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FDIC Enforcement Decisions and Orders

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{{11-30-96 p.C-3799}}
   [11,073] In The Matter of
The Trust Company of New Jersey, Jersey City, New Jersey, Docket No. FDIC-94-129b (10-12-94).

   Bank to cease and desist from such unsafe or unsound practices as following hazardous lending and lax collection practices; operating with an excessive level of poor quality assets; operating with inadequate allowance for loan and lease losses; operating without proper internal routine and controls; operating with inadequate capital; engaging in practices which produce inadequate earnings; operating in violation of applicable laws or regulations; operating with management whose policies are inconsistent with sound banking practice; and failing to provide adequate supervision over the Bank's affairs. (This order was terminated pursuant to an order of the FDIC dated 9-11-96. See ¶16,115.)

   [.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] Ethics—Written Policy Required
   [.7] Assets—Adversely Classified—Eliminate/Reduce
   [.8] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.9] Assets—Classified—Individual Plans Required
   [.10] Lending and Collection Policy—Minimum Requirements
   [.11] Loan Portfolio—Review and Grading System Required
   [.12] Loans—Concentrations of Credit—System for Identifying
   [.13] Violations of Law—Eliminate/Correct
{{11-30-96 p.C-3800}}
   [.14] Bank Operations—Internal Routine and Controls—Written Policy Required
   [.15] Reports of Condition and Income—Amendment Required
   [.16] Bank Holding Company—Relations With—Written Policy
   [.17] Dividends—Restricted
   [.18] Organizational Structure—Directors to Establish
   [.19] Compensation—Officers—Annual Review Required
   [.20] Compensation—Directors—Attendance at Board Meetings—Fixed Amount
   [.21] Bank Secrecy Act—Compliance Plan Required
   [.22] Shareholders—Disclosure—Cease and Desist Order
   [.23] Investment Policy—Revision—Minimum Requirements
   [.24] Loans—Special Mention—Correct Deficiencies
   [.25] Interest Rate Risk—Reports, Program Required
   [.26] Board of Directors—Committee to Review Compliance with Cease and Desist Order

In The Matter of

THE TRUST COMPANY OF NEW
JERSEY

JERSEY CITY, NEW JERSEY
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-94-129b

   The Trust Company of New Jersey, Jersey City, New Jersey ("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 October 12, 1994, 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 lending and lax collection practices which are inconsistent with safe and sound banking practices;
   (b) Operating the Bank with an excessive volume of poor quality assets;
   (c) Operating the Bank without an adequate method of determining the adequacy of the allowance for loan and lease losses;
   (d) Operating the Bank with inadequate internal routine and controls;
   (e) Operating the Bank with insufficient capital in light of the kind and quality of assets held by the Bank, the lack of adequate supervision by the Bank's board of directors and senior management, and the Bank's inadequate internal controls;
   (f) Operating the Bank in such a manner as to produce unsatisfactory earnings;
   (g) Engaging in violations of applicable Federal and State laws and/or regulations, as {{12-31-94 p.C-3801}}more fully set forth on pages 6-a through 6-a-20 of the Report of Examination of the Bank by the FDIC as of January 3, 1994, and on pages 6-a through 6-a-27 of the Report of Examination of the Bank by the Department of Banking of the State of New Jersey ("Department") as of December 31, 1993;
   (h) Operating the Bank with management whose policies and practices are inconsistent with safe and sound banking practices; and
   (i) Operating the Bank with a board of directors which has failed to provide adequate supervision over and direction to the operating management of the Bank.
   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 of Banking of the State of New Jersey ("Commissioner") in writing of any resignations and/or terminations of any members of its board of directors and/or any of its officers.
       (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 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 Resolution/Compliance Committee, as appointed by the Bank's board of directors on October 4, 1993, shall be composed of at least three directors, all of whom are not now, and never have been, involved in the daily operations of the Bank ("Outside Directors").
   (d) Within 60 days from the effective date of this ORDER, the Bank's Resolution/Compliance Committee shall reevaluate the Bank's managerial requirements, including a review of the composition, policies, and practices of 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. This reevaluation shall, among other things, specifically address the concerns set forth in the Reports of Examination of the Bank by the FDIC as of January 3, 1994 and by the Department as of December 31, 1993, and the findings and recommendations of the Management Assessment of the Trust Company of New Jersey by Furash & Company dated March 31, 1994 ("Furash Report"). As part of this reevaluation, the Committee shall evaluate 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 as amended pursuant to the requirements of this ORDER, and maintenance of the Bank in a safe and sound condition.
   (e) Within 90 days from the effective date of this ORDER, the Bank's Resolution/Compliance Committee shall review and analyze the Bank's management and staffing needs in the lending area, and shall specifically address the concerns set forth in the Reports of Examination of the Bank by the FDIC as of January 3, 1994 and by the Department as of December 31, 1993, and the findings and recommendations of the Furash Report. This review and analysis shall also:
       (i) identify both the number of type of positions needed to properly supervise the Bank's lending functions, giving appropriate consideration to the {{12-31-94 p.C-3802}}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 lending officials, indicating whether 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 management and updating of lending policies and procedures.
   (f) Within 90 days from the effective date of this ORDER, the Bank's Resolution/Compliance Committee shall prepare and present to the board of directors of the Bank a written report of its findings and recommendations made pursuant to paragraphs 1(d) and 1(e) ("Management Report"). The Management Report also shall incorporate the recommendations, and address the concerns set forth in the Reports of Examination of the Bank by the FDIC as of January 3, 1994 and by the Department as of December 31, 1993, and take into consideration the Furash Report.

