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FDIC Enforcement Decisions and Orders

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   [10,344] In the Matter of The Howard Savings Bank, Newark, New Jersey, Docket No. FDIC-91-281b (9-27-91).

   Written agreement, pursuant to 12 C.F.R. Part 325, whereby Bank agrees to take corrective action and FDIC agrees not to issue a capital directive or to initiate cease and desist of termination of insurance proceedings. (This agreement was terminated by order of the FDIC dated 6-8-93; see ¶ 15,682.)

   [.1] Capital—Core Capital—Increase/Maintain
   [.2] Dividends—Restricted
   [.3] Compensation—Officers—Increases Restricted
{{8-31-93 p.C-1508}}
   [.4] Assets—Adversely Classified—Eliminate/Reduce
   [.5] Loans—Special Mention—Correct Deficiencies
   [.6] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.7] Loans—Concentrations of Credit—Reduction Plan
   [.8] Loan Loss Reserve—Establish/Maintain
   [.9] Progress Reports—Frequency
   [.10] Definitions—"Part 325 Written Agreement"

In the Matter of

THE HOWARD SAVINGS BANK
NEWARK, NEW JERSEY
(Insured State Nonmember Bank)
WRITTEN AGREEMENT
PURSUANT TO

12 C.F.R. PART 325

   This Written Agreement ("Agreement") is made and is effective this 27th day of September, 1991 ("Effective Date") by and among The Howard Savings Bank, Newark, New Jersey ("Bank"), a state-chartered stock savings bank whose deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") through the Bank Insurance Fund, the Department of Banking of the State of New Jersey ("Department"), and the FDIC.
   WHEREAS, in order to induce the FDIC to defer initiating proceedings pursuant to section 8(a) and 8(b) of the Federal Deposit Insurance Act, 12 U.S.C. § 1818(a) and 12 U.S.C. § 1818(b), and to defer issuing a capital directive pursuant to section 325.6 of the FDIC's Rules and Regulations, 12 C.F.R. 325.6, and to induce the Department to defer issuing a written order pursuant to N.J.S.A. 17:9A-267, for as long as the Bank is in compliance with the provisions of this Agreement.
   NOW, THEREFORE, the Bank, the Department, and the FDIC agree as follows:

[.1] 1. Capital Maintenance.
   (a) Upon the Effective Date of this Agreement, the Bank shall have attained a Core Capital Ratio, as defined in section 1(b) hereof, of not less than 2.0 percent, and the Bank shall thereafter maintain such Core Capital Ratio at not less than 2.0 percent until the higher Core Capital Ratios set forth in section 2(a) of this Agreement take effect.
   (b) For the purposes of this Agreement, the Bank's Core Capital Ratio shall be a fraction in which the numerator is core (or Tier 1) capital, as defined in section 325.2(m) of the FDIC's Rules and Regulations, 12 C.F.R. 325.2(m), and the denominator is the Bank's total assets, as defined in section 325.2(n) of the FDIC's Rules and Regulations, 12 C.F.R. 325.2(n).

2. Capital Augmentation.

   (a) The Bank shall attain a Core Capital Ratio, as defined in sections 1(b) hereof, of not less than: (1) 3.0 percent by December 31, 1991; (2) 4.0 percent by June 30, 1992; and (3) 6.0 percent by December 31, 1992. Once the Bank has attained a Core Capital Ratio of 6.0 percent, the Bank shall thereafter maintain such Core Capital Ratio during the term of this Agreement. In attaining the capital ratio required by this section, the board agrees to actively consider all possible means for improving the bank's capital position including, but not limited to, the sale and stock (irrespective of any dilutive effect on existing shareholders) that would qualify as core capital, merger or consolidation, private investor acquisition or investment, asset sales, downsizing of the Bank, and divestiture of any subsidiaries.
   (b) By the fifteenth day after each calendar quarter, the Bank shall provide the Regional Director of the New York Region of the FDIC ("Regional Director") and the Department with a progress report, in a form acceptable to them, discussing in detail all capital-raising alternatives explored. The progress report shall include, but not be limited to, the names of and pertinent information about all third parties contacted, the financial terms of proposed capital injections, and similar information which would assist the FDIC in evaluating the Bank's efforts.

