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FDIC Enforcement Decisions and Orders

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{{11-30-91 p.C-779}}

   [10,171] In the Matter of The Family Bank and Trust, Allenstown, New Hampshire, Docket No. FDIC-91-25b (1-30-91).

   Bank to cease and desist from failing to provide adequate supervision; operating with an excessive volume of adversely classified loans; operating with an inadequate allowance for loan and lease losses; operating with inadequate primary capital; engaging in practices which produce inadequate operating income; operating with inadequate liquidity; operating without adequate internal controls; failing to submit reports as required; and engaging in violations of law and regulations. (This order was terminated by order of the FDIC dated 9-19-91; see ¶ 15,328.)

   [.1] Management—Qualifications
   [.2] Management—Management Plan—Minimum Requirements—Review
   [.3] Board of Directors—Committee to Review Compliance with Cease and Desist Order
   [.4] Capital—Primary Capital—Increase—Methods
   [.5] Liquidity Ratio—Written Plan Required
   [.6] Allowance for Loan and Lease Losses—Maintain—Report
   [.7] Violations of Law—Eliminate/Correct
   [.8] Dividends—Restricted
   [.9] Assets—Adversely Classified—Reduce/Eliminate
   [.10] Loans—Risk Position—Reduce
   [.11] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.12] Bank Operations—Internal Controls—Correct Exceptions
   [.13] Reports of Condition and Income—Procedures for Filing
   [.14] Bank Operations—Internal Controls—Establish Policy
   [.15] Technical Exceptions—Correct
   [.16] Loans—Special Mention—Correct Deficiencies
   [.17] Compliance—Progress Reports—Frequency

{{11-30-91 p.C-780}}
In the Matter of

THE FAMILY BANK AND TRUST
ALLENSTOWN, NEW HAMPSHIRE
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

   The Family Bank and Trust, Allenstown, 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 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, 12 U.S.C. § 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 January 18, 1991, whereby solely for the purpose of this proceeding and without admitting or denying any unsafe or unsound banking practices or violations of law and 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. section 1813(u), cease and desist from the following unsafe or unsound banking practices and violations of law and/or regulations:
       (a) 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;
       (b) operating with an excessive volume of adversely classified assets;
       (c) operating with an inadequate allowance for loan and lease losses for the volume, kind and quality of loans held;
       (d) operating with inadequate primary capital for the kind and quality of assets held;
       (e) engaging in practices which produce inadequate operating income;
       (f) operating with inadequate liquidity;
       (g) operating without adequate internal controls;
       (h) failing to submit Reports of Condition and Income in accordance with prevailing instructions; and
       (i) engaging in violations of applicable laws and regulations.
   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) Within ninety (90) days from the effective date of this ORDER, the Bank shall have, and thereafter continue to retain, management with proven ability and experience in managing a bank of comparable size and in upgrading a low quality loan portfolio. 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 of 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.
   [.2](b) Toward this end, within thirty (30) days from the effective date of this ORDER, the Board of Directors shall develop a written analysis and assessment of the Bank's management and staffing needs ("management plan") which shall include, at a minimum:
       (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 {{3-31-91 p.C-781}} to provide guidance and oversight to active management;
       (iii) evaluation of each Bank officer and staff member 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 maintenance of the Bank in 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 Directors 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.
   (c) The written management plan shall be submitted to the Regional Director and the Bank Commissioner for the State of New Hampshire ("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 Directors 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 Directors. Subsequent modifications to the written management plan may be made only after giving the Regional Director and the Commissioner written notice of the proposed modification, and after consideration of any responsive comments submitted by the Regional Director and/ or the 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 Directors, and such approval shall be recorded in the minutes of the Board of Directors. The Bank, its directors, officers and employees shall ilement and follow the written management plan and/or any subsequent modification thereto.

   [.3] (d) The written management plan shall also include the requirement that the Board of Directors of the Bank, or a committee thereof consisting of not less than a majority of Board members who are independent with respect to the Bank, provide supervision over lending, investment and operating policies of the Bank sufficient to ensure that the Bank complies with the provisions of this ORDER.

       (e) The Bank's Board of Directors shall meet at least monthly. The Board shall prepare in advance and shall follow a detailed written agenda at each meeting, which shall include consideration of actions of any committees. A chronological file of all written agendas shall be maintained. Notwithstanding the foregoing, the Board shall not be precluded from considering matters other than those contained in the agenda. Detailed written minutes of all Board meetings shall be maintained and recorded on a timely basis.

