Federal Deposit
Insurance Corporation

{{9-30-91 p.C-1164}}
   [¶10,273] In the Matter of Amity Bank, Woodbridge, Connecticut, Docket No. FDIC-91-192b (7-9-91).

   Bank to cease and desist from such unsafe or unsound practices as operating with excessive volumes of adversely classified assets; following hazardous lending and lax collection practices; operating with inadequate capital; operating in violations of applicable laws or regulations; operating with management whose policies are detrimental to the Bank; operating with inadequate loan documentation; engaging in practices which produce inadequate operating income; failing to provide adequate supervision over the Bank's affairs; paying excessive cash dividends; and operating with inadequate allowance for loan and lease losses.

   [.1] Management—Qualifications—Review
   [.2] Management—Management Plan—Minimum Requirements
   [.3] Board of Directors—Election—Outside Directors Added
   [.4] Loan Loss Reserve—Increase/Maintain
   [.5] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.6] Loans—Adversely Classified—Individual Review Plans
   [.7] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.8] Loan Policy—Written Revision—Minimum Requirements
   [.9] Profit Plan—Minimum Requirements
   [.10] Dividends—Restricted
   [.11] Shareholders—Disclosure—Cease and Desist Order
   [.12] Technical Exceptions—Correct/Eliminate
   [.13] Compliance Reports—Frequency

In the Matter of

AMITY BANK WOODBRIDGE,
CONNECTICUT (Insured State Nonmember Bank) ORDER TO CEASE AND DESIST

   Amity Bank, Woodbridge, Connecticut ("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 {{9-30-91 p.C-1165}}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. § 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 July 9, 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/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) engaging in hazardous lending and lax collection practices, including maintaining an excessive volume of adversely classified loans;
   (c) operating with inadequate capital for the kind and quality of assets held;
   (d) engaging in violations of applicable laws and regulations;
   (e) operating with management whose policies and practices are detrimental to the Bank or engaging in management policies and practices which are detrimental to the Bank;
   (f) operating with deficient or inadequate loan documentation, including but not limited to current financial statements, insurance coverage, title searches or legal opinions, and cash flow and/or operating information;
   (g) engaging in practices which produce inadequate operating income and excessive loan losses;
   (h) 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;
   (i) paying excessive cash dividends in relation to the Bank's net income and/or capital position;
   (j) operating with an inadequate allowance for loan and lease losses for the volume, kind and quality of loans held;
   IT IS FURTHER ORDERED, that the Bank and its institution-affiliated parties take affirmative action as follows (to the extent that such action has not been completed prior to the date of the issuance of this ORDER):

   [.1] 1. (a) Within ninety (90) days from the effective date of this ORDER, the Bank shall have and retain qualified management. At a minimum, such management shall include a Senior Lending Officer with proven ability in managing a loan portfolio for a bank of comparable size and experience. Such officer shall have an appropriate level of lending, collection and loan supervision experience for the type and quality of the Bank's loans. Such person shall be provided the necessary written authority to implement the provisions of this ORDER. A present Bank employee may be deemed to be such officer upon establishment of the foregoing qualifications to the satisfaction of the Bank's Board of Directors. In addition, nothing in this ORDER is intended to suggest that every member of the Bank's management as of the date of the issuance of this ORDER is unqualified to serve in his/her respective capacity. 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.

   [.2] (b) 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 as may still be required of such Bank committees as are needed to provide guidance and oversight to active management;
   (iii) evaluation of each Bank officer serving in a capacity of Senior Vice President or above, or any other officer serving in a comparable capacity, 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.

