to * * * described in paragraphs 86 and 87 above. (Stip. ¶71; FDIC Exh. 1, p. 23; FDIC Exh. 43; FDIC Exh. 44).
   89. The total amount of credit extended by the Bank to * * * from December 23, 1983 through February 4, 1985 was $250,000, as of February 15, 1985, the outstanding balance of credit to * * * was $200,000. (Stip. ¶72; FDIC Exh. 1, p. 23).
   90. The extensions of credit to * * *, * * * , * * * , * * * and * * * described in paragraphs 77 through 89 above, were originated, extended or renewed without the prior approval of disinterested majority of the entire board of directors of the Bank. (Stip. ¶73; FDIC Exh. 1, p. 23; FDIC Exh. 5, p. 3).
   91. As of February 15, 1985, the total outstanding balance of loans made to * * * and related interests equaled $725,500, far in excess of the $213,950 for which section 337.3(b) requires prior approval by a disinterested majority of the entire board of directors. (FDIC Exh. 1, p. 23; * * * - Tr. 44).
   92. As of February 15, 1985, the outstanding balance of credit to * * * described in paragraphs 18 through 23 above was $48,000. (FDIC Exh. 1, p. 24; * * * -Tr. 45).
   93. As of February 15, 1985, the outstanding balance of credit to * * * described in paragraphs 28 through 30 above was $120,000. (FDIC Exh. 1, p. 25; * * * -Tr. 45).
   94. The extensions of credit to * * * and * * * described in paragraphs 18 through 23 and 28 through 30 above were originated, extended or renewed without the prior approval of a disinterested majority of the entire board of directors of the Bank. (Stip. ¶74; FDIC Exh. 1, p. 25; FDIC Exh. 5, p. 2; FDIC Exh. 12, p. 2).
   95. As of February 15, 1985, the total outstanding balance of loans made to Respondent * * * and his related interest was $377,100, far in excess of $213,950 for which section 337.3(b) requires prior approval of a disinterested majority of the {{4-1-90 p.A-1052}}entire board of directors. (FDIC Exh. 1, p. 25).
   96. At all times pertinent to this proceeding, Respondent * * * was vice-president and owner of at least 25% of the outstanding shares of * * *. (Stip. ¶75; FDIC Exh. 1, p. 25).
   97. At all times pertinent to this proceeding, Respondent * * * owned at least 25% of the outstanding shares of stock of * * * (Stip. ¶76; FDIC Exh. 1, p. 26).
   98. At all times pertinent to this proceeding, * * * , and * * * each was a "related interest" of Respondent * * * as that term is defined in section 215.2(k) of Regulation O [12 C.F.R. § 215.2(k)]. (Stip. ¶77; FDIC Exh. 1, p. 25–26).
   99. On March 2, 1984, the Bank extended credit to Respondent * * * in the amount of $100,000. (Stip. ¶78; FDIC Exh. 1, p. 25).
   100. As of February 15, 1986, the outstanding balance of credit to Respondent * * * was $60,000. (FDIC Exh. 1, p. 25).
   101. On November 10, 1984, the Bank extended credit to * * * in the amount of $144,295. (Stip. ¶79; FDIC Exh. 1, p. 25).
   102. On February 5, 1985, the Bank extended credit to * * * in the amount of $20,000. (Stip. ¶80; FDIC Exh. 1, p. 25).
   103. As of February 15, 1985, the outstanding balance of credit to * * * described in paragraphs 101 and 102 above was $144,295. (FDIC Exh. 1, p. 25).
   104. On October 10, 1984, the Bank extended credit to * * * in the amount of $128,000. (Stip. ¶81; FDIC Exh. 1, p. 26).
   105. On December 11, 1984, the Bank extended credit to * * * in the amount of $18,500. (Stip. ¶82; FDIC Exh. 1, p. 26).
   106. As of February 15, 1985, the outstanding balance of credit to * * * described in paragraphs 104 and 105 above was $146,500. (FDIC Exh. 1, p. 26).
