(This order was terminated by order of the FDIC dated 8-28-03; see ¶16,351.)
A cease and desist order was issued, based on findings by the FDIC that
it had reason to believe that respondent had engaged in unsafe and
unsound practices.
[.1] ManagementQualifications Specified
[.2] CapitalMaintain Tier 1 Capital
[.3] Loan Loss ReserveEstablishment of or Increase Required
[.4] Profit PlanPreparation of Plan Required
[.5] Strategic PlanPreparation of Required
[.6] AssetsCharge-off or Collection
[.7] LoansExtensions of CreditTo Borrowers with Existing Adversely
Classified Credits
[.8] Loan PolicyPreparation or Revision of Policy Required
[.9] Loan Review and Grading SystemEstablishment of Required
[.10] Board of DirectorsCommittee to Review Loans to Existing Borrowers
[.11] Compliance OfficerReview of Extensions of Credit Required
[.12] Real Estate ActivitiesOther Real Estate (ORE), Management Policy
Required
[.13] Report of ExaminationCorrection of Exceptions Required
[.14] Bank OperationsInternal Routine and Control ProceduresWritten Plan
Required
{{2-28-03 p.C-5649}}
[.15] Bank Secrecy ActCompliance ProgramEmployee Training
[.16] Interagency Policy Statement on External Auditing
ProgramsImplementation Required
[.17] Reports of Condition and IncomeAmendment Required
[.18] DividendsDividends Restricted
[.19] ShareholdersDisclosure of Cease and Desist Order Required
[.20] Board of DirectorsCompliance with Cease and Desist OrderWritten
Progress Reports Required
In the Matter of
BANK OF POCAHONTAS
POCAHONTAS, ARKANSAS
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-02-119b
BANK OF POCAHONTAS, POCAHONTAS, ARKANSAS ("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
and/or regulations alleged to have been committed by the Bank and of
its right to a hearing on the alleged charges under section 8(b)(1) of
the Federal Deposit Insurance Act ("Act"), 12 U.S.C.
§1818(b)(1), and having waived those rights, entered into a
STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST
("CONSENT AGREEMENT") with counsel for the Federal Deposit
Insurance Corporation ("FDIC"), dated December 5, 2002, whereby
solely for the purpose of this proceeding and without admitting or
denying the alleged charges of unsafe or unsound banking practices and
violations of law and/or regulations, the 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 had committed violations of law and/or regulations. The
FDIC, therefore, accepted the CONSENT AGREEMENT and issued the
following:
ORDER TO CEASE AND DESIST
IT IS HEREBY ORDERED that the Bank, its directors, officers,
employees, agents, and other institution-affiliated parties (as that
term is defined in Section 3(u) of the Act, 12 U.S.C. §1813(u)), and
its successors and assigns cease and desist from the following unsafe
or unsound banking practices and violations:
(a) engaging in hazardous lending and lax collection practices;
(b) operating with inadequate capital in relation to the kind and
quality of assets held by the Bank;
(c) operating with a large volume of poor quality loans;
(d) operating with an inadequate loan valuation reserve;
(e) operating with inadequate internal routine and control policies;
(f) operating in such a manner as to produce low earnings;
(g) operating in violation of section 39 of the Act, 12 U.S.C.
§1831p-1 and in contravention of Appendix A to Part 364 of the
FDIC's Rules and Regulations, 12 C.F.R. §364; section 323 of the
FDIC's Rules and Regulations, 12 C.F.R. §323; section 326 of the
FDIC's Rules and Regulations, 12 C.F.R. §326; section 103 of the
Treasury Department's Rules and Regulations, 31 C.F.R. §103; in
contravention of section 365 of the FDIC's Rules and Regulations, 12
C.F.R. §365; and in violation of section 215 of Regulation O of the
Board of Governors of the Federal Reserve System, 12 C.F.R.
§215.5(d)(4), made applicable to state nonmember banks by section
18(j)(2), 12 U.S.C. §1828(j)(2);
(h) operating with management whose policies and practices are
detrimental to the Bank and jeopardize the safety of its deposits; and
(i) operating with a board of directors which has failed to provide
adequate supervision over and direction to the active management of the
Bank.
