State: Ericson bank owners gave loans, extended credit in violation of law – Lincoln Journal Star

The state shuttered the bank Friday after regulators found “large out-of-territory commercial loan losses” and “poor management practices” made it insolvent.

According to a 2019 consent order, the bank’s owners, Jack and Debra Poulsen, had offered loans or extended lines of credit to a relative’s business interests that exceeded the limits set in state law.

The Poulsens had also extended maturity dates on the credit lines multiple times without proper documentation, advanced additional money and paid overdraft fees, regulators found, which led to the bank’s capital being diminished.

“The 2019 Examination revealed that Ericson’s condition had significantly deteriorated since the 2017 Examination, due in large part to Ericson being operated without regard for the laws, regulations, prudent banking policies, and practices,” the order reads.

Last year, the state banking department ordered the Poulsens to resign from their positions in the bank for conducting its business “in an unsafe or unauthorized manner” that endangered the financial institution’s solvency.

The state doesn’t have authority to pursue criminal or civil charges against the Poulsens, however. That decision is up to local authorities.

The bank’s board later installed an interim president, but the bank was unable to recover.

While Ericson State Bank reported assets of nearly $101 million and deposits totaling $95.2 million as of Dec. 31, it was also in need of additional capital after reporting a more than $3.5 million net loss in the fourth quarter, which halved the amount of equity capital it had.

“When the capital was not replenished, the Department was left with no option but to place the insolvent institution in receivership,” Nebraska Department of Banking and Finance Director Mark Quandahl said in a statement.

The Federal Deposit Insurance Corp. took over receivership of the bank and initiated its purchase by the Farmers and Merchants Bank in Milford, which acquired $9.6 million of the bank’s assets and all of its deposited accounts. The bank opened as a branch of Farmers and Merchants Bank on Tuesday. The FDIC said in a news release that the bank’s closure was expected to cost the Deposit Insurance Fund $14.1 million.

In November, Eagle State Bank of Eagle and Tri Valley Bank of Talmage announced plans to merge and then buy Ericson State Bank, but Quandahl said that plan did not come to fruition.

Quandahl said the residents of Ericson and Wheeler County who hold accounts with the bank “didn’t lose a penny” in the closing or acquisition.

He also said an “overwhelming majority” of Nebraska’s 148 state-chartered banks remain strong.

Ericson State Bank’s closure, which was the first one in the U.S. since November, marks the third closing of a state-chartered bank since 1989. Mid City Bank in Omaha was declared insolvent on Nov. 4, 2011, and Sherman County Bank in Loup City closed on Feb. 13, 2009.

The closing drew the attention of the Legislature on Tuesday, albeit briefly.

Sen. Matt Williams of Gothenburg, chair of the Banking, Commerce and Insurance Committee, read the state’s news release announcing the bank’s closing on the floor before debate started.

While some bankers — Williams himself is a banker — may chafe against regulation, those rules are responsible for “keeping a safe and sound banking structure in our state and country,” he said.