   107. The extensions of credit to * * * and * * * described in paragraphs 101 through 106 above were extended without prior approval of a disinterested majority of the entire board of directors of the Bank. (Stip. ¶83; FDIC Exh. 1, p. 26).
   108. As of February 15, 1985, the total outstanding balance of loans made to Respondent * * * and his related interests was $430,095, far in excess of the $213,950 for which section 337.3(b) requires prior approval of a disinterested majority of the entire board of directors. (FDIC Exh. 1, p. 26).
   109. On April 19, 1983, the Bank renewed an extension of credit to Respondent * * * in the amount of $50,000; this credit was subsequently renewed on April 30, 1984. (Stip. ¶84; FDIC Exh. 1, p. 26).
   110. As of February 15, 1985, the outstanding balance of Respondent * * * loans described in paragraph 108 was $50,000. (FDIC Exh. 1, p. 26).
   111. On February 11, 1985, the Bank renewed an extension of credit of Respondent * * * in the amount of $150,000. (Stip. ¶85; FDIC Exh. 1, p. 26).
   112. As of February 15, 1985, the outstanding balance of Respondent * * * loan described in paragraph 111 was $150,000. (FDIC Exh. 1, p. 26).
   113. As of February 15, 1985, the Bank had extended credit to Respondent * * * in the amount of $2,200 in the form of an installment loan for the purpose of overdraft check protection. (Stip. ¶86; FDIC Exh. 1, p. 26).
   114. * * * is the wife of Respondent * * *. (Stip. ¶87).
   115. On August 1, 1983, the Bank renewed an extension of credit to * * * in the amount of $50,000; this credit was subsequently renewed on July 14, 1984. (Stip. ¶88; FDIC Exh. 1, p. 27).
   116. On October 12, 1984, the Bank renewed an extension of credit to * * * in the amount of $100,000. (Stip. ¶89; FDIC Exh. 1, p. 27).
   117. On January 8, 1985, the Bank extended credit to * * * in the amount of $45,000. (Stip. ¶90; FDIC Exh. 1, p. 27; FDIC Exh. 40).
   118. Proceeds of the loans to * * * described in paragraphs 115 through 117 above were deposited into joint Bank checking accounts of * * * and Respondent * * *. (Stip. ¶91; FDIC Exh. 1, p. 27; FDIC Exh. 41).
   119. The purpose of the extensions of credit to * * * described in paragraphs 115 through 117 above was to meet farm operation expenses. (Stip. ¶92).
   120. As of February 15, 1986, the outstanding balance of credit to * * * described in paragraphs 115 to 117 above was $195,000. (FDIC Exh. 1, p. 27).
   121. * * * is the son-in-law of Respondent * * *. (Stip. ¶93).
{{4-1-90 p.A-1053}}
   122. On May 18, 1984, the Bank extended credit to * * * in the amount of $198,000. (Stip. ¶94; FDIC Exh. 1, p. 27).
   123. On December 18, 1984, the Bank renewed the $198,000 loan to * * * described in paragraph 122 above. (Stip. ¶95; FDIC Exh. 1, p. 27).
   124. Respondent * * * personally guaranteed the extension of credit to * * * described in paragraph 122 above. (Stip. ¶96; FDIC Exh. 1, p. 27; FDIC Exh. 42).
   125. As of February 15, 1985, the outstanding balance of credit to * * * described in paragraphs 122 through 124 above was $198,000. (FDIC Exh. 1, p. 27).
   126. The May 18, 1984 extension of credit to * * * in the amount of $198,000 was originated without the prior approval of a disinterested majority of the entire board of directors of the Bank. (Stip. ¶97).
   127. Respondent * * * did not abstain from voting when the board of directors voted to renew the $198,000 loan to * * * on December 18, 1984. (Stip. ¶97).
