Attached files
| file | filename |
|---|---|
| 8-K - SMITHTOWN BANCORP INC | v172782_8k.htm |
| EX-99.3 - SMITHTOWN BANCORP INC | v172782_ex99-3.htm |
| EX-99.1 - SMITHTOWN BANCORP INC | v172782_ex99-1.htm |
| EX-99.4 - SMITHTOWN BANCORP INC | v172782_ex99-4.htm |
EXHIBIT
2
FEDERAL
DEPOSIT INSURANCE CORPORATION
WASHINGTON,
D.C.
| ) | ||
|
In
the Matter of
|
)
|
CONSENT ORDER |
| ) | ||
| ) | ||
| BANK OF SMITHTOWN | ) | |
| SMITHTOWN, NEW YORK | ) |
FDIC
09-655b
|
| ) | ||
| (Insured State Nonmember Bank) | ) |
The Federal Deposit Insurance
Corporation (“FDIC”) is the appropriate Federal banking agency for Bank of
Smithtown, Smithtown, New York (“Bank”), under 12 U.S.C. § 1813(q).
The Bank, by and through its duly
elected and acting Board of Directors (“Board”), has executed a “Stipulation and
Consent to the Issuance of a Consent Order” (“Stipulation”), dated January 29,
2010 that is accepted by the FDIC. With the Stipulation, the Bank has
consented, without admitting or denying any charges of unsafe or unsound banking
practices or violations of law or regulation relating to weaknesses in the
Bank’s management, asset quality, earnings and capital, to the issuance of this
CONSENT ORDER (“ORDER”) by the FDIC.
Having
determined that the requirements for issuance of an order under 12
U.S.C.
§ 1818(b)
have been satisfied, the FDIC hereby orders that:
1
BOARD PARTICIPATION
AND
SUPERVISION
1. Within
30 days from the effective date of this ORDER, the Board shall increase its
participation in the affairs of the Bank and assume full responsibility for the
approval of sound policies and objectives for compliance with this ORDER and for
the supervision of Bank management and all the Bank’s activities, including but
not limited to asset growth, loan administration, credit analysis, internal loan
review, the establishment of an adequate allowance for loan and lease losses,
and the mitigation of risks associated with concentrations in commercial real
estate loans, including acquisition, development and construction loans. The
Board’s participation in the Bank’s affairs shall include, at a minimum, monthly
meetings in which the following areas shall be reviewed and approved by the
Board: reports of income and expenses; new, overdue, renewed,
insider, charged-off, delinquent, nonaccrued, nonperforming, classified and
recovered loans; internal loan watch list; investment activities; operating
policies; and individual committee actions. The Board minutes shall document
these reviews and approvals, including the names of any dissenting
directors.
MANAGEMENT
2.
(a) The Bank shall have and
retain qualified management. Each member of management shall possess
qualifications and experience commensurate with his or her duties and
responsibilities at the Bank. The qualifications of management
personnel shall be evaluated on their ability to:
(1) comply
with the requirements of this ORDER;
(2) operate
the Bank in a safe and sound manner;
(3) comply
with applicable laws, rules, and regulations; and
(4) restore
all aspects of the Bank to a safe and sound condition, including improving
management effectiveness, asset quality, loan and appraisal review, credit
administration, capital and earnings.
2
(b) While
this ORDER is in effect, the Bank shall notify the Regional Director of the
FDIC’s New York Regional Office (“Regional Director”) in writing of any
additions, resignations or terminations of any members of its Board or any of
its senior executive officers within 15 days of the event. For
purposes of this ORDER, “senior executive officer” is defined in section
303.101(b) of the FDIC Rules and Regulations, 12 C.F.R. §
303.101(b). In addition, the Bank shall establish procedures to
ensure compliance with section 32 of the Act, 12 U.S.C. § 1831i, and Subpart F
of Part 303 of the FDIC’s Rules and Regulations.
REDUCTION OF COMMERCIAL
REAL ESTATE
CONCENTRATIONS
3.