   [.3] (d) (i) 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.
   (ii) At the next meeting of the shareholders of the Bank and at each succeeding meeting of the shareholders at which Bank directors are to be elected, the members of the Board of Directors who are also shareholders shall nominate and support the election of candidates to the Board of Directors who are independent with respect to the Bank, in such number as is necessary to cause a majority of the Board of Directors to be and to remain independent with respect to the Bank.
   (iii) For purposes of this ORDER, an individual who is "independent with respect to the Bank" shall be any individual (1) who is not an officer of the Bank or any of its affiliated organizations and who does not own more than five (5.0) percent of the outstanding shares of the Bank, (2) who is not related by blood, marriage or common financial interest to an officer of the Bank or to any stockholder owning more than five (5.0) percent of the Bank's outstanding shares, and (3) who is not indebted to the Bank, directly or indirectly (including the indebtedness of any entity in which the individual has a substantial financial interest), in an amount {{9-30-91 p.C-1167}}exceeding five (5.0) percent of the Bank's Tier 1 capital (as that term is defined in paragraph 3(a)(ii) of this ORDER) and its allowance for loan and lease losses ("Reserve").
   (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 ten (10) days from the effective date of this ORDER, the Bank shall increase its Reserve existing as of August 10, 1990 by $2,500,000 at a minimum.
   (b) Immediately after complying with paragraph 2(a), the Bank: (1) shall eliminate from its books, by charge-off or collection, all assets or portions of assets classified "Loss" in the FDIC Report of Examination of the Bank dated August 10, 1990 ("Examination"); and (2) shall either (A) eliminate from its books by charge-off or collection, or (B) if the asset is an extension of credit or lease, increase its allowance for loan and lease losses by an amount equal to, fifty (50.0) percent of those assets or portions of assets classified "Doubtful" in the Examination, 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.
   (c) Thereafter, the Bank shall maintain its Reserve in accordance with the prevailing requirements of the Instructions for the Reports of Condition and Income ("Instructions"). Toward this end, within sixty (60) days from the effective date of this ORDER, the Bank's Board of Directors shall establish a comprehensive policy for determining the adequacy of the Bank's Reserve. 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 non-accrual loans, an estimate of potential loss exposure on significant credits, concentrations of credit, 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 adequacy of the Reserve in relation to the loss potential in the loan portfolio will be reviewed by the Board of Directors and adjustments to the Reserve will be made accordingly. Details of these reviews will be incorporated into the minutes of the Board of Directors, including the methodology used to determine the adjustments made.
   (d) Reports of Condition and Income required to be submitted by the Bank as of each Report date, as that term is used in the Instructions, between and including September 30, 1990 and the effective date of this ORDER, shall, at a minimum, reflect a Reserve that should have been maintained in accordance with the Instructions. If necessary to comply with this paragraph 2(d), the Bank shall file amended Reports of Condition and Income within ten (10) days from the effective date of this ORDER.

   [.5] 3. (a) (i) Within twelve (12) months from the effective date of this ORDER, the Bank shall have Tier 1 capital at or in excess of five (5) percent of the Bank's total assets ("Tier 1 leverage capital ratio") and shall continue to maintain its Tier 1 leverage capital ratio at or in excess of such level as calculated herein until twenty-four (24) months from the effective date of this ORDER. Within twenty-four (24) months from the effective date of this ORDER, the Bank shall have a Tier 1 leverage capital ratio of at least six (6) percent and shall continue to maintain its capital at or above such level while this ORDER is in effect. Toward this end, the Bank shall develop a Capital Plan which will be submitted to the Regional Director and the Commissioner for approval within sixty (60) days from the effective date of this ORDER. The Capital Plan should address both internal and external sources of capital augmentation, including capital infusions, {{9-30-91 p.C-1168}}retention of earnings, restriction of asset growth, and asset sales.

   (ii) For purposes of this ORDER, the terms "Tier 1 capital" and "total assets" shall have the meanings ascribed to them in the revised Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325, which became effective April 10, 1991.

