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FDIC Enforcement Decisions and Orders

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{{5-31-94 p.C-2548}}
   [10,601] In the Matter of The Bank of Baltimore, Baltimore, Maryland, Docket No. FDIC-92-235b (7-21-92).

   Bank to cease and desist from such unsafe or unsound practices as following hazardous lending and lax collection practices; operating with inadequate capital; operating with excessive volumes of adversely classified assets; operating with inadequate liquidity; operating in such a manner as to produce low earnings; operating in violation of applicable laws or regulations; operating with management policies detrimental to the Bank; and operating with an excessive reliance on volatile funding. (This order was terminated by order of the FDIC dated 3-22-94; see ¶ 15,833.)

{{9-30-92 p.C-2549}}
   [.1] Management—Qualifications—Review
   [.2] Management—Management Plan—Minimum Requirements
   [.3] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.4] Allowance for Loan and Lease Losses—Establish/Maintain
   [.5] Budget and Earnings Plan—Preparation Required
   [.6] Assets—Adversely Classified—Eliminate/Reduce
   [.7] Assets—Adversely Classified—Reduction—Plan/Timetable
   [.8] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.9] Assets—Problem Assets—Individual Written Plans Required
   [.10] Lending and Collection Policy—Minimum Requirements
   [.11] Loan Portfolio—Review and Grading System Required
   [.12] Loan Portfolio—Diversification Required
   [.13] Violations of Law—Eliminate/Correct
   [.14] Liquidity and Funds Management—Policy Required
   [.15] Dividends—Restricted
   [.16] Brokered Deposits—Acceptance Restricted
   [.17] Shareholders—Disclosure—Cease and Desist Order
   [.18] Board of Directors—Committee to Review Compliance with Cease and Desist Order
   [.19] Compliance Reports—Frequency

In the Matter of

THE BANK OF BALTIMORE
BALTIMORE, MARYLAND
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-92-235b

   The Bank of Baltimore, Baltimore, Maryland ("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 the alleged charges under section 8(b) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1818(b), 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 21, 1992, whereby, solely for the purpose of this proceeding and without admitting or denying the alleged charges of unsafe or unsound banking practices and 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 committed violations of law 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, 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), CEASE AND DESIST from the following unsafe or unsound banking practices and violations:
   (a) Engaging in hazardous lending and lax collection practices;
   (b) Operating the Bank with inadequate capital in relation to the kind and quality of assets held by the Bank;
   (c) Operating the Bank with an excessive volume of poor quality assets;
   (d) Operating the Bank with an inadequate allowance for loan and lease losses;
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   (e) Operating the Bank with inadequate liquidity and funds management;
   (f) Operating the Bank in such a manner as to produce unsatisfactory earnings;
   (g) Engaging in violations of applicable Federal laws and regulations, as more fully set forth on pages 6-b through 6-b-2 of the joint Report of Examination of the Bank by the FDIC and the Bank Commissioner for the State of Maryland ("Commissioner") as of October 31, 1991;
   (h) Operating the Bank with management policies and practices which are detrimental to the Bank and jeopardize the safety of its deposits; and
   (i) Operating the Bank with an excessive reliance upon volatile funding.
   IT IS FURTHER ORDERED that the Bank take AFFIRMATIVE action as follows:

[.1] 1. (a) The Bank shall have and retain qualified management. Each member of management shall have qualifications and experience commensurate with his or her duties and responsibilities at the Bank. 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 all applicable laws and regulations; and
       (iv) restore all aspects of the Bank to a safe and sound condition, including capital adequacy, asset quality, management effectiveness, earnings and liquidity.
    (b) (i) During the life of this ORDER, the Bank shall notify the Regional Director of the New York Regional Office of the FDIC ("Regional Director") and the Commissioner in writing of any resignations and/or terminations of any members of its board of directors and/or any of its senior executive officers; and
       (ii) The Bank shall comply with section 32 of the Act, 12 U.S.C. § 1831i, which includes a requirement that the Bank shall notify the Regional Director and the Commissioner in writing at least 30 days prior to any individual assuming a new position as a senior executive officer or any additions to its board of directors.
   (c) To facilitate having and retaining qualified management, the Bank's board of directors shall, within 5 days from the effective date of this ORDER, submit to the Regional Director a complete and current list of all officers of the Bank, together with each person's title, position, and job description for each such position. The Regional Director shall, within 10 days from the receipt of such list and descriptions, specify in a written communication which officers of the Bank, in addition to senior officers, shall be evaluated by the Committee referred to below. Within 15 days from the effective date of this ORDER, the board of directors shall appoint a committee with at least three members, composed of directors who are not now, and never have been, involved in the daily operations of the Bank ("Outside Directors"), and whose composition is acceptable to the Regional Director and the Commissioner (the "Committee"). The Committee shall, immediately upon being appointed, undertake an in-depth analysis of the Bank's managerial requirements. This analysis shall include a review of the composition, policies, and practices and the Bank's current operating management, and consideration of whether current operating management should be changed, or the terms and conditions under which current operating management should be continued. As part of this review, the Committee shall evaluate each senior officer, and such other officers as the Regional Director shall have specified as provided above, 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.
   (d) Within 90 days from the effective date of this ORDER, the Committee shall prepare and present to the board of directors of the Bank a written report of its findings and recommendations. The board of directors of the Bank shall review the Committee's report and evaluate its current operating management in light of such report, and shall take whatever action is necessary to implement its determinations. A copy of the Committee's report, as well as the board of directors' evaluation, determinations, and implementing ac- {{9-30-92 p.C-2551}}tions, shall be submitted to the Regional Director and the Commissioner within 120 days from the effective date of this ORDER.

[.2] 2. (a) Within 90 days from the effective date of this ORDER, the board of directors of the Bank shall review and make a written report ("Management Report") on the Bank's management needs in the lending area. The Management Report shall incorporate an analysis of the Bank's management and staffing requirements and shall, at a minimum:

       (i) identify both the number and type of positions needed to properly supervise the Bank's lending functions, giving appropriate consideration to the Bank's loan volume, customer base and the number of problem credits;
       (ii) provide a clear and concise description of the general duties and responsibilities of lending officers and their support staff;
       (iii) identify the skills, experience and pay required for each position;
       (iv) provide an evaluation of the Bank's senior management and senior lending officials, indicating whether such Bank officials possess the necessary lending and collection experience and qualifications required to adequately perform present and anticipated duties;
       (v) establish a plan to recruit, hire, and/or replace personnel based on ability and experience;
       (vi) establish a plan providing for periodic evaluation of each individual's job performance; and
       (vii) provide for periodic review of the Bank's senior management and updating of lending policies and procedures.
       (b) The board of directors of the Bank shall obtain the services of an outside consultant, acceptable to the FDIC and the Commissioner, who is knowledgeable in the area of lending, collections and personnel evaluation to assist the board of directors in reviewing the Bank's management needs and preparing the Management Report. The acceptability of the consultant shall be based on the consultant's ability to advise the Bank in each of the areas identified in paragraph 2(a) of this ORDER.
       (c) Within 90 days from the effective date of this ORDER, the board of directors of the Bank, with the assistance of the outside consultant, shall prepare a written plan of implementation ("Plan") addressing the findings of the Management Report. The Plan shall specify the actions to be taken by the board of directors and the time frames for each action.
       (d) Within 90 days from the effective date of this ORDER, the board of directors of the Bank shall prepare a written report ("Written Report") which shall contain (i) a recitation identifying the recommendations made by the outside consultant which have been incorporated in the Management Report and Plan, (ii) a recitation identifying the recommendations made by the outside consultant which were not incorporated in the Management Report and Plan and the reasons for not including such recommendations, and (iii) a copy of any report prepared by the outside consultant.
       (e) A copy of the Management Report, Plan, and Written Report shall promptly be submitted to the Regional Director and the Commissioner for review and comment. Within 30 days from receipt of any comment, and after consideration of such comment, the board of directors of the Bank shall approve the Management Report and Plan, which approval shall be recorded in the minutes of the meeting of the board of directors. It shall remain the responsibility of the board to fully implement the Plan within the specified time frames. In the event the Plan, or any portion thereof, is not implemented, the board shall immediately advise the Regional Director and the Commissioner, in writing, of the specific reasons for deviating from the Plan.

