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FDIC Enforcement Decisions and Orders

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   [10,902] In the Matter of Midland Bank, Kansas City, Missouri, Docket No. FDIC-93-168PCAP (11-12-93).

   Bank agrees to take prompt corrective action to increase capital. (This order was terminated by order of the FDIC dated 4-19-95. See ¶15,996.)

   [.1] Capital—Capital Restoration Plan—Revision Required
   [.2] Capital—Tier 1 Capital—Increase
   [.3] Capital—Tier 1 Capital—Increase—Methods
   [.4] Capital—Tier 1 Capital—Failure to Increase—Merge or Sell
   [.5] Prompt Corrective Action—Statutory Requirements
   [.6] Interest—Rates Paid—Restrictions
   [.7] Compensation—Senior Executive Officers—Restricted
   [.8] Prompt Corrective Action—Statutory Requirements
   [.9] Shareholders—Disclosure—Prompt Corrective Action Order

In the Matter of

MIDLAND BANK
KANSAS CITY, MISSOURI
(Insured State Nonmember Bank)
PROMPT CORRECTIVE ACTION
DIRECTIVE REQUIRING
SUBMISSION OF CAPITAL PLAN

FDIC-93-168PCAP

   Midland Bank, Kansas City, Missouri ("Bank"), is a significantly undercapitalized depository institution as defined in section 38(b)(1) of the Federal Deposit Inusurance Act ("Act"), 12 U.S.C. § 1831o(b)(1), and section 325.103 of the Federal Deposit Insurance Corporation ("FDIC") Rules and Regulations, 12 C.F.R. § 325.103, based upon the Report of Condition and Income of the Bank as of March 31, 1993, and the Bank's failure to submit a capital restoration plan {{6-30-95 p.C-3512}}acceptable to the FDIC pursuant to section 38(e)(2) of the Act, 12 U.S.C. § 1831o(e)(2), and section § 325.104 of the FDIC Rules and Regulations, 12 C.F.R. 325.104, and the Bank having received a NOTICE OF INTENT TO ISSUE A PROMPT CORRECTIVE ACTION DIRECTIVE ("NOTICE") detailing the actions which will be required to be taken by the Bank and/or the proscriptions which will be imposed on the Bank pursuant to section 38 of the Act, 12 U.S.C. § 1831o, and section 308.201(a) of the FDIC Rules of Practice and Procedure, 12 C.F.R. § 308.201(a), and the Bank having filed a response to the NOTICE pursuant to section 308.201(c) of the FDIC Rules of Practice and Procedure, 12 C.F.R. § 308.201(c), and the FDIC, having considered said response, hereby issues this PROMPT CORRECTIVE ACTION DIRECTIVE REQUIRING SUBMISSION OF CAPITAL PLAN ("DIRECTIVE") pursuant to the provisions of section 38 of the Act, 12 U.S.C. § 1831o, and section 308.201(d) of the FDIC Rules of Practice and Procedure and Regulations, 12 C.F.R. § 308.201(d).

PROMPT CORRECTIVE ACTION DIRECTIVE

   [.1] 1. IT IS HEREBY DIRECTED that, within 5 days of the effective date of this DIRECTIVE, the Bank shall file a revised capital restoration plan with the Regional Director for the Division of Supervision of the FDIC's Kansas City Region ("Regional Director"). The Bank's revised capital restoration plan shall expressly: (i) address the items in the Bank's capital restoration plan previously submitted to the FDIC determined not acceptable by the FDIC pursuant to section 38(e)(2)(C) of the Act, 12 U.S.C. § 1831o(e) (2)(C), and (ii) provide, among other things, that the Bank shall increase its Tier I capital and leverage ratio of Tier I capital in accordance with the requirements of paragraph 2 of this Directive.

   [.2] 2. FURTHER DIRECTED, pursuant to section 38(f)(2)(A)(i) and (f)(3)(A) of the Act, 12 U.S.C. § 1831o(f)(2)(A)(i) and (f)(3)(A), that, within 60 days of the effective date of this DIRECTIVE, the Bank shall increase its Tier I capital by not less than $14,200,000 and shall have a leverage ratio of Tier I capital to total assets of not less than 7.0 percent ("Tier I ratio").

