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[¶11,883] In the Matter of Elkhorn Valley Bank & Trust, Norfolk, Nebraska, Docket
No. 01-171b (1-2-02).
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. (This order was terminated by order of the FDIC dated 11-8-02; see ¶16,321.)
[.1] ManagementQualifications Specified
[.2] CapitalIncrease Required
[.3] DividendsDividends Restricted
[.4] Loan Loss ReserveEstablishment of or Increase Required
[.5] AssetsCharge-off or Collection
[.6] LoansRisk PositionWritten Plan Required
[.7] Loan PolicyPreparation or Revision of Policy Required
[.8] Technical ExceptionsCorrection of Technical Exceptions Required
[.9] Profit PlanPreparation of Plan Required
[.10] Violations of LawCorrection of Violations Required
[.11] ShareholdersDisclosure of Cease and Desist Order Required
[.12] Board of DirectorsProgram to Review Compliance with Cease and Desist
Order Required
In the Matter of
ELKHORN VALLEY BANK & TRUST,
NORFOLK, NEBRASKA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-01-171b
Elkhorn Valley Bank & Trust, Norfolk, Nebraska ("Bank"),
having been advised of its rights 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 rights 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") dated December 18, 2001, with counsel for the
Federal Deposit Insurance Corporation ("FDIC"), 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 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 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.
B. Operating with an inadequate level of capital protection for the
kind and quality of assets held.
C. 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.
D. Engaging in hazardous lending and lax collection practices,
including, but not limited to:
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1. the failure to obtain proper loan documentation;
2. the failure to obtain adequate collateral;
3. the failure to establish and enforce adequate loan repayment programs;
4. the failure to obtain current and complete financial information;
5. extending credit with inadequate diversification of risk; and
6. other poor credit administration practices.
E. Operating with an excessive level of adversely classified loans
or assets.
F. Operating with an inadequate loan policy.
G. Operating with inadequate earnings.
H. Violating the minimum capital requirements of section 325.3 of the
FDIC Rules and Regulations, 12 C.F.R. §325.3.
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 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, 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.
[.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 develop a plan to increase its capital ratio to no less than
6 percent.
b. 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" 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;
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.
c. 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
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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.
d. 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.
e. 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 without the 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 by a provision to the account in an
amount equal to those loans required to be charged off by this ORDER.
b. Within THIRTY days from the effective date of this ORDER, the Bank
shall make an additional provision for loan and lease losses which,
after review and consideration by the board of directors, reflects the
potential for further losses in the remaining loans or leases
classified "Substandard" and all other loans and leases in its
portfolio.
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 indicate the findings of the review, the amount of
increase in the reserve recommended, if any, and the basis for
determination of the amount of reserve 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
Tier 1 capital determinations required by this ORDER.
[.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" as of August 23, 2001, that have not
been previously collected or charged off. Elimination or reduction of
these assets with the proceeds of
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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 adopt and implement a written plan to reduce the Bank's
risk position in each asset in excess of $100,000 which is classified
"Substandard" in the FDIC's Report of Examination as of August
23, 2001. Thereafter, the Bank shall implement and follow this plan. A
copy of the plan shall be submitted to the Regional Director and State
Director upon its completion.
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 progress reports
to the Bank's board of directors for review and notation in minutes of
the meetings of the board of directors.
[.7]7. LOAN POLICY
a. Within NINETY 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:
a) be supported by current credit information and collateral
documentation, including lien searches and the perfection of security
interests;
b) have current financial information, profit and loss statements or
copies of tax returns, and cash flow projections, which information and
shall be maintained throughout the term of the loan; and
c) have a clearly defined and stated purpose and a predetermined and
realistic repayment source and schedule;
iii. incorporating limitations on the amount that can be loaned
in relation to established collateral values, including the requirement
that the source of the valuations be identified and that such
collateral valuations be completed prior to the disbursement of loan
proceeds and be performed on a periodic basis over the term of the
loan;
iv. requiring the establishment and maintenance of a loan grading
system and internal loan watch list;
v. requiring loan committee review and monitoring of the status of
repayment and collection of loans classified "Substandard" in the
FDIC Report of Examination as of August 23, 2001, or by the FDIC or
State Authority in a subsequent Report of Examination;
vi. requiring a written plan to lessen the risk position in each line
of credit identified as a problem credit on the Bank' internal loan
watch list;
vii. prohibiting the extension of a maturity date, advancement of
additional credit or renewal of a loan to a borrower whose obligations
to the Bank were classified "Substandard," or "Loss,"
whether in whole or in part, as of August 23, 2001, or by the FDIC or
State authority in a subsequent Report of Examination, without the full
collection in cash of accrued and unpaid interest, unless the loans are
well secured and/or are adequately supported by current
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and complete
financial information, and the renewal or extension has first been
approved in writing by a majority of the Bank's board of directors;
viii. 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; and
ix. requiring that collateral appraisals be completed prior to the
making of secured extensions of credit, and that periodic collateral
valuations be performed for all secured "problem loans".
c. The revised written loan policy shall be submitted to the
Regional Director and the State Director for review and comment before
its completion. Within THIRTY days from the receipt of any comments
from the Regional Director and the State Director, and after due
consideration of any comments from the Regional Director and the State
Director, the board of directors shall approve the written loan policy
and any subsequent modification thereto, which approval shall be
recorded in the minutes of the board of directors' meeting.
d. The Bank shall inform the Regional Director and the State Director,
in writing, how it intends to ensure compliance. Thereafter, the Bank
shall implement and follow the amended written loan policy.
[.8]8. TECHNICAL EXCEPTIONS
Within SIXTY 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.
[.9]9. 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 SIXTY days from the effective date of this ORDER, the
Bank shall adopt and implement a written profit plan and a
realistic/comprehensive budget for all categories of income and expense
for calendar years 2002, 2003, and 2004. A copy of the plan and budget
shall be submitted to the Regional Director and State Director upon
their completion. Thereafter, the Bank shall implement and follow the
plan and budget.
b. Within THIRTY days from the end of each calendar quarter following
completion of the profit plan and budget required 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.
[.10]10. VIOLATIONS OF LAW AND REGULATION
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.
[.11]11. 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.
[.12]12. COMPLIANCE WITH ORDER
Within THIRTY 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
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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.
13. PROGRESS REPORTS
Within FIFTEEN days from the end of each calendar quarter following the
effective date of this ORDER, the Bank shall furnish the Regional
Director and the State Director with 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 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: January 2, 2002.