form101fdicconsentorder.htm


     

    

 

    FEDERAL
DEPOSIT INSURANCE CORPORATION

    WASHINGTON,
D.C.

    AND

    


    DEPARTMENT
OF FINANCIAL INSTITUTIONS FOR THE STATE OF WISCONSIN

    MADISON,
WISCONSIN

     
 

    
      
        

      

    

    In the
Matter
of                                                                     
      )                                                                                  
  CONSENT ORDER

    )

    )

    WATERSTONE
BANK,
SSB                                                     )

    WAUWATOSA,
WISCONSIN                                                 )                                                                         
           FDIC-09-509b

    )

    )

    (STATE
CHARTERED                                                               )

    INSURED
NONMEMBER
BANK)                                            )

    )

    
      
        

      



    
 

    


      WaterStone
Bank, SSB, Wauwatosa, Wisconsin (“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, rule or regulation alleged to have been
committed by the Bank, and 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 under  220.04 (9) of the Wisconsin Statutes, Wis.
Stat. § 220.04 (9), regarding hearings before the Department of Financial
Institutions for the State of Wisconsin ("WDFI") , and having waived those
rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO
CEASE AND DESIST (“STIPULATION”) with representatives of  the Federal
Deposit Insurance Corporation (“FDIC”) and the WDFI dated _____________________,
whereby, solely for the purpose of this proceeding and without admitting or
denying the charges of unsafe or unsound banking practices relating to asset
quality and earnings, and violations of law, rule or regulation, the Bank
consented to the issuance of a CONSENT ORDER  (“ORDER”) by the FDIC
and the WDFI.

       

      
        
          
          

        

        
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      The FDIC and the WDFI considered the
matter and determined that they had reason to believe that the Bank had engaged
in unsafe or unsound banking practices and violations of law, rule or
regulation.  The FDIC and the
WDFI, therefore, accepted the STIPULATION.

                     
Having also determined that the requirements for issuance of an order under 12
U.S.C. 1818(b)
and 220.04 (9) of the Wisconsin Statutes, Wis. Stat. § 220.04 (9), have been
satisfied, the FDIC and the WDFI HEREBY ORDER, 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 take affirmative action as follows:

      


      MANAGEMENT

      1.           (a)           During
the life of this ORDER, the Bank shall continue to have and retain qualified
management.  Management shall be provided the necessary written
authority to implement the provisions of this ORDER.  The
qualifications of management shall be assessed on its ability to:

      
        	
                 
      

              	
                (i)

              	
                Comply
      with the requirements of this
ORDER;

              


      

      
        	
                 
      

              	
                (ii)

              	
                Operate
      the Bank in a safe and sound
manner;

              


      

      
        	
                 
      

              	
                (iii)

              	
                Comply
      with applicable laws, rules, and regulations;
  and

              


      

      
        	
                 
      

              	
                (iv)

              	
                Restore
      all aspects of the Bank to a safe and sound condition, including capital
      adequacy, asset quality, management effectiveness, earnings, liquidity,
      and sensitivity to interest rate
risk.

              


      

      (b)           During
the life of this ORDER, 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 request and obtain the written approval of the Administrator Division
of Banking, of the WDFI 

       

      
        
          
          

        

        
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      (“Administrator”).  For
purposes of this ORDER, “senior executive officer” is defined as in section 32
of the Act (“section 32”), 12 U.S.C. § 1831(i), and section 303.101(b) of the
FDIC Rules and Regulations, 12 C.F.R. § 303.101(b).

      


      MANAGEMENT
PLAN

      2.           (a)           Within
90 days from the effective date of this ORDER, the Bank shall retain an
independent third party acceptable to the Regional Director of the FDIC’s
Chicago Regional Office (“Regional Director”) and the Administrator, who will
develop a written analysis and assessment of the Bank’s management needs
(“Management Study”) for the purpose of providing qualified management for the
Bank.

      (b)           The
Bank shall provide the Regional Director and the Administrator with a copy of
the proposed engagement letter or contract with the independent third party for
review.

      (c)           The
Management Study shall be developed within 120 days from the effective date of
this ORDER.  The management study shall include, at a
minimum:

      
        	
                 
      

              	
                (i)

              	
                Identification
      of both the type and number of senior executive 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 senior executive officers 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;

              


      

      
        	
                 
      

              	
                (iv)

              	
                Evaluation
      of all Bank senior executive officer’s compensation, including salaries,
      director fees, and other benefits;

              


      

      
        	
                 
      

              	
                (v)

              	
                A
      plan to recruit and hire any additional or replacement personnel with the
      requisite ability, experience and other qualifications to fill those
      senior executive officer positions identified by this paragraph of this
      ORDER.