   [.4] 2. (a) Within sixty (60) days from the effective date of this ORDER, the Bank shall submit a written plan to the Regional Director and Commissioner for review and approval describing setting forth a proposed course of action designed to achieve an increase in the Bank's primary capital to seven (7.0) percent of Part 325 Total Assets ("primary capital ratio") on or before September 30, 1991, and to eight (8.0) percent on or before June 30, 1992. The computation of primary capital, Part 325 Total Assets, and the ratio of primary capital to Part 325 Total Assets shall be determined by using the procedures out-lined in the "Analysis of Capital" Schedule in the standard FDIC Report of Examination form.
   (b) Any increase in primary capital necessary to meet the requirements of paragraph 2 of this ORDER may be accomplished by the following:
       (i) the sale of new offerings of common stock or perpetual preferred stock;
       (ii) the direct contribution of cash by the shareholders and/or directors of the Bank; or
       (iii) the collection of assets previously charged off;
       (iv) 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 16, 1990, without loss or liability to the Bank, provided any collection on such assets shall first be applied to that por- {{3-31-91 p.C-782}}tion of the asset which was not charged off pursuant to paragraph 7 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 ("allowance") and, if the Board of Directors' review of the adequacy of the allowance required by paragraph 4 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;
       (v) any combination of the above means; or
       (vi) any other means acceptable to the Regional Director and Commissioner.
   (c) If all or part of the increase in total primary capital required by the Bank under paragraph 2(a) of this ORDER involves an offering, other than an offering deemed not to be a public securities offering pursuant to 17 C.F.R. section 230.506 or as hereafter amended, of the Bank's securities (including a distribution limited only to the Bank's existing shareholders), the Bank shall prepare detailed offering materials fully describing the securities being offered, including an accurate description of the financial condition of the Bank and of this ORDER as well as the circumstances giving rise to the offering, and any other material disclosures necessary to comply with the 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) In complying with the provisions of paragraph 2(c) of this ORDER, the Bank shall provide to any subscriber and/or purchaser of Bank stock, written notice of any planned or existing development or other change which is 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 2(c) shall be furnished within ten (10) calendar days from the date such material development or change was planned or occurred, whichever is earlier, to every purchaser and/or subscriber of Bank stock who received or was tendered the information contained in the Bank's original offering materials.
   (e) If, during the period this ORDER is in effect, the primary capital ratio specified in paragraph 2(a) declines below eight (8) percent, the Bank, within thirty (30) days after the date on which the said ratio so declined, shall submit a written plan to the Regional Director and the Commissioner for increasing such ratio up to or in excess of eight (8) percent within sixty (60) days after the written plan is implemented. Thereafter, the Bank shall continue to maintain its primary capital ratio at or in excess of such level as calculated herein while this ORDER is in effect. Upon approval by the Regional Director and the Commissioner, the Bank shall immediately implement the written plan.

   [.5] 3. Within thirty (30) days from the effective date of this 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 liquidity ratio will be increased to at least ten (10) percent and the volatile liability dependence ratio will be reduced to less than twenty (20) percent by March 31, 1991. The measures proposed and the availability and commitments for funding liabilities should be firm and attainable. The computation of the liquidity and volatile liabilities dependence 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 levels established in this paragraph for the liquidity and the volatile liability dependence ratios shall not be construed as a standard for acceptable future performance.

   [.6] 4. (a) Within thirty (30) days from the effective date of this ORDER, the Bank shall increase its allowance for loan and lease losses existing as of April 6, 1990 by $1,162,000 at a minimum. Thereafter, the Bank shall maintain an allowance for loan and lease losses in accordance with {{3-31-91 p.C-783}} the prevailing requirements of the Instructions for the Reports of Condition and Income ("Instructions").
   (b) Prior to the submission of any Report of Condition or Report of Income required to be filed by the Bank after the effective date of this ORDER, the Board of Directors of the Bank shall: (1) review the adequacy of the Bank's allowance for loan and lease losses, (2) provide for an adequate allowance, and (3) accurately report the allowance in any such Report 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.

   [.7] 5. Within thirty (30) 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 pages 6-1 of the FDIC's Report of Examination dated April 6, 1990. In addition, the Bank shall take all necessary steps to ensure future compliance with applicable laws and regulations.

   [.8] 6. The Bank shall not declare or pay any dividends unless such declaration and payment is:

       (i) in accordance with applicable State and Federal laws and regulations;
       (ii) approved in advance by the Board of Directors of the Bank; and
       (iii) approved in advance, in writing, by the Regional Director and the Commissioner, which approval shall not be unreasonably withheld.

