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State Bank of Park Rapids is operating under a cease and desist order. (Sarah Smith/Enterprise)

FDIC issues cease and desist order against Park Rapids bank; changes under way

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The Federal Deposit Insurance Corp. has issued a cease-and-desist order against State Bank of Park Rapids, citing unsafe banking practices the institution must take steps to remediate. Many are already under way.

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The bank remains open while management works to bring deficient areas into compliance with sounder banking procedures, said FDIC spokesperson LaJuan Williams-Dickerson.

"We issue orders like this every month against different institutions, states, different actions.

"Other than that, we can't comment on open and operating institutions."

"The order itself is far from anything that would even remotely suggest any kind of closing," said State Bank executive vice-president Tom Ogaard. "It is an order that the bank needed to change some of its practices and the bank has always supported the business community and individuals in and around the Park Rapids area and given the economic down-turn, it's been difficult for those people to maintain all their obligations.

"That, in and of itself, really impacted the bank," he added. "So we've been involved with a number of businesses and real estate development and it's just become very difficult for a lot of those folks to make payment."

The 22-page order, signed Nov. 17, places the bank under various time frames ranging from 30 to 120 days to enact stricter lending policies, to bolster capital levels and to ensure qualified professionals are at key positions in the bank's hierarchy, among other measures.

The bank entered into a stipulation with the FDIC without admitting or denying any of the allegations.

"The FDIC considered the matter and determined that it has reason to believe that the Bank has engaged in unsafe and unsound banking practices and violations of law and regulation," the FDIC stated in its order.

Among the allegedly unsafe practices, State Bank:

-Operated with a board that "failed to provide adequate supervision over" management;

-Operated with management policies and practices "detrimental to the bank;"

-Operated with an "inadequate level of capital protection for the kind and quality of assets held and the risk inherent in the bank's activities;"

-Operated with an "inappropriate allowance for loan and lease losses for the volume, kind and quality of loans and leases held;"

-Engaged in "hazardous lending and lax collection practices" including "failing to obtain proper loan documentation, failing to obtain adequate collateral... failing to keep accurate books and records" and other identified lending areas.

The bank, within 120 days, must verify that its chief executive officer, chief lending officer and other senior officers be adequately qualified to operate the bank.

It must enact a management plan within 90 days for approval by the FDIC and notify the FDIC of any changes in the board of directors or senior management.

"We obviously are working with all of our borrowers to come to a reasonable remedy that works for both them and the bank," Ogaard said. "The last thing we want is to impair somebody's livelihood or their ability to get around, if it's a vehicle, or that kind of thing.

"The order pretty much, from our perspective, we've addressed all of the issues," he said. "I would guess we're well on our way to overcoming the majority of the findings in the exam and I guess from there we just move forward.

"The capital position of the bank is very strong," Ogaard said. "It's very strong and I think if you were to go out and look within the industry and in this area, we're very strong relative to our peer group.

"So, from that perspective, nothing has changed from the customer perspective. It's pretty much the internal practices that we have that we're making changes and amendments to in providing more over-sight and additional management practices.

"And that's pretty standard," he said. "The customers' deposits remain insured."

Outgoing chief executive officer Jack Smythe is the fourth generation in his family to work at the bank. He plans to retire in March.

Jerry Janz assumed the role of president and CEO in September 2008.

The bank was chartered in 1902. FDIC filings indicate it has $111 million in assets and 29 employees at its sole branch.

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