OCC seeks $1.6 million from Overby
By Robert Cloud
Federal regulators are seeking $1.6 million in restitution from Archie Overby, former president and CEO of First National Bank (FNB) in Waupaca.
The Office of the Comptroller of the Currency (OCC), which oversees nationally chartered banks, posted a notice of charges against Overby on Friday, July 15.
Alleging that he “recklessly engaged in unsafe or unsound practices in conducting the affairs of the bank,” the OCC accuses Overby of “personal dishonesty” and “a pattern of misconduct, during an extended period of time, that caused the bank loss and from which he received a benefit.”
In addition to reimbursing FNB for its losses, the OCC is asking a federal administrative law judge to fine Overby $175,000 and prohibit him from working in any bank or credit union.
Overby has 20 days to file a challenge to the OCC’s allegations.
Overby’s salary, bonuses
Overby was a director, president and CEO of FNB from August 1979 through May 31 of this year. He was made the bank’s chairman in 2005.
Overby owned nearly 18 percent of the stock of Waupaca Bancorporation Inc., FNB’s holding company, by 2013.
From 2005 to 2014, FNB’s total assets grew from $427 million to $795 million, according to FDIC figures.
By the end of 2015, FNB’s total assets had dropped to approximately $548 million, following the sale of branch offices in Texas and the charge-off of more than $16.5 million in loans in 2013 and 2014 combined.
Between 2010 and 2014, FNB paid Overby a total of $3.57 million in base salary and bonuses.
FNB also paid Overby $59,500 in board and committee membership fees, contributed 100 percent to his 401(k), provided him with a new Cadillac Escalade that cost $86,500, then transferred the vehicle’s title to him when the bank bought a new car every three years.
The bank also provided him with two cell phones, three iPads and plans for these devices costing about $500 per month.
As one of 11 members of the board of directors and as a member of the executive compensation committee, Overby proposed and voted on what his salary and bonus should be.
Five bank directors were members of the executive compensation committee. According to the OCC, only one of them was “free from conflicts of interest.”
The family of one committee member loaned Overby $900,000 in May 2010 and loaned another $2 million to him in January 2012, the OCC reports. The loan was not disclosed to the executive compensation committee or the board until 2014 or later.
The bank continued paying another committee member a reduced salary for five years following his retirement from the bank.
In June 2013, Overby hired his son-in-law as controller for the bank and as his future successor. The OCC says no other candidates were interviewed for the position.
The son-in-law had never been previously employed as an officer or director of a bank or credit union, yet he was FNB’s third-highest paid employee, the OCC says.
When Overby’s son-in-law left the bank in 2014 and moved back to Texas, FNB purchased his house in Wisconsin.
In October 2013, an outside consultant reported that Overby was “the dominant influence in all aspects of bank operations.”
Overby’s decisions were “rarely challenged credibly by other members of the bank” and his “prior resistance to acknowledging and implementing separation of duties and traditional controls has exposed the bank to elevated risk,” the report said.
The OCC says FNB paid Overby more than $1.62 million for personal expenses from 2010 to 2013.
Most of the alleged personal expenses were for travel, including family trips to Arizona, Texas, New York and Disney World in Florida.
For example, Overby is accused of charging his bank-issued credit card with $47,522 in April 2012 when he and 13 relatives traveled to St. Maarten and the Cayman Islands.
Two safaris in Tanzania in 2012, costing a total of $384,000, were reportedly charged to Overby’s corporate and personal credit cards.
The OCC says FNB paid both the corporate and personal credit card bills related to more than $1.2 million in personal travel expenses over a four-year period.
The bank also provided Overby with $320,930 to pay his personal income taxes in July 2013, according to the OCC.
On April 9, 2013, an external audit found that the bank was classifying some employee and director travel spending as nondeductible business expenses that were not taxable income.
Since the expenses could not be substantiated for business purposes, they were “essentially payments of additional benefits to the employees and directors” and should be considered “taxable compensation.”