   [.2] (g) Within 120 days from the effective date of this ORDER, the board of directors of the Bank 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. The Plan shall also contain (1) a recitation identifying the recommendations made by the Furash Report which have been incorporated in the Management Report and Plan, and (2) a recitation identifying the recommendations made by the Furash Report which were not incorporated in the Management Report and Plan and the specific reasons for not including such recommendations. Each member of the board of directors of the Bank shall specifically indicate his or her concurrence in the decision to not incorporate the recommendations made by the Furash Report in the Management Report and Plan.
   (h) A copy of the Management Report and Plan shall promptly be submitted to the Regional Director and the Commissioner for review and comment. The Bank shall make changes in the Plan as requested by the FDIC and/or the Commissioner. Within 30 days from receipt of written approvals or written statements of nonobjection from the Regional Director and the Commissioner, the Management Report and Plan shall be forthwith adopted, which adoption 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] 2. (a) Within 30 days from the effective date of this ORDER, the Bank shall have adjusted Tier 1 capital equal to or greater than 6.0 percent of the Bank's adjusted Part 325 total assets. Thereafter, during the life of this ORDER, the Bank shall maintain adjusted Tier 1 capital equal to or greater than 6.0 percent of the Bank's adjusted Part 325 total assets.

   (b) Any increase in Tier 1 capital necessary to meet the ratio 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 non-cumulative perpetual preferred stock; or
       (ii) the direct contribution of cash by the directors, shareholders, or parent bank holding company of the Bank; or
       (iii) any combination of the above or other method acceptable to the FDIC.
   (c) If all or part of the increase in Tier 1 capital required by paragraph 2(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 {{12-31-94 p.C-3803}}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.S. 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 2 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(t) and 325.2(v), 12 C.F.R. §§ 325.2(t) and (v). The "Analysis of Capital" schedule on page 3 of the FDIC 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) If, while this ORDER is in effect, Part 325 of the FDIC's Rules and Regulations is amended, including any amendment to account for net unrealized holding gains (losses) on available-for-sale securities, as described in the instructions for the Reports of Condition and Income, then the method utilized for determining the ratio of adjusted Tier 1 capital to adjusted Part 325 total assets as described in subparagraph (e) above shall incorporate all such amendments, including any amendment to account for net unrealized holding gains (losses) on available-for-sale securities.
   (g) The Bank shall not lend funds directly or indirectly, whether secured or unsecured, to any purchaser of Bank securities or to any investor by any other means for any portion of any increase in Tier 1 capital required herein.