IT IS FURTHER ORDERED that the Bank, its institution-affiliated
parties, and its
{{2-28-03 p.C-5650}}
successors and assigns, take affirmative action as
follows:
[.1]1. (a) During the life of this ORDER, the Bank shall have management
qualified to restore the Bank to a sound condition. Such management
shall include a chief operating officer and an experienced senior
lending officer responsible for supervising the Bank's overall lending
function. The chief operating officer and senior lending officer may be
the same individual. The senior lending officer shall have skills
requisite to administer commercial and industrial loans, agricultural
loans, one-to-four family residential loans, consumer loans, and floor
plan lending.
(b) Management shall be assessed on its ability to:
(i) Comply with the requirements of this ORDER;
(ii) Improve and thereafter maintain the Bank in a safe and sound
condition, including asset quality, capital adequacy, liquidity
adequacy, earnings adequacy, and sensitivity to market risks; and
(iii) Comply with all applicable State and Federal laws and
regulations.
(c) (i) During the life of this ORDER, the Bank shall notify the
Regional Director of the Dallas Regional Office ("Regional
Director"), through the Area Director for the Memphis Area Office of
the Dallas Region, and the Commissioner of the Arkansas State Banking
Department ("Commissioner") in writing of any resignations and/or
terminations of any members of its board of directors and/or any of its
senior executive officer(s) within 15 days of the event.
(ii) The Bank shall comply with section 32 of the Act, 12 U.S.C.
§1831i.
(d) (i) To ensure both compliance with this ORDER and qualified
management for the Bank, the board of directors, within 30 days from
the effective date of this ORDER, shall develop a written policy
("Management Policy") which shall incorporate an analysis of the
Bank's management and staffing requirements and shall, at a minimum
address (1) both the number and type of positions needed to properly
manage the Bank, (2) a clear and concise description of the needed
experience and pay for each job, (3) an evaluation of present
management, (4) a plan to recruit, train, hire, or replace personnel
with requisite ability and experience, (5) a periodic evaluation of
each individual's job performance, (6) management succession, and (7)
the establishment and implementation of procedures to periodically
review and update the Management Policy.
(ii) The Management Policy and any subsequent modification thereto
shall be submitted to the Regional Director and the Commissioner for
review and comment. Within 30 days from receipt of any comment, and
after consideration of such comment, the board of directors shall
approve the Management Policy, which approval shall be recorded in the
minutes of the meeting of the board of directors. Thereafter, the Bank
and its directors, officers, and employees shall implement and follow
the Management Policy and any modifications thereto.
(e) Within 30 days from the effective date of this ORDER, the
board of directors shall establish a committee of the board of
directors with the responsibility to ensure that the Bank complies with
the provisions of this ORDER. At least two-thirds of the members of
such committee shall be independent, outside directors as defined
herein. The committee shall report monthly to the entire board of
directors, and a copy of the report and any discussion relating to the
report or the ORDER shall be included in the minutes of the board of
directors. Nothing contained herein shall diminish the responsibility
of the entire board of directors to ensure compliance with the
provisions of this ORDER.
(f) For the purpose of this ORDER, an "outside director" shall be
an individual:
(i) Who shall not be employed, in any capacity, by the Bank or
its affiliates other than as a director of the Bank or an affiliate;
(ii) Who shall not own or control more than 5 percent of the voting
stock of the Bank or its holding company;
(iii) Who shall not be indebted to the Bank or any of its affiliates in
an amount greater than 5 percent of the Bank's equity capital and
reserves;
(iv) Who shall not be related to any directors, principal shareholders
of the Bank or affiliates of the Bank; and
(v) Who shall be a resident of, or engage in business in, the Bank's
trade area.
[.2]2. (a) Within 30 days from the effective date of this ORDER, the Bank
shall have Tier 1 capital equal to or greater than seven and one-half
percent (7.5%) of the
{{2-28-03 p.C-5651}}
Bank's adjusted Part 325 total assets.