    [.3] 3. (a) Within 180 days from the effective date of this ORDER, the Bank shall have adjusted Tier 1 capital equal to or greater than 4.50 percent of the Bank's adjusted Part 325 total assets. Subsequently, the Bank shall increase such ratio to at least 6.0 percent by not later than June 30, 1993, and to at least 6.50 percent by not later than June 30, 1994. Thereafter, during the life of this ORDER, the Bank shall maintain adjusted {{9-30-92 p.C-2552}}Tier 1 capital equal to or greater than 6.50 percent of the Bank's adjusted Part 325 total assets.
       (b) Any increase in Tier 1 capital necessary to meet the ratios required by paragraph 3(a) of this ORDER may be accomplished by the following:

         (i) the sale of new securities in the form of common stock; or
         (ii) the direct contribution of cash by the parent bank holding company of the Bank; or
         (iii) any combination of the above or other method acceptable to the Regional Director and the Commissioner.
       (c) If all or part of the increase in Tier 1 capital required by paragraph 3(a) of this ORDER is accomplished by the sale of new securities, the board of directors of the Bank shall forthwith adopt and implement a plan for the sale of such additional securities, including the voting of any shares owned or proxies held or controlled by them in favor of the plan. Should the implementation of the plan involve a public distribution of Bank securities (including a distribution limited only to the Bank's existing shareholders), the Bank shall prepare offering materials fully describing the securities being offered, including an accurate description of the financial condition of the Bank and the circumstances giving rise to the offering, and any other material disclosures necessary to comply with Federal and State securities laws. Prior to the implementation of the plan and, in any event, not less than 20 days prior to the dissemination of such materials, the plan and any materials used in the sale of the securities shall be submitted to the FDIC, Registration and Disclosure Section, Washington, D.C. 20429. Any changes requested to be made in the plan or materials by the FDIC shall be made prior to their dissemination.
       (d) In complying with the provisions of paragraph 3 of this ORDER, the Bank shall provide to any subscriber and/or purchaser of Bank securities written notice of any planned or existing development or other changes which are 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 shall be furnished within 10 calendar days from the date such material development or change was planned or occurred, whichever is earlier, and shall be furnished to every subscriber and/or purchaser of Bank securities who received or was tendered the information contained in the Bank's original offering materials.
       (e) For the purposes of this ORDER, the terms "Tier 1 capital" and "Part 325 total assets" shall have the meanings ascribed to them in Part 325 of the FDIC's Rules and Regulations, respectively sections 325.2(m) and 325.2(n), 12 C.F.R. §§ 325.2(m) and (n). The "Analysis of Capital" schedule on page 3 of the FDIC's Report of Examination provides the method for determining the ratio of adjusted Tier 1 capital to adjusted Part 325 total assets as required by this ORDER.
       (f) The Bank shall not lend funds directly or indirectly, whether secured or unsecured, to any purchaser of Bank stock or to any investor by any other means for any portion of any increase in Tier 1 capital required herein.

