(This order was terminated by order of the FDIC dated 12-4-03; see ¶16,362.)
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] ManagementManagement Plan Required
[.2] Loan PolicyPreparation or Revision of Policy Required
[.3] LoansInternal Review Procedure
[.4] AssetsCharge-off or Collection
[.5] Loan Loss ReserveEstablishment of or Increase Required
[.6] LoansRisk PositionReduction of Adversely Classified Lines of Credit
Required
[.7] LoansExtensions of CreditTo Borrowers with Existing Adversely
Classified Credits
[.8] LoansInterestAccrual of
[.9] LoansExtensions of CreditCredit Data or Collateral Documentation
[.10] LoansSpecial Mention
[.11] CapitalIncrease Required
[.12] Profit PlanPreparation of Plan Required
[.13] DividendsDividends Restricted
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[.14] Violations of LawCorrection of Violations Required
[.15] ShareholdersDisclosure of Cease and Desist Order Required
In the Matter of
BANNER COUNTY BANK, INC.
HARRISBURG, NEBRASKA
Insured State Nonmember Bank
ORDER TO CEASE AND DESIST
FDIC-01-036b
Banner County Bank, Inc., Harrisburg, 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/or regulations alleged to have been committed by the Bank and of
its right to a hearing on such alleged 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 March 21, 2001, whereby solely for
the purpose of this proceeding and without admitting or denying any
unsafe or unsound banking practices or violations of law and/or
regulations, 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 had violated laws and/or 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 desist from the
following unsafe and unsound banking practices and violations of law
and/or regulations:
A. failing to provide adequate supervision and direction over the
affairs of the Bank to prevent unsafe or unsound practices and
violations of law and/or regulations;
B. operating with management whose policies and practices are
detrimental to the Bank;
C. engaging in hazardous lending and lax collection practices,
including maintaining an excessive volume of adversely classified
loans;
D. operating with deficient or inadequate loan documentation, including
but not limited to current financial statements, insurance coverage,
title searches or legal opinions, and cash flow and/or operating
information;
E. operating with an excessive volume of adversely classified assets;
F. engaging in practices which produce inadequate operating income and
excessive loan losses;
G. operating with an inadequate allowance for loan and lease losses for
the volume, kind and quality of loans held; and
H. engaging in violations of applicable laws and regulations.
IT IS FURTHER ORDERED, that the Bank, its institution-affiliated
parties, and its successors and assigns, take affirmative action as
follows:
[.1] 1. (a) (i) No more than 90 days from the effective date of this ORDER,
the Bank shall have and thereafter retain qualified management.
(ii) The assessment of whether the Bank has "qualified
management" shall be based upon management's conduct, both
individual and joint, with respect to the Bank in: (A) complying with
the requirements of this ORDER; (B) complying with applicable laws and
regulations; and (C) not engaging in any unsafe or unsound banking
practice which has an adverse effect on the Bank's asset quality,
capital adequacy, earnings, liquidity, or sensitivity to market risk.
(b) No more than 30 days from the effective date of this ORDER,
the board of directors shall develop a written analysis and assessment
of the Bank's management and staffing needs ("management plan"),
which shall include, at a minimum:
(i) identification of both the type and number of officer
positions needed to manage and supervise properly the affairs of the
Bank;
(ii) evaluation of each Bank officer, and in particular the chief
executive officer, and staff member to determine whether
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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 maintenance of
the Bank in a safe and sound condition; and
(iii) a plan of action to recruit and hire any additional or
replacement personnel with the requisite ability, experience and other
qualifications, which the board of directors determines are necessary
to fill Bank officer or staff member positions consistent with the
board's analysis, evaluation and assessment as provided in paragraphs
1(b)(i) and 1(b)(ii) of this ORDER.
(c) The written management plan and any subsequent modification
thereto shall be submitted to the Regional Director for review and
comment. No more than 30 days from the receipt of any comment from the
Regional Director, and after consideration of such comment, the board
of directors shall approve the written management plan and/or any
subsequent modification thereto which approval shall be recorded in the
minutes of the board of directors. Thereafter, the Bank and its
institution-affiliated parties shall implement and follow the written
management plan and/or any subsequent modification.