   128. As of February 15, 1985, the total outstanding balance of extensions to Respondent * * * , * * * , and * * * was $595,200, far in excess of the $213,950 for which section 337.3(b) requires prior approval of a disinterested majority of the entire board of directors. (FDIC Exh. 1, p. 27).
   129. On February 29, 1984, the Bank extended credit to Respondent * * * in the amount of $19,000. (Stip. ¶98; FDIC Exh. 1, p. 28).
   130. On May 22, 1984, the Bank renewed three extensions of credit to Respondent * * * in the amounts of $20,000, $58,000, and $51,000 respectively. (Stip. ¶99; FDIC Exh. 1, p. 28).
   131. On July 27, 1984, the Bank renewed two extensions of credit to Respondent * * * in the amounts of $35,000 and $10,000. (Stip. ¶100; FDIC Exh. 1, p. 28).
   132. On October 10, 1984, the Bank renewed extensions of credit to Respondent * * * in the amounts of $10,000 and $20,000 respectively. (Stip. ¶101; FDIC Exh. 1, p. 28).
   133. As of February 15, 1985, the Bank had extended credit to Respondent * * * in the amount of $1,800 in the form of an installment loan for the purpose of overdraft check protection. (Stip. ¶102; FDIC Exh. 1, p. 28).
   134. From February 29, 1984 through October 10, 1984, the Bank extended or renewed credit to Respondent * * * in the amount of $333,300; as of February 15, 1985, the balance of credit to Respondent * * * was $199,300. (Stip. ¶103; FDIC Exh. 1, p. 28).
   135. * * * is the wife of Respondent * * *. (Stip. ¶104).
   136. On May 2, 1984, the Bank extended credit to * * * in the amount of $132,000. (Stip. ¶105; FDIC Exh. 1, p. 28).
   137. On May 21, 1984, the Bank extended credit to * * * in the amount of $19,000. (Stip. ¶106; FDIC Exh. 1, p. 28).
   138. On June 1, 1984, the Bank extended credit to * * * in the amount of $19,110. (Stip. ¶107; FDIC Exh. 1, p. 28).
   139. On October 10, 1984, the Bank extended credit to * * * in the amount of $3,400. (Stip. ¶108; FDIC Exh. 1, p. 28).
   140. From May 2, 1984 through October 10, 1984, the Bank extended credit to * * * in the amount of $173,510; as of February 15, 1985, the balance of credit to * * * was $173,510. (Stip. ¶109; FDIC Exh. 1, p. 28).
   141. The purpose of the extensions of credit to * * * in paragraphs 136 through 140 above was for farm operations expenses. (Stip. ¶110; FDIC Exh. 1, p. 28).
   142. Proceeds of the loans to * * * described in paragraphs 136 through 140 above were deposited into joint Bank accounts of * * * and Respondent * * *. (Stip. ¶111; FDIC Exh. 1, p. 28).
   143. * * * is the daughter of Respondent * * *. (Stip. ¶112).
   144. On June 3, 1983, the Bank extended credit to * * * in the amount of $180,000; this credit was renewed on June 3, 1984 and August 3, 1984. (Stip. ¶113; FDIC Exh. 1, p. 29).
   145. Respondent * * * personally guaranteed the $180,000 extension of credit to * * * described in paragraphs 144 above. (Stip. ¶115; FDIC Exh. 1, p. 29).
   146. As of February 15, 1985, the total outstanding balance of * * * indebtedness to the Bank was $179,690. (FDIC Exh. 1, p. 29).
   147. The extension of credit to * * * described in paragraphs 144 through 146 {{4-1-90 p.A-1054}}above was originated, extended and renewed without the prior approval of disinterested majority of the entire board of directors of the Bank. (Stip. ¶116; FDIC Exh. 1, p. 29).
   148. As of February 15, 1985, the total outstanding balance of extensions of credit to Respondent * * *, * * *, and * * * was $552,290, far in excess of the $213,950 for which section 337.3(b) requires prior approval of a disinterested majority of the entire board of directors. (Stip. ¶114; FDIC Exh. 1, p. 29).