    [.4] 4. (a) Within 30 days from the effective date of this ORDER, the board of directors of the Bank shall review the adequacy of the Bank's allowance for loan and lease losses. This review shall focus particular attention upon: (i) results of the Bank's internal loan review; (ii) loan loss experience; (iii) an estimate of potential loss exposure on each significant credit; (iv) concentrations of credit in the Bank; and (v) present and prospective economic conditions.
       (b) Immediately upon completing the review required by paragraph 4(a) of this ORDER, the Bank's board of directors shall adopt a method of computing the balance of the Bank's allowance for loan and lease losses that gives consideration to the volume and composition of the loan portfolio not subject to criticism, as well as to the volume and composition of criticized loans, including but not limited to the factors referenced in paragraph 4(a) of this ORDER. Thereafter, the Bank's board of directors shall, during the
    {{9-30-92 p.C-2553}}first month of each quarter, reevaluate the allowance for loan and lease losses and make such additional provisions for loan and lease losses that are necessary to maintain the allowance at an adequate level relative to the volume of risk in the Bank's loan portfolio. All such additional provisions for loan and leases losses shall be made in the first month of the calendar quarter in which the deficiency in the allowance is identified, but as of the end of the preceding calendar quarter, and shall be reflected in the Report of Condition and the Report of Income filed in the calendar quarter in which the deficiency is identified with respect to the preceding 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 allowance shall be maintained for future regulatory review.
       (c) All increases in the allowance for loan and lease losses, with the exception of recoveries credited directly to the allowance, shall be accomplished by charges to operating earnings through the provision for loan and lease losses.

    [.5] 5. (a) Within 60 days from the effective date of this ORDER, and within the first 30 days of each calendar year thereafter, the board of directors of the Bank shall develop a written earnings plan consisting of goals and strategies for improving the earnings of the Bank of each calendar year. The written earnings 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 on not less than a quarterly basis; and
         (iv) a description of the operating assumptions that form the basis for, and adequately support, major projected income and expense components.
       (b) Such written earnings plan and any subsequent modification thereto shall be submitted to the Regional Director and the Commissioner for review and comment. Within 30 days from the receipt of any comment from the Regional Director and the Commissioner, the board of directors shall approve the written earnings plan, which approval shall be recorded in the minutes of the meeting of the board of directors of the Bank. Thereafter, the Bank, its directors, officers, and employees shall follow the written earnings plan and/or any subsequent modification thereto.

   [.6] 6. Within 10 days from the effective date of this ORDER, the Bank shall eliminate from its books, by collection or charge-off, all assets or portions of assets classified "Loss" and 50 percent of all assets or portions of assets classified "Doubtful" by the FDIC and the Commissioner as a result of their joint examination of the Bank as of October 31, 1991 ("October 31, 1991 Examination"), which have not been previously charged off or collected. In addition, and so long as this ORDER remains in effect, the Bank shall, within 30 days from the receipt of any subsequent Report of Examination of the Bank from the FDIC or the Commissioner, eliminate from its books, by collection or charge-off, all assets or portions of assets classified "Loss" and 50 percent of all assets or portions of assets classified "Doubtful" in said Reports of Examination. Elimination of these assets through the use of the proceeds of loans or other extensions of credit made by the Bank does not constitute collection for the purposes of this ORDER.

    [.7] 7. (a) Within 360 days from the effective date of this ORDER, the Bank shall reduce the remaining total of all assets classified "Doubtful" and "Substandard" by the FDIC and the Commissioner as a result of their October 31, 1991 Examination, to not more than 100 percent of total capital plus ineligible reserves, and, within 540 days from the effective date of this ORDER, the Bank shall reduce the remaining total of such assets to not more than 75 percent of total capital plus ineligible reserves. The requirements of this paragraph 7(a) of this ORDER shall not be construed as a standard for future operations of the Bank. In addition to accomplishing the foregoing schedule of reduction, the Bank shall eventually reduce all adversely classified assets of the Bank.
       (b) As used in this ORDER, the word "reduce" means (1) to collect, (2) to charge off, or (3) to improve the quality of adversely classified assets sufficiently to warrant removing any adverse classification, as determined by the FDIC and the Commissioner. Reduction of these as {{9-30-92 p.C-2554}}sets through the use of the proceeds of loans or other extensions of credit made by the Bank does not constitute collection for the purposes of this ORDER.

