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FDIC Enforcement Decisions and Orders

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{{12-31-91 p.C-604}}
   [10,126] In the Matter of New Hampshire Savings Bank, Concord, New Hampshire, Docket No. FDIC-90-230b (10-31-90).

   Bank ordered to cease and desist from operating with inadequate primary capital, with an excessive volume of poor quality assets, and with inadequate liquidity. (This order was terminated by order of the FDIC dated 10-17-91; see15,341.)

   [.1] Management—Qualifications—Compliance
   [.2] Primary Capital—Increase—Methods
   [.3] Assets—Adversely Classified—Reduce
   [.4] Definition—"Reduce"
   [.5] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.6] Funds Management and Liquidity—Written Policy—Review
   [.7] Profit Plan—Minimum Requirements—Review
   [.8] Investments and Investment Policy—Amend—Stripped Mortgage Banked Securities—Hedging Program
   [.9] Bank Operations—Internal Control—Correct
   [.10] Dividends—Restricted
   [.11] Reports of Condition and Income—Accuracy
   [.12] Compliance—Progress Reports—Frequency

In the Matter of

NEW HAMPSHIRE SAVINGS BANK
CONCORD, NEW HAMPSHIRE
(Insured State Nonmember Bank)
CONSENT ORDER TO
CEASE AND DESIST

FDIC-90-230b

   New Hampshire Savings Bank, Concord, New Hampshire, ("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 regulation 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. § 1818(b)(1), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF A CONSENT ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") with counsel for the Federal Deposit Insurance Corporation ("FDIC"), dated October 25, 1990, where-
{{12-31-90 p.C-605}}by solely for the purpose of this proceeding and without admitting or denying any unsafe or unsound banking practices or violations of law and/or regulation alleged, the Bank consented to the issuance of an ORDER TO CEASE AND DESIST ("CONSENT ORDER") by the FDIC.
   The FDIC considered the matter and determined that it had reason to believe that the Bank had engaged in the alleged unsafe or unsound banking practices and violations of Part 325 of the FDIC's Rules and Regulations (concerning capital adequacy). The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

CONSENT 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 of law and/or regulation:

       (a) operating with inadequate primary capital;
       (b) operating with an excessive volume of poor quality assets; and
       (c) operating with inadequate liquidity.
   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. (a) ensure that the Bank conducts its lending practices in a safe and sound manner;
   (b) supervise the operation of the Bank and support the implemenation of the remaining requirements of this CONSENT ORDER;
   (c) cause Reports of Condition and Income to be submitted in accordance with prevailing instructions;
   (d) cause the Bank to be operated with adequate internal controls;
   (e) prevent payment of excess dividends in relation to the Bank's net income and capital position; and
   (f) maintain policies and procedures designed to prevent violations of section 325.3(a) of the FDIC's Rules and Regulations, 12 C.F.R. § 325.3(a) (concerning capital adequacy).
   2. During the life of this CONSENT ORDER, the Bank shall have and retain qualified management. Within sixty (60) days from the effective date of this CONSENT ORDER, the Board of Directors shall, with such assistance from the Bank's management or any outside consultants as the Board deems appropriate, address the issue of adding senior executives and shall send to the Regional Director of the FDIC's Boston Regional Office ("Regional Director") and the Commissioner the written findings and conclusions of its management review along with a written description of any management changes or realignment of duties 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 qualifications of management shall be assessed on its ability to:

       (a) comply with the requirements of this CONSENT 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, earnings, management effectiveness and liquidity.

   [.2] 3. (a) On or before December 31, 1990, the Bank shall increase primary capital by an infusion of no less than $40,000,000, in accordance with the plan described in subparagraph (b) of this paragraph.
   (b) Within ninety (90) days from the effective date of this CONSENT ORDER, the Bank shall submit to the Regional Director and the Commissioner for review and approval a capital plan designed to operate the Bank within a capital structure sufficient in relation to the composition and quality of the Bank's assets and funding liabilities. Upon receipt of approval, the Board of Directors will cause the Bank to take all {{12-31-90 p.C-606}}reasonable steps to implement the capital plan.
   (c) If all or part of the increase in primary capital required by subparagraph 2(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, Registration and Disclosure Section, Washington, D.C. 20429, for review. Any changes requested to be made in the materials by the FDIC shall be made prior to their dissemination.
   (d) If all or part of 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 Commissioner for prior approval.
   (e) In complying with the provisions of subparagraph 2(c) 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 subparagraph 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's Rules and Regulations, respectively subsections 325.2(h), 325.2(k), and 325.2(l), 12 C.F.R. §§ 325.2(h), 325.2(k) and 325.2(1).