In 2013, FNB issued amended W-2 or 1099 forms to several employees and directors who received bank-paid personal expenses in 2010-12. Some of them later received checks to cover the additional taxes.
When the board later approved a Sept. 30, 2013, letter for miscellaneous expenses, the directors did not know the bank was paying more than $300,000 toward Overby’s income taxes, the OCC says.
“The board did not have a written policy concerning bank-paid personal expenses until late 2014,” the OCC notes.
Miscellaneous expense letters
Each September, FNB’s board of directors received an annual miscellaneous expense letter.
Submitted by the bank’s cashier, the letters were usually one to two pages long and listed five categories:
• Entertainment, trips and Waupaca Country Club;
• Schools and meetings;
• Business deposit slips;
The letters included only an approximate total dollar amount for each category. They did not include details regarding bank-paid personal expenses, what those expenses were for, or who were the recipients of bank-paid personal expenses.
From 2010-2013, the board approved more than $2.2 million in miscellaneous expenses.
“These expenses, in may cases, benefit only the employees or officers, or sometimes the directors,” the letters stated. “They provide little or no direct benefit to the bank, and must be looked at as an additional compensation.”
2013 internal audit
In March 2013, the bank’s internal auditor submitted a letter to the board that discussed bank-paid personal expenses.
In his letter, the auditor indicated he “did some research to make sure that there was nothing nefarious in the activities in question.”
He did not indicate what the bank had paid since 2010 on Overby’s personal expenses.
The auditor’s letter also recommended that the board authorize Overby in advance to disburse between $750,000 and $1 million for personal expenses.
The board, including Overby, voted to approve the auditor’s recommendation.
According to the OCC document, Overby drafted the internal audit letter, then instructed the internal auditor to review and submit the letter to the board.
The same month as he submitted the letter, the auditor and his wife went to the Bahamas. The same day the auditor submitted the letter, Overby gave him $1,000 in cash from bank funds.
Three years of federal scrutiny
FNB has been under federal scrutiny since 2013, when the OCC and FNB entered into a Formal Agreement “to protect the interests of the depositors, other customers and shareholders of the bank.”
The June 2013 agreement required FNB to set up a compliance committee, tighten its credit policies, increase its allowance for loan losses, obtain real estate appraisals for loans identified by the OCC and the bank, diversify its loan portfolio, and immediately charge off the accrued interest on loans not protected by sound collateral values.
The OCC replaced the 2013 Formal Agreement with a more restrictive Consent Order in December 2014.
Among the changes the OCC ordered, FNB was required to adopt policies regarding insider transactions and conflicts of interest.
The policies must comply with federal regulations that prohibit the sale or purchase of bank assets by its executive officers, directors and principal shareholders.
“By April 1, 2015, the board shall ensure that the bank takes all appropriate and available steps to seek and obtain reimbursement for any excessive or improper payments made to insiders or their related interests, associated companies, or related organizations, and for any excess or improper payments for services provided by insiders or their related interests since january 1, 2010,” the December 2014 OCC order said.
“The bank is not a defendant in this matter, as charges are between the OCC and Mr. Overby personally,” FNB’s Director of Compliance Steven Johnson said in a written statement to the Waupaca County Post.
“As there is pending litigation regarding the notice of charges, FNB is unable to provide comment regarding the charges,” Johnson said. “However, it is important to note that in no way were customer accounts mishandled or negatively affected.”
Prior to the OCC’s notice of charges, FNB’s board of directors made the decision to end its relationship with Overby in May and appoint Don Sorenson as interim president and CEO.
The board has also appointed a search committee to interview candidates for a permanent president and CEO.
“We do want to stress that FNB continues to operate with capital in excess of the ratios of most of our peer banks, and we are confident about our ability to serve our personal and business customers, along with the communities we serve, now and into the future,” Johnson said.