Thereafter, during the life of this ORDER, the Bank shall maintain Tier
1 capital equal to or greater than seven and one-half percent (7.5%)
of the Bank's adjusted Part 325 total assets.
(b) Any increase in Tier 1 capital necessary to meet the ratio required
by Paragraph 2(a) of this ORDER may be accomplished by the following:
(i) The sale of new securities in the form of common stock; or
(ii) The direct contribution of cash by the directors, shareholders, or
parent Bank holding company of the Bank; or
(iii) Any other method acceptable to the FDIC.
(c) If all or part of the increase in Tier 1 capital required by
Paragraph 2(a) of this ORDER is 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 or controlled by them in
favor of the plan. Should the implementation of the plan involve a
public distribution of the Bank's securities (including a distribution
limited only to the Bank's existing shareholders), the Bank shall
prepare 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 any
other material disclosures necessary to comply with the 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 plan and any materials used in the sale of the
securities shall be submitted to the FDIC, Accounting & Securities
Section, 550 17th Street, N.W., Room F-6043, Washington, D.C. 20429 for
review. Any changes requested to be made in the plan or materials by
the FDIC shall be made prior to their dissemination. If the Regional
Director allows any part of the increase in Tier 1 capital to be
provided by the sale of noncumulative perpetual preferred stock, then
all terms and conditions of the issue, including but not limited to
those terms and conditions relative to the interest rate and any
convertibility factor, shall be presented to the Regional Director for
prior approval.
(d) In complying with the provisions of Paragraph 2 of this ORDER, the
Bank shall provide to any subscriber and/or purchaser of the Bank's
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 subparagraph shall
be furnished within 10 days from the date such material development or
change was planned or occurred, whichever is earlier, and shall be
furnished to every subscriber and/or purchaser of the Bank's
securities who received or was tendered the information contained in
the Bank's original offering materials.
(e) For purposes of this ORDER the terms "Tier 1 capital" and
"Part 325 total assets" shall have the meanings ascribed to them
in Part 325 of the FDIC's Rules and Regulations, respectively
subsections 235.2(v) and 325.2(x), 12 C.F.R. §§ 325.2(v) and (x).
The "Capital Calculations" schedule contained on page 50 of the
Report of Examination of the Bank as of March 31, 2002, provides the
method for determining the ratio of Tier 1 capital to adjusted Part 325
total assets as required by this ORDER.
(f) The Bank shall not lend funds directly or indirectly, whether
secured or unsecured, to any purchaser of Bank stock or to any investor
by any other means for any portion of any increase in Tier 1 capital
required herein.
[.3]3. (a) Within 30 days from the effective date of this Order, the Bank
shall establish and shall thereafter maintain, through charges to
current operating income, an adequate valuation reserve for loan and
lease losses. In determining the adequacy of the valuation reserve for
loan and lease losses, the board of directors of the Bank shall at a
minimum consider the following:
(i) Prevailing instructions contained in the Federal Financial
Institutions Examination Council booklet entitled
"Instructions-Consolidated Reports of Condition and Income";
(ii) The volume and mix of the existing loan portfolio, including the
volume and severity of nonperforming loans and adversely classified
credits, as well as an analysis of net charge-offs experienced on
previously adversely classified loans;
(iii) The extent to which loan renewals
{{2-28-03 p.C-5652}}
and extensions are used to
maintain loans on a current basis and the degree of risk associated
with such loans;
(iv) The trend in loan growth, including any rapid increase in loan
volume within a relatively short time period;
(v) General and local economic conditions affecting the collectibility
of the Bank's loans;
(vi) Previous loan loss experience by loan type, including the trend of
net charge-offs as a percent of average loans over the past several
years;
(vii) Off balance sheet credit risks;
(viii) The overall risk associated with each concentration of credit,
if any, together with the degree of risk associated with each related
individual borrower; and
(ix) Any other factors appropriate in determining future valuation
reserves.