(a) Within 60
days from the effective date of this ORDER, the Bank shall develop and submit a
written plan, acceptable to the Regional Director, for systematically reducing
and monitoring its commercial real estate (“CRE”) loan concentration of credit
identified in the FDIC’s Report of Examination reflecting the examination of the
Bank as of June 30, 2009 (“ROE”) to an amount which is commensurate with the
Bank’s business strategy, management expertise, size, and
location. For purposes of the plan, “reduce” means to charge-off or
collect CRE loans or to increase Tier 1 capital. Such plan shall
include, but not be limited to:
(1) a
prohibition of any advance that would increase the CRE concentration unless the
advance is pursuant to an existing loan agreement or the Board has submitted to
the Regional Director a detailed written statement giving reasons why the
advance is in the best interests of the Bank and received the Regional
Director’s written approval of the advance;
3
(2) percent
of capital to which the Bank shall reduce the concentration, the justification
for the capital percentages set forth in the plan, and timeframes for achieving
such reductions;
(3) provisions
requiring compliance with the Interagency Guidance on
Concentrations in Commercial Real Estate Lending, Sound Risk Management
Practices (Financial Institution Letter (“FIL”) 104-2006, issued December
12, 2006) and Managing
Commercial Real Estate Concentrations in a Challenging Environment
(FIL-22-2008, issued March 17, 2008);
(4)
provisions for controlling and monitoring CRE lending, including plans to
address the rationale for CRE loan levels as they relate to growth and capital
targets, segmentation and testing of the CRE loan portfolio to detect and limit
concentrations with similar risk characteristics, and contingency plans for the
reduction or mitigation of current CRE concentrations; and
(5)
provisions for the submission of monthly written progress
reports to the Board for review and notation in minutes of the Board
meetings.
(b) The
Bank shall submit the plan to the Regional Director for review and
comment. Within 30 days after the Regional Director has responded to
the plan, the Board shall adopt the plan as amended or modified by the Regional
Director, which approval shall be recorded in the minutes of the Board
meeting. The plan shall be implemented immediately to the extent that
the provisions of the plan are not already in effect at the Bank.
LOAN
POLICY
4. (a) Within
60 days from the effective date of this ORDER, and annually thereafter,
the Board shall review the Bank’s loan policy and procedures for effectiveness
and, based upon this review, shall make all necessary revisions to the policy in
order to strengthen the Bank’s lending procedures and abate additional loan
deterioration. Each revision shall be submitted to the Regional
Director for review and comment upon its completion. After the
Regional Director has responded to the policies, the Board shall adopt the
policies as amended or modified by the Regional Director and immediately
implement the policies to the extent that they are not already in effect at the
Bank.
4
(b) The
initial revisions to the Bank’s loan policy required by this paragraph, at a
minimum, shall address the recommendations contained in the ROE and provide for
the following:
(1)
documentation
of lines of authority and operational responsibilities within the loan
department;
(2)
the
identification, monitoring, and timely reporting of past due loans, loans with
emerging credit weaknesses, and exceptions to the loan policy;
(3)
adequate
underwriting standards and procedures for loans, loan renewals, and appraisal
reviews, including but not limited to standards regarding the type and quality
of financial statements required to support a credit from the initial
underwriting through the life of the loan;
(4)
increased
Board and Audit Committee oversight of the Bank’s independent loan review
function;
(5)
expansion
of the Bank’s appraisal policy to ensure reappraisals or evaluations take place
when real estate collateral deteriorates;
(6)
expansion
of the Bank’s construction loan policy to ensure that waivers
of liens or the equivalent are obtained for every advance made
on construction projects;
5
(7)
compliance
with Part 323 of the FDIC’s Rules and Regulations; 12 CF.R. Part 323; Interagency Guidelines on Real Estate Appraisals and
Evaluations (FIL 74-94, issued November 11, 199); and the Statement of Policy on Uniform Retail Credit
Classification and Account Management Policy (FIL-40-2000, issued June
29, 2000);
(8)
determinations
of whether extensions of credit constitute “Troubled Debt
Restructuring”;
(9)
guidelines
regarding the use and reporting of interest reserves, including limitations on
their use and prudent lines of authority for approving their use;
(10)
an
internal loan watch list and a written plan to lessen the risk
position in each line of credit identified as a problem credit on the Bank’s
internal loan watch list; and
(11)
a
non-accrual policy in accordance with the Federal Financial Institutions
Examination Council’s Instructions for the Consolidated Reports of Condition and
Income.