[.2] 2. No more than 30 days from the effective date of this ORDER, the Bank
shall revise its written loan policy which revision shall, at a
minimum, address the deficiencies noted on page 16 of the FDIC's
Report of Examination as of June 30, 2000. The revised written loan
policy and any subsequent modification thereto shall be submitted to
the Regional Director and the Nebraska Director of Banking and Finance
for review and comment. No more than 30 days after receipt of any
comment from the Regional Director, the board of directors shall
approve the written loan policy and/or any subsequent modification
thereto, which approval shall be recorded in the minutes of the board
of directors. Thereafter, the Bank and its institution-affiliated
parties shall follow the written loan policy and/or any subsequent
modification thereto.
[.3] 3. (a) Within 60 days from the effective date of this ORDER, the board
of directors shall develop a written internal loan review and grading
system ("System") that periodically identifies credit risk in
outstanding extensions of credit made by the Bank. At a minimum, the
System shall include a review of individual loans by persons other than
the originating loan officer and/or the loan officer responsible for
the day-to-day servicing of such loan.
(b) The System shall also include a written procedure which shall
require that at least once a month a written report shall be made to
the board of directors on the status of each extension of credit
identified under the requirements of paragraph 3(a). Each written
report submitted to the board of directors shall identify any actions
taken by the Bank, including any action to strengthen or collect any
such extensions of credit. The report shall be maintained with and made
a part of the board of director's minutes.
(c) The System and any subsequent modifications thereto shall be
submitted to the Regional Director and the Nebraska Director of Banking
and Finance for review and comment. No more than 30 days after the
receipt of any comment from the Regional Director, the board of
directors shall adopt and implement the System and/or any subsequent
modifications thereto, which approval shall be recorded in the minutes
of the board of directors. Thereafter, the Bank and its
institution-affiliated parties shall follow the System and/or any
subsequent modifications thereto.
[.4] 4. No more than 10 days from the effective date of this ORDER, the
Bank: (a) shall eliminate from its records, by charge-off, collection,
or other proper entries, all assets or portions of assets classified
"Loss" as of June 30, 2000; and (b) shall either (i) eliminate
from its records by charge-off, collection, or other proper entries, or
(ii) if the asset is an extension of credit or lease, increase its
allowance for loan and lease losses by an amount equal to 50 percent of
those assets or portions of assets classified "Doubtful" as of
June 30, 2000, which have not been previously collected, charged off,
or otherwise eliminated by other proper entries. Reduction of these
assets through use of proceeds of loans made by the Bank does not
constitute collection for the purpose of this paragraph.
[.5] 5. (a) As used in this ORDER, "allowance for loan and lease
losses" ("allowance") means the same as the term in
section 325.2(a) of the FDIC Rules and Regulations, 12 C.F.R.
§325.2(a), and in the In-
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structions for Preparation of Reports of
Condition and Income ("Instructions").
(b) The Bank shall have and maintain an adequate allowance in
accordance with the requirements of the Instructions.
(c) Reports of Condition and Income required to be submitted by the
Bank as of each Report date, as that term is used in the Instructions,
between and including June 30, 2000, and the effective date of this
ORDER, shall, at a minimum, reflect an allowance maintained in
accordance with the Instructions. If necessary to comply with this
paragraph, the Bank shall file amended Reports of Condition and Income
within 10 days from the effective date of this ORDER.
(d) Prior to the submission of any Report of Condition and Income
required to be filed by the Bank after the effective date of this
ORDER, the board of directors of the Bank shall: (i) review the
adequacy of the Bank's allowance, (ii) provide for an adequate
allowance, and (iii) accurately report the allowance in any such Report
of Condition and Income. The minutes of the board meeting at which such
review is undertaken shall indicate the results of the review,
including any increases in the allowance, and the basis for determining
the amount of allowance provided.
