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From Banking and Finance Law Daily, August 7, 2015

Michigan bank agrees to strengthen oversight, earnings, and assets

By Lisa M. Goolik, J.D.

The OSB Community Bank of Brooklyn, Mich., a state-chartered bank, has entered into a written agreement with the Federal Reserve Bank of Chicago and Michigan Department of Insurance and Financial Services (DIFS) that is intended to maintain the bank’s financial soundness. The agreement requires that OSB develop written plans that improve the bank’s assets, earnings, and overall condition, as well as strengthen the board of directors’ oversight of the bank, credit risk management practices, lending and credit administration program, and loan grading.

Written plans. Within 60 days of the agreement, OSB must submit:

  • a written plan to the Chicago Fed and DIFS to strengthen board oversight of the management and operations of the bank, which includes conducting an assessment of the Bank’s management and staffing needs;

  • a written plan to strengthen credit risk management practices;

  • a written lending and credit administration program;

  • a written program for the effective grading of the bank’s loan portfolio;

  • a written plan to maintain sufficient capital at the Bank acceptable to the Chicago Fed and DIFS; and

  • a written strategic plan to improve the bank’s earnings and overall condition.

Asset improvement. The agreement also limits the bank from, directly or indirectly, extending, renewing, or restructuring any credit to or for the benefit of any borrower, including any related interest of the borrower, whose loans or other extensions of credit were criticized in the Dec. 1, 2014, joint examination, without the prior approval of a majority of the full board of directors or a designated committee.

In addition, within 60 days, OSB must submit a written plan to improve the bank’s position through repayment, amortization, liquidation, additional collateral, or other means on each loan, relationship, or other asset in excess of $200,000, including other real estate owned that: (i) is past due as to principal or interest more than 90 days as of the date of the agreement; (ii) is on the bank’s problem loan list; or (iii) was adversely classified in an examination conducted by the Chicago Fed and DIFS that commenced on Dec. 1, 2014. The bank must also provide quarterly progress reports to the Chicago Fed and DIFS to update each asset improvement plan.

Loan and lease losses. OSB also agreed, within 30 days from the receipt of any federal or state report of examination, to charge off all assets classified “loss” unless otherwise approved in writing by the Chicago Fed and DIFS. The bank must also review and revise its allowance for loan and lease losses methodology consistent with the Fed’s supervisory guidance.

Dividends. The agreement also restricts the bank’s ability to declare or pay any dividends without the prior written approval of the Chicago Fed, the Director of the Division of Banking Supervision and Regulation of the Board of Governors, and DIFS. Any request to declare or pay dividends must be consistent with the Fed’s Policy Statement on the Payment of Cash Dividends by State Member Banks and Bank Holding Companies, dated Nov. 14, 1985.

Progress reports. OSB also agreed to submit written progress reports to the Chicago Fed and DIFS within 30 days after the end of each calendar quarter. The reports must detail the actions taken to comply with agreement and any results.

Companies: OSB Community Bank

MainStory: TopStory BankingOperations EnforcementActions FederalReserveSystem MichiganNews

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