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FDIC Enforcement Decisions and Orders

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* Any increase in the loans should explained in the PRESENT STATUS section.

{{12-31-91 p.C-715}}
   [10,155] In the Matter of Iona Savings Bank, Tilton, New Hampshire, Docket No. FDIC-90-275b (12-20-90).

   Bank to cease and desist from operating with an excessive volume of adversely classified assets; operating with inadequate primary capital; engaging in violations of applicable laws and regulations; operating with management whose policies and practices are detrimental to the Bank; engaging in practices which produce inadequate operating income and excessive loan losses; failing to provide adequate supervision over the affairs of the Bank; operating without adequate liquidity; operating with inadequate allowance for loan and lease losses; failing to submit Reports of Condition and Income as required; failure to keep accurate books and records; and operating with excessive interest rate risk exposure. (This order was terminated by order of the FDIC dated 10-17-91; see ¶15,342.)

   [.1] Management—Qualifications
   [.2] Management—Management Plan—Minimum Requirements—Review
   [.3] Assets—Adversely Classified—Eliminate/Reduce—Methods
   [.4] Capital—Capital/Asset Ratio—Maintain—Written Plan
   [.5] Allowance for Loan and Lease Losses—Valuation—Policy
   [.6] Loans—Risk Position—Written Plan—Minimum Requirements— Review
   [.7] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.8] Loans—Accrual of Interest—Overdue
   [.9] Loan Policy—Minimum Requirements—Review
   [.10] Profit Plan—Minimum Requirements—Review
   [.11] Funds Management Policy—Minimum Requirements—Review
   [.12] Violations of Law—Correct
   [.13] Bank Operations—Internal Routines—Written Plan Required
   [.14] Compliance—Progress Reports—Frequency

{{12-31-91 p.C-716}}
In the Matter of

IONA SAVINGS BANK
TILTON, NEW HAMPSHIRE
Insured State Nonmember Bank
ORDER TO CEASE AND DESIST

   Iona Savings Bank, Tilton, 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 regulations alleged to have been committed by the Bank and of its right to a hearing on such alleged charges under section 8(b)(1) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 818(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 December 18, 1990, whereby solely for the purpose of this proceeding and without admitting or denying any unsafe or unsound banking practices or 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 and its institution-affiliated parties, as that term is defined in section 3(u) of the Act, 12 U.S.C. § 1813(u), cease and desist from the following unsafe or unsound banking practices and violations of law and/or regulations:

       (a) operating with an excessive volume of adversely classified assets;
       (b) operating with inadequate primary capital;
       (c) engaging in violations of applicable laws and regulations;
       (d) operating with management whose policies and practices are detrimental to the Bank;
       (e) engaging in practices which produce inadequate operating income and excessive loan losses;
       (f) failing to provide adequate supervision and direction over the affairs of the Bank to prevent unsafe or unsound practices and violations of law and/or regulations;
       (g) operating without adequate liquidity in light of the bank's asset and liability mix;
       (h) operating with an inadequate allowance for loan and lease losses for the volume, kind and quality of loans held;
       (i) failing to submit Reports of Condition and Income in accordance with prevailing instructions;
       (j) failure to keep accurate books and records, and operating without adequate internal controls; and
       (k) operating with excessive interest rate risk exposure over the three month and six month time horizons.
   IT IS FURTHER ORDERED that the Bank and its institution-affiliated parties take affirmative action as follows:

   [.1] 1. (a) Within ninety (90) days from the effective date of this ORDER, the Bank shall have and retain qualified management. Management shall be provided the necessary written authority to implement the provisions of this ORDER. The qualifications of management shall be assessed on its 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 asset quality, capital adequacy, earnings, management effectiveness and liquidity. As used in this paragraph, "restore" includes improvement in quality if necessary to comply with this requirement.
   (b) Toward this end, within sixty (60) days from the effective date of this ORDER, the Board of Trustees shall develop a written analysis and assessment of the Bank's management and staffing needs ("management plan"), which shall include, at a minimum:
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       (i) identification of both the type and number of officer positions needed to manage and supervise properly the affairs of the Bank;
       (ii) identification and establishment of such Bank committees as are needed to provide guidance and oversight to active management;
       (iii) evaluation of each Bank officer, in particular the positions of President and Treasurer, and other staff members to determine whether these individuals possess the ability, experience and other qualifications required to perform present and anticipated duties, including adherence to the Bank's established policies and practices, and restoration of the Bank to a safe and sound condition; and
       (iv) a plan of action to recruit and hire any additional or replacement personnel with the requisite ability, experience and other qualifications, which the Board of Trustees determines are necessary to fill Bank officer or staff member positions consistent with the Board's analysis, evaluation and assessment as provided in paragraphs 1(b)(i) and 1(b)(iii) of this ORDER.

   [.2] (c) The written management plan shall be submitted to the Regional Director and the Banking Commissioner for the state of New Hampshire ("Banking Commissioner") for review and comment. No sooner than thirty (30) days, but under no circumstances more than forty-five (45) days after such submission, the Board of Trustees shall approve the written management plan, taking into consideration any regulatory comments, and such approval shall be recorded in the minutes of the Board of Trustees. Subsequent modifications to the written management plan may be made only after giving the Regional Director and the Banking Commissioner written notice of the proposed modification, and after consideration of any responsive comments submitted by the Regional Director and/or the Banking Commissioner within thirty (30) days from their receipt of the notice of proposed modification. No such modification shall become effective until approved by the Board of Trustees, and such approval shall be recorded in the minutes of the Board of Trustees. The Bank, its trustees, officers and employees shall implement and follow the written management plan and/or any subsequent modification thereto.

   [.3] 2. Within ten (10) days from the effective date of this ORDER, the Bank: (1) shall eliminate from its books, by charge-off, collection, or other proper entries, all assets or portions of assets classified "Loss" and fifty (50.0) percent of those assets or portions of assets classified "Doubtful" as of April 6, 1990, which have not been previously collected, charged off, or otherwise eliminated by other proper entries. Reduction of these assets through use of proceeds of loans made by the Bank does not constitute "collection" or "elimination" for the purpose of this paragraph.

   [.4] 3. (a) Within ninety (90) days from the effective date of this ORDER the Bank shall submit a detailed written capital plan to the Regional Director and Commissioner. The plan shall reflect the means and timing of achieving an adequate capital ratio including the underlying assumptions. The plan shall be subject to the approval of the Regional Director and Commissioner. Such increases in capital may be accomplished by:

       (i) the direct contribution of cash by the trustees of the Bank;
       (ii) the collection of all or part of assets classified: (A) "Loss" as of April 6, 1990, without loss or liability to the Bank, or (B) "Doubtful" as of April 6, 1990, without loss or liability to the Bank, provided any collection on such assets shall first be applied to that portion of the asset which was not charged off pursuant to paragraph 2 of this ORDER. Reductions to loans and leases classified "Loss" and "Doubtful" shall first be credited to the Bank's allowance for loan and lease losses (hereafter "allowance") and, if the Board of Trustees' review of the adequacy of the allowance required by paragraph 4(a) of this ORDER indicates that such allowance has a balance in excess of that required for adequacy, any such excess may be transferred to primary capital through a negative provision for loan and lease losses;
    {{2-28-91 p.C-718}}
       (iii) the collection in cash of assets previously charged off; or
       (iv) any combination of the above means; or
       (v) any other means acceptable to the Regional Director and the Banking Commissioner.
   (b) (i) For the purposes of caluclating the primary capital ratio required by paragraph 3(b)(i) of this ORDER, the terms "primary capital" and "total assets" shall have the same meanings ascribed to them in Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325.