[.6] 6. (a) Within 30 days from the effective date of this ORDER, the board
of directors shall develop a written plan of action to lessen the
Bank's risk position in each line of credit aggregating $50,000 or
more which was classified "Substandard" or "Doubtful" as of
June 30, 2000. In developing such plan, the Bank shall, at a minimum:
(i) review the financial position of each such borrower,
including source of repayment, repayment ability, and alternative
repayment sources; and
(ii) evaluate the available collateral for each such credit, including
possible actions to improve the Bank's collateral position.
Based upon such review and evaluation, the written plan of action
shall: (A) establish target dollar levels to which the Bank shall
reduce the aggregate dollar volume of "Substandard" or
"Doubtful" classifications within 6 and 12 months from the
effective date of this ORDER; and (B) provide for the submission of
written monthly progress reports to the Bank's board of directors for
review and notation in the board minutes. As used in this paragraph,
"reduce" means to (1) collect, (2) charge off, or (3) improve the
quality of such assets so as to warrant removal of any adverse
classification by the FDIC.
(b) The written plan of action described by paragraph 6(a) and any
subsequent modification thereto shall be submitted to the Regional
Director and the Nebraska Director of Banking and Finance for review
and comment. No more than 30 days after the receipt of any comment from
the Regional Director, the board of directors shall approve the written
plan of action, which approval shall be recorded in the minutes of the
board of directors. Thereafter, the Bank and its institution-affiliated
parties shall follow the written plan of action and/or any subsequent
modification.
[.7] 7. Effective the date of this ORDER, the Bank shall not extend,
directly or indirectly, credit to, or for the benefit of, any borrower
who has a loan or other extension of credit with the Bank that has been
charged off or classified, in whole or in part, "Loss,"
"Doubtful," or "Substandard," and is uncollected, unless a
majority of the Bank's board of directors first (a) determines that
such advance is in the best interest of the Bank, (b) determines that
the Bank has satisfied the requirements set out in paragraph 6 of this
ORDER as to such borrower, and (c) approves such advance. A written
record of the board of directors' determination and approval of any
advance under the terms of this paragraph shall be maintained in the
credit file of the affected borrower(s) as well as the minutes of the
board of directors. The requirements of this paragraph do not prohibit
the Bank from renewing any credit already extended to the borrower.
[.8] 8. Effective the date of this ORDER, the Bank shall not accrue interest
on any loan that is, or becomes, 90 days or more delinquent as to
principal or interest, unless the loan is both well secured and in the
process of collection; "well secured" and "in the process of
collection" shall have the same meaning as those terms have in the
prevailing Instructions. The Bank shall reverse on its books all
previously accrued but uncollected interest on any loan that has ceased
to accrue interest pursuant to this provision.
[.9] 9. No more than 60 days from the effective date of this ORDER, the Bank
shall correct the Credit Data and/or Collateral
{{9-30-03 p.C-5095}}
Documentation
Exceptions on loans noted on pages 45 to 51 of the FDIC's Report of
Examination of the Bank as of June 30, 2000.
[.10] 10. No more than 60 days from the effective date of this ORDER, the
Bank shall correct the cited deficiencies in the loans listed for
"Special Mention" on pages 41 to 44 of the FDIC's Report of
Examination of the Bank as of June 30, 2000.
[.11] 11. (a) As used in this ORDER:
(i) "Tier 1 or core capital" ("Tier 1 capital") means
the same as the term in section 325.2(t) of the FDIC Rules and
Regulations, 12 C.F.R. §325.2(t).
(ii) "Total assets" means the same as the term in section
325.2(v) of the FDIC Rules and Regulations, 12 C.F.R. §325.2(v).