LOAN
REVIEW
5. (a)
Within 60 days from the effective date of this ORDER, the Board
shall revise its independent loan review program to ensure that it is consistent
with the Bank’s loan review policy and that it is sufficiently comprehensive to
assess risks in Bank lending and minimize credit losses. At a
minimum, the revised program shall provide for:
(1) increased
monitoring and oversight of loan review by the Board and
management;
(2) an
increase in the scope and depth of loan review;
6
(3) an
assessment of the overall quality of the loan portfolio;
(4) increased
staffing of the Bank’s Independent Loan Review (“ILR”) with personnel who are
independent and meet minimum qualifications;
(5) effective
loan classification or credit grading systems that identify, monitor, and
address asset quality problems in an accurate and timely manner;
(6)
adequate
documentation and narratives to support credit ratings and demonstrate that the
ILR conducted an independent quarterly review of the Allowance for Loan and
Lease Losses;
(7) procedures
to identify and report exceptions to the Interest Reserve Policy;
(8)
identification
of credit and collateral documentation exceptions and an action plan to address
the identified deficiencies;
(9) identification
of loans that are not in conformance with the Bank's lending policy or laws,
rules, or regulations and an action plan to address the identified deficiencies;
and
(10)
documentation
of the rationale for the Bank assigning a different classification than the
ILR.
(b) The
Bank shall submit the revised program to the Regional Director for review and
comment. Within 30 days from receipt of any comment from the Regional
Director, and after due consideration of any recommended changes, the Bank shall
approve the revised program, which approval shall be recorded in the minutes of
the corresponding Board meeting. Thereafter, the Bank shall implement
and fully comply with the program.
7
CLASSIFIED ASSETS -
CHARGE-OFF AND PLAN FOR
REDUCTION
6. (a) Within
30 days from the effective date of this ORDER, the Bank shall, to the extent
that it has not previously done so, eliminate from its books, by charge-off or
collection, all assets or portions of assets classified “Loss” by the FDIC in
the ROE. Elimination or reduction of these assets through proceeds of
loans made by the Bank shall not be 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 a detailed written plan to the Regional Director to reduce the remaining
assets classified “Doubtful” and “Substandard” in the ROE. The plan
shall address each asset so classified where the borrower and any related
interest has an aggregate indebtedness to the Bank with a balance of $1,000,000
or greater, as identified in the ROE. In addition, the Bank’s plan
shall contain a schedule detailing the projected reduction of total classified
assets on a quarterly basis and contain a provision requiring the submission of
monthly progress reports to the Board and mandating a review by the
Board.
(c) The
Bank shall present the plan to the Regional Director for
review. Within 30 days after the Regional Director has responded to
the plan, the Board shall adopt the plan as amended or modified by the Regional
Director, which approval shall be recorded in the minutes of the Board
meeting. The Bank shall then immediately initiate measures
detailed in the plan to the extent such measures have not been
initiated.
(d) While
this ORDER is in effect, the Bank shall eliminate from its books, by charge-off
or collection, all assets or portions of assets classified “Loss” as determined
at any future examination.
8
ALLOWANCE FOR LOAN
AND LEASE
LOSSES
7. The
Allowance for Loan and Lease Losses (“ALLL”) should be funded by charges to
current operating income, and should be calculated in accordance with generally
accepted accounting standards and ALLL supervisory guidance. The Bank
shall at all times maintain a reasonable ALLL. Prior to the end of
each calendar quarter, the Board shall review the adequacy of the Bank’s
ALLL. Such reviews shall include, at minimum, the analysis required
by Financial Accounting Standards Board Statement Numbers 5 and 114, the Bank’s
loan loss experience, an estimate of potential loss exposure in the portfolio,
trends of delinquent and non-accrual loans and prevailing and prospective
economic conditions. The minutes of the Board meetings at which such
reviews are undertaken shall include complete details of the reviews and the
resulting recommended increases in the ALLL.