   [.2] 3. Dividends.
   While this Agreement is in effect, the Bank shall not declare or pay any dividends, whether in cash, stock or otherwise, on its
{{11-30-91 p.C-1509}}common stock, without the prior written consent of both the Regional Director and the Department.

   [.3] 4. Executive Officer Compensation.
   While this Agreement is in effect, the Bank shall not increase the compensation, including but not limited to salary and bonus payments, of any of its executive officers, unless a written notice which expressly indicates the basis for such adjustment in compensation is received by both the Regional Director and the Department at least 30 days prior to any such declaration or payment, and neither the Regional Director (or his delegatee) nor the Department object in writing to the declaration of payment of any such compensation during such prior notice period; provided, however, that no notice shall be required prior to an increase which is a cost of living adjustment which does not exceed the ratio of (i) the average of the monthly Consumer Price Index for All Urban Consumers (CPU-1), U.S. City Average, All Items, for the twelve-month period ending the most recently available month prior to the proposed increase, over (ii) such average for the comparable twelve-month period ending the same month of the prior year, and which increase is granted in general to employees and officers of the Bank, including executive officers. For the purposes of this Agreement, the term "executive officer" shall include the chairman and chief executive officer, the president, the executive vice presidents, and any other officers of the Bank who in the future hold positions of similar responsibility.

   [.4] 5. Reduction of Adversely Classified Assets.
   The Bank shall, consistent with prudent banking practices, reduce Substandard and Doubtful classifications in the November 5, 1990 Report of Examination and in any subsequent Report of Examination by the FDIC or Department, upon receipt of such report, to no more than 150 percent of total equity capital and reserves by June 30, 1992; 100 percent by March 31, 1993; and 50 percent by December 31, 1992. "Reduce" shall mean to collect, charge off identified loss exposure, or improve the credit quality of the classified loan sufficiently to remove them from classification. The goals for reduced classifications under this paragraph are not intended to represent a standard for future performance. The Bank shall endeavor, in a manner consistent with prudent banking practices, after these goals are achieved, to further reduce adversely classified assets scheduled in the November 5, 1990 and subsequent Reports of Examination.

   [.5] 6. Correction of Deficiencies Noted in Assets Listed For Special Mention.
   Within 60 days from the effective date of this Agreement, the Bank shall correct the deficiencies noted in all assets listed for "Special Mention" in the November 5, 1990 Report of Examination. Within 60 days from receipt of any subsequent Reports of Examination from the FDIC or Department, the Bank shall correct the deficiencies noted in all assets listed for "Special Mention" in such Report of Examination.

   [.6] 7. No Additional Advances to Adversely Classified Borrowers.

       (a) No additional funds shall be granted to any borrower or their related interest(s) if there exists a charged-off asset for those borrowers or any of their related interests unless, the Bank has a legal obligation to grant the funds and the prior approval of the Bank's Board of Directors or its designated Committee has been obtained.
       (b) No further advances shall be made on lines of credit subject to adverse classification in the November 5, 1990 Report of Examination or in any subsequent Report of Examinations from the FDIC or Department, upon receipt of such subsequent Report of Examination, unless the Bank has a legal obligation to make such advances. Prior approval of the Board or its designated Committee is required for advances totalling $100,000 or more.
       (c) This section 7 shall not preclude the Bank from making any advances to protect collateral securing repayment of a loan or loan advances that are otherwise in the best interest of the Bank; however, all such advances shall similarly received approval of the Board or its designated Committee. Also, a statement certified by the Board or its designated Committee shall be placed in the credit file(s) of the respective borrower(s) detailing the specific factors underlying their determination that any advance made pursuant to section 7 is in the best interest of the Bank. Full details of any credit extended pursuant to section 7 will be provided in the next
    {{11-30-91 p.C-1510}}progress report required under section 10 of this Agreement.
       (d) Any action taken by a designated Committee of the Board pursuant to section 7 shall be reviewed by the Board at its next regular meeting.

   [.7] 8. Reduction of Concentrations of Credit.
   The Bank shall increase the diversification of the loan portfolio and particularly reduce the concentrations of credit cited in the November 5, 1990 Report of Examination and, upon receipt of any subsequent Report of Examination from the FDIC or Department, in such subsequent Report of Examination.