F. FACTORS TO BE CONSIDERED
UNDER 12 C.F.R. 308.68

   149. Neither the Respondent * * * nor any individual or business entity which would have constituted his "related interest" as defined in section 215.2(k) of Regulation O received any funds from any of the improper loans relevant to these proceedings (transcript, page 137).
   150. Respondent * * * demonstrated good faith by certain efforts to question some of the improper loans both in meetings of the Board of Directors of the * * * Bank * * * and in conversations with FDIC examiners (transcript at page 65 et seq.).

CONCLUSIONS OF LAW

   After careful consideration of the entire record, including the evidence and the arguments of counsel for the parties, in view of the foregoing findings, the Administrative Law Judge reaches the following conclusions of law:

A. BACKGROUND AND
JURISDICTIONAL MATTERS

   1. The FDIC has jurisdiction over the Respondents and the subject matter of this proceeding. (Finding nos. 1–3).
   2. Renewal of any loan is considered to be an extension of credit for purposes of this proceeding. (Finding no. 4).

   [.3] B. VIOLATIONS OF SECTION 22(h)(3) OF THE FEDERAL RESERVE ACT, [12 U.S.C. § 375b(3)] AND SECTION 215.4(a) OF REGULATION O [12 C.F.R. § 215.4(a)]
   3. Extensions of credit of * * * totaling $48,000 accrued to the benefit of Respondent * * * related interest, * * *, and are considered, for purposes of section 22(h)(3) of the Federal Reserve Act [12 U.S.C. § 375b(3)] and section 215.4(a) of Regulation O [12 C.F.R. § 235.4(a)], to be extensions of credit to Respondent * * * related interest, * * *. (Finding nos. 6–7; 19; 23–23).
   4. Extensions of credit to * * *, guaranteed by Respondent * * *, are considered, for purposes of section 22(h)(3) of the Federal Reserve Act [12 U.S.C. § 375b(3)] and section 215.4(a) of Regulation O [12 C.F.R. § 215.4(a)], to be extensions of credit to Respondent * * *. (Finding nos. 5; 30).
   5. Extensions of credit to Respondent * * * were not made on substantially the same terms as those prevailing at the time for comparable transactions with other persons in that $60,000 of the $209,100 outstanding as of February 15, 1985 was unsecured and remaining was secured by collateral of question market value. (Finding nos. 12–14; 16).
   6. Extensions and renewals of credit to Respondent * * * involved more than the normal risk of repayment in that Respondent * * * was a proven credit risk. (Finding nos. 9–11; 12–14; 33).
   7. Extensions of credit to * * * were not made on substantially the same terms as those prevailing at the time for comparable transactions with other persons in that collateral for the $48,000 outstanding as of February 15, 1985 was not properly recorded. (Finding no. 25).
   8. Extensions of credit to * * * involved more than the normal risk of repayment in that * * * had a net worth of only $43,900 and no determinable source of income. (Finding nos. 26; 33).
   9. Extensions of credit to * * * were not made on substantially the same terms as those prevailing at the time for comparable transactions with other persons in that the loan of $120,000 was unsecured for failure to record the security interest in real estate. (Finding no. 31).
   10. Extensions of credit to * * * involved more than the normal risk of repayment in that the Bank extended $120,000 without having any financial information on * * * or without having any knowledge of the purpose for which the proceeds were used. (Finding nos. 32–33).
   11. Extensions of credit to Executive Officer * * * were not made on substantially the same terms as those prevailing at the time for comparable transactions with other persons in that the total balance of {{4-1-90 p.A-1055}}$144,024 outstanding as of February 15, 1985 was unsecured. (Finding no. 44).
   12. Extensions of credit to Executive Officer * * * involved more than the normal risk of repayment in that his only source of income to service the outstanding debt of $144,024 was his $24,000 yearly salary from the Bank; additionally, Executive Officer * * * was a proven credit risk. (Finding nos. 45–46).
   13. Extensions of credit to Respondent * * *, * * *, * * * and Executive Officer * * * were made in violation of section 22(h)(3) of the Federal Reserve Act [12 U.S.C. § 375b(3)] and section 215.4(a) of Regulation O. [12 C.F.R. § 215.4(a)]. (Finding nos. 5; 6–46).

C. VIOLATIONS OF SECTION 22(h)(1)
OF THE FEDERAL RESERVE ACT [12
U.S.C. § 375b(1)] AND SECTION 215.4(c)
OF REGULATION O [12 C.F.R.
§ 215.4(c)]

   14. Extensions of credit to * * * totaling $48,000 accrued to the benefit of Respondent * * * related interest, * * *, and are considered, for purposes of section 22(h)(1) of the Federal Reserve Act [12 U.S.C. § 375b(1)] and section 215.4(c) of Regulation O [12 C.F.R. § 215.4(c)] to be extensions of credit to Respondent * * * related interest * * *. (Finding nos. 6–7; 19; 22–23).
   15. Extensions of credit to * * *, guaranteed by Respondent * * *, are considered, for purposes of section 22(h)(1) of the Federal Reserve Act [12 U.S.C. § 375b(1)] and section 215.4(c) of Regulation O [12 C.F.R. § 215.4(c)], to be extensions of credit to Respondent * * *. (Finding nos. 5; 30).
   16. Extensions of credit to Respondent * * *, * * *, and * * * exceeded the Bank's lending limit of $315,600, in violation of section 22(h)(1) of the Federal Reserve Act [12 U.S.C. § 375b(1)] and section 215.4(c) of Regulation O [12 C.F.R. § 215.4(c)]. (Finding nos. 15; 24; 28; 47–55).