              


      

       

       

      
        
          
          

        

        
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      (d)           Within
30 days after receipt of the Management Study, the Bank shall
develop  a plan to implement the recommendations of the Management
Study. If the Bank believes a recommendation contained in the Management Study
should not be part of the plan the Board shall document its reasons therefore in
the Board minutes with any dissenters noted.

      (e)           A
copy of the Management Study, and plan required by this paragraph shall be
submitted to the Regional Director and the Administrator.

      


      BOARD
PARTICIPATION

      3.           (a)           From
the effective date of this ORDER, the board of directors shall increase its
participation in the affairs of the Bank, approving sound policies and
objectives  for the supervision of all of the Bank’s activities,
consistent with the role and expertise commonly expected for directors of Banks
of comparable size.

      (b)           Within
30 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 the ORDER.

      


      
        
          
          

        

        
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      CAPITAL

      4.           (a)           From
the effective date of this ORDER, the Bank shall have and maintain its level of
Tier 1 capital as a percentage of its total assets (“capital ratio”) at a
minimum of 8.5 percent and its level of qualifying total capital as a percentage
of risk-weighted assets (“total risk based capital ratio”) at a minimum of 12
percent.  For purposes of this ORDER, Tier 1 capital, qualifying total
capital, total assets, and risk-weighted assets shall be calculated in
accordance with Part 325 of the FDIC Rules and Regulations (“Part 325”), 12
C.F.R. Part 325.

      (b)           If,
while this ORDER is in effect, the Bank increases capital 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 20 days prior to the dissemination of such materials, the
materials used in the sale of the securities shall be submitted to the FDIC
Registration and Disclosure Section, 550 17th Street, N.W., Washington, D.C.
20429 and to the WDFI, 345 West Washington Street, 4th
Floor, PO Box 7876, Madison, WI 53707-7876, for their review.  Any
changes requested to be made in the materials by the FDIC or the WDFI shall be
made prior to their dissemination.

      (c)           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 other changes which are materially different from the
information reflected in any offering materials used in connection with the sale
of Bank securities.  

       

      
        
          
          

        

        
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      The
written notice required by this paragraph shall be furnished within 10 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.

      


      LOSS
CHARGE-OFF

      5.           As
of the effective date of this Order the Bank shall charge off from its books and
records any loan classified “Loss” in the Report of Examination dated June 1,
2009 (“ROE”).

      


      PROHIBITION OF ADDITIONAL
LOANS TO CLASSIFIED BORROWERS

      6.           (a)           As
of the effective date of this ORDER, the Bank shall not extend, directly or
indirectly, any additional credit to, or for the benefit of, any borrower who is
already obligated in any manner to the Bank on any extensions of credit
(including any portion thereof) that has been charged off the books of the Bank
or classified “Loss” in the ROE, so long as such credit remains
uncollected.

      (b)           As
of the effective date of this ORDER, the Bank shall not extend, directly or
indirectly, any additional credit to, or for the benefit of, any borrower whose
loan or other credit has been classified “Substandard”, “Doubtful”, or is listed
for Special Mention in the ROE, and is uncollected unless a majority of the
Bank’s board of directors has adopted, prior to such extension of credit, a
detailed written statement giving the reasons why such extension of credit is in
the best interest of the Bank.  A copy of the statement shall be
signed by each Director with any dissenting Directors noted, and incorporated in
the minutes of the applicable board of directors’ meeting. A copy of the
statement shall be placed in the appropriate loan file.

       

      
        
          
          

        

        
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      REDUCTION OF DELINQUENCIES
AND CLASSIFIED ASSETS

      7.           (a)           Within
60 days from the effective date of this ORDER, the Bank shall continue to comply
with its written plan to reduce the Bank’s risk position in each asset in excess
of $500,000 which is more than 90 days delinquent or classified “Substandard” or
“Doubtful” in the ROE. The Bank shall revise its plan to include provisions
which:

      
        	
                 
      

              	
                (i)

              	
                Prohibit
      an extension of credit for the payment of interest, unless the Board
      provides, in writing, a detailed explanation of why the extension is in
      the best interest of the Bank;

              


      

      
        	
                 
      

              	
                (ii)

              	
                Provide
      for review of the current financial condition of each delinquent or
      classified borrower, including a review of borrower cash flow and
      collateral value;

              


      

      
        	
                 
      

              	
                (iii)

              	
                Delineate
      areas of responsibility for loan
officers;

              


      

      
        	
                 
      

              	
                (iv)

              	
                Establish
      dollar levels to which the Bank shall reduce delinquencies and classified
      assets within 6 and 12 months from the effective date of this ORDER;
      and

              


      

      
        	
                 
      

              	
                (v)

              	
                Provide
      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.