    [.8] 8. (a) Immediately upon the effective date of this ORDER, the Bank shall not extend, either directly or indirectly, any new or additional credit (which, for the purposes of this ORDER, shall include the granting of renewals or extensions, or the capitalizing of accrued interest), other than for taxes, insurance and routine maintenance, to or for the benefit of any borrower who is obligated in any manner to the Bank on any extension of credit, or portion thereof, which has been charged off the books of the Bank, in whole or in part, or to any affiliate or related interest of, or other person or entity associated with, any such borrower ("charged-off borrower"), so long as any portion of such extension of credit, whether or not that portion was charged off, remains uncollected.
       (b) Immediately upon the effective date of this ORDER, the Bank shall not extend, either directly or indirectly, any new or additional credit, other than for taxes, insurance, and routine maintenance, to or for the benefit of any borrower who is obligated in any manner to the Bank on any loan or other extension of credit that has been adversely classified, in whole or in part, by the FDIC and the Commissioner as a result of their October 31, 1991 Examination, or as a result of any subsequent examination of the Bank by the FDIC or the Commissioner, or to any affiliate or related interest of, or other person or entity associated with, any such borrower ("classified borrower"), so long as such loan or other extension of credit remains classified or uncollected. This paragraph 8(b) shall not prohibit the Bank from renewing all or any part of an extension of credit to a classified borrower, after collection in cash of interest due on the entire extension of credit.
       (c) The prohibitions of paragraph 8(a) and 8(b) shall not apply to any extension of credit to a charge-off or classified borrower, if:
         (i) the Bank's failure to extend further credit to a charged-off or classified borrower would be substantially detrimental to the best interests of the Bank;
         (ii) the extension of credit fully complies with the requirements of the Bank's written lending and collection policies and procedures which have been revised, adopted, and implemented pursuant to paragraph 10 of this ORDER;
         (iii) any extension of credit, regardless of amount, with respect to any problem assets, as defined in paragraph 9 of this ORDER, is supported by a current appraisal which at a minimum complies in all respects with the requirements of Part 323 of the FDIC's Rules and Regulations, 12 C.F.R. Part 323;

         (iv) a comparison with the written program adopted pursuant to paragraph 9 of this ORDER shows that the Bank's formal program to eliminate the basis of criticism of said problem assets is not compromised; and
         (v) prior to extending any credit to a charge-off borrower, or a classified borrower whose outstanding loans or other extensions of credit exceed $500,000, a majority of the Bank's full board of directors or the executive committee of the Bank by unanimous vote, at a meeting at which not less than three-quarters of the members of the executive committee are present, approves the extension of credit and certifies, in writing, the specific reasons why failure to so act would be substantially detrimental to the best interests of the Bank. A copy of the Board's certification shall be maintained in the credit file of the charged-off or classified borrower, and shall also be submitted promptly to the Regional Director and the Commissioner.

   [.9] 9. Within 30 days from the effective date of this ORDER, the executive committee of the Bank's board of directors shall adopt and implement a written program for each problem asset. Subsequent to the effective date of this ORDER, within 30 days after any asset of the Bank becomes a problem asset, the executive committee of the board of directors of the Bank shall adopt and implement a written program for each such problem asset. For the purposes of this ORDER, a "problem asset" means any asset (including any unfunded commitment) which exceeds $1,000,000 and:
       (a) Has been adversely classified or listed for "Special Mention" by the FDIC or the Commissioner as a result of their October 31, 1991 Examination, or is ad- {{9-30-92 p.C-2555}}versely classified or listed for "Special Mention" by either the FDIC or the Commissioner as a result of any subsequent examination of the Bank; or
       (b) Has been accorded a sub-investment quality rating and/or has been designated a work-out or watch list asset, or some equivalent designation, as the result of an internal asset review and rating procedure performed by the Bank or by another party on behalf of the Bank; or
       (c) Is past due in excess of 120 days and/or has been placed in either a nonaccrual or nonearning status by the Bank; or
       (d) Has been partially charged off.
    Such program shall include, at a minimum, an assessment of the status of each problem asset, the proposed action to eliminate the cause or causes of the asset's being a problem asset, and the time frame for its accomplishment. Once adopted, a copy of each program shall be forwarded to the Regional Director and the Commissioner.

