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   [10,088] In athe Matter of Polk County Bank, Balsam Lake, Wisconsin, DOcket No. FDIC-90-132b (7-20-90).

   Bank to cease and desist from practices such as engaging in hazardous lending and lax collection practices; violating Regulation O and other applicable federal and state laws and regulations; operating with inadequate liquiditylevel, inadequate loan policy, and management whoose policies and practices are detrimental to the Bank and the safety of its deposits; operating with a board of directors who failed to provide adequate supervision over and direction to management; and operating in such a manner as to deplete the Bank's level of total equity capital. (This order was terminated by order of the FDIC dated 12-21-93; see ¶ 15,775.)

   [.1] Management—Qualifications—Compliance
   [.2] Loan Policy—Minimum Requirements—Compliance
   [.3] Loans—Risk Position—Reduce
   [.4] Defintition—"Loan Administration Weaknesses and Deficiencies"
   [.5] Loans—Extensions of Credit—Existing Borrowers—Restrictions
   [.6] Assets—Adversely Classified—Reduce
   [.7] Loan Valuation Reserve—Correction—Reports
   [.8] Technical Exceptions—Eliminate/Corect
   [.9] Violations of Law—Eliminate/Correct
   [.10] Funds Management and Liquidity Policy—Minimum Requirements
   [.11] Budget—Minimum Requirements
   [.12] Investment Policy—Written Plan—Review
   [.13] Capital/Asset Ratio—Increase—Review
   [.14] Dividends—Restricted
   [.15] Compliance—Monitoring
   [.16] Shareholders—Disclosure—Cease and Desist ORder
   [.17] Compliance—Reports—Frequency

In the Matter of

POLK COUNTY BANK
BALSAM LAKE, WISCONSIN
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-90-132b

   Polk County Bank, Balsam Lake, Wisconsin ("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 regulation alleged to have been committed by the Bank, and of its right to a hearing on the charges under section 8(b) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1818(b), 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 July 5, 1990, whereby, solely for the purpose of this proceeding and without admitting or denying the charges of unsafe or unsound banking practices and violations of law and/or regulation, the Bank consented to the issuance of an ORDER TO CEASE AND DESIST ("ORDER") by the FDIC.
   The FDIC considered the mater and determined that it had reason to believe that the Bank had engaged in unsafe or unsound banking practices and had violated laws and 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 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 esist from the following unsafe, or unsound banking practices and/or violations of law and regulation:
   A. Engaging in hazardous lending and lax collection practices, as evidenced by an excessive volume of adversely classified loans, loan delinquencies, loans lacking proper doc- {{2-28-94 p.C-462}}umentation and other poor credit administration practices;
   B. Violating sections 215.4(a)(1), 251.4(a)(2) and 215.7 of Regulation O of the Board of Governors of the Federal Reserve System, 12 U.S.C. §§ 215.4(a)(1), 215.4(a)(2) and 215.7; violating section 238(a)(1)(A) of the Federal Reserve Act, 12 U.S.C. § 371c-1; violating the State of Wisconsin legal lending limit restrictions as set forth in section 221.29(1)(a) of Wisconsin Statutes, WIS. STAT. § 221.29(1)(a); vi8olating the State of Wisconsin unsecured lending restrictions as set forth in sections 221.29(5) and (6) of Wisconsin Statutes, WIS. STAT. §§ 221.29(5) and (6); violating the documentation requirements set forth in Chapter Bkg 7, sections 7.01(2)(b) and (c) of Wisconsin Administrative Code, WIS. STAT. §§ Chapter Bkg 7.01(2)(b) and (c); violating section 304.4(a) of FDIC Rules and Regulations, 12 C.F.R. § 304.4(a); and section 103.22(a)(1), and 103.,33(a) of the United States Treasury Financial Recordkeeping and Reporting of Currency and Foreign Transactions Regulations, 31 C.F.R. §§ 103.22(a)(1) and 103.33(a).
   C. Operating with an inadequate allowance for loan and lease losses for the volume, kind, and quality of loans held;
   D. Operating in such a manner as to produce operating losses;
   E. Operating with an excessive level ofloans to deposits whichhas led to an inadequate liquidity level;
   F. Operqting with an inadequate loan policy;
   G. Operating with a management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits; and
   H. Operating with a board of directors which has failed to provide adequate supervision over and direction to the management of the Bank; and
   I. Operating in such a manner as to deplete the Bank;s level of total equity capital.
   IT IS FURTHER ORDERED, that the Bank, its institution-affiliated parties, and any successors and assigns thereof, take affirmative action as follows:

   [.1] 1. (a) Within 90 dyas from the effective date of this ORDER, the Bank shall have, and thereafter retain, qualified management. Each executive officer, as that term is defined in Section 303.14(a)(3) of the FDIC Rules and Regulations, 12 C.F.R. § 303.14(a)(3), shall have qualifications and experience commensurate with his or her duties and responsibilities at the Bank. Further, during the life of this ORDER, the Bank shall notify the Regional Director of the FDIC's Chicago Regional Office ("Regional Director") and the COmmissioner of Banking for the State of Wisconsin ("Commissioner") prior to any changes in any of the Bank's executive officers and shall submit to the Regional Director and Commissioner a written statement of the qualifications of any new executive officer.

       (b) The quality of management shall be assesed on its ability to:
         (i) Comply with the requirements of this ORDER;
         (ii) Operate the Bank in a safe and sound manner;
         (iii) Comply with applicable laws and regulations; and
         (iv) Restore all aspects of the Bank to a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness, and liquidity.
       (c) No provisions of this paragraph shall be construed to exempt the Bank from the requirements of section 32 of the Act ("section 32"), 12 U.S.C. § 1831(i).

   [.2] 2. (a) Within 90 days from the effective date of this ORDER, and annually thereafter, the board of directors shall review the Bank's loan policy and practices for adequacy and, based upon this review, shall make all appropriate revisions to the policy necessary to strengthen lending procedures and abate additional loan deterioration. The minutes of the board of directors' meeting at which such reviews are undertaken shall indicate the findings of the reviews and a description of any revisions made.
       (b) The initial revision to the Bank's loan policy required by this paragraph, at a minimum, shall include the following:
         (i) Provisions requiring that all extensions of credit originated or renewed above $10,000 be supported by current and complete financial data and/or complete collateral documentation; have a clearly defined purpose; and have a predetermined and realistic repayment source and schedule.
         (ii) Provisions requiring loan committee review and monitoring of the
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      status of repayment and collection of overdue and maturing loans, as well as those loans which were classified "Substandard" in the FDIC Report of Examination as of November 17, 1989 ("Report"), or in any future examination conducted by the FDIC or State authority.
         (iii) Provisions requiring the establishment and maintenance of a loan grading system and internal loan watch list.
         (iv) Provisions requiring 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.
       (c) Within 60 days following adoption of the revisions required in this paragraph, the Bank shall implement a written, detailed internal audit program designed to monitor and ensure compliance with the Bank's loan policy and procedures.

   [.3] 3. Within 90 days from the effective date of this ORDER, the Bank shall formulate, adopt, and submit to the Regional Director and Commissioner for review and comment, a written plan to lessen the Bank's risk position in each asset in excess of $50,000 which is classified "Substandard" in the Report. Such plan shall include, but not be limited to, the following:
       (a) Dollar levels to which the Bank will strive to reduce each asset within 6 and 12 months from the effective date of this ORDER; and
       (b) Provisions for the submission of monthly written progress reports to the Bank's board of directors for review and notation in the minutes of the meetings of the board of directors.

   [.4] 4. (a) In the event that the bank be unsuccessful in correcting loan administration weaknesses and deficiencies, upon notice and after an opportunity for the Bank to present its views, the Regional Director may require the addition of a chief lending officer or other appropriate lending personnel with an appropriate level of lending, collection and loan supervision experience for the type and quality of the Bank's loans. Such person shall be provided written authority by the Bank's board of directors that shall include, at a minimum, the responsibility for maintaining prudent lending policies and practices. Loan administration weaknesses and deficiencies are defined as one or more of the following:
       (i) making loans in violation of 2(b)(i) of this ORDER:
       (ii) failure to establish and maintain a loan grading system;
       (iii) failing to exercise best efforts to implement the plan of action required by this ORDER for the reduction and collection of delinquent loans.
       (iv) making loans in violation of paragraph 4(b) of this ORDER:
   (b) As of 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 whose loan or other credit has been classified "Substandard" and is uncollect unless the Bank's board of directors has adopted a detailed written statement giving the reasons why extending such credit is in the best interests of the Bank. A copy of the statement shall be placed in the appropriate loan file and included in the minutes of the applicable board of directors' meeting.