   (i) the sale of new offerings of common stock or perpetual preferred stock;
   (ii) the direct contribution of cash by the directors of the Bank;
   (iii) the collection of all or part of assets classified "Loss" within the Examinations without loss or liability to the bank. Reductions to loans and leases and, if the Board of Directors' review of the adequacy of the Reserve required by paragraph 2 of this ORDER indicates that such Reserve has a balance in excess of that required for adequacy, any such excess may be transferred to equity capital through a negative provision to the Reserve;
   (iv) the collection in cash of assets previously charged off;
   (v) any combination of the above means; or
   (vi) any other means acceptable to the Regional Director and the Commissioner.

   [.6] 4. (a) Within thirty (30) days from the effective date of this ORDER, the Board of Directors shall develop a written plan with respect to each borrower who or which had outstanding principal debt owing to the Bank in excess of $100,000 which was classified "Substandard" or "Doubtful," in whole or in part, in the Examination. 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.

   [.7] 5. 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 4 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 5 shall be maintained in the credit file of the affected borrower(s) as well as the minutes of the Board of Directors.

   [.8] 6. (a) Within thirty (30) days from the effective date of this ORDER, the Bank shall revise its written loan policy. The revised written loan policy shall be submitted to the Regional Director and the State 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 Directors shall approve the revised written loan policy, taking into consideration any regulatory comments, and such approval shall be recorded {{9-30-91 p.C-1170}}in the minutes of the Board of Directors. Subsequent modifications to the revised written loan policy may be made only after giving the Regional Director and the State Banking Commissioner written notice of the proposed modification, and after consideration of any responsive comments submitted by the Regional Director and the State 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 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 revised written loan policies and/or any subsequent modification thereto.
   (b) The revised written loan policy, shall include, at a minimum:

   (i) the lending authority of the loan officer;
   (ii) the lending authority of a loan or executive committee, if any;
   (iii) the responsibility of the Board of Directors in reviewing, ratifying and approving loans;
   (iv) the guidelines under which unsecured loans will be granted;
   (v) the guidelines for rates of interest and terms of repayment for unsecured loans and secured loans;
   (vi) with regard to secured loans: (1) limitations on the amount advances in relation to the value of the collateral, and (2) the documentation required by the Bank for each type of secured loan;
   (vii) the maintenance and review of complete and current credit files on each borrower;
   (viii) appropriate and adequate collection procedures, including, but not limited to, the actions to be taken against borrowers who fail to make timely payments;
   (ix) guidelines establishing limitations on the maximum volume of loans in relation to total assets;
   (x) appropriate limitations on extensions of credit through overdrafts and cash items;
   (xi) the determination and documentation of sources and terms of loan repayment;
   (xii) retention of lien searches and appraisals covering personal property and liens on real estate;
   (xiii) maintenance of written, individual loan file comments by officers;
   (xiv) provisions addressing the capitalization of accrued and unpaid interest on loans;
   (xv) procedures regarding designations of nonaccrual loans;
   (xvi) procedures for identifying, supervising, and collecting problem loans;
   (xvii) periodic review of the overdue, problem and/or adversely classified or special mention loans by the Board of Directors, so as to monitor management's administration of such distressed credits, and to provide guidance.

   [.9] 7. (a) Within thirty (30) 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 Directors 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 projected income and expense components.

   [.10] 8. The Bank shall not pay or declare any dividends without the prior written consent of the Regional Director and the State Banking Commissioner.

   [.11] 9. Following the effective date of this ORDER, the Bank shall send to its shareholders a description of this ORDER, (1) in conjunction with the Bank's next shareholder communication, and also (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 Section, Washington, D.C. 20429, for review at least twenty (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.

   [.12] 10. Within sixty (60) days from the effective date of this ORDER, the Bank shall correct the remediable technical exceptions on loans noted on pages 2-d and 2-d-1 of the Examination.

   11. Within sixty (60) days from the effective date of this ORDER, the Bank shall eliminate and/or correct all remediable violations of law and regulations committed by the Bank as described on page 6-1 of the Examination.

   [.13] 12. 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 State 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 reports on request of either the Regional Director or the State Banking 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 Banking Commissioner of the State of Connecticut.
   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 9th day of July, 1991.