RESTRICTION ON ADVANCES TO
CLASSIFIED BORROWERS
8. (a) While
this ORDER is in effect, the Bank shall not extend, directly or indirectly, any
additional credit to or for the benefit of any borrower whose existing credit
has been classified Loss by the FDIC as the result of its examination of the
Bank, either in whole or in part, and is uncollected, or to any borrower who is
already obligated in any manner to the Bank on any extension of credit,
including any portion thereof, that has been charged off the books of the Bank
and remains uncollected. The requirements of this paragraph shall not
prohibit the Bank from renewing credit already extended to a borrower after full
collection, in cash, of interest due from the borrower, or from extending
additional credit to a borrower if the Board has submitted to the Regional
Director a detailed written statement giving reasons why failure to extend such
credit would be detrimental to the best interests of the Bank and received
written approval of the extension of credit from the Regional
Director.
9
(b) While
this ORDER is in effect, the Bank shall not extend, directly or indirectly, any
additional credit to or for the benefit of any borrower whose extension of
credit is classified “Doubtful” and/or “Substandard” by the FDIC as the result
of its examination of the Bank, either in whole or in part, and is uncollected,
unless the Board has signed a detailed written statement giving reasons why
failure to extend such credit would be detrimental to the best interests of the
Bank. The statement shall be placed in the appropriate loan file,
included in the minutes of the applicable Board’ meeting, and submitted to the
Regional Director in the Progress Reports described in Paragraph 16 of this
ORDER.
BUDGET AND PROFIT
PLAN
9. (a) Within
45 days from the effective date of this ORDER, the Bank shall formulate and
submit to the Regional Director for review and comment a written profit plan and
a realistic, comprehensive budget for all categories of income and expense for
the calendar year 2010. The plan required by this paragraph shall
contain formal goals and strategies, be consistent with sound banking practices,
reduce discretionary expenses, take into account loan quality deterioration,
provide for an adequate ALLL, improve the Bank’s overall earnings and net
interest income, and describe the operating assumptions that form the basis for
major projected income and expense components, including executive officers’
compensation. For purposes of this paragraph, “compensation” refers
to any and all salaries, bonuses and other benefits of every kind or nature
whatsoever, both current and deferred, whether paid directly or
indirectly.
(b) Within
30 days after the end of each calendar quarter following completion of the
profit plan and budget required by this paragraph, the Board shall evaluate the
Bank’s actual performance in relation to the written profit plan and budget,
record the results of the evaluation, and note any actions taken by the Bank in
the minutes of the Board meeting when such evaluation is
undertaken.
10
(c) A
written profit plan and budget shall be prepared for each calendar year for
which this ORDER is in effect and shall be submitted to the Regional Director
for review and comment within 30 days after the end of each
year. Within 30 days after the Regional Director has responded to the
plan, the Board shall adopt the plan as amended or modified by the Regional
Director, which approval shall be recorded in the minutes of the Board
meeting. The plan shall be implemented immediately to the extent that
the provisions of the plan are not already in effect at the Bank.
CAPITAL PLAN
10. (a) Not
later than June 30, 2010, the Bank shall have and maintain the following minimum
capital levels (as defined in Part 325 of the FDIC's Rules and Regulations, 12
C.F.R. Part 325), after establishing an adequate allowance for loan and lease
losses:
(1)
Tier 1
capital at least equal to 7 percent of total assets;
(2)
Tier 1
risk-based capital at least equal to 9 percent of total risk-weighted assets;
and
(3)
Total
risk-based capital at least equal to 11 percent of total risk-weighted
assets.
(b) The
Bank shall comply with the FDIC's Statement of Policy on Risk-Based Capital
found in Appendix A to Part 325 of the FDIC Rules and Regulations, 12 C.F.R.
Part 325, App. A.
(c) Within
30 days of the last day of each calendar quarter, the Bank shall determine, from
its Reports of Condition and Income, its capital ratios for that calendar
quarter.