   [.5] 5. Within 90 days from the effective date of this ORDER, the Bank shall formulate, adopt, and submit to the Regional Director and Commissioner for review and comment, a plan of action for the reduction and collection of delinquent loans. Said plan shall include, at a minimum, provisions which prohibit extending credit for the payment of interest, clearly define areas of responsibility, and establish acceptable guidelines for the collection of troubled credits.

   [.6] 6. Within 30 days from the effective date of this ORDER, the Bank shall eliminate from its books, by charge-off or collection, all assets or portions of assets classified "Loss" in the Report. Reduction of these assets with proceeds of other loans made by the Bank is not considered collection for the purpose of this paragraph.

   [.7] 7. (a) Within 30 days from the effective date of this ORDER, the Bank shall replenish its loan valuation reserve by an expense entry in an amount equal to those loans required to be charged off by this ORDER.
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   (b) Within 30 days from the effective date of this ORDER, the Bank shall make a provision to the loan valuation reserve which, after careful review and consideration by the board of directors, reflects the potential for further losses in the "Substandard" loan classifications and all other loans in its portfolio. The results of the board of directors' review and reconsideration shall be recorded in the minutes of the board meeting at which the matter is considered.
   (c) Within 30 days from the effective date of this ORDER, Reports of Condition and Reports of Income required by the FDIC and filed by the Bank subsequent to November 17, 1989, shall be amended and refiled if they do not reflect a provision for loan losses and loan valuation reserve which are adequate considering the condition of the Bank's loan portfolio and which, at a minimum, incorporate the adjustments required by this paragraph.
   (d) Prior to the submission or publication of all Reports of Condition and Reports of Income required by the FDIC after the effective date of this ORDER, the board of directors of the Bank shall review the adequacy of the Bank's loan valuation reserve and accurately report the same. The minutes of the board meeting at which such review is undertaken shall indicate the results of the review, the amount of increase in the reserve recommended, if any, and the basis for determination of the amount of reserve provided.
   8. Within 60 days from the effective date of this ORDER, the Bank shall correct all deficiencies in those assets listed for "Special Mention" in the Report, and in any future examination conducted by the FDIC or State authority.

   [.8] 9. Within 60 days from the effective date of this ORDER, the Bank shall correct all Technical Exceptions listed on pages 2-d through 2-d-2 of the Report.

   [.9] 10. Within 60 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of law and/or regulation described on pages 6a through 6-a-5 of the Report. In addition, the Bank shall implement procedures to ensure future compliance with all applicable laws and regulations.

   [.10] 11. (a) Within 60 days from the effective date of this ORDER, the board of directors of the Bank shall formulate a written plan for improving liquidity and the Bank's relationship of volatile liabilities to temporary investments. The plan shall include, but not be limited to the following:

       (i) Requiring computation of the Bank's liquidity and volatile liability dependency ratios, utilizing a format similar to that found on page 5-b of the Report. The computed ratios shall be submitted to the board directors for their review on a montly basis;
       (ii) Establishing prudent limitations on the Bank's ratio of total loans to total deposits, which shall, within 180 days from the effective date of this Order, be reduced to 75 percent and, within 360 days from the effective date of this Order, be reduced to no more than 70 percent;
       (iii) Incorporating parameters for borrowing fedeal funds such as dollar amount limits, duration and authorized sources/lenders; and
       (iv) Restrict the Bank's reliance on borrowed funds to that amount required for seasonal credit needs and to meet deposit withdrawals.
   (b) The written plan required to be developed by this paragraph shall be submitted to the Regional Director and Commissioner for review and comment. Within 30 days of the receipt of any such comments, and after appropriate consideration of any changes recommended, the board of directors shall approve and implement the plan. The approval shall be recorded in the applicable minutes of the meeting of the board of directors.

