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   [11,899] In the Matter of The Bank of Madison, Madison, Nebraska, Docket No. 01-176b (3-4-02).

(This order was terminated by order of the FDIC dated 10-2-03; see ¶16,356.)

   A cease and desist order was issued, based on findings by the FDIC that it had reason to believe that respondent had engaged in unsafe and unsound practices.

   [.1] Management—Management Plan Required

   [.2] Capital—Maintain Tier 1 Capital

   [.3] Dividends—Dividends Restricted

   [.4] Loan Loss Reserve—Establishment of or Increase Required

   [.5] Assets—Charge-off or Collection

   [.6] Loans—Risk Position—Reduction of Adversely Classified Lines of Credit Required

   [.7] Loans—Extensions of Credit—To Borrowers with Existing Adversely Classified Credits

   [.8] Loan Policy—Preparation or Revision of Policy Required

   [.9] Technical Exceptions—Correction of Technical Exceptions Required

   [.10] Loans—Concentration of Credit—Reduction Required

   [.11] Profit Plan—Preparation of Plan Required

   [.12] Budget and Earnings Forecast—Preparation Required

   [.13] Asset/Liability Management—Preparation or Revision of Asset/Liability Management Policy Required

   [.14] Violations of Law—Correction of Violations Required

   [.15] Shareholders—Disclosure of Cease and Desist Order Required

   [.16] Board of Directors—Program to Review Compliance with Cease and Desist Order Required

In the Matter of
THE BANK OF MADISON
MADISON, NEBRASKA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

FDIC-01-176b

   The Bank of Madison, Madison, Nebraska ("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 regulation alleged to have been committed by the Bank, as well as 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
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   AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") dated February 15, 2002, with counsel for the Federal Deposit Insurance Corporation ("FDIC"), whereby, solely for the purposes of this proceeding and without admitting or denying the charges of unsafe or unsound banking practices and violations of law and regulation, the Bank consented to the issuance of an ORDER TO CEASE AND DESIST ("ORDER") by the FDIC.

   The FDIC considered the matter and determined that it had reason to believe that the Bank had engaged in unsafe and unsound banking practices and violations of law and regulation. 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 desist from the following unsafe or unsound banking practices and violations of law and regulation:

       A. Operating with management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits.

       B. Operating with a board of directors which has failed to provide adequate supervision over and direction to the management of the Bank to prevent unsafe or unsound banking practices and violations of law and regulation.

       C. Operating with an inadequate level of capital protection for the kind and quality of assets held.

       D. Operating with an inadequate allowance for loans and lease losses for the volume, kind, and quality of loans and leases held, and/or failing to make provision for an adequate reserve for possible loan and lease losses.

       E. Engaging in hazardous lending and lax collection practices, including, but not limited to:

         1. the failure to obtain proper loan documentation;

         2. the failure to obtain adequate collateral;

         3. the failure to establish and monitor collateral margins of secured borrowers;

         4. the failure to establish and enforce adequate loan repayment programs;

         5. the failure to obtain current and complete financial information;

         6. extending credit with inadequate diversification of risk; and

         7. other poor credit administration practices.

       F. Operating with an excessive level of adversely classified loans or assets, and/or delinquent loans and/or non-accrual loans.

       G. Engaging in practices which produce inadequate operating income.

       H. Operating with inadequate asset/liability management oversight.

       I. Violating laws or regulations, including its failure to:

         a. comply with the minimum capital requirements of section 325.3 of the FDIC Rules and Regulations, 12 C.F.R. §325.3;

         b. comply with the recordkeeping requirements of 31 C.F.R. §103.33(e); and

         c. file a Suspicious Activity Report as required by section 353.3 of the FDIC Rules and Regulations, 12 C.F.R. §353.3.

