(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] ManagementManagement Plan Required
[.2] CapitalMaintain Tier 1 Capital
[.3] DividendsDividends Restricted
[.4] Loan Loss ReserveEstablishment of or Increase Required
[.5] AssetsCharge-off or Collection
[.6] LoansRisk PositionReduction of Adversely Classified Lines of Credit
Required
[.7] LoansExtensions of CreditTo Borrowers with Existing Adversely
Classified Credits
[.8] Loan PolicyPreparation or Revision of Policy Required
[.9] Technical ExceptionsCorrection of Technical Exceptions Required
[.10] LoansConcentration of CreditReduction Required
[.11] Profit PlanPreparation of Plan Required
[.12] Budget and Earnings ForecastPreparation Required
[.13] Asset/Liability ManagementPreparation or Revision of Asset/Liability
Management Policy Required
[.14] Violations of LawCorrection of Violations Required
[.15] ShareholdersDisclosure of Cease and Desist Order Required
[.16] Board of DirectorsProgram 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
{{5-31-02 p.C-5363}}
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