(b) Prior to the submission of any Report of Condition and Income,
the board of directors of the Bank shall review the adequacy of the
Bank's valuation reserve for loan and lease losses. The minutes of the
board meetings at which each review is undertaken shall indicate the
results of the review, the amount of any increase to the reserve, and
the basis for the amount of the valuation reserve. The criteria for the
review shall be as set forth in Paragraph 3(a).
(c) Notwithstanding the provisions of Paragraph 3(a) and 3(b) above,
the Bank shall achieve, within 30 days of the effective date of this
ORDER, a valuation reserve for loan and lease losses, after charge off
of loans classified "Loss" as required in Paragraph 5(a) below,
of not less than $3,031,000, and shall thereafter maintain, through
charges to current operating income, an adequate valuation reserve for
loan and lease losses.
(d) In the event that the Regional Director and/or the Commissioner
determine, at subsequent examinations and/or visitations, that the
Bank's valuation reserve for loan and lease losses is inadequate, the
Bank shall amend its Consolidated Reports of Condition and Income in
accordance with Paragraph 17.
(e) The requirements of Paragraph 3(c) above are not to be construed as
a standard for future operations.
[.4]4. (a) Within 90 days from the effective date of this ORDER, and within
the first 30 days of each calendar year thereafter, the board of
directors shall develop a written profit plan consisting of goals and
strategies for improving the earnings of the Bank for each calendar
year. The written profit plan shall include, at a minimum:
(i) Identification of the major areas in, and means by, which the
board of directors will seek to improve the Bank's operating
performance;
(ii) Realistic and comprehensive budgets;
(iii) A budget review process to monitor the income and expenses of the
Bank to compare actual figures with budgetary projections on not less
than a quarterly basis; and
(iv) A description of the operating assumptions that form the basis
for, and adequately support, major projected income and expense
components.
(b) Such written profit plan and any subsequent modification
thereto shall be submitted to the Regional Director and the
Commissioner for review and comment. No more than 30 days after the
receipt of any comment from the Regional Director and/or the
Commissioner, the board of directors shall approve the written profit
plan which approval shall be recorded in the minutes of the board of
directors. Thereafter, the Bank, its directors, officers, and employees
shall follow the written profit plan and/or any subsequent
modification.
[.5]5. By January 15, 2003, the Bank shall develop a long-range strategic
plan. At a minimum, the written strategic plan shall include long-range
goals and objectives, steps for achieving these goals and objectives,
competitive factors of new markets, and periodic monitoring of
performance to allow for both the actual results and the making of
necessary revisions. The strategic plan and any subsequent modification
thereto shall be submitted to the Commissioner and Regional Director
for review and comment. No more than 30 days after the receipt of any
comment from the Commissioner and/or Regional Director, the board of
directors shall approve the written strategic plan, which approval
shall be recorded in the minutes of the board of directors. Thereafter,
the Bank, its directors, officers, and employees shall follow the
strategic plan and/or any subsequent modification.
[.6]6. (a) Within 10 days from the effective date of this ORDER, the Bank
shall eliminate from its books, by charge-off or
{{2-28-03 p.C-5653}}
collection, all assets
classified "Loss" as of March 31, 2002, that have not been
previously collected or charged-off. Reduction of these assets through
proceeds of other loans made by the Bank is not considered collection
for the purpose of this paragraph.
(b) Within 60 days from the effective date of this ORDER, the Bank
shall formulate and submit to the Regional Director and the
Commissioner for review and approval a written plan of action directed
at lessening the Bank's risk position in each line of credit which was
classified "Substandard" or "Doubtful" as of March 31,
2002, and which aggregated $100,000 or more. Such plan shall include,
but not be limited to, the following:
(i) Target dollar levels to which the Bank will reduce each line
of credit or other asset within three months, six months, and twelve
months from the effective date of this ORDER; and
(ii) Provisions for the submission of monthly written progress reports
under this Paragraph 6 to the Bank's board of directors for review and
recordation in the board minutes.