   IT IS FURTHER ORDERED, that the Bank, its institution-affiliated parties, and its successors and assigns, take affirmative action as follows:

   [.1]1.QUALIFIED MANAGEMENT

   For purposes of this Order, the qualifications of management shall be assessed on its ability to comply with the requirements of this ORDER, operate the Bank in a safe and sound manner, comply with applicable laws and regulations, and restore all aspects of the Bank to a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness, liquidity, and sensitivity to market risk. Furthermore, "senior executive officer" shall be defined as in section 32 of the Act, 12 U.S.C. §1831(i), and section 303.101(b) of the FDIC Rules and Regulations, 12 C.F.R. §303.101(b).

       a. Each member of Bank management shall have qualifications and experience commensurate with his or her duties and responsibilities at the Bank.

         i. During the life of this ORDER, the Bank shall notify the Regional Director of the FDIC and the Nebraska Director of Banking and Finance ("State Director") in writing of any changes in any of the
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         Bank's directors or senior executive officers.

         ii. Prior to the addition of any individual to the board of directors or the employment of any individual as a senior executive officer, the Bank shall comply with the requirements of section 32 of the Act, supra, and Subpart F of Part 303 of the FDIC Rules and Regulations, 12 C.F.R. §§ 303.100-303.104.

       b. During the life of this ORDER, the Bank shall retain qualified management.

       c. Within NINETY days from the effective date of this ORDER, the Bank shall develop and complete a plan ("Management Plan") for the purpose of providing qualified management for the Bank.

       d. The Management Plan shall include, at a minimum:

         i. identification of both the type and number of officer positions needed to properly manage and supervise the affairs of the Bank;

         ii. identification and establishment of such Bank committees as are needed to provide guidance and oversight to active management;

         iii. evaluation of all Bank officers and staff members to determine whether these individuals possess the ability, experience and other qualifications required to perform present and anticipated duties, including adherence to the Bank's established policies and practices, and restoration and maintenance of the Bank in a safe and sound condition; and

         iv. a plan to recruit and hire any additional or replacement personnel with the requisite ability, experience and other qualifications to fill those officer or staff member positions identified previously in this ORDER.

       e. Upon completion of the Management Plan, it shall be submitted to the Regional Director and the State Director for review and comment. Within THIRTY days of the receipt of any comments from the Regional Director and the State Director and after the adoption of any recommended changes, the board of directors of the Bank shall meet, approve the Management Plan, and record the approval in its minutes for the meeting. Any subsequent modification of the Management Plan shall require submission to the Regional Director and the State Director for review and comment prior to approval by the Bank. Thereafter, the Bank, its directors, officers and employees shall implement and follow the approved Management Plan and any approved modification thereto.

   [.2]2.CAPITAL ADEQUACY

   For purposes of this ORDER, "capital ratio" means the level of Tier 1 capital as a percentage of total assets. Tier 1 capital and total assets shall be calculated in accordance with Part 325 of the FDIC Rules and Regulations ("Part 325"), 12 C.F.R. Part 325.

       a. Within THIRTY days from the effective date of this ORDER, the Bank shall have and maintain its capital ratio at or in excess of SIX percent.

       b. During the period this ORDER is in effect, if the capital ratio declines below SIX percent, the Bank shall, within SIXTY days after the date on which the said ratio so declined, submit a written plan to the Regional Director and the State Director for approval. The plan shall describe the means and the timing by which the Bank shall increase its capital ratio to or in excess of SIX percent. Within THIRTY days from the receipt of any comment from the Regional Director and the State Director, and after the adoption of any recommended changes, the Bank shall approve the plan, which approval shall be recorded in the minutes of the board of directors' meeting. Thereafter, in accordance with the approved plan, the Bank shall increase its capital ratio to at least SIX percent and maintain the capital ratio at or in excess of SIX percent while this ORDER remains in effect.