   [.5] 4. The allowance for loan and lease losses shall be maintained at an adequate level by periodic charges to operating revenue. Within one hundred-twenty (120) days from the effective date of this ORDER, the Bank's Board of Trustees shall establish a comprehensive policy for determining the adequacy of the 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." The policy shall provide for a review of the reserve at least once each calendar quarter. The review should focus on the results of the Bank's internal loan review, loan loss experience, trends of delinquent and nonaccrual loans, an estimate of potential loss exposure on significant credits, and present and prospective economic conditions. Review of Other Real Estate and exposure therein shall be undertaken along the same lines as the aforementioned loan portfolio review. The minutes of the Board of Trustees with respect to the valuation reserve may be properly reported in the quarterly Reports of Condition and Income. The minutes of the Board meeting at which such review is undertaken shall indicate the results of the review, including any increases in the allowance, and the basis for determining the amount of allowance provided.

   [.6] 5. (a) Within one hundred-twenty (120) days from the effective date of this ORDER, the Board of Directors shall develop a written plan of action to lessen the Bank's risk position in each extension of credit and parcel of other real estate owned which was classified "Substandard" or "Doubtful" as of April 6, 1990. In developing such plan, the Bank shall, at a minimum:

       (i) review the financial position of each such borrower, including source of repayment, repayment ability, and alternative repayment sources; and
       (ii) evaluate the available collateral for each such credit, including possible actions to improve the Bank's collateral position. Based upon such review and evaluation, the written plan of action shall also: (A) establish target dollar levels to which the Bank shall reduce the aggregate dollar volume of "Substandard" and "Doubtful" classifications as of April 6, 1990, not previously collected or charged off within six (6) months to not more than $2,500,000. Within twelve (12) months from the effective date of this ORDER, "Substandard" and "Doubtful" classifications not previously collected or charged off shall be reduced to not more than $1,500,000; and (B) provide for the submission of written monthly progress reports to the Bank's Board of Trustees for review and notation in the Board minutes. Exhibit A provides the form for the progress report. As used in this paragraph 5, "reduce" means to (1) collect, (2) charge off, or (3) improve the quality of such assets so as to warrant removal of any adverse classification by the FDIC and the State Banking Department. Payment of loans with the proceeds of other loans made by the Bank to the same borrower or that borrower's related interest will not constitute "reduction" or "collection" for purposes of this ORDER.
   (b) The written plan of action described by paragraph 5(a) shall be submitted to the Regional Director and the Banking Commissioner for review and comment. No sooner than thirty (30) days, but under no circumstances more than forty-five (45) days after such submission, the Board of Trustees shall approve the written plan, taking into consideration any regulatory comments, and such approval shall be recorded in the minutes of the Board of Trustees. Subsequent modifications to the written plan may be made only after giving the Regional Director and the Banking Commissioner written notice of the proposed modification, and after consideration of any responsive comments submitted by the Regional Director and/or the Bank- {{2-28-91 p.C-719}}ing Commissioner within thirty (30) days from their receipt of the notice of proposed modification. No such modification shall become effective until approved by the Board of Trustees, and such approval shall be recorded in the minutes of the Board of Trustees. The Bank, its trustees, officers and employees shall follow the written plan of action and/or any subsequent modification. Targeted ranges should not be construed as a standard for future operation.

   [.7] 6. The Bank shall not extend or renew, directly or indirectly, credit to, or for the benefit of, any borrower who has a loan or other extension of credit with the Bank that has been charged off or classified, in whole or in part, "Loss," "Doubtful," or "Substandard," and is uncollected, unless a majority of the Bank's Board of Trustees first (1) determines that such advance is in the best interest of the Bank, (2) determines that the Bank has satisfied the requirements set out in paragraph 5 of this ORDER as to such borrower, and (3) approves such advance. A written record of the Board of Trustees' determination and approval of any advance under the terms of this paragraph 6 shall be maintained in the credit file of the affected borrower(s) as well as the minutes of the Board of Trustees. The requirements of this paragraph 6 do not prohibit the Bank from renewing any credit already extended to a borrower.