(c) Within 90 days from the effective date of this ORDER, the Bank
shall sufficiently reduce or otherwise improve assets subject to
Special Mention as of March 31, 2002, to warrant removal from the
Special Mention category.
(d) The requirements of Paragraphs 6(a), 6(b), and 6(c) are not to be
construed as standards for future operations.
(e) As used in Paragraphs 6(a), 6(b), and 6(c), the word "reduce"
means (i) to collect, (ii) to charge-off, or (iii) to sufficiently
improve the quality of assets adversely classified to warrant removing
any adverse classification, as determined by the FDIC and/or the
Commissioner.
[.7]7. (a) Beginning with the effective date of this ORDER, the Bank shall
not extend, directly or indirectly, any additional credit to, or for
the benefit of, any borrower who has a loan or other extension of
credit with the Bank that has been charged off or classified, in whole
or in part, "Loss" or "Doubtful" and is uncollected. The
requirements of this paragraph shall not prohibit the Bank from
renewing (after collection in cash of interest due from the borrower)
any credit already extended to any borrower. The requirements of this
paragraph 7(a) shall not apply to [Company], provided the Bank
complies with the provisions of paragraph 7(b) prior to extending
additional credit to, or for the benefit of, [Company].
(b) Beginning with the effective date of this ORDER, the Bank shall not
make any further extensions of credit, directly or indirectly, to any
borrower whose loans in the aggregate exceed $100,000 and are adversely
classified "Substandard" as of March 31, 2002, without prior
approval by the Bank's board of directors or the board loan committee
after the board's or committee's affirmative determination, as
reflected in the minutes of the meeting, that the extension of credit
is necessary to protect the Bank's interest or is adequately secured,
that credit analysis has determined the customer to be creditworthy,
and that all necessary loan documentation is on file, including current
financial and cash flow information and satisfactory appraisal, title,
and lien documents. The minutes shall also include the following
information about the extension of credit: (i) the amount adversely
classified as of March 31, 2002; (ii) the current balance; (iii) the
amount of credit requested; (iv) a description of the collateral and
its value securing the credit; and (v) a full description of the
documentation presented to the board of directors including the date of
the borrower's most recent financial information and the borrower's
current income or cash flow data.
(c) Beginning with the effective date of this ORDER, the Bank shall not
renew any loan without the full collection of interest due. The
issuance of separate notes to the borrowing customer or a third party,
the proceeds of which pay interest due, shall not satisfy the
requirements of this paragraph unless these separate notes receive
prior board approval in the same manner as outlined in Paragraph 7(b).
[.8]8. (a) Within 60 days from the effective date of this ORDER, the Bank
shall review its written loan policy and make whatever changes may be
necessary to provide for the safe and sound administration of all
aspects of the lending function, including, at a minimum,
incorporating:
(i) The provisions of Part 365 of the FDIC's Rules and
Regulations, particularly with respect to real estate loan-to-value
guidelines;
{{2-28-03 p.C-5654}}
(ii) Guidelines for internal review of real estate appraisals and
evaluations;
(iii) Updated internal risk rating guidelines;
(iv) Nonaccrual loan guidelines;
(v) Guidelines regarding overdrafts; and
(vi) Guidelines for granting loan payment extensions, with established
procedures for monitoring loan payment extensions, and quarterly
management reports detailing the loans extended, the length of the
extension, the reason for the extension, whether interest was paid
current, and the name of the loan officer responsible for granting the
extension.
(b) The Bank's revised loan policy shall include underwriting
guidelines that include, at a minimum, requirements to obtain:
(i) Current borrower financial information, including, where
applicable, detailed balance sheets, profit and loss statements,
complete copies of the borrower's most recent tax returns, cash flow
projections, and recent credit reports, that are sufficient to support
the outstanding indebtedness of each borrower;
(ii) Documents necessary to perfect the Bank's lien position, evaluate
its lien priority, and provide a supportable valuation for all
collateral pledged, all prior to funding any loan proceeds;
(iii) Collateral valuations that adhere to the Bank's loan policy and
or performed by an independent third party or are supported by purchase
invoices;
(iv) Realistic payment terms that match a borrower's source of
repayment; and
(v) Adequate collateral margins for all new extensions of credit.