       c. Any increases in Tier 1 capital may be accomplished by the following:

         i. the sale of common stock and non-cumulative perpetual preferred stock;

         ii. the elimination of all or part of the assets classified "Loss" and FIFTY percent of all assets classified "Doubtful" as of August 23, 2001, without loss or liability to the Bank, provided any such collection on a partially charged-off asset shall first be applied to that portion of the asset which was not charged off pursuant to this ORDER;

         iii. the collection in cash of assets previously charged off;
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         iv. the direct contribution of cash by the directors and/or the shareholders of the Bank;

         v. any other means acceptable to the Regional Director and the State Director; and

         vi. any combination of the above.

       d. If all or part of the increase in capital required by this paragraph is to be accomplished by the sale of new securities, the board of directors of the Bank shall adopt and implement a plan for the sale of such additional securities, including the voting of any shares owned, or proxies held by or controlled by them, in favor of said plan. Should the implementation of the plan involve public distribution of Bank 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 other material disclosures necessary to comply with Federal securities laws. Prior to the implementation of the plan and, in any event, not less than TWENTY 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, Room F-6043, N.W., Washington, D.C. 20429, for its review. Any changes to be made in the materials requested by the FDIC shall be made prior to their dissemination. If the Regional Director allows any part of the increase in Tier 1 capital to be provided 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.

       e. In complying with the provisions of this paragraph, the Bank shall provide to any subscriber and/or purchaser of Bank securities written notice of any planned or existing development or of 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 TEN 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.

       f. The 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 protection for the kind, quality and degree of market depreciation of assets held by the Bank.

   [.3]3.RESTRICTION ON DIVIDENDS

   As of the effective date of this ORDER, the Bank shall not declare or pay any cash dividend:

       a. that would result in a capital ratio of less than SIX percent; and

       b. without prior written consent of the Regional Director and the State Director.

   [.4]4.ALLOWANCE FOR LOAN AND LEASE LOSSES

   For purposes of this ORDER and in making the determinations mandated by this paragraph, the board of directors of the Bank shall consider the Federal Financial Institutions Examination Council's Instructions for the Reports of Condition and Income and any analysis of the Bank's allowance for loan and lease losses ("ALLL") provided by the FDIC.

       a. Within THIRTY days from the effective date of this ORDER, the Bank shall replenish its ALLL in the amount of at least $6,646,000.

       b. Within THIRTY days from the effective date of this ORDER, Reports of Condition and Income required by the FDIC and filed by the Bank subsequent to August 23, 2001, shall be amended and re-filed if they do not reflect a provision for loan and lease losses and an ALLL which are adequate in view of the condition of the Bank's loan portfolio, and which, at a minimum, incorporate the adjustments required by this paragraph.

       c. Prior to the submission or publication of all Reports of Condition and 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 ALLL, provide for adequate ALLL, and accurately report the same. The minutes of the board meeting at which such review is undertaken shall
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       indicate the findings of the review, the amount of increase in the ALLL recommended, if any, and the basis for determination of the amount of ALLL provided.

       d. While this ORDER is in effect, the Bank shall submit to the Regional Director and the State Director the analysis supporting the determination of the adequacy of its ALLL. These submissions may be made at such times as the Bank files the progress reports otherwise required by this ORDER.

       e. ALLL entries required by this paragraph shall be made prior to any capital ratio determinations required by this ORDER.

       f. Within THIRTY days from the effective date of this ORDER, the Bank shall establish a comprehensive policy for determining the adequacy of the ALLL. For the purpose of this determination, the adequacy of the ALLL shall be determined after the charge-off of all loans or other items classified "Loss." The policy shall provide for a review of the ALLL at least once each calendar quarter. Said review should be completed at least TWENTY days following the end of each quarter, in order that the findings of the board of directors with respect to the ALLL may be properly reported in the quarterly Reports of Condition and Income. The review should focus on the results of the Bank's internal loan review, loan and lease loss experience, trends of delinquent and non-accrual loans, an estimate of potential loss exposure of significant credits, concentrations of credit, and present and prospective economic conditions. A deficiency in the ALLL shall be remedied in the calendar quarter it is discovered, prior to submitting the Report of Condition, by a charge to current operating earnings. The minutes of the board of directors meeting at which such review is undertaken shall indicate the results of the review. Thereafter, the Bank shall implement and follow the policy.

