Federal Deposit
Insurance Corporation

{{6-30-93 p.C-1868}}
   [¶10,426] In the Matter of Society for Savings, Hartford, Connecticut, Docket No. FDIC-92-26b (1-27-92).

   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 violation of applicable laws or regulations; operating with management policies 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; and operating with inadequate routine and controls policies. (This order was terminated by order of the FDIC dated 4-16-93; see ¶ 15,653.)

   [.1] Management—Qualifications—Review
   [.2] Management—Management Plan—Minimum Requirements
   [.3] Allowance for Loan and Lease Losses—Establish/Maintain
   [.4] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.5] Loans—Risk Position—Reduce—Written Plan Required
{{3-31-91 p.C-1869}}
   [.6] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.7] Loans—Overdue—Accrual of Interest
   [.8] Loan Policy—Written Revision—Minimum Requirements
   [.9] Profit Plan—Minimum Requirements
   [.10] Funds Management—Written Policy Required
   [.11] Investment Policy—Revision—Minimum Requirements
   [.12] Dividends—Restricted
   [.13] Shareholders—Disclosure—Cease and Desist Order
   [.14] Technical Exceptions—Eliminate/Correct
   [.15] Violations of Law—Eliminate/Correct
   [.16] Compliance Reports—Frequency
   [.17] Bank Operations—Internal Audit of Procedures
   [.18] Affiliated Organizations—Transactions Restricted

In the Matter of

SOCIETY FOR SAVINGS
HARTFORD, CONNECTICUT
(Insured State Nonmember Bank)
ORDER TO CEASE
AND DESIST
FDIC-92-26b

   Society for Savings, Hartford, 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 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 January 23, 1992, 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:

   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 certain applicable laws and regulations;
   (e) 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) operating with an inadequate allowance for loan and lease losses for the volume, kind and quality of loans held; and,
{{3-31-91 p.C-1870}}(j) operating without proper internal routine and controls.
   IT IS FURTHER ORDERED, that the Bank and its institution-affiliated parties (to the extent such parties are subject to this ORDER pursuant to the Act) take affirmative action as set forth below (to the extent such actions have not already been completed by the Bank prior to the issuance of this ORDER). Solely for purposes of enforcement of this order under section 8(i) of the Act, 12 U.S.C. § 1818(i), the Bank and its institution-affiliated parties will not be deemed to be in violation of paragraphs (l) through (j) above, except to the extent that the Bank is not in compliance with the following provisions:

   [.1] 1. (a) Within one hundred twenty (120) 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 executive officer with (i) proven ability in managing a bank of comparable size, (ii) experience in upgrading a low quality loan portfolio, and (iii) the capacity to implement Board approved policies. Such person shall be provided the necessary written authority to implement the provisions of this ORDER. The Bank shall have and retain a senior 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. 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) In order to have acceptable management, within sixty (60) days from the effective date of this ORDER, the Board of Directors, with such assistance from the Bank's management or any outside consultants as the Board may deem appropriate, shall develop or cause to be developed under its supervision 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 at or above the level of First Vice President 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 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] 2. (a) Within ten (10) days from the effective date of this ORDER, the Bank shall have made provision(s) to its allowance for loan losses ("Reserve") since March 31, 1991 of at least $54,000,000 (such provision(s) may include that portion of mark to market reserves established for credit risk existing as of March 31, 1991).
   (b) 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 FDIC Report of Examination of the Bank as of May 27, 1991 ("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
{{3-31-91 p.C-1872}}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 March 31, 1991 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.
   (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) cause the Bank to 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) (i) Within six (6) 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 while this ORDER is in effect. Toward this end, the Bank shall develop a Capital Plan which will be submitted within ninety (90) days from the effective date of this ORDER to the Regional Director and the Commissioner for approval. The Capital Plan should address both internal and external sources of capital augmentation, including capital infusions, retention of earnings, restrictions 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.
   (b) In calculating the Bank's Tier 1 leverage capital ratio under paragraph 3(a) initially, the Bank shall first comply fully with paragraphs 2(a) and (b) of this ORDER. Thereafter, such ratio and its components parts shall be determined only after the Bank has made such additions to its Reserve so as to bring the Reserve into compliance with the prevailing requirements of the Instructions and charged off any losses identified subsequent to the Examination.
   (c) Any increase in the Tier 1 leverage capital ratio made by the Bank in order to meet the requirements of paragraph 3(a) of this ORDER may be accomplished by:

   (i) the sale of new offerings of common stock or perpetual preferred stock;
   (ii) 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 classified "Loss" shall first be credited to the Bank's Reserve 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;
   (iii) the collection in cash of assets previously charged off;
   (iv) any combination of the above means; or
   (v) any other means acceptable to the Regional Director and the Commissioner.