(c) The Bank shall adopt additional changes it considers necessary
and appropriate. Management shall reaffirm its intent to comply with
the policy, as amended. Evidence of management's reaffirmation shall
be reduced to writing.
(d) The loan policy and its implementation shall be in a form and
manner acceptable to the Regional Director and the Commissioner as
determined at subsequent examinations and/or visitations.
(e) The Bank shall adopt and implement compliance and monitoring
procedures to ensure compliance with the loan policy. Evidence of the
establishment, review, and monitoring of compliance with the loan
policy shall be reduced to writing.
[.9]9. (a) By December 31, 2002, the board shall establish an internal loan
review and grading system ("System") to periodically review the
Bank's loan portfolio and identify and categorize problem credits. At
a minimum the System shall provide for:
(i) The identification of the overall quality of the loan
portfolio;
(ii) The identification and amount of each delinquent loan;
(iii) An identification or grouping of loans that warrants the special
attention of management;
(iv) For each loan identified, a statement of the amount and an
indication of the degree of risk that the loan will not be fully repaid
according to its terms and the reason(s) why the particular loan merits
special attention;
(v) An identification of credit and collateral documentation
exceptions;
(vi) The identification and status of each violation of law, rule, or
regulation;
(vii) An identification of loans not in conformance with the Bank's
lending policy, and exceptions to the Bank's lending policy;
(viii) An identification of insider loan transactions; and
(ix) A mechanism for reporting periodically, no less than quarterly, to
the board of directors on the status of each loan identified and the
action(s) taken by management.
(b) A copy of the reports submitted to the board, as well as
documentation of the action taken by the Bank to collect or strengthen
assets identified as problem credits, shall be kept with the minutes of
the board of directors.
[.10]10. (a) Within 60 days from the effective date of this ORDER the
Bank's board of directors shall establish and appoint a loan committee
to review and approve in advance all extensions of credit and/or
renewals that when aggregated with all other extensions of credit
to a borrower, either directly or indirectly, exceed or would exceed
$100,000. The review should include financial, income, and cash flow
information, collateral values and lien information, repayment terms,
past performance by the borrower, the purpose of the extension, and
{{2-28-03 p.C-5655}}
whether the extension complies with the Bank's loan policy and
applicable laws, rules, and regulations. The loan committee shall meet
at least twice monthly and shall maintain written minutes which detail
the information reviewed by the loan committee, its conclusions,
approvals, denials, recommendations, and reasons for the approval of
any credit which does not fully comply with the review requirements set
forth in this paragraph. At least monthly, the loan committee shall
submit its written minutes to the board of directors. At least
two-thirds of the members of the loan committee shall be independent,
outside directors as defined in Paragraph 1(f) of this ORDER.
(b) The requirements of Paragraph 10(a) shall not apply to extensions
of credit and/or renewals secured by one-to-four family dwellings or
consumer loans of $25,000 or less, provided such extensions of credit
are not past due, are not in non-accrual status, or are not adversely
classified by the Bank, the FDIC, or the State of Arkansas.
[.11]11. (a) Within 30 days of the effective date of this Order, the Bank
shall adopt and implement written policies and procedures to ensure
that all new extensions of credit and/or renewals, including the
acquisition of any form of indirect indebtedness or dealer paper, in an
amount in excess of $25,000 but not more than $100,000, shall be
reviewed by the Bank's Compliance Officer. The Bank's Compliance
Officer shall ensure that the loan, renewal, or acquisition complies
with the Bank's loan policies including, but not limited to, current
financial statements and current appraisals. Any exceptions to, or
deviations from, the Bank's established direct or indirect lending
policies, shall be noted in writing along with the name of the loan's
originating officer. A copy of the Bank Compliance Officer's review
shall be made a part of the Bank's loan file. The Bank's Compliance
Officer shall submit a written report monthly to the Bank's board of
directors concerning the Bank's adherence to the loan policies, noting
any exceptions to or deviations from the loan policies established by
the Bank's board of directors, the loan officer responsible for the
exception or deviation, and the date the exception or deviation
received the Bank board of director's ratification. The report shall
be made a part of the minutes of the board meeting.