[.4] 3. (a) Within 45 days from the effective date of this ORDER, the board of directors of the Bank 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 classification, as well as to the volume and composition of classified loans, including but not limited to (1) results of the Bank's internal loan review, (2) loan loss experience, (3) an estimate of potential loss exposure on each significant credit, (4) concentrations of credit in the Bank, and (5) present and prospective economic conditions. Immediately thereafter, the board of directors of the Bank shall review the adequacy of the Bank's allowance for loan and lease losses utilizing the method adopted pursuant to this paragraph, and shall 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. Thereafter, the Bank's board of directors shall, during the 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 lease 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 In- {{12-31-94 p.C-3804}}come 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.
   (b) 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.
   (c) All references to loans in this ORDER shall be deemed to include all other forms of extensions of credit.

[.5] 4. (a) Within 90 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 for 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 receipt of all comments 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 shall follow the written earnings plan and/or any subsequent modification thereto.

[.6] 5. Within 60 days from the effective date of this ORDER, the Bank shall develop, adopt, and implement a written ethics policy and procedure with regard to the ethical conduct and other standards of conduct and responsibilities for its directors, officers, employees, agents and other institution-affiliated parties ("Ethics Program"). At a minimum the Ethics Program shall address the following:

       (a) Ethical and other conduct and responsibilities of individuals regarding: the acceptance of gifts, entertainment, favors and loans; the use of official information; the employment of relatives; the use of Bank property; travel expenses; and indebtedness to the Bank or any other financial institution.
       (b) The financial interests and obligations of any individual that appear to conflict with that individual's duties and responsibilities including, but not limited to:
         (i) participating in any manner in any transaction or loan in which the individual, his or her spouse, child, partner, or organization is involved; or in which the individual serves as a officer, director, trustee, partner, or employee, or has a financial interest;
         (ii) purchasing of Bank property;
         (iii) providing goods or services to the Bank; and
         (iv) outside employment and other activities.
       (c) A periodic written method of reporting each individual's compliance with the Ethics Program to an Ethics Counselor and/or committee which shall review compliance with the Ethics Program and report his or her findings to the board of directors of the Bank.

       [.7] 6. Within 10 days from the effective date of this ORDER, the Bank shall eliminate from its books, by collection or chargeoff, all assets or portions of assets classified "Loss" and 50 percent of all assets or portions of assets classified "Doubtful" by either the FDIC as a result of its examination of the Bank as of January 3, 1994 or the Department as a result of its examination of the Bank as of December 31, 1993, which have not been previously charged off or collected; provided, however, that prior to the effective date of this ORDER, the Bank may submit to the Regional Director and the Commissioner a list of those assets or portions of assets classified "Doubtful" which it be- {{12-31-94 p.C-3805}}lieves should not be charged off and a comprehensive discussion of the circumstances surrounding each such asset or portion of an asset. The Bank shall eliminate from its books all of said listed assets or portions of assets not later than 30 days from the effective date of this ORDER, unless the Regional Director and Commissioner both issue written statements of nonobjection to the Bank's retaining any such asset or portion thereof, in which case the Bank may, subject to such conditions and limitations as the Regional Director or the Commissioner require, retain any such asset or portion thereof on its books. 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 Department, 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. (a) Within 270 days from the effective date of this ORDER, the Bank shall reduce the remaining total of all assets classified "Doubtful" and "Substandard" by either the FDIC as a result of its examination of the Bank as of January 3, 1994 or the Department as a result of its examination of the Bank as of December 31, 1993, to not more than 50 percent of Tier 1 capital plus allowance for loan and lease losses. The requirements of this paragraph 7(a) shall not be construed as a standard for future operations 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. Reduction 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.