   [.5]5.LOAN CHARGE-OFF

   As of 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" and 50 percent of all assets classified "Doubtful" as of August 23, 2001, that have not been previously collected or charged off. Elimination or reduction of these assets which the proceeds of other Bank extensions of credit is not considered collection for the purpose of this paragraph.

   [.6]6.REDUCTION OF SUBSTANDARD ASSETS

   For purposes of this ORDER and as used in this paragraph, "reduce" means to collect, charge off, or improve the quality of substandard assets so as to warrant removal of any adverse classification by the FDIC. Furthermore, in developing the plan mandated by this paragraph, the Bank shall, at a minimum, review the financial position of each such borrower, including source of repayment, repayment ability, and alternative repayment sources, and evaluate the available collateral for each such credit, including possible actions to improve the Bank's collateral position.

       a. Within SIXTY days from the effective date of this ORDER, the Bank shall submit to the Regional Director and the State Director, for review and comment, a written plan to reduce the Bank's risk position in each asset in excess of $50,000 which is classified "Substandard" or "Doubtful" in the FDIC's Report of Examination as of August 23, 2001. Within THIRTY days from the receipt of any comment from the Regional Director and the State Director, and after the adoption of any recommended changes, the Bank shall approve the plan, which approval shall be recorded in the minutes of a board of directors' meeting. Thereafter, the Bank shall implement and follow this plan.

       b. The plan mandated by this paragraph shall include, but not be limited to, the following:

         i. dollar levels to which the Bank shall reduce each asset within SIX and TWELVE months from the effective date of this ORDER; and

         ii. provisions for the submission of monthly written reports to the Bank's board of directors for review and notation in minutes of the meetings of the board of directors.

   [.7]7. PROHIBITION OF ADDITIONAL LOANS TO CLASSIFIED BORROWERS

   As of the effective date of this ORDER, and unless its board of directors adopts a
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   detailed written statement giving the reasons why such potential action is in the best interest of the Bank, the Bank shall not, directly or indirectly, extend any additional credit to, or for the benefit of, any borrower whose loan or other credit has been classified "Substandard" or "Doubtful", or is listed for Special Mention, and remains uncollected. A copy of the statement shall be placed in the appropriate loan file and shall be incorporated in the minutes of the applicable board of directors' meeting.

   [.8]8. LOAN POLICY

   a. Within THIRTY days from the effective date of this ORDER, and annually thereafter, the board of directors of the Bank shall review the Bank's loan policy and procedures 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.

   b. The initial revisions to the Bank's loan policy required by this paragraph, at a minimum, shall include provisions:

       i. establishing review and monitoring procedures to ensure that all lending personnel are adhering to established lending procedures and that the directorate is receiving timely and fully documented reports on loan activity, including any deviations from established policy;

       ii. requiring that all extensions of credit originated or renewed by the Bank;

         (1) be supported by current credit information and collateral documentation, including lien searches and the perfection of security interests;

         (2) have current financial information, profit and loss statements or copies of tax returns, and cash flow projections, which information shall be maintained throughout the term of the loan;

         (3) have a clearly defined and stated purpose and a predetermined and realistic repayment source and schedule; and

       iii. addressing concentrations of credit and diversification of risk, including goals for portfolio mix, establishment of limits within loan and other asset categories, and development of a tracking and monitoring system for the economic and financial condition of specific geographic locations; industries, and groups of borrowers.

   c. The Bank shall inform the Regional Director and the State Director, in writing, how it intends to ensure compliance with the requirements of the written loan policy. Thereafter, the Bank shall implement and follow the written loan policy.

   [.9]9. TECHNICAL EXCEPTIONS

   Within NINETY days from the effective date of this ORDER, the Bank shall correct the technical exceptions listed in the FDIC Report of Examination as of August 23, 2001. The Bank shall initiate and implement a program to ensure its credit files contain complete, adequate and current documentation.