[.12]12. (a) Within 60 days from the effective date of this ORDER, the board
of directors shall develop a plan for managing the Other Real Estate
("ORE") of the Bank. The written ORE plan shall include, at a
minimum:
(i) A quarterly review of the ORE portfolio by the ORE committee
to be appointed by the Bank;
(ii) Realistic and comprehensive budgets for each piece of ORE,
including projections of the Bank's cost of marketing the ORE, and the
Bank's costs of carrying the ORE on its books (e.g., upkeep, repairs,
and insurance costs);
(iii) A determination by the ORE committee for each piece of ORE that
the property is listed with a real estate broker or otherwise made
widely available for sale in an appropriate manner, and that the
proposed selling price is realistic;
(iv) Guidelines to ensure that periodic appraisals are obtained for the
ORE and that progress reports are obtained from all real estate brokers
marketing the ORE, including a projected sales time frame for each
piece of ORE;
(v) Guidelines to ensure that all taxes and insurance premiums are
timely paid;
(vi) An identification of any ORE that warrants the special attention
of management;
(vii) An identification of documentation exceptions on any ORE; and
(viii) An identification of all ORE not in conformance with the Bank's
policies;
(b) Reports from the ORE committee shall be submitted to the board
of directors on at least a quarterly basis and a copy of such reports,
as well as documentation of the action taken by the Bank to facilitate
the timely sale of ORE, shall be made part of the minutes of the board
of directors.
[.13]13. (a) Within 60 days from the effective date of this ORDER, the Bank
shall eliminate and/or correct all violations of law that are set out
in the FDIC Report of Examination of the Bank as of March 31, 2002. In
addition, the Bank shall henceforth comply with all applicable laws and
regulations.
[.14]14. (a) Within 90 days from the effective date of this ORDER, the Bank
shall adopt and implement a written policy and procedures for the
operation of the Bank in
{{2-28-03 p.C-5656}}
such a manner as to provide internal routine
and controls consistent with safe and sound banking practices. At a
minimum, the internal routine and control policy shall provide
guidelines for (i) separation of duties in the Bank's accounts payable
department; (ii) an approval process for payment of invoices and
expenses; (iii) random cash verification at frequent intervals by an
officer or other designated Bank official who is not responsible for
day-to-day teller duties; (iv) electronic banking functions, including,
at a minimum, contracts with internet service providers, a response
system for web page services, firewall protection, testing and
verification of web page information, and auditing of electronic
banking functions; and (v) routine and extensive review of telephone
banking activities, requirements for customer modification of passwords
set by the system administrator, and auditing of the telephone banking
system. Such policy and its implementation shall be satisfactory to the
Regional Director and the Commissioner as determined at subsequent
examinations and/or visitations.
(b) Within 90 days of the effective date of this ORDER, the board shall
adopt and implement a data security program that shall, at a minimum,
include:
(i) The assignment and maintenance of user access levels that are
considered appropriate for the size and complexity of the institution;
(ii) Limitations for deposit file maintenance, loan file maintenance,
and automatic transfer capabilities;
(iii) Guidelines for daily, structured reviews of activity reports,
exception reports, and security logs by an independent and
knowledgeable staff member (including file maintenance activity,
automatic transfer activity, failed sign-on attempts, and attempts at
unauthorized access);
(iv) Procedures for reporting any discrepancies and suspicious activity
to senior management and the board; and
(v) Periodic review, at least annually, of user capabilities with
notations in committee or board minutes.
(c) Within 90 days from the effective date of this ORDER,
the Bank shall develop and implement policies and procedures regarding
the protection of consumer financial information in accordance with
Part 332 of the FDIC Rules and Regulations, 12 C.F.R. §332. The Bank
shall conduct periodic tests to assure compliance with approved
policies and procedures.