11
(d) In
the event any capital ratio is or falls below the minimum required by this
ORDER, the Bank shall immediately notify the Regional Director and (i) within 60
days shall increase capital in an amount sufficient to comply with this ORDER,
or (ii) within 60 days shall submit a written plan to the Regional Director,
describing the primary means and timing by which the Bank shall increase its
capital ratios up to or in excess of the minimum requirements set forth in this
ORDER, as well as a contingency plan for the sale or merger of the Bank in the
event the primary sources of capital are not available. Within 10
days of receipt of all such comments from the Regional Director, and after
consideration of all such comments, the Board shall approve the written capital
plan, which approval shall be recorded in the minutes of the meeting of the
board of directors. Thereafter, the Bank shall implement and fully
comply with the written plan.
(e) If
all or any part of the additional capital required by the provisions of this
ORDER is accomplished by the sale of new securities, the Board 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 Regional Director and the FDIC's Accounting, Registration,
Disclosure, and Securities Unit, 550 17th Street, N.W. Washington, D.C. 20429
for review and comment. Any changes in the plan or materials requested shall be
made prior to the dissemination of the materials.
12
(f) If
the Bank is permitted to increase its Tier 1 capital by the sale of
non-cumulative 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.
(g) The
Bank shall provide to any subscriber 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 paragraph 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 purchaser of the Bank's securities who
received or was tendered the information contained in the Bank's original
offering materials.
(h) For
purposes of this ORDER, all terms relating to capital shall be calculated
according to the methodology set forth in Part 325 of the FDIC's Rules and
Regulations.
GROWTH PLAN
11.
While
this ORDER is in effect, the Bank shall not increase its Average Total Assets
during any quarter without providing, at least 30 days prior to its
implementation, a growth plan to the Regional Director. Such growth
plan, at a minimum, shall include the funding source to support the projected
growth, as well as the anticipated use of funds. This growth plan
shall not be implemented without the prior written consent of the Regional
Director.
13
COMPLIANCE
COMMITTEE
12.
Within 45 days from the effective date of this ORDER,
the Board shall establish a subcommittee of the Board charged with the
responsibility of ensuring that the Bank complies with the provisions of this
ORDER. The subcommittee shall report monthly to the entire Board, and
a copy of the report and any discussion related to the report or the ORDER shall
be included in the minutes of the Board meeting. Nothing contained
herein shall diminish the responsibility of the entire Board to ensure
compliance with the provisions of this ORDER.
DIVIDEND
RESTRICTION
13. As
of the effective date of this ORDER, the Bank shall not declare or pay any
dividend without the prior written consent of the Regional
Director.
CORRECTION OF
VIOLATIONS
14. Beginning
on the effective date of this ORDER, the Bank shall take steps necessary,
consistent with other provisions of this ORDER and sound banking practices, to
correct and prevent the unsafe or unsound banking practices and/or violations of
law or regulation and all contraventions of federal banking agency policies and
procedures and guidelines that were identified in the ROE.
SHAREHOLDERS
15.
After the
effective date of this ORDER, the Bank shall send a copy of this ORDER, or
otherwise furnish a description of this ORDER, to its shareholders (1) in
conjunction with the Bank’s next shareholder communication, and also (2) 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 and
Securities Disclosure
Section, 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.
14
PROGRESS
REPORTS
16.
Within 45
days after the end of the first calendar quarter following the effective date of
this ORDER, and within 45 days after the end of each successive calendar
quarter, the Bank shall furnish written progress reports to the Regional
Director 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 the ORDER have been accomplished
and the Regional Director has released the Bank in writing from making
additional reports.
ORDER
EFFECTIVE
17. This
ORDER shall be binding upon the Bank, its successors and assigns, and all
institution-affiliated parties of the Bank. The provisions of this
ORDER shall remain effective and enforceable except to the extent that, and
until such time as, any provision of this ORDER shall have been modified,
terminated, superseded, or set aside by the FDIC.
This
ORDER will become effective upon its issuance by the FDIC.
Pursuant
to delegated authority.
Dated
this 29th day of January, 2010.
|
|
/S/
|
|||
|
|
James
C. Watkins
|
|||
|
|
Acting
Regional Director
New
York Region
Division
of Supervision and Consumer Protection
Federal
Deposit Insurance Corporation
|
15