   [.5] 4. (a) Within sixty (60) days from the effective date of this ORDER, the Board of Directors shall cause to be developed under its supervision and approve 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 $1,500,000 which was classified "Substandard" or "Doubtful," in whole or in part, as of May 27, 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.

   [.6] 5. The Bank shall not extend or renew, directly or indirectly, credit to, or knowingly for the benefit of, any borrower who or which 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 (or of an appropriate Committee thereof) first (1) determines that such extension or renewal 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 extension or renewal or a plan with which such extension or renewal is consistent. A written record of the Board of Directors' determination and approval of any extension or renewal 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. Notwithstanding the foregoing, the ORDER shall not require such approval for loans or other extensions of credit pursuant to legally binding contractual commitments entered into by the Bank prior to the effective date of the ORDER. For purposes of this paragraph 5, an extension or renewal of credit shall be deemed to have been made "knowingly" for the benefit of a borrower if the Bank knew of, upon reasonable inquiry, could have known that such extension or renewal of credit would be for the benefit of that borrower.

   [.7] 6. 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 6 "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.

   [.8] 7. Within sixty (60) 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 Commissioner for review and comment. No sooner than thirty (30) days, but under no circumstances more than sixty (60) days after such submission, the Board of Directors shall approve the re- {{3-31-91 p.C-1875}}vised written loan policy, taking into consideration any regulatory comments, and such approval shall be recorded 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 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 follow the revised written loan policies and/or any subsequent modification thereto.

   [.9] 8. (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) a realistic and comprehensive 1992 budget;
   (ii) a budget review process to monitor the income and expenses of the Bank to compare actual figures with budgetary projections; and,
   (iii) a description of the operating assumptions that form the basis for, and adequately support, major projected income and expense components.

   [.10] 9. (a) Within sixty (60) days from the effective date of this ORDER, the Bank shall revise its 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, operating, and budget and profit planning policies with the written funds management policy.

   [.11] 10. Within sixty (60) days from the effective date of this ORDER, the Bank shall revise its written investment policy to consist of goals and strategies for improving the quality of the Bank's investment portfolio, including quantifying guidelines on investments and limits regarding residual securities. 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 sixty (60) 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/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 follow the written investment plan and/or any subsequent modification thereto.

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

   [.13] 12. 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 to the Bank's proposed description of the ORDER shall be made prior to dissemination of the description, communication, notice, or statement.

   [.14] 13. 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-e through 2-e-11 of the FDIC Report of Examination of the Bank as of May 27, 1991.

   [.15] 14. 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 pages 6-b through 6-b-3 of the FDIC Report of Examination of the Bank as of May 27, 1991, other than violations the correction of which is provided for in paragraph 3 of this ORDER, and establish adequate policies and procedures to ensure that violations do not occur in the future.

   [.16] 15. 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.

   [.17] 16. Within thirty (30) days of the effective date of this ORDER, the Bank's audit department shall initiate a review of internal operations and procedures in order to address remedial attention to inadequate {{3-31-91 p.C-1877}}procedures detailed on pages 6-c through 6-c-1 of the FDIC Report of Examination of the Bank as of May 27, 1991.

   [.18] 17. As of the effective date of this ORDER, the Bank shall not make any payments to, or for the benefit of, any affiliated organization without the prior written consent of the Regional Director and the Commissioner, provided that the Bank shall not be required to obtain such consent with respect to payments to, or for the benefit of, an affiliated organization that is a non-operating subsidiary of the Bank formed solely to hold real property received in foreclosure (or by deed in lieu of foreclosure) in connection with a Bank loan asset, to the extent that such payments are made in the ordinary course of business, such as payments for property taxes, insurance premiums, tenant improvements, property completion, maintenance and security measures and similar items with respect to said foreclosed properties.
   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.
   Dated at Needham, Massachusetts this 27th day of January, 1992.
   Pursuant to delegated authority.