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{{5-31-92 p.C-146}}
   [10,030] In the Matter of Community Guardian Bank, Elmwood Park, New Jersey, Docket No. FDIC-89-227b (12-5-89).

   Bank to cease and desist from practices such as operating with a level of primary capital which is inadequate in relation to the kind and quality of its assets; engaging in hazardous lending and ineffective and lax collection practices; failing to provide adequate reserve for loan losses; operating Bank with an excessive level of poor quality assets, and with policies and practices of its Board of Directors which are detrimental to Bank. (This order was terminated by order of the FDIC dated 3-17-92; see ¶ 15,417.)

   [.1] Primary Capital—Increase—Methods
   [.2] Assets—Adversely Classified—Reduce
   [.3] Loan Loss Reserve—Adequacy—Review
   [.4] Financial Condition—Amendment—Filing
   [.5] Loans—Extensions of Credit—Curtail
   [.6] Assets—Remedial Program—Review
   [.7] Loans—Past Due, Nonaccruals, and Adversely Classified—Review
   [.8] Management—Qualifications—Compliance
   [.9] Loan Policy—Minimum Requirements—Review
   [.10] Brokered Deposits—Written Plan—Reduce
   [.11] Shareholders—Dividends—Approval
   [.12] Shareholders—Disclosure—Cease and Desist Order
   [.13] Compliance—Progress Reports—Frequency

In the Matter of

COMMUNITY GUARDIAN BANK
ELMWOOD PARK, NEW JERSEY
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

   Community Guardian Bank, Elmwood Park, New Jersey, ("Bank"), having been advised of its right to a Notice of Charges and of Hearing detailing the unsafe or unsound banking practices alleged to have been committed by the Bank and of its right to a hearing on such alleged charges under section 8(b) of the Federal Deposit Insurance Act ("Act"), as amended by the Financial Institutions Reform. Recovery, and Enforcement Act of 1989, Pub. L. No. 101-73, 103 Stat. 183 (1989) (to be codified at 12 {{4-1-90 p.C-147}}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") with counsel for the Federal Deposit Insurance Corporation ("FDIC"), dated December 4, 1989, whereby, solely for the purpose of this proceeding and without admitting or denying the alleged charges of unsafe or unsound banking practices, 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 or unsound banking practices. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

ORDER TO CEASE AND DESIST

   IT IS HEREBY ORDERED, that Community Guardian Bank, Elmwood Park, New Jersey, its successors, assigns, directors, officers, employees, agents, and other institution-affiliated parties, as defined in the Act, as amended by section 204(f)(6) of FIRREA, Pub. L. No. 101–73, § 204(f)(6), 103 Stat. 183, 193 (1989) (to be codified at 12 U.S.C. § 1813(u)), CEASE AND DESIST from the following unsafe or unsound banking practices:
   (a) Operating the Bank with an excessive level of poor quality assets;
   (b) Operating the Bank with an inadequate reserve for loan losses;
   (c) Operating the Bank with a level of primary capital which is inadequate in relation to the kind and quality of its assets;
   (d) Operating the Bank with policies and practices of its board of directors which are detrimental to the Bank and jeopardize the safety of its deposits;
   (e) Engaging in hazardous lending and lax collection practices including, but not limited to:

       (i) Extending credit which is inadequately secured;
       (ii) Operating the Bank with excessive concentrations of credit;
       (iii) Extending credit without analysis and review of financial statements submitted in connection with such loans to ensure the adequacy and accuracy of the data;
       (iv) Operating the lending and collection functions of the Bank with insufficient staff.
   IT IS FURTHER ORDERED, that the Bank, its successors, assigns, directors, officers, employees, agents, and other institution-affiliated parties, take AFFIRMATIVE action as follows:

   [.1] 1. (a) By not later than May 15, 1990, the Bank shall increase its primary capital to $7,000,000, or to an amount equal to 10 percent of its total assets, whichever is greater. Thereafter, the Bank shall maintain the ratio of its primary capital to its total assets at not less than 10 percent. For the purposes of this ORDER, the terms "primary capital" and "total assets" shall have the meanings ascribed to them in Part 325 of the FDIC's Rules and Regulations, respectively subsections 325.2(h) and (k), 12 C.F.R. §§ 325.2 (h) and (k). Such increase in primary capital and any increase in primary capital necessary to meet and maintain the ratio required by this paragraph may be accomplished by:

       (i) the sale of securities in the form of new common stock; or
       (ii) the direct contribution of cash by the shareholders and/or directors of the Bank; or
       (iii) any combination of the above, or alternative means acceptable to the FDIC.
   (b) If all or part of the increase in primary capital required by paragraph 1(a) of this ORDER is accomplished by the sale of new securities, the board of directors of the Bank shall forthwith adopt and implement a plan for the sale of such additional securities, including the voting of any shares owned or proxies controlled by them in favor of the plan. Should the implementation of the plan involve a public distribution of the Bank's securities (including a distribution limited only to the Bank's existing shareholders), the Bank shall prepare 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 any other material disclosures necessary to comply with the 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 {{4-1-90 p.C-148}}materials, the plan and any materials used in the sale of the securities shall be submitted to the FDIC, Registration and Disclosure Unit, 550 17th Street, N.W., Washington, D.C. 20429, and to the Commissioner of Banking for the State of New Jersey ("Commissioner") for review. Any changes requested to be made in the plan or materials by the FDIC shall be made prior to their dissemination.
   (c) In complying with the provisions of paragraph 1(b) of this ORDER, the Bank shall provide to any subscriber and/or purchaser of the Bank's 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. The written notice required by this paragraph shall be furnished within 10 days from the date such 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 securities who received or was tendered the information contained in the Bank's original offering materials.

   [.2] 2. (a) Within 10 days from the effective date of this ORDER, the Bank shall eliminate from its books, by collection or charge-off, all assets or portions of assets classified "Loss" and 50 percent of all assets or portions of assets classified "Doubtful" by the FDIC as a result of its examination of the Bank as of May 31, 1989, which have not been previously charged-off or collected. In addition, and so long as this ORDER remains in effect, the Bank shall, within 30 days of the receipt of any subsequent Report of Examination of the Bank from the FDIC, eliminate from its books, by collection or charge-off, all assets or portions of assets classified "Loss" and 50 percent of all assets or portions of assets classified "Doubtful" in said Report of Examination.

   [.3] (b) Within 10 days from the effective date of this ORDER, and immediately after effecting the charge-offs made pursuant to paragraph 2(a) of this ORDER, the Bank shall increase the balance in the reserve for loan losses to at least $1,500,000, and shall thereafter maintain an adequate reserve for loan losses.
   (c) Within 30 days from the effective date of this ORDER, the Bank's board of directors shall adopt a method of computing the balance of the Bank's reserve for loan losses that gives consideration to the volume and composition of the loan portfolio not subject to criticism, as well as to the volume and composition of assets which are subject to criticism, whether by any bank regulatory agency or by the Bank as a result of its internal reviews of assets. Thereafter, the Bank's board of directors shall, during the first month of each quarter, reevaluate the reserve for loan losses and make such additional provisions for loan losses that are, in the judgment of the board, necessary to maintain the reserve at an adequate level relative to the volume of risk of the Bank's loan portfolio. All such additional provisions for loan losses shall be made in the first month of the calendar quarter in which the deficiency in the reserve is identified, and shall be reflected in the Report of Condition and the Report of Income filed in such calendar quarter. The minutes of the board of directors of the Bank shall reflect that such reevaluation has been performed, and documentary proof of the method employed in determining the level of the reserve shall be maintained for future regulatory review.
   (d) All increases in the reserve for loan losses, with the exception of recoveries credited directly to the reserve, shall be accomplished by charges to operating earnings through the provision for loan losses.

   [.4] (e) Within 30 days after complying with paragraphs 2(a) and 2(b) of this ORDER, the Bank shall file amended Consolidated Reports of Condition and an amended Consolidated Reports of Income which shall accurately reflect the financial condition of the Bank as of June 30, 1989 and September 30, 1989.