[.15]15. (a) Within 60 days from the effective date of this ORDER, the
Bank shall develop and implement an education program for its employees
to ensure compliance with the Bank Secrecy Act and the financial
recordkeeping regulations of the United States Treasury Department. The
education program shall contain provisions for periodic training. The
board of directors shall document the development and implementation of
the education program and all training conducted in connection with the
program in the minutes of the meetings of the board of directors.
[.16]16. (a) During the life of this ORDER, the Bank shall revise, adopt,
and implement a written external audit program that complies with the
FFIEC Interagency Policy Statement on Independent External Auditing
Programs of Banks and Savings Associations, Financial Institutions
letter 96-99, dated October 25, 1999.
(b) The provisions of Paragraph 16(a) notwithstanding, by December 31,
2002, and annually thereafter, the Bank shall obtain an external audit
of the Bank's financial statements from an independent auditing firm.
Promptly upon receipt, the Bank shall submit copies of the external
auditor's report to the Regional Director and the Commissioner. The
Bank shall notify the Regional Director and the Commissioner at least 7
days in advance of any meeting with the external auditor to discuss the
report's findings. The Bank shall allow the Regional Director and/or
the Commissioner, or their representatives, to attend such meeting.
[.17]17. (a) Within 30 days from the effective date of this ORDER, the Bank
shall review all Consolidated Reports of Condition and Income filed
with the FDIC on and after March 31, 2002, and shall amend and file
with the FDIC amended Consolidated Reports of Condition and Income
which accurately reflect the financial condition of the Bank as of the
date of each such Report.
(b) In addition to the above and during the life of this ORDER,
the Bank shall file with the FDIC Consolidated Reports of Condition and
Income which accurately reflect the financial condition of the Bank as
of the reporting period. In particular such Reports shall include any
adjustment in the Bank's books made necessary or appropriate as a
consequence of any State or FDIC examination of the Bank during that
reporting period.
{{2-28-03 p.C-5657}}
[.18]18. While this ORDER is in effect, the Bank shall not declare or pay
any cash dividends on its capital stock unless, at least 60 days prior
to payment of such dividends, the Bank's entire board of directors
certifies in writing to the Regional Director and the Commissioner (i)
the amount of Bank earnings as of the date of the certification; and
(ii) that after payment of such dividends the Bank is, and will
continue to be, in compliance with (A) the capital requirements
contained in paragraph 2 of this ORDER; (B) the valuation reserve
for loan and leases losses requirements contained in paragraph 3 of
this ORDER; and (C) the written profit plan required by paragraph 4 of
this ORDER.
[.19]19. Following the effective date of this ORDER, the Bank shall
send, or otherwise furnish a description of, this ORDER to its
shareholders (i) in conjunction with the Bank's next shareholder
communication, and also (ii) 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, statement, or
notice shall be sent to the FDIC, Accounting & Securities Section, 550
17th Street, N.W., Room F-6043, Washington, D.C. 20429 for review at
least 20 days prior to dissemination to shareholders. Any changes
requested by the FDIC shall be made prior to dissemination of the
description, communication, notice, or statement.
[.20]20. By the fifteenth day after the end of each calendar quarter
following the effective date of this ORDER, the Bank shall furnish
written progress reports to the Regional Director and the Commissioner
detailing the form and manner of any actions taken to secure compliance
with this ORDER and the results thereof. Such reports may be
discontinued when the corrections required by this ORDER have been
accomplished and the Regional Director and the Commissioner have
released the Bank in writing from making further reports.
The provisions of this ORDER shall be binding upon the Bank, its
directors, officers, employees, agents, successors, assigns, and other
institution-affiliated parties of the Bank.
This ORDER shall become effective 10 days from the date of its
issuance.
The provisions of this ORDER shall remain effective and enforceable
except to the extent that, and until such time as, any provisions of
this ORDER shall have been modified, terminated, suspended, or set
aside by the FDIC.
Pursuant to delegated authority.
Dated: December 12, 2002.