D. VIOLATIONS OF SECTION 22(h)(4)
OF THE FEDERAL RESERVE ACT [12
U.S.C. § 375b(4)] AND SECTION 215.4(d)
OF REGULATION O [12 C.F.R.
§ 215.4(d)]

   17. Overdrafts by Respondent * * * in excess of $1,000 or outstanding for more than five business days were made in violation of section 22(h)(4) of the Federal Reserve Act [12 U.S.C. § 375b(4)] and section 215.4(d) of Regulation O [12 C.F.R. § 215.4(d)] in that Respondent * * * did not have a written, preauthorized, interestbearing extension of credit plan for overdrafts with a specific method of repayment or a written, preauthorized plan for the transfer of funds from another account at the Bank to cover overdrafts. (Finding nos. 56–64).

E. VIOLATIONS OF SECTION 22(h)(2)
OF THE FEDERAL RESERVE ACT [12
U.S.C. § 375B(2)] AND SECTION
215.4(b) OF REGULATION O [12 C.F.R.
§ 215.4(b)]

   18. Extensions of credit to * * *, which were deposited in joint checking accounts of * * * and Respondent * * * and which were to be used for business purposes, accrued to the benefit of Respondent * * * and are considered, for purposes of section 22(h)(2) of the Federal Reserve Act [12 U.S.C. § 375b(2) and section 215.4(b) of Regulation O [12 C.F.R. § 215.4(b)], to be extensions of credit to Respondent * * *. (Finding no. 76).
   19. Extensions of credit to * * * accrued to the benefit to Respondent * * * and are considered, for purposes of section 22(h)(2) of the Federal Reserve Act [12 U.S.C. § 375b(2)] and section 215.4(b) of Regulation O (12 C.F.R. § 215.4(b)], to be extensions of credit to Respondent * * *. (Finding Nos. 81–82).
   20. Extensions of credit to * * *, guaranteed by Respondent * * *, are considered, for purposes of section 22(h)(2) of the Federal Reserve Act [U.S.C. § 375b(2)] and section 215.4(b) of Regulation O (12 C.F.R. § 215.4(b)], to be extensions of credit to Respondent * * * (Finding Nos. 5; 38).
   21. Extensions of credit to Respondent * * *, * * *, * * *, * * *, * * *, and * * *, violated section 22(h)(2) of the Federal Reserve Act [12 U.S.C. § 375b(2)] and section 337.3(b) of the FDIC Rules and Regulations [12 C.F.R. § 337.3(b)] in that the extensions of credit exceeded 5% of the Bank's capital and unimpaired surplus and extensions of credit to * * *, * * *, * * *, * * *, and * * * were originated, extended or renewed without prior approval of a disinterested majority of the entire {{4-1-90 p.A-1056}}board of directors of the Bank. (Finding nos. 65–66; 67–91).
   22. Extensions of credit to * * * totaling $48,000 accrued to the benefit of Respondent * * * related interest, * * *, and are considered, for purposes of section 22(h)(2) of the Federal Reserve Act [12 U.S.C. § 375b(2)] and section 215.4(b) of Regulation O [12 C.F.R. § 215.4(b)], to be extensions of credit to Respondent * * *'s related interest, * * *. (Finding nos. 6–7; 19; 22–23).
   23. Extensions of credit to * * *, guaranteed by Respondent * * *, are considered, for purposes of section 22(h)(2) of the Federal Reserve Act [12 U.S.C. § 375b(2)] and section 215.4(b) of Regulation O [12 C.F.R. § 215.4(b)], to be extensions of credit to Respondent * * *. (Finding no. 5; 30).
   24. Extensions of credit to Respondent * * *, * * * and * * * violated section 22(h)(2) of the Federal Reserve Act [12 U.S.C. § 375b(2)] and section 337.3(b) of the FDIC Rules and Regulations [12 C.F.R. § 337.3(b) in that the extensions of credit exceeded 5% of the Bank's capital and unimpaired surplus and extensions of credit to * * * and * * * were originated, extended or renewed without the prior approval of a disinterested majority of the entire board of directors of the Bank. (Finding nos. 92–95).
   25. Extensions of credit to Respondent * * *, and Respondent * * * related interests, * * *, and * * *, violated section 22(h)(2) of the Federal Reserve Act [12 U.S.C. § 375b(2)] and section 337.3(b) of the FDIC Rules and Regulations [12 C.F.R. § 337.3(h)] in that the extensions of credit exceeded 5% of the Bank's capital and unimpaired surplus and extensions of credit to * * * and * * * were extended without the prior approval of a disinterested majority of the entire board of directors of the Bank. (Finding nos. 96–108).
   26. Extensions of credit to * * *, which were deposited in joint checking accounts of * * * and Respondent * * * and which were to be used for farm expenses, accrued to the benefit of Respondent * * * and are considered, for purposes of section 22(h)(2) of the Federal Reserve Act [12 U.S.C. § 375b(2)] and section 215.4(b) of Regulation O [12 C.F.R. § 215.4(b)], to be extensions of credit to Respondent * * *. (Finding nos. 118–119).
   27. Extensions of credit to * * *, guaranteed by Respondent * * *, are considered, for purposes of section 22(h)(2) of the Federal Reserve Act [12 U.S.C. § 375b(2)] and section 215.4(b) of Regulation O [12 C.F.R. § 215.4(b)], to be extensions of credit to Respondent * * *. (Finding nos. 5; 124).
   28. Extensions of credit to Respondent * * *, * * *, and * * * violated section 22(h)(2) of the Federal Reserve Act [12 U.S.C. § 375b(2)] and section 337.3(b) of the FDIC Rules and Regulations [12 C.F.R. § 337.3(b)] in that the extensions of credit exceeded 5% of the Bank's capital and unimpaired surplus and extension of credit to * * * were originated and renewed without prior approval of a disinterested majority of the entire board of directors of the Bank. (Finding nos. 109–128).
   29. Extensions of credit to * * *, which were deposited in joint checking accounts of * * * and Respondent * * * and which were to be used for farm expenses, accrued to the benefit of Respondent * * * and are considered, for purposes of section 22(h)(2) of the Federal Reserve Act [12 U.S.C. § 374b(2)] and section 215.4(b) of Regulation O [12 C.F.R. § 215.4(b)], to be extensions of credit to Respondent * * *. (Finding nos. 141–142).
   30. Extensions of credit to * * *, guaranteed by Respondent * * *, are considered, for purposes of section 22(h)(2) of the Federal Reserve Act [12 U.S.C. § 375b(2)] and section 215.4(b) of Regulation O [12 C.F.R. § 215.4(b)], to be extensions of credit to Respondent * * *. (Finding nos. 5; 145).
   31. Extensions of credit to Respondent * * *, * * * and * * * violated section 22(h)(2) of the Federal Reserve Act [12 U.S.C § 375b(2)] and section 337.3(b) of the FDIC's Rules and Regulations in that the extensions of credit exceeded 5% of the Bank's capital and unimpaired surplus and extension of credit to * * * was originated, extended and renewed without the prior approval of a disinterested majority of the entire board of directors of the Bank. (Finding nos. 129–148).

