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FDIC Enforcement Decisions and Orders

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{{8-31-93 p.C-1360}}
   [10,316] In the Matter of First City Bank, New Britain, Connecticut, Docket No. FDIC-91-260b (8-26-91).

   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 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; operating with inadequate allowance for loan and lease losses; failing to submit Reports of Condition and Income in accordance with instructions; and operating with inadequate routine and controls policies. (This order was modified by order of the FDIC dated 8-28-92; see ¶15,511. It was terminated by order of the FDIC dated 6-30-93; see ¶ 15,695.)

   [.1] Management—Qualifications—Review
   [.2] Management—Management Plan—Minimum Requirements
   [.3] Allowance for Loan and Lease Losses—Increase/Maintain
   [.4] Loans—Risk Position—Reduce—Written Plan Required
   [.5] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.6] Loans—Overdue—Accrual of Interest
   [.7] Loan Policy—Written Revision—Minimum Requirements
   [.8] Profit Plan—Minimum Requirements
   [.9] Funds Management—Written Policy Required
   [.10] Investment Policy—Revision—Minimum Requirements
   [.11] Dividends—Restricted
   [.12] Shareholders—Disclosure—Cease and Desist Order
   [.13] Technical Exceptions—Correct/Eliminate
   [.14] Compliance Reports—Frequency

In the Matter of

FIRST CITY BANK
NEW BRITAIN, CONNECTICUT
(Insured State Nonmember Bank)
ORDER TO CEASE
AND DESIST

   First City Bank, New Britain, Connecticut ("Bank"), having been advised of its right to a Notice of Charges and of Hearing detailing the unsafe or unsound banking practices 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. § 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 August 7, 1991, whereby solely for the purpose of this proceeding and without admitting or denying any unsafe or unsound banking practices, 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. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:
{{10-31-91 p.C-1361}}

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:
   (a) operating with an excessive volume of adversely classified assets;
   (b) engaging in hazardous lending practices, including maintaining an excessive volume of adversely classified loans;
   (c) operating with management whose policies and practices are detrimental to the Bank;
   (d) 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;
   (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;
   (g) 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) operating without proper internal routine and controls.
   IT IS FURTHER ORDERED that the Bank and its institution-affiliated parties take affirmative action as follows (to the extent that such action(s) has not already been completed by the Bank 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 chief lending officer who shall have an appropriate level of lending, collection and loan supervision experience for the type and quality of the Bank's loans and with proven ability and experience in upgrading a low quality loan portfolio. Such person shall be provided the necessary written authority, subject to the supervision of the Bank's Board of Directors, to implement the relevant provisions of this ORDER. The qualifications of management shall be assessed on their 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.
During the life of this ORDER, the Bank shall notify the Regional Director of the FDIC's Boston Regional Office ("Regional Director") and the Banking Commissioner of the State of Connecticut ("Commissioner") in writing of any proposed changes in management. The notification must include the names and background of any replacement personnel, and the proposed date of the individual's commencement of assuming such responsibilities, and must be provided prior to the individual's assuming the new position.

   [.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 to provide guidance and oversight to active management;
       (iii) evaluation of each Bank officer 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 per- {{10-31-91 p.C-1362}}sonnel 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 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 received during such thirty (30) days period, 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 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 implement and follow the written management plan and/ or any subsequent modification thereto.
   (d) 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.

[.3] 2. (a) Within ten (10) days from the effective dare of this ORDER, the Bank shall increase its allowance for loan and lease losses ("Reserve") existing as of December 31, 1990 to $652,000 at a minimum.
   (b) Immediately after complying with paragraph 2(a), the Bank shall eliminate from its books, by charge-off or collection, all assets or portions of assets classified "Loss" and fifty (50.0) percent of all assets or portions of assets classified "Doubtful" in the February 25, 1991 FDIC Report of Examination ("Examination"), which have not been previously collected or charged off. Reduction of these assets through use of proceeds of loans made by the Bank, other than to qualified third party borrowers, 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, as 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 December 31, 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.
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   (e) 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 Reserve, (2) provide for an adequate Reserve, and (3) accurately report the Reserve 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 Reserve, and the basis for determining the amount of allowance provided.