   [.3] 3. FURTHER DIRECTED that, the increase in Tier I capital and the Tier I ratio required by paragraph 2 of this DIRECTIVE may be accomplished by the following:

       (a) the sale of new securities in the form of common stock or noncumulative perpetual preferred stock; or
       (b) the direct contribution of cash by the directors and/or shareholders of the Bank; or
       (c) the direct contribution of cash by the parent Bank holding company; or
       (d) any other method acceptable to the FDIC.

   [.4] 4. FURTHER DIRECTED that:
   (a) If all or part of the increase in Tier I capital required under this DIRECTIVE involves an offering, other than an offering deemed not to be a public securities offering, pursuant to 17 C.F.R. § 230.506 or as hereafter amended, 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 of this DIRECTIVE as well as the circumstances giving rise to the offering, and any other material disclosures necessary to comply with the Federal securities laws. Prior to the sale of the securities, and, in any event, not less than 20 days prior to the dissemination of such materials, the materials used in the sale of the securities shall be submitted to the FDIC, Registration and Disclosure Section, 550 17th Street, N.W., Washington, D.C. 20429, for review. Any changes requested in the materials by the FDIC shall be made prior to their dissemination. In addition, any terms and conditions of the issue of new securities shall be submitted to the Regional Director for prior approval.
   (b) In complying with the provisions of this DIRECTIVE, the Bank shall provide to any subscriber and/or purchaser of Bank stock, written notice of any planned or existing development or other change which is materially different used in connection with the sale of Bank securities. The written notice required by this paragraph 4(b) shall be furnished within 10 days from the date such material development or change was planned or occurred, whichever is earlier, to every purchaser and/or subscriber of Bank stock who received or was tendered the infor- {{1-31-94 p.C-3513}}mation contained in the Bank's original offering materials.
   (c) For the purposes of this DIRECTIVE, the terms "leverage ratio," "Tier 1 capital," and "total assets" shall have the same meanings as in section 325.2(k), (u), and (v), 12 C.F.R. § 325.2(k), (u), and (v).

   [.4] 5. FURTHER DIRECTED that, in the event the Bank does not increase its Tier 1 capital and have a Tier 1 ratio in accordance with the requirements of paragraph 2 of this DIRECTIVE, pursuant to sections 38(f)(2)(A)(iii) and 38(f)(3)(A) of the Act, 12 U.S.C. §§ 1831o(f)(2)(A)(iii) and 1831o(f)(3)(A), the Bank shall immediately take any necessary action to result in the Bank's: (i) acquisition by another depository institution holding company, or (ii) merger with another insured depository institution.

   [.5] 6. FURTHER DIRECTED that, pursuant to section 38(f)(2)(B)(i) and 38(f)(3)(B) of the Act, 12 U.S.C. §§ 1831o(f)(2)(B)(i) and 1831o(f)(3)(B), during the period this DIRECTIVE is in effect, the Bank shall strictly comply with section 23A of the Federal Reserve Act, 12 U.S.C. § 371c, provided that the exemption in section 23A(d)(1), 12 U.S.C. § 371c(d)(1), shall not apply.

   [.6] 7. FURTHER DIRECTED that:
   (a) Pursuant to sections 38(f)(2)(C)(i) and 38(f)(3)(C), 12 U.S.C. §§ 1831o(f)(2)(C)(i) and 1831o(f)(3)(C), during the period this DIRECTIVE is in effect, the Bank shall not solicit or accept any deposits at any interest rate which provides an effective yield that exceeds by more than 50 basis points the prevailing effective yields on deposits of comparable amounts and maturities: (i) in the Bank's normal market area, or (ii) in the market area in which such deposits are solicited or accepted.
   (b) The requirement in paragraph 7(a) of this DIRECTIVE, which restricts interest rates on deposits, shall not apply to interest rates on deposits accepted before (and not renewed or renegotiated after) the effective date of this DIRECTIVE.
   (c) For the purposes of this DIRECTIVE, the terms "effective yield" and "market area" shall have the same meaning as in section 337.6(b)(4) of the FDIC Rules and Regulations, 12 C.F.R. § 337.6(b)(4).