   [.5] 3. (a) Immediately upon the effective date of this ORDER, and notwithstanding any other provision of this ORDER, the Bank shall not extend, either directly or indirectly, any new or additional credit (which, for the purposes of this ORDER, shall include the granting of renewals or extensions, or the capitalizing of accrued interest) to, or for the benefit of, any borrower who is obligated in any manner to the Bank on any extension of credit, or portion thereof, which has been charged off the books of the Bank in whole or in part, or to any affiliate of, related interest of, or other person or entity associated with, any such borrower, so long as any portion of such extension of credit, whether or not that {{4-1-90 p.C-149}}portion was charged off, remains uncollected.
   (b) Immediately upon the effective date of this ORDER, the Bank shall not extend, directly or indirectly, any new or additional credit to, or for the benefit of, any borrower who is obligated in any manner to the Bank on any loan or other extension of credit that has been adversely classified, in whole or in part, by the FDIC as a result of its examination of the Bank as of May 31, 1989 or as a result of any subsequent examination of the Bank by the FDIC, or to any affiliate of, related interest of, or other person or entity associated with, any such borrower ("classified borrower"), so long as such loan or other extension of credit remains classified or is uncollected. This paragraph 3(b) shall not prohibit the Bank from renewing all or any part of an extension of credit to a classified borrower who is not subject to the prohibitions of paragraph 3(a) of this ORDER, after collection in cash of interest due on the entire extension of credit. The prohibitions of this paragraph 3(b) shall not apply to any extension of credit to a classified borrower who is not subject to the prohibitions of paragraph 3(a) of this ORDER, if:

       (i) the Bank's failure to extend further credit to a classified borrower would be substantially detrimental to the best interests of the Bank;
       (ii) a comparison with the written program adopted pursuant to paragraph 4 of this ORDER shows that the Bank's formal program to eliminate the basis of criticism of said criticized asset is not compromised; and
       (iii) prior to extending any credit, a majority of the Bank's full board of directors approves the extension of credit and certifies, in writing, the specific reasons why failure to so act would be substantially detrimental to the best interests of the Bank. A copy of the board of directors' certification shall be maintained in the credit file of the classified borrower.

   [.6] 4. Within 30 days from the effective date of this ORDER, the board of directors of the Bank shall adopt and implement a written program with regard to each asset criticized by the FDIC as a result of its examination of the Bank as of May 31, 1989, so as to eliminate the basis of criticism of each such asset. This program shall include, at a minimum, an assessment of the status of each criticized asset, the proposed action for eliminating the basis of criticism, and the time frame for its accomplishment. Once all such programs are adopted, a copy of the program for each criticized asset which equals or exceeds $50,000 shall be forwarded to the Regional Director of the New York Region of the FDIC ("Regional Director") and the Commissioner. Furthermore, while this ORDER is in effect, the Bank's board of directors shall, within 30 days following receipt of any Report of Examination of the Bank from the FDIC, adopt and implement written programs as specified above, for any assets criticized in said Report and not criticized as of May 31, 1989, and forward copies of such programs to the Regional Director and the Commissioner. For the purposes of Paragraphs 3, 4 and 5 of this ORDER, the term "criticized asset" means any asset or group of related assets, or portion thereof, scheduled as "Special Mention", "Substandard", or "Doubtful" in any Report of Examination of the Bank by the FDIC.
   5. The Bank's board of directors shall conduct a review of each program adopted pursuant to paragraph 4 of this ORDER at least once in every two-month period ("bimonthly"), to determine:
   (a) the status of each criticized asset:
   (b) management's adherence to each written program;
   (c) the status and effectiveness of each written program; and
   (d) the need to revise each written program and/or take other actions.
   The board shall send bimonthly progress reports on the status of each criticized asset equal to or exceeding $50,000 to the Regional Director and the Commissioner.