              


      

      (b)           As
used in this paragraph, “reduce” means to: (1) collect; (2) charge off; (3)
sell; or (4) improve the quality of such assets so as to warrant removal of any
adverse classification by the FDIC and the WDFI.

      (c)           A
copy of the plan required by this paragraph shall be submitted to the Regional
Director and Administrator.

      (d)           While
this ORDER remains in effect, the plan shall be revised to include assets which
become more than 90 days delinquent after the effective date of this ORDER or


       

      
        
          
          

        

        
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      are
adversely classified at any subsequent examinations.

      


      LENDING AND COLLECTION
POLICIES

      8.           (a)           Within
60 days from the effective date of this ORDER, the Bank shall review its written
lending and collection policies to determine if such policies provide effective
guidance and control over the Bank's lending function,  including
specific guidelines for measuring, monitoring, and reporting problem
credits.  In addition, the Bank shall obtain adequate and current
documentation for all loans in the Bank's loan portfolio.

      (b)           The
revisions to the Bank's loan policy and practices, required by this paragraph,
at a minimum, shall incorporate the items discussed on pages 15 through 20 of
the ROE.

      (c)           Copies
of the policies and revisions thereto required by this paragraph shall be
submitted to the Regional Director and Administrator.

      LOAN
REVIEW

      9.           (a)           Within
90 days from the effective date of this ORDER, the Bank shall develop a program
of independent loan review that will provide for a periodic review of the Bank’s
loan portfolio and the identification and characterization of problem
credits.  At a minimum, the system shall provide for:

       

      
        
          
          

        

        
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                (i)

              	
                Prompt
      identification of loans with credit weaknesses that warrant the special
      attention of management, including the name of the borrower, the amount of
      the loan, the reason why the loan warrants special attention; and an
      assessment of the degree of risk that the loan will not be fully repaid
      according to its terms;

              


      

      
        	
                 
      

              	
                (ii)

              	
                Action
      plans to reduce the Bank’s risk exposure from each identified
      relationship;

              


      

      
        	
                 
      

              	
                (iii)

              	
                Prompt
      identification of all outstanding balances and commitments attributable to
      each obligor identified under the requirements of subparagraph (i),
      including outstanding balances and commitments attributable to related
      interests of such obligors, including the obligor of record, relationship
      to the primary obligor identified under subparagraph (i), and an
      assessment of the risk exposure from the aggregate
      relationship;

              


      

      
        	
                 
      

              	
                (iv)

              	
                Identification
      of trends affecting the quality of the loan portfolio, potential problem
      areas, and action plans to reduce the Bank’s risk
  exposure;

              


      

      
        	
                 
      

              	
                (v)

              	
                Assessment
      of the overall quality of the loan
portfolio;

              


      

      
        	
                 
      

              	
                (vi)

              	
                Identification
      of credit and collateral documentation exceptions and an action plan to
      address the identified
deficiencies;

              


      

      
        	
                 
      

              	
                (vii)

              	
                Identification
      and status of violations of law, rules, or regulations with respect to the
      lending function and an action plan to address the identified
      violations;

              


      

      
        	
                 
      

              	
                (viii)

              	
                Identification
      of loans that are not in conformance with the Bank’s lending policy and an
      action plan to address the identified
  deficiencies;

              


      

      
        	
                 
      

              	
                (ix)

              	
                Identification
      of loans to directors, officer, principal shareholders, and their related
      interests; and

              


      

      
        	
                 
      

              	
                (x)

              	
                A
      mechanism for reporting periodically, but in no event less than quarterly,
      the information developed in (i) through (ix), above, to the board of
      directors.  The report should also describe the action(s) taken
      by management with respect to problem
credits.

              


      

       

      
        
          
          

        

        
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                      (b)           A
copy of the program required by this paragraph shall be submitted to the
Regional Director and the Administrator.

      


      CONCENTRATIONS OF
CREDIT

      10.           (a)           Within
60 days from the effective date of this ORDER, the Bank shall formulate, adopt
and implement a written plan to manage each of the concentrations of credit
identified on page 47 of the ROE in a safe and sound manner.  At a
minimum, the plan must provide for written procedures for the ongoing
measurement and monitoring of the concentrations of credit, and a limit on
concentrations commensurate with the Bank’s capital position, safe and sound
banking practices, and the overall risk profile of the Bank.