   F. FACTORS TO BE CONSIDERED
UNDER 12 C.F.R. 308.68

   [.4] 32. With respect to Respondent * * *, but not with respect to Respondent * * *, a showing has been made of some affirmative acts of good faith with respect to preventing the violations at issue here.
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   33. The fact that Respondent * * * and his "related interests" were not among the beneficiaries of the improper loans involved in these proceedings is a relevant consideration in determining the amount of the penalty to be assessed, under the term "such other matters as justice may require".

RECOMMENDED DECISION

   In view of the foregoing, the undersigned Administrative Law Judge recommends to the Board of Directors of the Federal Deposit Insurance Corporation that an order to pay should issue against the Respondents * * * and * * * under the provisions of section 18(j) of the Federal Deposit Insurance Act incorporating the provisions of the Proposed Order to Pay appended hereto.
   On the date set forth below, the undersigned is enclosing copies of the within Findings of Fact, Conclusions of Law, and Recommended Decision, together with the Proposed Order to Pay to be served upon the Respondents * * * and * * * and on counsel for the FDIC. Simultaneously, the record of this hearing is being filed with the executive secretary and certified to the Board of Directors in accordance with 12 C.F.R. 308.13(b).
/s/ Alan M. Wienman
U.S. Administrative Law Judge
1004 Savings Center Tower
411 Hamilton Boulevard
Peoria, Illinois 61601

PROPOSED ORDER TO PAY