   [.7] 6. (a) Within 360 days from the effective date of this ORDER, the Bank shall reduce to not more than 5 percent, the ratio of loans on which interest or principal is past due for 30 days or more to gross loans. If the ratio exceeds 5 percent at the end of such period, a written explanation of the reason for such excess and the status of collection efforts on each such past-due loan shall be reflected in the minutes of the board of directors of the Bank and forward- {{4-1-90 p.C-150}}ed to the Regional Director and the Commissioner.
   (b) Within 360 days from the effective date of this ORDER, the Bank shall reduce to not more than 2.5 percent, the ratio of nonaccrual loans to gross loans. If the ratio exceeds 2.5 percent at the end of such period, a written explanation of the reason for such excess and the status of collection efforts on each such nonaccrual loan shall be reflected in the minutes of the board of directors of the Bank and forwarded to the Regional Director and the Commissioner.
   (c) Within 360 days from the effective date of this ORDER, the Bank shall reduce the remaining total of all assets classified "Doubtful" and "Substandard" by the FDIC as a result of its examination of the Bank as of May 31, 1989 to not more than 50 percent of primary capital, and, subsequently, the Bank shall reduce the total of such assets to not more than 25 percent of primary capital within 540 days from the effective date of this ORDER.
   (d) The requirements of this paragraph 6 of this ORDER shall not be construed as a standard for future operations of the Bank. In addition to accomplishing the foregoing schedule of reductions, the Bank shall eventually reduce all nonaccrual loans, past-due loans, and adversely classified assets of the Bank.
   (e) As used in paragraph 6 of this ORDER, the word "reduce" means (1) to collect, (2) to charge-off, or (3) to improve the quality of adversely classified assets sufficiently to warrant removing any adverse classification, as determined by the FDIC.

   [.8] 7. (a) The Bank shall have and retain sufficient qualified management and qualified staff. Each member of management and of staff shall have qualifications and experience commensurate with his or her duties and responsibilities at the Bank. The qualifications and sufficiency of management and of staff shall be assessed on their 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 and regulations; and
       (iv) Restore all aspects of the Bank to a safe and sound condition, including capital adequacy, asset quality, management effectiveness, earnings and liquidity.
   During the life of this ORDER, the Bank shall notify the Regional Director and the Commissioner in writing of any changes in management. Except in the case of any director and any senior executive officer, as defined by the FDIC in Rules and Regulations promulgated pursuant to section 32 of the Act, as added by section 914 of FIRREA, Pub. L. No. 101-73, 103 Stat. 183, 484–485 (1989) (to be codified at 12 U.S.C. § 1831i) ("senior executive officer"), the notification must include the names and background of any additional or replacement management personnel and must be provided not less than 15 days prior to the individual assuming the new position. In the case of any addition to, or replacement of any member of, the board of directors of the Bank, or the hiring or change in responsibilities of anyone to any senior executive officer position, the notification shall be provided in accordance with section 914 of FIRREA and applicable FDIC Rules and Regulations.
   (b) Within 60 days from the effective date of this ORDER, the bank shall designate a qualified chief executive officer. The Regional Director shall have the right to disapprove the employment of any proposed chief executive officer, but any failure to exercise that right shall not affect the authority and ability of the FDIC (including the Regional Director) to subsequently take any action against the Bank and such chief executive officer.
   (c) To facilitate having and retaining qualified management, and in addition to the requirements of subparagraph 7(b), the Bank's board of directors shall, within 15 days from the effective date of this ORDER, appoint a committee with at least two members, composed of Outside Directors, and whose composition is acceptable to the Regional Director. For the purposes of this ORDER an "Outside Director" is a director who is not now, nor has ever been, involved in the daily operations of the Bank, who has never received a salary, annual retainer, or similar form of compensation from the Bank, and who is not related by blood, marriage or business relationship to any director who does not otherwise meet this definition of Outside Director. The Committee shall, immediately upon being appointed, undertake an in-depth analysis of the Bank's managerial require- {{4-1-90 p.C-151}}ments. This analysis shall include a review of the board of directors, its committee structure, senior management and the overall staffing resources and needs of the bank. The review shall include specific recommendations regarding the appropriateness of changing the composition of the executive, long term strategic planning, audit, and investment committees of the board of directors, so as to assure that a majority of each committee is composed of Outside Directors. As a further part of this review, the Committee shall develop specific written responsibilities and authorities for the Bank's designated chief executive officer for implementing and managing the lending, investment, liquidity and funds management, and operating policies of the Bank in accordance with sound banking practices and principles and to ensure that the chief executive officer is the senior officer of the Bank responsible for the daily management and overall operations of the Bank. Within 60 days from the effective date of this ORDER, such Committee shall prepare and present to the board of directors of the Bank a written report of its findings and recommendations. The board of directors of the Bank shall review the Committee's report and evaluate its current management in light of such report, and shall take whatever action is necessary to implement its determinations. A copy of the Committee's report, as well as the board of directors' evaluation, determinations, and implementing actions, shall be submitted to the Regional Director and the Commissioner within 90 days from the effective date of this ORDER.
   (d) As part of the in-depth analysis conducted pursuant to paragraph 7(c) of this Order, the Committee shall review the appropriateness of salaries, fees, and retainers paid to directors of the Bank, in the context of marketplace criteria, the Bank's ability to pay and its overall financial condition. The Committee shall develop and recommend to the board a policy governing insider dealings/transactions including the specific documentation required for services rendered by insiders. The recommendations of the Committee shall be evaluated and acted upon by the board of directors to assure full implementation of the new policy.