      LIQUIDITY
PLAN

      11.           (a)           The
Bank shall continue to comply with its contingency funding plan (“Liquidity
Plan”).  The Liquidity Plan shall be reviewed and revised to identify
sources of liquid assets to meet the Bank’s contingency funding needs over time
horizons of one month, two months, and three months.  At a minimum,
the Liquidity Plan shall be prepared in conformance with the Liquidity Risk
Management Guidance found at FIL-84-2008 and specifically include provisions to
reduce reliance on non-core funding sources.

      (b)           A
copy of the revised plan shall be submitted to the Regional Director and
Administrator.

      


      
        
          
          

        

        
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      INTEREST RATE
RISK

      12.           (a)           Within
60 days of the effective date of this ORDER, the Bank shall have procedures for
managing the Bank’s sensitivity to interest rate risk.  The procedures
shall comply with the Joint Agency Statement of Policy on Interest Rate Risk
(June 26, 1996), and the Joint Supervisory Statement on Investment Securities
and End-User Derivative Activities (April 23, 1998).

      (b)           A
copy of the policy revisions and procedures required by this paragraph shall be
submitted to the Regional Director and the Administrator.

      


      PROFIT PLAN AND
BUDGET

      13           (a)           Within
60 days from the effective date of this ORDER, the Bank shall revise and update
its current  profit plan and  budget for calendar years 2010
and 2011.

      (b)           Within
30 days from the end of each calendar quarter following completion of the
revised profit plans and budgets required by this paragraph, the Bank’s board of
directors shall evaluate the Bank’s actual performance in relation to the plan
and budget, 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.

      (c)           A
written profit plan and budget shall be prepared for each calendar year for
which this ORDER is in effect.

      (d)           A
copy of the revised plans and budgets required by this paragraph shall be
submitted to the Regional Director and Administrator.

      


      STRATEGIC
PLAN

      14.           (a)           Within
120 days from the effective date of this ORDER, the Bank shall formulate, adopt,
and implement a realistic, comprehensive strategic plan.  The plan
required by 

       

      
        
          
          

        

        
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      this
paragraph shall contain an assessment of the Bank’s current financial condition
and market area, and a description of the operating assumptions that form the
basis for major projected income and expense components.  The written
strategic plan shall address, at a minimum:

      
        	
                 
      

              	
                (i)

              	
                Strategies
      for pricing policies and asset/liability management;
  and

              


      

      
        	
                 
      

              	
                (ii)

              	
                Financial
      goals, including pro forma statements for asset growth, capital adequacy,
      and earnings.

              


      

      (b)           Within
30 days from the end of each calendar quarter following the effective date of
this ORDER, the Bank’s board of directors shall evaluate the Bank’s actual
performance in relation to the strategic plan required by this paragraph and
record the results of the evaluation, and any actions taken by the Bank, in the
minutes of the board of directors’ meeting at which such evaluation is
undertaken.

      (c)           The
strategic plan required by this ORDER shall be revised 30 days prior to the end
of each calendar year during which this ORDER is in effect. Thereafter the Bank
shall approve the revised plan, which approval shall be recorded in the minutes
of a board of directors’ meeting, and the Bank shall implement and adhere to the
revised plan.

      (d)           Copies
of the plan and revisions thereto required by this paragraph shall be submitted
to the Regional Director and Administrator.

      DIVIDEND
RESTRICTION

      15.                      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
Administrator.

      


      NOTIFICATION TO
SHAREHOLDER

      16.           Following
the effective date of this ORDER, the Bank shall send to its shareholder a copy
of this ORDER: (1) in conjunction with the Bank’s next shareholder
communication; 

       

      
        
          
          

        

        
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      or (2) in
conjunction with its notice or proxy statement preceding the Bank’s next
shareholder meeting.

      PROGRESS
REPORTS

      17.             Within
30 days from the end of each calendar quarter following the effective date of
this ORDER, the Bank shall furnish to the Regional Director and Administrator
written progress reports signed by each member of the Bank’s board of directors,
detailing the actions taken to secure compliance with the ORDER and the results
thereof.

      This ORDER shall be effective upon its
issuance by the FDIC and the WDFI.

      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 and the WDFI.

      


      Pursuant to delegated
authority.

      


      Dated:

      


      


      
        	 
      	 
      	 
      
	
                M.
      Anthony Lowe

                Regional
      Director

                Chicago
      Regional Office

                Federal
      Deposit Insurance

                Corporation

                 

              	 
      	
                 

                Michael
      J. Mach

                Administrator

                Department
      of Financial Institutions for the State of Wisconsin

                 

                 

              


      

      


      



      
        
           


        

        
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