(b) After appropriate entries for an adequate allowance are made
in accordance with the requirements of paragraph 5 of this ORDER, but
no later than the next Report date following the effective date of this
ORDER, the Bank shall have and maintain Tier 1 capital at or in excess
of 6 percent of the Bank's total assets ("Tier 1 capital
ratio"). From and after the next Report date following the effective
date of this ORDER, for purposes of calculating Tier 1 capital ratio,
Tier 1 capital and total assets shall be the dollar amount reported in
the Bank's most recent Report of Condition and Income.
(c) During the period this ORDER is in effect, if the Tier 1 capital
ratio declines below 6 percent, the Bank shall, within 60 days after
the date on which the said ratio so declined, submit a written plan to
the Regional Director and the Nebraska Director of Banking and Finance
for approval describing the means and timing by which the Bank shall
increase such ratio up to or in excess of 6 percent. Upon receiving
written notification of the approval of the plan, the Bank shall
increase its Tier 1 capital ratio to equal or exceed 6 percent in
accordance with the approved plan and shall thereafter maintain its
Tier 1 capital ratio at or in excess of such level while this ORDER is
in effect.
(d) The Bank's board of directors shall maintain in its minutes a
written record of all actions taken by the Bank to comply with the
capital requirements of paragraphs 11(b) and (c) of this ORDER.
[.12] 12. (a) No more than 30 days from the effective date of this ORDER, the
Bank shall develop a written profit plan consisting of goals and
strategies for improving the earnings of the Bank, which written profit
plan shall include, at a minimum:
(i) identification of the major areas in, and means by, which the
board of directors will seek to improve the Bank's operating
performance;
(ii) realistic and comprehensive budgets;
(iii) a budget review process to monitor the income and expenses of the
Bank to compare actual figures with budgetary projections; and
(iv) a description of the operating assumptions that form the basis
for, and adequately support, major projected income and expense
components.
(b) The written profit plan and any subsequent modification
thereto shall be submitted to the Regional Director and the Nebraska
Director of Banking and Finance for review and comment. No more than 30
days after the receipt of any comment from the Regional Director, the
board of directors shall approve the written profit plan and any
subsequent modification thereto, which approval shall be recorded in
the minutes of the board of directors. Thereafter, the Bank and its
institution-affiliated parties shall follow the written profit plan
and/or any subsequent modification thereto.
[.13] 13. The Bank shall not pay or declare any cash dividends without the
prior written consent of the Regional Director.
[.14] 14. No more than 60 days from the effective date of this ORDER, the
Bank shall eliminate and/or correct all violations of law and
regulations committed by the Bank as described on page 20 of the
FDIC's Report of Examination of the Bank as of June 30, 2000.
[.15] 15. Following the effective date of this ORDER, the Bank shall send to
its shareholders a description of this ORDER, (a) in conjunction with
the Bank's next shareholder communication, and also (b) 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,
Registration and Disclosure Section, 550 17th Street, N.W. (F-6043),
Wash-
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ington, D.C. 20429-9990, 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.
16. The Bank shall furnish written progress reports to the Regional
Director and the Nebraska Director of Banking and Finance detailing the
form and manner of any action taken to secure compliance with this
ORDER and the results thereof every 90 days, beginning 90 days from the
effective date of this ORDER. In addition, the Bank shall furnish such
reports on request of either the Regional Director or the Nebraska
Director of Banking and Finance. All progress reports and other written
responses to this ORDER shall be reviewed by the board of directors of
the Bank and made a part of the minutes of the board meeting.
All technical words or terms used in this ORDER, for which meanings are
not specified or otherwise provided for by the provisions of this
ORDER, shall, insofar as applicable, have meanings as defined in
Chapter 3 of Title 12 of the Code of Federal Regulations or
the Act, as such definitions may be amended after the execution of this
ORDER, and any such technical words or terms used in this ORDER and
undefined in said Code of Federal Regulations of the Act
shall have meanings that accord with their best custom and usage in the
banking industry.
This ORDER shall become effective 10 days from the date of its
issuance. The provisions of this ORDER shall be binding upon the Bank
and its institution-affiliated parties, successors and assigns.
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.
Dated this 29th day of March, 2001.