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FDIC Enforcement Decisions and Orders

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{{4-30-91 p.C-204.1}}
   [10,040] In the Matter of Maine Savings Bank, Portland, Maine, Docket No. FDIC-90-10b (1-19-90).

   Bank to cease and desist from practices such as operating with inadequate equity capital, with excessive volume of poor quality assets and with excessive volume of concentration in real estate development credits; and violating applicable federal and state laws. (This order was terminated by order of the FDIC, dated 2-5-91: see ¶15,225.)

   [.1] Board of Directors—Responsibilities
   [.2] Management—Qualifications—Compliance
   [.3] Primary Capital—Increase—Methods
   [.4] Assets—Adversely Classified—Reduce
   [.5] Loans—Extensions of Credit—Curtail
   [.6] Loan Policy—Minimum Requirements—Review
   [.7] Loan Loss Reserve—Adequacy—Review
   [.8] Violations of Law—Eliminate and/or Correct
   [.9] Service Corporation Subsidiary—Violations of State Law—Eliminate and/or Correct
{{4-30-91 p.C-204.2}}
   [.10] Technical Exceptions—Credit File Documentation—Correct
   [.11] Shareholders—Dividends—Approvals
   [.12] Compliance—Progress Reports—Frequency

In the Matter of

MAINE SAVINGS BANK
PORTLAND, MAINE
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

   Maine Savings Bank, Portland, Maine ("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/or regulations alleged to have been committed by the Bank and of its right to a hearing on such charges under section 8(b)(1) of the Federal Deposit Insurance Act, 12 U.S.C. section 1818(b)(1), 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 _____, whereby solely for the purpose of this proceeding and without admitting or denying any unsafe or unsound banking practices and violations of law and/ or regulations, 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 and had violated laws and/ or regulations. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

ORDER TO CEASE AND DESIST

   IT IS HEREBY ORDERED that the Bank, its directors, officers, employees, agents, successors, assigns, and other persons participating in the conduct of the affairs of the Bank, cease and desist from the following unsafe or unsound banking practices and violations:

       (a) operating with inadequate equity capital;
       (b) operating with an excessive volume of poor quality assets;
       (c) operating with an excessive volume of concentration in real estate development credits;
       (d) violating Title 9-B of the Maine Revised Statutes Annotated sections 252 and 445 (which require a bank to obtain prior approval of the Bureau of Banking when establishing service corporation subsidiaries); and section 325.3(a) of the FDIC's Rules and Regulations, 12 C.F.R. section 325.3(a) (which establishes minimum capital requirements).
   IT IS FURTHER ORDERED that the Bank, its directors, officers, employees, agents, successors, assigns, and other persons participating in the conduct of the affairs of the Bank, take affirmative action as follows:

   [.1] 1. Although the Board of Directors is by this Order required to submit certain proposed actions and programs for review and approval of the FDIC and the Maine Bureau of Banking, the Board of Directors acknowledges that it has the ultimate responsibility for supervision of the Bank. Toward fulfillment of this responsibility, the Board shall:

       (a) act to ensure that the Bank conducts its lending practices in a safe and sound manner;
       (b) act to ensure the adequacy of the loan valuation reserve; and
       (c) adequately supervise the operation of the bank and support the implementation of the remaining requirements of this Order.
   [.2] 2. During the life of this Order, the Bank shall have and retain qualified management. Within sixty (60) days of the effective date of this Order, the Board of Directors shall, with such assistance from the Bank's executive officers as it deems appropriate, reassess the qualifications of senior management and shall forward to the Regional Director of the FDIC's Boston Regional Office (the "Regional Director") and the Superintendent of the State of Maine Bureau of Banking (the "Superintendent") the written findings and conclusions of its

(Next page is C-205.)

{{4-1-90 p.C-205}}management review along with a written description of any management or operation changes that may be proposed as a result of the findings. The review shall focus on an assessment of the duties performed by each senior officer and the ability of that officer to perform competently his or her assigned duties. The purpose of this review shall be to ensure that the bank is staffed by qualified and trained personnel who are compensated at appropriate levels, and to eliminate any unnecessary positions. The qualifications of management shall be assessed on its ability to:

       (a) comply with the requirements of this Order;
       (b) operate the Bank in a safe and sound manner;
       (c) comply with applicable laws and regulations; and
       (d) restore all aspects of the Bank to a safe and sound condition, including asset quality, capital adequacy and management effectiveness.
   During the life of this ORDER, the Bank shall notify the Regional Director and the Superintendent, in writing, of any changes in senior management. The notification must include the name and background of any individual assuming the new position.