   [.10] 10. Within 60 days from the effective date of this ORDER, the Bank shall revise, adopt, and implement written lending and collection policies and procedures to provide effective guidance and control over the lending function of the Bank. A copy of the proposed policy shall be forwarded to the Regional Director and the Commissioner for review. At a minimum, the policy shall include the following:
       (a) Establishment of a nonaccrual loan policy, which complies with Call Report Instructions for loans past due 90 days or more;
       (b) Standards for extending credit to Bank directors, officers, shareholders and their related interests which take into account applicable Federal and State laws and regulations governing such extensions of credit;
       (c) A provision that establishes lending limits for each loan officer and procedures for the approval of loans in excess of these limits;
       (d) A requirement that all new commitments for loans in excess of $500,000 shall be reviewed by and receive the prior approval of the executive committee of the Bank's board of directors (except that loans which are originated for resale shall not be subject to such review and approval requirement);
       (e) A requirement that all loans shall have a declared source of repayment and a written repayment schedule;
       (f) The establishment of minimum credit standards;
       (g) Guidelines under which loans may be renewed or have their due dates extended (i) without full collection of interest thereon, and (ii) by acceptance of separate notes in payment of interest, unless prohibited by paragraph 8 of this ORDER;
       (h) Limitations on the amount of advances in relation to the value of collateral securing the credit, and a description of the documentation required by the Bank for each type of secured credit;
       (i) Standards which ensure that all required documentation, including that associated with collateral, has been received prior to disbursement of loan proceeds;
       (j) Standards under which unsecured loans may be granted;
       (k) A listing of types of loans which are permitted and those which are prohibited;
       (l) A provision to the effect that deviations from the written lending policies and procedures shall require the prior approval of the board of directors of the Bank;
       (m) Guidelines for procedures for the issuance, control, maintenance of records of, and accounting for, bankers acceptances, standby letters of credit, and all other contingent liabilities of the Bank, including but not limited to, trade letters of credit and commitments;
       (n) A provision specifically outlining the collection procedures to be taken by the Bank when borrowers fail to make timely payments;
       (o) Guidelines for the approval and processing of all overdrafts; and
       (p) Guidelines for the determination of loan product pricing. All references to "loans" in this ORDER shall be deemed to include loans and all other forms of extensions of credit.

    [.11] 11. (a) Within 30 days from the effective date of this ORDER, the board of directors of the Bank shall adopt and im
    {{9-30-92 p.C-2556}}plement an internal loan review and grading system ("System") to periodically review the Bank's loan portfolio and identify and categorize problem credits. At a minimum, the System shall provide for:
         (i) identifying the overall quality of the loan portfolio;
         (ii) the identification and amount of each delinquent loan;
         (iii) an identification or grouping of loans that warrant the special attention of management;
         (iv) for each loan identified, a statement of the amount and an indication of the degree of risk that the loan will not be fully repaid according to its terms and the reasons why the particular loan merits special attention;
         (v) an identification of credit and collateral documentation exceptions;
         (vi) the identification and status of each violation of law, rule or regulation;
         (vii) an identification of loans not in conformance with the Bank's lending policy, and exceptions to the Bank's lending policy;
         (viii) an identification of insider loan transactions; and
         (ix) a mechanism for reporting periodically, but in any event no less than quarterly, to the board of directors of the Bank on the status of each loan identified and the actions taken by operating management.
       (b) A copy of the reports submitted to the board, as well as documentation of the action taken by the Bank to collect or strengthen assets identified as problem credits, shall be kept with the minutes of the board of directors.
       (c) Within 60 days from the effective date of this ORDER, the executive committee of the Bank's board of directors shall review and approve in advance all extensions of credit and/or renewals to any borrower that, when aggregated with all other extensions of credit to that borrower, either directly or indirectly, exceed or would exceed $1 million. The review shall include financial, income, and cash flow information, collateral values and lien information, repayment terms, past performance by the borrower, the purpose of the extension, and whether the extension complies with the Bank's loan policy and applicable laws, rules, and regulations. The executive committee shall meet at least twice monthly and shall maintain written minutes which document its review, conclusions, approvals, denials, and recommendations. At least monthly, the executive committee shall submit its written minutes of the board of directors. At least two-thirds of the members of the executive committee shall be Outside Directors as defined in paragraph 1(c) of this ORDER.