[.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) 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. The provisions of this paragraph 8(a) shall not apply to the advance of funds by the Bank for the sole purpose of maintaining or protecting the Bank's real estate collateral for any extension of credit, up to a maximum amount of $250,000 in the aggregate for all such advances, with respect to each real estate property securing, in whole or in part, all such extensions of credit.
   (b) Immediately upon the effective date of this ORDER, the Bank shall not extend, either directly or indirectly, any new or additional credit to or for the benefit of any borrower who is obligated in any manner to the Bank on any extension of credit that has been adversely classified, in whole or in part, by either the FDIC as a result of its examination of the Bank as of January 3, 1994 or the Department as a result of its examination of the Bank as of December 31, 1993, or as a result of any subsequent examination of the Bank by the FDIC or the Department, or to any affiliate or related interest of, or other person or entity associated with, any such borrower ("classified borrower"), so long as such 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 paragraphs 8(a) and 8(b) shall not apply to any extension of credit to a charged-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 {{12-31-94 p.C-3806}}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 to a charged-off borrower in connection with any real estate-related financial transaction, as defined in § 323.2(h), regardless of amount, is supported by a current appraisal of worth 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 classification of said problem asset is not compromised; and,
       (v) prior to extending any credit to a charged-off borrower, or a classified borrower whose outstanding loans or other extensions of credit exceed $1,000,000 in the aggregate, a majority of the Bank's full board of directors 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. (a) Within 60 days from the effective date of this ORDER, the board of directors of the Bank shall adopt and implement a written program with regard to each asset equal to or in excess of $1,000,000 scheduled as "Substandard", or "Doubtful" by the FDIC as a result of its examination of the Bank as of January 3, 1994, so as to eliminate the basis of classification of each such asset. This program shall include, at a minimum, an assessment of the status of each classified asset, the proposed action for eliminating the basis of classification, and the time frame for its accomplishment. Once all such programs are adopted, a copy of the program for each classified asset which equals or exceeds $1,000,000 shall be forwarded to the Regional Director and the Commissioner. Furthermore, while this ORDER is in effect, the Bank's board of directors shall, within 30 days following receipt of any Report of Examination of the Bank from the FDIC or the Department, adopt and implement written programs, as specified above, for any assets classified in said Reports, and forward copies of such programs to the Regional Director and the Commissioner. For the purposes of this ORDER, the term "classified asset" means any asset or portion thereof (including any unfunded commitment), scheduled as "Substandard" or "Doubtful" in any Report of Examination of the Bank by the FDIC or the Department.
       (b) Within 60 days from the effective date of this ORDER, the board of directors of the Bank shall adopt and implement a written program with regard to each parcel of "Other Real Estate" equal to or in excess of $500,000 on the books of the Bank. This program shall include, at a minimum, an assessment of the status of each such asset, an appraisal consistent with the Bank's internal policies and Part 323 of the FDIC's Rules and Regulations, 12 C.F.R. Part 323, a sale price, a plan for disposition, and a time frame for such disposition. A copy of the written program for each parcel of "Other Real Estate" which equals or exceeds $500,000 shall be submitted promptly to the Regional Director.
       (c) The Bank's board of directors shall conduct a review of each program adopted pursuant to paragraphs 9(a) and 9(b) of this ORDER on at least a monthly basis, to determine:
         (i) the status of each classified asset;
         (ii) management's adherence to each written program;
         (iii) the status and effectiveness of each written program; and
         (iv) the need to revise each written program and/or take other actions.
       The board shall send quarterly progress reports on the status of each classified asset equal to or exceeding $1,000,000 and each "Other Real Estate" parcel equal to or exceeding $500,000 to the Regional Director and the Commissioner.

   [.10] 10. Within 60 days from the effective date of this ORDER, the Bank's board of directors shall revise, its written lending and collection policies and procedures to provide effective guidance and control over the lending function of the Bank and shall submit {{12-31-94 p.C-3807}}said revised policies and procedures to the Regional Director. At a minimum, said policies and procedures shall include the following:
       (a) Standards for all applications for credit which shall include, at a minimum:
         (i) financial statement requirements;
         (ii) credit analysis requirements;
         (iii) loan purpose statement requirements;
         (iv) identification of repayment sources (primary and secondary);
         (v) realistic repayment plan requirements;
         (vi) collateral requirements; and
         (vii) documentation requirements.
       (b) Effective loan administration, servicing and collection procedures including, at a minimum:
         (i) establishing lending limits for specific officers and loan amounts requiring board of directors approval;
         (ii) establishing appropriate control and periodic review of collateral;
         (iii) setting forth requirements for maintaining current information, including financial data, in credit files;
         (iv) establishing appraisal and inspection standards, and guidelines for performing reappraisals and reinspections which, at a minimum, comply with the requirements of Part 323 of the FDIC's Rules and Regulations, 12 C.F.R. Part 323;
         (v) standardizing follow-up procedures on maturity and delinquent loans;
         (vi) ensuring that delinquencies are accurately reported to the board of directors on a monthly basis;
         (vii) placing loans on nonaccrual status in accordance with the Instructions for the Consolidated Reports of Condition and Income; and
         (viii) recognizing losses in a timely manner.
       (c) A loan review system which will effectively identify, categorize, and report problem credits to the board of directors. Such reports shall, at a minimum, include the following information:
         (i) the overall quality of the loan portfolio;
         (ii) the identification, type and amount of problem loans;
         (iii) the identification and amount of delinquent loans;
         (iv) credit and collateral documentation exceptions; and
         (v) the identification and status of violations of law or regulations.
   Upon receipt of written approval or a written statement of nonobjection from the Regional Director, said policies and procedures shall be forthwith adopted and implemented by the Bank's board of directors.