   [.3] 4. (a) Within ten (10) days from the effective date of this CONSENT ORDER, the Bank shall eliminate from its books, by charge-off or collection, all assets classified "Loss" and one-half of the amount of assets classified "Doubtful" by the FDIC as of November 10, 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 December 31, 1990, the Bank shall have reduced the assets classified "Substandard" and the assets classified "Doubtful" by the FDIC as of November 10, 1989 that have not previously been collected or charged off, to not more than $75,000,000.
   (c) By June 30, 1991, the Bank shall have reduced the assets classified "Substandard" and the assets classified "Doubtful" by the FDIC as of November 10, 1989 that have not previously been collected or charged off, to not more than $50,000,000.

   [.4] (d) The requirements of subparagraphs 4(a), 4(b), and 4(c) of this CONSENT 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 improve the quality of assets adversely classified sufficiently to warrant removing any adverse classification.
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   [.5] 5. The Bank shall not extend or renew, 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 while or in part, "Loss," "Doubtful," or "Substandard" and is uncollected unless the prior approval of a majority of the Bank's Board of Directors or its Executive Committee is obtained. Notwithstanding the foregoing, this CONSENT ORDER will not require such approvals of extensions of credit made pursuant to legally binding contractual commitments made prior to the date this CONSENT ORDER is issued.

   [.6] 6. Within sixty (60) days from the effective date of this CONSENT ORDER, the Bank shall submit to the Regional Director and the Commissioner a written plan detailing specific measures to improve the Bank's liquidity. The plan shall address daily liquidity needs in addition to emergency funding sources, and shall detail the means by which the Bank will seek to maintain the liquidity ratio at ten (10) percent. The measures proposed and the availability and commitments for funding liabilities should be firm and attainable. The computation of the liquidity ratio shall be determined in accordance with the procedures outlined in the "Liquidity and Funds Management" Schedule, page 5-a of the standard FDIC Report of Examination form. The ten (10) percent ratio is not to be construed as a standard for acceptable future performance.

   [.7] 7. Within ninety (90) days from the effective date of this CONSENT ORDER, the Bank shall develop and submit to the Regional Director and the Commissioner a written profit plan, consisting of goals and strategies for improving the earnings of the Bank. Thereafter, the Bank, its directors, officers, and employees shall follow the written profit plan and any subsequent modifications thereto. This written profit plan shall include, at a minimum:

       (a) identification of the major areas in, and means by, which the Board of Directors will seek to improve the Bank's operating performance;
       (b) realistic and comprehensive budgets;
       (c) a budget review process to monitor the income and expenses of the Bank to compare actual figures with budgetary projections; and
       (d) a description of the operating assumptions that form the basis for, and adequately support, major projected income and expense components.

   [.8] 8. The Bank's formal written investment policy shall be amended, where appropriate, to ensure that the Bank will not invest in stripped mortgage backed securities unless purchased in connection with a bona fide well-documented interest rate hedging program.

   [.9] 9. Within ninety (90) days from the effective date of this CONSENT ORDER, the Bank shall take all reasonable and appropriate action to correct or otherwise address the internal control exceptions cited by the FDIC as of November 10, 1989.

   [.10] 10. The Bank shall not declare or pay 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 Commissioner.

   [.11] 11. Within thirty (30) days from the effective date of this CONSENT ORDER, the Bank shall establish adequate procedures to assure accurate filing of the FDIC Reports of Condition and Income, or make a determination that such procedures are already in place. The Reports shall be prepared in an accurate and complete manner with supporting workpapers maintained on file with the Bank.

   [.12] 12. Within thirty (30) days from the effective date of this CONSENT ORDER, and within thirty (30) days from the end of each calendar quarter thereafter, the Bank shall furnish written progress reports to the Regional Director and the Commissioner detailing the form and manner of any actions taken to secure compliance with this CONSENT 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 {{12-31-91 p.C-608}}CONSENT ORDER have been accomplished and the Regional Director and the Commissioner have released the Bank, in writing, from making further reports.
   13. This CONSENT ORDER is not intended to constitute an adjudication of any factual issues encompassed herein, or have any res judicata, collateral estoppel, or other estoppel effect in any other action or proceeding. This paragraph is not intended to inhibit, bar, estop, or otherwise prevent the FDIC from undertaking any action with respect to this CONSENT ORDER pursuant to 12 U.S.C. 1818, or to have any effect with respect to any such proceeding.
   The provisions of this CONSENT 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 CONSENT ORDER shall become effective ten (10) days from the date of its issuance.
   The provisions of this CONSENT ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provisions of this CONSENT ORDER shall have been modified, terminated, suspended, or set aside by the FDIC.
   Pursuant to delegated authority.
   Dated at Needham, Massachusetts, this 31st day of October, 1990.

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