   [.7] 8. FURTHER DIRECTED that:
   (a) During the period this DIRECTIVE is in effect, without the prior written approval of the FDIC, the Bank shall not pay to any senior executive officer (i) any bonus, or (ii) any compensation that exceeds the rate of compensation prescribed in section 38(f)(4)(A)(ii) of the Act, 12 U.S.C. § 1831o(f)(4)(A)(ii).
   (b) The prohibitions in paragraph 8(a) of this DIRECTIVE shall not apply to any senior executive officer who accepted employment in his or her current position on or before December 19, 1991, and whose employment contract has not been renewed or renegotiated either (i) after December 19, 1991, or (ii) to evade the requirements of: (A) section 38(f)(4) of the Act, 12 U.S.C. § 1831o(f)(4), and (B) paragraph 8(a) of this DIRECTIVE.
   (c) "Compensation" and "senior executive officer" shall have the same meaning as in section 38(b)(2)(E) and (H) of the Act, 12 U.S.C. § 1831o(b)(2)(E) and (H).
   [.8] 9. FURTHER DIRECTED that, during the period this DIRECTIVE is in effect, in addition to the foregoing, the Bank shall comply with the following mandatory prompt corrective action requirements of section 38 of the Act, 12 U.S.C. § 1831o:
   (a) Restriction on capital distributions pursuant to section 38(d)(1) of the Act, 12 U.S.C. § 1831o(d)(1), as "capital distribution" is defined in section 38(b)(2)(B) of the Act, 12 U.S.C. § 1831o(b)(2)(B):
   (b) Restriction on the payment of management fees, pursuant to section 38(d)(2) of the Act, 12 U.S.C. § 1831o(d)(2), as "management fee" is defined in section 325.2(1) of the FDIC Rules and Regulations, 12 C.F.R. § 325.2(1):
   (c) Restriction on asset growth pursuant to section 38(e)(3) of the Act, 12 U.S.C. § 1831o(e)(3); and
   (d) The requisite prior approval of the FDIC, pursuant to section 38(e)(4) of the Act, 12 U.S.C. § 1831o(e)(4), before the Bank, directly or indirectly:

       (i) acquires any interest in any company or insured depository institution:
       (ii) establishes or acquires any additional branch office; or
    {{1-31-94 p.C-3514}}
       (iii) engages in any new line of business.

   [.9] 10. FURTHER DIRECTED that, upon the effective date of this DIRECTIVE, the Bank shall send to its shareholders a description of the DIRECTIVE (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 DIRECTIVE in all material respects. The description and any accompanying communication, statement, or notice shall be sent to the FDIC, Registration and Disclosure Section, 550 17th Street, N.W., Washington, D.C. 20429, 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.
   11. FURTHER DIRECTED that, on December 15, 1993, and on the fifteenth day of every month thereafter, the Bank shall submit written reports to the Regional Director specifically detailing the Bank's compliance with this DIRECTIVE, which shall be reviewed by the Bank's board of directors prior to submission and made a part of the minutes of the meeting at which such review occurs.
   12. FURTHER DIRECTED that, this DIRECTIVE shall become effective immediately upon its receipt by the Bank.
   13. FURTHER DIRECTED that, the provisions of this DIRECTIVE shall be binding upon the Bank, its institution-affiliated parties, successors and assigns.
   14. FURTHER DIRECTED that, the provisions of this DIRECTIVE shall remain effective and enforceable until the Bank has been adequately capitalized on average for four consecutive calendar quarters, except to the extent that any provision has been modified, terminated, suspended, or set aside by the FDIC.
   Dated at Washington, D.C., this 12th day of November, 1993.
   Pursuant to delegated authority.

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