   [.12] 12. Within 60 days from the effective date of this ORDER, the Bank shall adopt a written plan to increase diversification of the Bank's asset portfolio and such plan shall be submitted for approval by the Regional Director and the Commissioner. The plan shall address measures to reduce each loan concentration as of October 31, 1991, to an amount which shall be less than 25 percent of the Bank's Tier 1 capital for each individual concentration. Upon receipt of written approval or a written statement of nonobjection from the Regional Director and the Commissioner, the plan shall be forthwith implemented by the Bank's board of directors. In addition, the Bank shall not make any new extensions of credit, directly or indirectly, to any borrower whose loans equal, in the aggregate, 25 percent or more of the Bank's Tier 1 capital.

   [.13] 13. Within 60 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of law and regulations, as described on pages 6-b through 6-b-2 of the joint Report of Examination of the Bank by the FDIC and the Commissioner as of October 31, 1991, except for the violation of Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325, which shall be eliminated and/or corrected as provided in paragraph 3 of this ORDER, and the violation of section 23A of the Federal Reserve Act, 12 U.S.C. § 371c, which is made applicable to the Bank by section 18(j)(1) of the Act, 12 U.S.C. § 1828(j)(1), involving the Bank and its parent Baltimore Bancorp, which shall be corrected and/or eliminated not later than 365 days from the effective date of this ORDER. In addition, the Bank shall take all steps necessary to ensure future compliance with all applicable Federal and State laws and regulations.

   [.14] 14. Within 60 days from the effective date of this ORDER, the Bank shall
{{4-30-93 p.C-2557}}develop or revise, adopt, and implement a written liquidity and funds management policy. Such policy and its implementation shall be in a form and manner acceptable to the Regional Director and the Commissioner as determined at subsequent examinations and/or visitations.

   [.15] 15. While this ORDER is in effect, the Bank shall not declare or pay either directly or indirectly any dividends, whether in cash, stock, or otherwise, on any class of its stock, without the prior written consent of the Regional Director and the Commissioner.

   [.16] 16. While this ORDER is in effect, the Bank shall not accept, renew, or rollover brokered deposits other than as and to the extent permitted pursuant to section 29 of the Act, 12 U.S.C. § 1831f, as amended, and the FDIC's Rules and Regulations, including section 337.6, 12 C.F.R. § 337.6, as amended and supplemented. For the purposes of this ORDER, the term "brokered deposit" shall have the same meaning as is found in section 337.6(a) of the FDIC's Rules and Regulations, as amended.

   [.17] 17. Following the effective date of this ORDER, the Bank shall send to its shareholders or otherwise furnish a description of this ORDER (i) in conjunction with the Bank's next shareholder communication, and also (ii) in conjunction with its notice or proxy statement preceding the Bank's next shareholders 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. 20249, for review at least 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.

   [.18] 18. The Bank's board of directors shall appoint a committee composed of at least three directors who are not now and have never been involved in the daily operations of the Bank, and whose composition is acceptable to the Regional Director and the Commissioner (the "Compliance Committee"), to monitor the Bank's compliance with this ORDER. Within 30 days from the effective date of this ORDER, and at monthly intervals thereafter, such Compliance Committee shall prepare and present to the Bank's board of directors a written report of its findings, detailing the form, content, and manner of any action taken to secure compliance with this ORDER and the results thereof, and any recommendations with respect to such compliance. Such progress reports shall be included in the minutes of the Bank's board of directors.

   [.19] 19. By the 30th day after the end of the calendar quarter in which this ORDER is issued, and by the 15th day after the end of every calendar quarter thereafter, the Bank shall furnish written progress reports to the Regional Director and the Commissioner detailing the form, content, and manner of any actions taken to secure compliance with this ORDER, and the results thereof.
   The effective date of this ORDER shall be 10 days from the date of issuance.
   The provisions of this ORDER shall be binding upon the Bank, its successors, assigns, directors, officers, employees, agents, and other institution-affiliated parties.
   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: July 21, 1992.
   Pursuant to delegated authority.

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