   [.9] 7. Within ten (10) days from the effective date of this ORDER, the Bank: (1) shall eliminate from its books, by charge-off or collection, all assets or portions of assets classified "Loss" as of April 6, 1990 and an amount equal to fifty percent (50%) of those credits or leases classified "Doubtful" as of April 6, 1990 which have not been previously collected or charged off. 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.

   [.10] 8. (a) Within thirty (30) 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 in an amount of $50,000 or more which was classified "Substandard" or "Doubtful" in whole or in part 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" or "Doubtful" classifications within six (6) and twelve (12) months from the effective date of this ORDER; and (B) provide for the submission of written monthly progress reports to the Bank's Board of Directors for review and notation in the Board minutes. Exhibit A provides the form for the progress report. As used in this paragraph 8, "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 Commissioner. Payment of loans with the proceeds of the other loans made by the Bank will not constitute "reduction" or "collection" for purposes of this ORDER.
   (b) The written plan of action described by paragraph 8(a) shall be submitted to the Regional Director and the 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 Directors shall approve the written plan of action, taking into consideration any regulatory comments, and such approval shall be recorded in the minutes of the Board of Directors. Subsequent modifications to the written plan may be made only after giving the Regional Director and the Commissioner written notice of the proposed modification, and after consideration of any responsive comments submitted by the Regional Director and/or the Commissioner within thirty (30) days from their receipt of the notice of proposed modifi- {{3-31-91 p.C-784}}cation. No such modification shall become effective until approved by the Board of Directors, and such approval shall be recorded in the minutes of the Board of Directors. The Bank, its directors, officers and employees shall follow the written plan of action and/or any subsequent modification.

   [.11] 9. 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 Directors 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 8 of this ORDER as to such borrower, and (3) approves such advance. A written record of the Board of Directors' determination and approval of any advance under the terms of this paragraph 9 shall be maintained in the credit file of the affected borrower(s) as well as the minutes of the Board of Directors.

   [.12] 10. Within sixty (60) days from the effective date of this ORDER, the Bank shall take all reasonable and appropriate action to correct the internal control exceptions cited in the FDIC Report of Examination dated April 6, 1990.

   [.13] 11. Within thirty (30) days from the effective date of this ORDER, the Bank shall establish adequate procedures to assure the accurate filing of the FDIC Reports of Condition and Income. The reports shall be prepared in accordance with the Instructions, and with supporting workpapers maintained on file with the Bank.

   [.14] 12. Within thirty (30) days from the effective date of this ORDER, the Bank shall take reasonable and appropriate action to assure that all formal written policies are implemented in a timely manner. In addition, the Bank's Board of Directors shall implement adequate controls to assure that the Bank, its officers, and employees follow policy guidelines.

   [.15] 13. (a) Within sixty (60) days from the effective date of this ORDER, the Bank shall correct the technical exceptions on loans noted on pages 2-e of the FDIC's Report of Examination dated April 6, 1990.
   [.16](b) Within sixty (60) days from the effective date of this ORDER, the Bank shall correct the cited deficiencies in the loans listed for "Special Mention" on pages 2-c of the FDIC's Report of Examination dated April 6, 1990.

   [.17] 14. Within thirty (30) days from the effective date of this ORDER, and, thereafter, within thirty (30) days from the end of each calendar quarter, the Bank shall furnish written progress reports to the Regional Director and the 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 reports on request of either the Regional Director or the Commissioner. All progress reports and other written responses to this ORDER shall be reviewed by the Board of Directors 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.
   This ORDER has been reviewed and concurred in by the Commissioner.
   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 30th day of January, 1991.

THE FAMILY BANK AND TRUST
ALLENSTOWN, NEW HAMPSHIRE

CRITICIZED ASSET REPORT
AS OF: _____
__________
BORROWER(S):
__________
LOAN BALANCE(S) AND RATING CRITICISM (SPECIAL MENTION, SUB-STANDARD, DOUBTFUL OR LOSS):
CLASSIFIED LOAN BALANCE(S): $ _____
__________
PRESENT LOAN
BALANCE(S): $ _____
CRITICISM _____
AMOUNT CHARGED OFF TO DATE
{{3-31-91 p.C-785}}
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 fifty thousand dollars ($50,000) and retain the original in the credit file for review by the examiners. Submit your reports quarterly, in writing, until notified othervise by the FDIC Regional Director and the [State Supervisor].


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

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