   [.10]10. REDUCTION OF CONCENTRATIONS OF CREDIT

   Within SIXTY days from the effective date of this ORDER, management will review concentrations of credit in order to identify level of risk. The Bank shall formulate and adopt a written plan of action to manage the risk of each concentration. This will be accomplished, where appropriate, through strengthened administration or risk reduction.

   [.11][.12]11. PROFIT PLAN AND BUDGET

   The plan and budget required by this paragraph shall contain formal goals and strategies, consistent with sound banking practices, to reduce discretionary expenses and to improve the Bank's overall earnings, as well as a description of the operating assumptions that form the basis for major projected income and expense components.

       a. Within NINETY days from the effective date of this ORDER, the Bank shall submit to the Regional Director and the State Director, for review and comment, a written profit plan and a realistic/comprehensive budget for all categories of income and expense for calendar year(s) 2002, 2003, and 2004.

       b. Within THIRTY days from the receipt of any comments from the Regional Director and the State Director, and after adoption of any recommended changes, the Bank shall approve the plan and budget, which approval shall be recorded in the minutes of the board of directors' meeting. Thereafter, the Bank shall implement and follow the plan and budget.

       c. Within THIRTY days from the end of each calendar quarter following completion of the profit plan and budget required
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       by this paragraph, the Bank's board of directors shall evaluate the Bank's actual performance against them, record the results of the evaluation, and note any actions taken by the Bank in the minutes of the board of directors' meeting at which such evaluation is undertaken.

       d. A written profit plan and budget shall be prepared for each calendar year for which this ORDER is in effect. A copy of the profit plan and budget shall be submitted to the Regional Director and the State Director for review and comment within THIRTY days of the end of each year.

   [.13]12. ASSET/LIABILITY MANAGEMENT POLICY

   Within THIRTY days of the effective date of this ORDER, the Bank shall review its "Asset and Liability Management Policy" for adequacy and, based on such review, shall make appropriate revisions to the Policy that are necessary to strengthen liquidity and funds management procedures. Thereafter, the Bank shall implement and follow the Policy.

   [.14]13. VIOLATIONS OF LAW AND REGULATION

   Within NINETY days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of law and regulation listed in the FDIC's August 23, 2001, Report of Examination. Within NINETY days from the effective date of this ORDER, the Bank shall implement procedures to ensure future compliance with all applicable laws and regulations.

   [.15]14. DISCLOSURE TO SHAREHOLDERS

   Following the effective date of this ORDER, the Bank shall send to its shareholders, or otherwise furnish a description of this ORDER, in conjunction with the Bank's next shareholder communication, and 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, notice or statement shall be sent to the FDIC Registration and Disclosure Section, 550 17th Street, N.W., Room F-6043, Washington, D.C. 20429 for review at least TWENTY days prior to dissemination to shareholders. Any requests for changes made by the FDIC shall be made prior to dissemination of the description, communication, notice or statement.

   [.15]15. COMPLIANCE WITH ORDER

   Within NINETY days from the effective date of this ORDER, the Bank's board of directors shall have in place a program that will provide for monitoring of the Bank's compliance with this ORDER. Following the adoption of said program, the Bank's board of directors shall review the Bank's compliance with this ORDER and record its review in the minutes of each regularly scheduled board of directors' meeting.

   16. PROGRESS REPORTS

   Within TWENTY days from the end of each calendar quarter following the effective date of this ORDER, or as otherwise requested, the Bank shall furnish the Regional Director and the State Director written progress reports, signed by each member of the Bank's board of directors, detailing the form and manner of any actions taken to secure compliance with this ORDER. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Regional Director and the State Director have, in writing, released the Bank from making further reports.

   The effective date of this ORDER shall be TEN days after its issuance by the FDIC.

   The provisions of this ORDER shall be binding upon the Bank, its institution-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 provision has been modified, terminated, suspended, or set aside by the FDIC.

   Issued Pursuant to Delegated Authority

   Dated: March 4, 2002

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