   [.8] 7. The Bank shall not accrue interest on any loan that is, or becomes, ninety (90) days or more delinquent as to principal or interest, unless the loan is both well secured and in the process of collection. For purposes of this paragraph 7, "well secured" and "in the process of collection" shall have the same meaning as those terms have in the prevailing Instructions for the Reports of Condition and Income. The Bank shall reverse on its books all previously accrued but uncollected interest on any loan that has ceased to accrue interest pursuant to this provision.

   [.9] 8. Within one hundred-twenty (120) days from the effective date of this ORDER, the Bank shall develop and/or revise its written loan policy. The revised policy shall include:

       a) guidelines for commercial lending terms;
       b) provisions for floor plan checks and curtailment;
       c) implementation of an effective watch list; and,
       d) formal policies regarding appraisal review. The revised written loan policy shall be submitted to the Regional Director and the Banking Commissioner for review and comment. No sooner than thirty (30) days, but under no circumstances more than forty-five (45) days after such submission, the Board of Trustees shall approve the written management plan, taking into consideration any regulatory comments, and such approval shall be recorded in the minutes of the Board of Trustees. Subsequent modifications to the revised written loan policy may be made only after giving the Regional Director and the Banking Commissioner written notice of the proposed modification, and after consideration of any responsive comments submitted by the Regional Director and/or the Banking Commissioner within thirty (30) days from their receipt of the notice of proposed modification. No such modification shall become effective until approved by the Board of Trustees, and such approval shall be recorded in the minutes of the Board of Trustees. The Bank, its trustees, officers, and employees shall follow the revised written loan policies and/or any subsequent modification thereto.

   [.10] 9. (a) Within ninety (90) days from the effective date of this ORDER, the Bank shall develop a written profit plan consisting of goals and strategies for improving the earnings of the Bank, which written profit plan shall include, at a minimum:
       (i) identification of the major areas in, and means by, which the Board of Trustees will seek to improve the Bank's operating performance;
       (ii) realistic and comprehensive budgets;
       (iii) a budget review process to monitor the income and expenses of the Bank to compare actual figures with budgetary projections; and
       (iv) a description of the operating assumptions that form the basis for, and adequately support, major pro- {{2-28-91 p.C-720}}jected income and expense components.
   (b) The written profit plan shall be submitted to the Regional Director and the Banking Commissioner for review and comment. No sooner than thirty (30) days, but under no circumstances more than forty-five (45) days after such submission, the Board of Trustees shall approve the written management plan, taking into consideration any regulatory comments, and such approval shall be recorded in the minutes of the Board of Trustees. Subsequent modifications to the written profit plan may be made only after giving the Regional Director and the Banking Commissioner written notice of the proposed modification, and after consideration of any responsive comments submitted by the Regional Director and/or the Banking Commissioner within thirty (30) days from their receipt of the notice of proposed modification. No such modification shall become effective until approved by the Board of Trustees, and such approval shall be recorded in the minutes of the Board of Trustees. The Bank, its trustees, officers, and employees shall follow the written profit plan and/or any subsequent modification thereto.

   [.11] 10. (a) Within one hundred-twenty (120) days from the effective date of this ORDER, the Bank shall develop a written funds management policy designed to improve the Bank's liquidity ratio. The policy shall include, at a minimum:

       (i) the Bank's liquidity needs and plans for insuring that such needs are met on an ongoing basis;
       (ii) the means towards lessening the reliance on volatile liabilities;
       (iii) sources for emergency funding;
       (iv) formal establishment of prudent interest rate risk parameters;
       (v) monitoring of the interest rate sensitivity of present investments and deposits and projections of the types of investments and deposits to improve such liquidity position; and
       (vi) coordination of the Bank's loan, investment, operating, and budget and profit planning policies with the written funds management policy.
   (b) The written funds management policy shall be submitted to the Regional Director and the Banking Commissioner for review and comment. No sooner than thirty (30) days, but under no circumstances more than forty-five (45) days after such submission, the Board of Trustees shall approve the written management plan, taking into consideration any regulatory comments, and such approval shall be recorded in the minutes of the Board of Trustees. Subsequent modifications to the written funds management policy may be made only after giving the Regional Director and the Banking Commissioner written notice of the proposed modification, and after consideration of any responsive comments submitted by the Regional Director and/or the Banking Commissioner within thirty (30) days from their receipt of the notice of proposed modification. No such modification shall become effective until approved by the Board of Trustees, and such approval shall be recorded in the minutes of the Board of Trustees. The Bank, its trustees, officers and employees shall follow the written funds management policy and/or any subsequent modification thereto.

   [.12] 11. Within sixty (60) days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of law and regulations committed by the Bank as described on page 6-1 and 6-2 of the concurrent FDIC/State Report of Examination of the Bank as of April 6, 1990.

   [.13] 12. Within sixty (60) days of this ORDER, the Bank shall develop a plan to correct the deficiencies in the internal operations of the institution. The policy should implement strict internal routines to correct the weak operational procedures at the bank. In addition, procedures should be implemented to effect the accurate completion of Reports of Condition and Income. Errors revealed at the examinations should be promptly corrected, and methods should be instituted to curtail call report mistakes.

   [.14] 13. Within thirty (30) days from the end of each calendar quarter, and within thirty (30) days from the end of each subsequent calendar quarter, the Bank shall furnish written progress reports to the Regional Director and the Banking Commissioner detailing the form and manner of any action taken to secure compliance with this ORDER and the results thereof. In addition, the Bank shall furnish such other reports on request of either the Regional Di- {{5-31-92 p.C-721}}rector or the Banking Commissioner. All progress reports and other written responses to this ORDER shall be reviewed by the Board of Trustees of the Bank and made a part of the minutes of the Board meeting.
   This ORDER shall become effective ten (10) days from the date of its issuance.
   The provisions of this ORDER shall be binding upon the Bank and its 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.
   Dated at Needham, Massachusetts this 20th day of December, 1990.
   Pursuant to delegated authority.

IONA SAVINGS BANK
TILTON, NEW HAMPSHIRE

CRITICIZED ASSET REPORT AS OF: _____
___________________________________________________________________________
BORROWER(S):
___________________________________________________________________________
LOAN BALANCE(S) AND RATING CRITICISM (SPECIAL MENTION, SUBSTANDARD, DOUBTFUL OR LOSS): CLASSIFIED LOAN BALANCE(S): $_____
PRESENT LOAN BALANCE(S): $_____
CRITICISM _____
AMOUNT CHARGED OFF TO DATE _____ FUTURE POTENTIAL CHARGE-OFF _____
___________________________________________________________________________
PRESENT STATUS*(Include past due status, nonaccrual, significant progress of collection, deterioration, etc.):
__________________________________________________________________________
FINANCIAL AND/OR COLLATERAL SUPPORT (Include brief summary of most current financial info, appraised value of collateral and/or estimated value and date thereof, bank's lien position and amount of available equity, if any, guarantor(s) info, etc.):
__________________________________________________________________________
PROPOSED PLAN OF ACTION TO ELIMINATE ASSET CRITICISM(S) AND TIME FRAME FOR ITS ACCOMPLISHMENT:
__________________________________________________________________________
IDENTIFIED SOURCE OF REPAYMENT AND DEFINED REPAYMENT PROGRAM (Repayment program should coincide with source of repayment):
___________________________________________________________________________
Use this form for reporting each criticized asset which exceeds _____ dollars ($ _____) and retain the original in the credit file for review by the examiners. Submit your reports quarterly, in writing, until notified otherwise by the FDIC Regional Director and the [State Supervisor].

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