   [.3] 3. (a) Immediately upon the effective date of the Order, the Bank shall increase primary capital by a cash infusion of no less than $20,000,000. On or before December 31, 1990, the Bank shall increase adjusted primary capital to seven (7.00) percent of the Bank's adjusted part 325 total assets and, on or before June 30, 1991, the Bank shall increase adjusted primary capital to eight (8.00) percent of the Bank's adjusted Part 325 total assets (the means and timing of these increases shall be embodied in a Capital Recovery Plan to be submitted to the Regional Director and the Superintendent for review and approval within 90 days of the effective date of the Order). Thereafter, the Bank shall maintain adjusted primary capital in such an amount as to equal or exceed eight (8.00) percent of the Bank's adjusted Part 325 total assets (the means and timing of which shall be embodied in the Capital Recovery Plan to be submitted to the Regional Director and the Superintendent for review and approval within 90 days of the effective date of the Order). The computation of primary capital, adjusted primary capital, total capital, Part 325 total assets, and the ratio of adjusted primary capital to adjusted Part 325 total assets shall be determined by using the procedures outlined in the "Analysis of Capital" Schedule in the FDIC Report of Examination.
   (b) Any increase in adjusted primary capital necessary to meet the requirements of paragraph 3 of this Order may be accomplished by the following:

       (i) the sale of common stock; or
       (ii) the sale of perpetual preferred stock; or
       (iii) the direct contribution of cash by The One Bancorp; or
       (iv) the collection of assets previously charged off; or
       (v) the reduction of the "Loss" assets specified in paragraph 4 of this Order (other than through the payment of loans with the proceeds of other loans by the Bank) without loss or liability to the Bank; or
       (vi) any other means acceptable to the Regional Director and the Superintendent; or
       (vii) any combination of the above means.
   (c) If all or part of the increase in primary capital required by subparagraph 3(a) of this Order is accomplished by the sale of new securities, the Bank's Board of Directors shall forthwith take all necessary steps to adopt and implement a plan for the sale of such additional securities, including the voting of any shares owned or proxies held or 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 State and Federal securities laws. Prior to the sale of the securities, and, in any event not less than twenty (20) days prior to the dissemination of such materials, the materials used in the sale of the securities shall be submitted to the FDIC, {{4-1-90 p.C-206}}Registration and Disclosure Unit, Washington, D.C. 20429, for review. Any appropriate changes requested to be made in the materials by the FDIC shall be made prior to their dissemination.
   (d) If the increase in primary capital is provided by the sale of preferred stock, then all terms and conditions of the issue, including but not limited to those terms and conditions relative to interest rate and convertibility factor, shall be presented to the Regional Director and the Superintendent for prior approval.
   (e) In complying with the provisions of subparagraph 3(a) 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 information reflected in any offering materials used in connection with the sale of the Bank's securities. The written notice required by this paragraph shall be furnished within ten (10) days from the date such material development or change was planned or occurred, whichever is earlier, and shall be furnished to every subscriber and/or purchaser of the Bank's securities who received or was tendered the information contained in the Bank's original offering materials.
   (f) For the purposes of this Order, the terms "primary capital", "total assets", and "total capital" shall have the meanings ascribed to them in Part 325 of the FDIC Rules and Regulations, respectively subsections 325.2(h), 325.2(k), and 325.2(l), 12 C.F.R. sections 325.2(h), 325.2(k) and 325.2(l).

   [.4] 4. (a) Within ten (10) days of the effective date of this Order, the Bank shall eliminate from its books, by charge-off or collection, all assets classified "Loss" and in the aggregate one-half of the amount of assets classified "Doubtful" as of June 2, 1989, that have not been previously collected or charged off. Reduction of these assets through proceeds of other loans made by the Bank is not considered collection for the purpose of this subparagraph (a).
   (b) By June 30, 1990, the Bank shall reduce the assets classified "Substandard" and the assets classified "Doubtful" as of June 2, 1989 that have not previously been collected or charged off, to not more than $200,000,000.
   (c) By December 31, 1990, the Bank shall reduce the assets classified "Substandard" and the assets classified "Doubtful" as of June 2, 1989 that have not previously been collected or charged off, to not more than $125,000,000.
   (d) The requirements of subparagraphs 4(a), 4(b), and 4(c) of this Order are not to be construed as standards for future operations and, in addition to the foregoing, the Bank shall eventually reduce the total of all adversely classified assets. As used in subparagraphs 4(b), 4(c), and 4(d), the word "reduce" means:

       (i) to collect, except that payment of loans with the proceeds of other loans by the Bank to the same borrower(s) is not considered collection; or
       (ii) to charge off; or
       (iii) to sufficiently improve the quality of assets adversely classified to warrant removing any adverse classification.
   [.5] 5. The Bank shall not extend, directly or indirectly, any additional credit to, or for the benefit of, any borrower who has a loan or other extension of credit from the Bank that has been charged off or classified, in whole or in part, "Loss", "Doubtful" or "Substandard" and is uncollected unless the prior approval of the Bank's Board of Directors or its Executive Committee is obtained, except that, for purposes of protecting the Bank's security interest, an additional amount to such borrower not to exceed $100,000 in the aggregate may be approved by the Bank's Special Assets Committee. Notwithstanding the foregoing, this Order will not require such approvals for extensions of credit made pursuant to legally binding contractual commitments made prior to the date this Order is issued.

   [.6] 6. Within sixty (60) days of the effective date of this Order, the Bank shall revise the written lending policy to provide effective guidance and control over the Bank's lending functions, which policies shall include specific guidelines for appraisal practices, concentrations of credit, construction lending, nonaccrual loans, real estate analysis, and supporting credit information. Such policies and their implementation shall be in a form and manner acceptable to the Regional Director and the Superintendent as determined at subsequent examinations and/or visitations.

   [.7] 7. Within thirty (30) days from the effective date of this Order and after com- {{4-1-90 p.C-207}}plying with subparagraph 4(a) of this Order, the Bank's Board of Directors shall increase the loan valuation reserve to $50,000,000 (prior to loan writedowns for the 4th quarter of 1989) and thereafter require that the reserve be maintained at an adequate level by periodic charges to operating revenue. Within sixty (60) days of the effective date of this Order, the Bank's Board of Directors shall establish a comprehensive policy for determining the adequacy of the loan valuation reserve. For the purpose of this determination, the adequacy of the reserve shall be determined after the charge-off of all loans classified "Loss" or otherwise determined to be "Loss" items. The policy shall provide for a review of the reserve at least once each calendar quarter. Said review should be promptly completed in order that the findings of the Board of Directors with respect to the loan valuation reserve 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 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 reserve 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 result of the review.

   [.8]    [.9] 8. Within sixty (60) days of the effective date of this Order, the Bank shall take all reasonable and appropriate action to eliminate and/or correct all alleged violations of Title 9-B of the Maine Revised Statutes Annotated, sections 252 and 445 (requiring prior approval of the Bureau of Banking when a bank establishes a service corporation subsidiary) and section 325.3(a) of the FDIC's Rules and Regulations, 12 C.F.R. section 325.3(a) (establishing minimum capital requirements), as cited in the Report of Examination of the Bank as of June 2, 1989. In addition, the Bank shall take all necessary steps to ensure future compliance with all applicable laws and regulations.

   [.10] 9. Within ninety (90) days of the effective date of this Order, the Bank shall take all reasonable and appropriate action to correct the credit file documentation exceptions present in the June 2, 1989 Report of Examination.

   [.11] 10. The Bank shall not declare or pay cash dividends in any amount except under the following conditions:
   (a) such declarations and payments are made in accordance with applicable State and Federal laws and regulations;
   (b) such declaration and payment of dividends shall be approved in advance by the Bank's Board of Directors; and
   (c) such declaration and payment of dividends shall be approved in advance, in writing, by the Regional Director and the Superintendent. Such approval shall not be unreasonably withheld.

   [.12] 11. Within thirty (30) days of the end of the first calendar quarter in 1990, and within thirty (30) days of the end of each calendar quarter thereafter, the Bank shall furnish written progress reports to the Regional Director and the Superintendent detailing the form and manner of any actions taken to secure compliance with this Order and the results thereof. Such reports shall include a copy of the Bank's Report of Condition and the Bank's Report of Income. Such reports may be discontinued when the corrections required by this Order have been accomplished and the Regional Director and the Superintendent have released the Bank, in writing, from making further reports.
   The provisions of this Order shall be binding upon the Bank, its directors, officers, employees, agents, successors, assigns, and other persons participating in the conduct of the affairs of the Bank.
   This Order shall become effective ten (10) days from the date of its issuance.
   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.
   Dated at Needham, Massachusetts, this 19th day of January, 1990.

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