   [.9] 8. Within 30 days from the effective date of this ORDER, the Bank's board of directors shall adopt and implement a written policy which shall establish appropriate guidelines for the obligation of the Bank's funds in amounts which exceed 10 percent of the Bank's total equity capital and reserves. Such policy should at a minimum address loans or investments or any other assets of the Bank categorized by concentrations to: obligor(s), industries, product line or by type of collateral and may be incorporated into the Bank's loan policy.
   9. Within 60 days from the effective date of this ORDER, the Bank's board of directors shall adopt and implement the suggestions for changes and improvement in its written policies and procedures set forth on pages 6-2 through 6-5 of the Report of Examination of the Bank by the FDIC as of May 31, 1989. Upon adoption by the board of the revised policies and procedures, a copy of each such policy and procedure shall be provided to the Regional Director.

   [.10] 10. Upon the effective date of this ORDER, the Bank shall not increase the amount of brokered deposits above the amount outstanding on that date. Within 10 days from the effective date of this ORDER, the Bank shall submit to the Regional Director and the Commissioner a written plan for eliminating its reliance on brokered deposits. The plan should contain details as to the current composition of brokered deposits by maturity and explain the means by which such deposits will be paid or rolled over. The Regional Director shall have the right to reject the Bank's plan. On the third Monday of each month the Bank shall provide a written progress report to the Regional Director and the Commissioner detailing the level, source and use of brokered deposits with specific reference to progress under the Bank's plan. For the purposes of this ORDER, brokered deposits are defined to include any deposits funded by third party agents or nominees for depositors, including deposits managed by a trustee or custodian when each individual beneficial interest is entitled to or asserts a right to Federal deposit insurance.

   [.11] 11. While this ORDER is in effect, the Bank shall not declare or pay either directly or indirectly any dividends, whether in cash, stock, or otherwise, on its common stock, without the prior written consent of the Regional Director.

{{4-1-90 p.C-152}}
   12. The Committee appointed pursuant to paragraph 7(c) of this ORDER shall monitor the Bank's compliance with this ORDER. Within 30 days from the effective date of this ORDER, and at monthly intervals thereafter, such Committee shall prepare and present to the Bank's board of directors a written report of its findings, detailing the form, content, and manner of any action taken to secure compliance with this ORDER and the results thereof, and any recommendations with respect to such compliance. Such progress reports shall be included in the minutes of the Bank's board of directors.

   [.12] 13. Following the effective date of this ORDER, the Bank shall send to, or otherwise furnish, its shareholders a description of this ORDER (1) in conjunction with the Bank's next shareholder communication and (2) 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, statement, or notice shall be sent to the FDIC, Registration and Disclosure Unit, 550 17th Street, N.W., Washington, D.C. 20429, and the Commissioner, for review at least 20 days prior to dissemination to shareholders. Any changes requested to be made by the FDIC shall be made prior to dissemination of the description, communication, notice or statement.

   [.13] 14. By the tenth day of the month following the effective date of this ORDER, and on the tenth day of every second month thereafter, the Bank shall furnish written progress reports to the Regional Director and the Commissioner detailing the form, content, and manner of any actions taken to secure compliance with this ORDER, and the results thereof. The Regional Director may subsequently permit the Bank to submit such reports less frequently. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Regional Director has, in writing, released the Bank from making further reports.
   The effective date of the Order shall be 10 days from the date of its issuance.
   The provisions of this ORDER shall be binding upon Community Guardian Bank, its successors, assigns, directors, officers, employees, agents, and other institution-affiliated parties.
   The provisions of this ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provisions of this ORDER shall have been modified, terminated, suspended, or set aside by the FDIC.
   Pursuant to delegated authority.
   Date of Issuance: December 5, 1989

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