   [.11] 12. (a) While the ORDER is in effect, the Bank shall annually formulate and fully implement, for each succeeding calendar year, a written plan and a comprehensive budget for all categories of income and expense. The budget required by this paragraph shall be completed prior to December 1st of each year and shall contain formal goals and strategies, consistent with safe and sound banking practices, for the purpose of improving the bank's net interest margin and shall address, at a minimum, reducing non-earnings assets and managing the Bank's effective cost of funds.
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   (b) At the first board meeting following the end of each calendar quarter, the board of directors shall evaluate the bank's actual performance in relation to projections and goals established in the plan and budget required by paragraph 12(a) and shall record the results of each evaluation and any actions taken by the Bank pursuant thereto in the minutes of said board of directors meeting.
   (c) The plan and budget, and the evaluation of the Bank's performance required by this paragraph, shall be submitted to the Regional Director for his review and opportunity for comment.

   [.12] 13. Within 90 days from the effective date of this ORDER the board of directors shall review, revise and adopt a new investment policy incorporating, at a minimum, those recommendations detailed on page 6 of the Report. The revised policy shall be submitted to the Regional Director and Commissioner for review and opportunity for comment.

   [.13] 14. (a) Within 30 days from each June 30 and December 31 following the effective date of this ORDER, the Bank's board of directors shall determine the Bank's level of primary capital as a percentage of its total assets for the quarter preceding the respective June 30 and December 31 dates. If that percentage is less than 7.75 percent, the Bank shall, within 90 days from the date of that determination, increase the capital/asset relationship to not less than 7.75 percent. For the purpose of this ORDER, the terms "primary capital" and "total assets" utilized in computing the relationship shall be defined and calculated in accordance with the provisions of Part 325 of FDIC Rules and Regulations, 12 C.F.R. Part 325.
   (b) Any increase in primary capital necessary to meet the requirements of this paragraph may be accomplished by the following:

       (i) The sale of equity securities allowed as primary capital under 12 C.F.R. Part 325; or
       (ii) The collection in cash of assets previously charged off; or
       (iii) The direct contribution of cash by the directors and/or the shareholders of the Bank; or
       (iv) Any combination of the above means.
   (c) If all or part of the increase in primary capital required by this paragraph is to be accomplished by the sale of new securities, the board of directors of the Bank shall forthwith 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 said 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 detailed 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 material used in the sale of the securities shall be submitted to the FDIC at Washington, D.C., for its review. Any changes requested to be made in the materials by the FDIC shall be made prior to their dissemination.
   (d) In complying with the provisions of subparagraph (c) of this paragraph, 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 paragraph shall be furnished within 10 calendar days of the date any material development or change was planned or occurred, whichever is earlier, and shall be furnished to every purchaser and/or subscriber of the Bank's original offering materials.
   (e) The formal capital ratio analysis required by this paragraph shall not negate the responsibility of the Bank and its board of directors for maintaining throughout the year an adequate level of capital and protection for the kind, quali- {{12-31-90 p.C-466}}ty and degree of market depreciation of assets held by the Bank.

   [.14] 15. As of the effective date of this ORDER, the Bank shall pay no cash dividends without the prior written consent of the Regional Director and Commissioner.

   [.15] 16. Within 30 days from the effective date of this ORDER, the Bank's board of directors shall develop and adopt a program that will provide for proper monitoring of the Bank's compliance with this ORDER, and with its written loan, investment, and asset/liability management policies, on a monthly basis.

   [.16] 17. Following the effective date of this ORDER, the Bank shall send to its shareholders or otherwise furnish a description of this ORDER: (1) in conjunction with the Bank's next shareholder communication; and (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 in Washington, D.C., for review at least 20 days prior to dissemination to shareholders. Any changes requested to be made by the FDIC shall be made prior to dissemination of the description, communication, notice or statement.

   [.17] 18. On the last day of the second month following the date of issuance of this ORDER, and every third month thereafter, the Bank shall furnish written progress reports, signed by each member of the Bank's board of directors, to the Regional Director and Commissioner detailing the form and manner of any actions taken to secure compliance with the 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 Commissioner have in writing released the Bank from making further reports.
   The effective date of this ORDER shall be 10 days after its issuance by the FDIC.
   The provisions of this ORDER shall be binding upon the Bank, its instituion-affiliated parties, and any successors and assigns thereof.
   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.
   Date: 7/20, 1990.

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