   [.4] 3. (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 with respect to each borrower who or which had outstanding principal debt owing to the Bank in excess of $50,000 which was classified "Substandard" or "Doubtful," in whole or in part, as of February 25, 1991. 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 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 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 3(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 received during such thirty (30) day period, 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 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 the written plan of action and/or any subsequent modification thereto.

   [.5] 4. 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 5 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 6 shall be maintained in the credit file of the affected borrower(s) as well as the minutes of the Board of Directors.

   [.6] 5. The Bank shall not accrue, nor capitalize, 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 5, "well secured" and "in the process of collection" shall have the same meaning as
{{10-31-91 p.C-1364}}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.

   [.7] 6. Within sixty (60) days from the effective date of this ORDER, the Bank shall revise its written loan policy. The revised loan policy 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 revised written policy, taking into consideration any regulatory comments received during such thirty (30) day period, and such approval shall be recorded in the minutes of the Board of Directors. The revised policy should include, but not limited to, the recommendations on page 6-2 of the February 25, 1991 report of examination. Subsequent modifications to the revised written loan policy 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 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 follow the revised written loan policies and/or any subsequent modification thereto.

[.8] 7. (a) Within sixty (60) 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.
   (b) The written profit plan 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 profit plan, taking into consideration any regulatory comments received during such thirty (30) day period, and such approval shall be recorded in the minutes of the Board of Directors. Subsequent modifications to the written profit 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 the Commissioner within thirty (3) 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 written profit plan and/or any subsequent modification thereto.

[.9] 8. (a) Within sixty (60) days from the effective date of this ORDER, the Bank shall develop a written funds management policy which 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) goals and strategies for managing and/or improving the Bank's interest rate risk exposure;
       (iii) 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
       (iv) coordination of the Bank's loan, investment, 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 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 ap- {{10-31-91 p.C-1365}}prove the written funds management policy, taking into consideration any regulatory comments received during such thirty (30) day period, and such approval shall be recorded in the minutes of the Board of Directors. Subsequent modifications to the written funds management policy 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 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 follow the written funds management policy and/or any subsequent modification thereto.

   [.10] 9. Within thirty (30) days from the effective date of this ORDER, the Bank shall develop a written investment policy consisting of goals and strategies for improving the quality of the Bank's investment portfolio including, but not limited to, a list of authorized securities firms, the process for approving securities transactions and a statement on trading. The written investment policy 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 investment plan, taking into consideration any regulatory comments, and such approval shall be recorded in the minutes of the board. Subsequent modifications to the written investment policy 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 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 follow the written investment plan and/ or any subsequent modification thereto.

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

   [.12] 11. Following the effective date of this ORDER, the Bank shall promptly send to its shareholders a description of this ORDER, and thereafter, once again 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. 24029, 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.

[.13] 12 (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-c of the FDIC Report of Examination of the Bank as of February 25, 1991.
   (b) Within (60) days from the effective date of this ORDER, the Bank shall formulate and implement a plan to reduce all concentrations as noted on page 2-b of the FDIC Report of Examination of the Bank as of February 25, 1991 to less than twenty-five (25.0) percent of the Bank's total equity capital and its Reserve.

   [.14] 13. 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.
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   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.
   Dated at Needham, Massachusetts, this 26th day of August, 1991.
   Pursuant to delegated authority.

FIRST CITY BANK
NEW BRITAIN, CONNECTICUT

CRITICIZED ASSET REPORT AS OF: _____ __________________________________________________________________________
BORROWER(S):

__________________________________________________________________________
ASSET BALANCE(S) AND RATING CRITICISM (SPECIAL MENTION, SUBSTANDARD, DOUBTFUL OR LOSS):

CLASSIFIED ASSET BALANCE(S):$ _______________

PRESENT ASSET 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, appraisal 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 as to each borrower to whom or to which paragraph 3 of the Order to Cease and Desist applies, 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 Banking Commissioner for the State of Connecticut.


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

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