   [.8] 9. Loan Loss Reserve.
   The Bank shall evaluate the adequacy of its loan loss reserve at least quarterly and provide for appropriate transfers thereto through the bank's earnings. Factors to be considered in such evaluation include: volume and mix of the loan portfolio, trends in loan growth, general and local economic conditions, previous loan loss experience, and the trend of recoveries. All such additional provisions for loan losses shall be made in the calendar quarter in which the deficiency in the reserve is identified, and shall be reflected in the Report of Condition and the Report of Income filed in such calendar quarter. The minutes of the board of directors of the Bank shall reflect that such reevaluation has been performed, and documentary proof of the method employed in determining the level of the reserve shall be maintained for future regulatory review.

   [.9] 10. Quarterly Progress Reports.
   While this Agreement is in effect, the Bank shall provide to the Department and the Regional Director quarterly progress reports by not later than the 45th day following the close of each calendar quarter. The reports, which shall be in a form agreed to by the Department and the Regional Director, shall, at a minimum, contain a comparative earnings performance analysis for the Bank for the previous quarter and year-to-date, including narrative discussions of significant variances from the budgeted monthly and yearly amounts. These reports shall also contain a schedule showing the current status, including book balance, of assets classified in the most recent report of examination of the Bank by the FDIC, and shall provide narrative discussions regarding intended disposition of assets, including the aggregate amount of assets of related parties, with balances exceeding $1,000,000.

   [.10] 11. Miscellaneous Provisions.
   (a) For the purposes of this Agreement, all references to Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325, and to any section, subsection or Appendix thereof, shall mean such Part, section, subsection or Appendix, as amended and in effect on the Effective Date of this Agreement.
   (b) All technical words or terms used in this Agreement for which meanings are not specified or otherwise provided by the provisions of this Agreement shall, insofar as applicable, have meanings as defined in or ascertainable from the context of Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325, and any such technical words or terms used in this Agreement not so defined or ascertainable shall have meanings that are consistent with those contained in or ascertainable from the FDIC or Department reports of examination of the Bank, and/or the Rules, Regulations and Policies of the FDIC and/or the Department, or, if the meaning of any such technical words or terms used in this Agreement cannot be determined by reference to said reports of examination, Rules, Regulations, or Policies, then they shall have meanings in accordance with the best custom and usage in the banking industry in the State of New Jersey.
   (c) This Agreement has been duly authorized, executed and delivered, and constitutes, in accordance with its terms, a valid and binding obligation of the Bank. It is understood and agreed that this Agreement is a "written agreement" as the term is defined and referred to in Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325, a "written agreement entered into between the insured depository institution and the Corporation" as that term is used in section 8(a) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1818(a), a "written Agreement entered into with the agency" as that term is used in section 8(b) of the Act, 12 U.S.C. § 1818(b), and a "written agreement between such depository institution and such agency" as that term is used in section 8(i) of the Act, 12 U.S.C. § 1818(i), and is enforceable by actions
{{7-31-95 p.C-1511}}and proceedings pursuant to sections 8(a), 8(b), and/or 8(i) of the Act.
   (d) The provisions of this Agreement shall be binding upon the Department and the FDIC and any of their successors in interest, and upon the Bank, its successors, assigns, directors, officers, employees, agents, and other institution-affiliated parties, as defined in section 3(u) of the Act, 12 U.S.C. § 1813(u).
   (e) The provisions of this Agreement shall remain effective and enforceable, except to the extent, and until such time as, any provisions of this Agreement shall have been modified by the Department and the FDIC upon the written request of the Bank, or terminated, suspended, or set aside by the Department and the FDIC, whether upon the request of the Bank or otherwise.
   (f) Upon the Effective Date of this Agreement, the Memorandum of Understanding entered into among the Bank, the Department, and the Regional Director on May 31, 1990, shall be terminated.
   (g) Nothing contained in this Agreement shall limit the ability of the Department, or the Board of Directors of the FDIC or its delegatees, from taking such further supervisory action, including but not limited to actions or proceedings pursuant to sections 8(a), 8(b), or 8(i) of the Act or N.J.S.A. 17:9A-267, as they may deem appropriate under the circumstances.

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