    [.11] 11. (a) Within 60 days from the effective date of this ORDER, the board of directors of the Bank shall adopt and implement an internal loan review and grading system for periodically reviewing the Bank's loan portfolio and identifying and categorizing problem credits ("System"). 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 the event not less than quarterly, to the board of directors on the status of each loan identified and the actions taken by operating management.
       (b) A copy of each report submitted to the board, as well as documentation of the {{12-31-94 p.C-3808}}actions 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 Bank's board of directors shall establish and appoint a loan committee to review and approve in advance all extensions of credit and/or renewals that, when aggregated with all other extensions of credit to that borrower, either directly or indirectly, exceed or would exceed $1,000,000. 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 an analysis of whether the extension complies with the Bank's loan policy and applicable laws, rules, and regulations. The loan 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 loan committee shall submit its written minutes to the board of directors. At least two-thirds of the members of the loan committee shall be Outside Directors, as defined in paragraph 1(c) of this ORDER.

   [.12] 12. The Bank shall have and retain adequate loan management information systems which will identify any existing or potential concentrations of credit. To facilitate such systems, the board of directors of the Bank shall, within 360 days from the effective date of this ORDER, implement an automated system which will provide, at a minimum, reports of total indebtedness outstanding for every borrower including related interests thereof. Such reports shall also detail:
       (a) Associated contingent liabilities, including guarantees, of the borrower or related interests thereof;
       (b) Total unadvanced loan commitments to any one borrower including related interests thereof; and
       (c) Aggregate loans and unadvanced loan commitments which are dependent on one single repayment source or individual project.

   [.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-a through 6-a-20 of the Report of Examination of the Bank by the FDIC as of January 3, 1994 and on pages 6-a through 6-a-27 of the Report of Examination of the Bank by the Department as of December 31, 1993. 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 90 days from the effective date of this ORDER, the Bank's board of directors shall revise, adopt and implement written policies and procedures to provide effective guidance and control over the internal routine and controls of the Bank, in accordance with safe and sound banking practices. Among other provisions, the revised policies and procedures shall specifically provide for correction of all internal routine and controls deficiencies scheduled by either the FDIC as result of its examination of the Bank as of January 3, 1994 or the Department as a result of its examination of the Bank as of December 31, 1993. 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. During the life of this ORDER, the Bank shall file with the FDIC Consolidated Reports of Condition and Income which accurately reflect the financial condition of the Bank as of the reporting period. In particular such Reports shall include any adjustment in the Bank's books made necessary or appropriate as a consequence of any State or FDIC examination of the Bank during that reporting period.

   [.16] 16. Within 60 days from the date of formation of a holding company, the Bank shall develop, adopt, and implement a written policy satisfactory to the Regional Director and the Commissioner, which policy shall govern the relationship between the Bank and its holding company, and shall limit the payment of any management, consulting, or other fees or funds of any nature, directly or indirectly, to or for the benefit of the Bank's holding company to only those fees or funds paid in connection with services performed by the Bank's holding company on behalf of or for the benefit of the Bank.

   [.17] 17. The Bank shall not declare or pay dividends in any amount except as follows:

       (a) That such declarations and payments are made in accordance with applicable State and Federal laws and regulations;
       (b) That after payment of such divi- {{12-31-94 p.C-3809}}dends, and consistent with the requirements of paragraph 2(f) above, the ratio of adjusted Tier 1 capital to adjusted Part 325 total assets of the Bank will be not less than 6.0 percent;
       (c) That such declaration and payment of dividends shall be approved in advance by the board of directors of the Bank; and
       (d) That the Bank shall give to the Regional Director and the Commissioner not less than 30 days' prior written notice of its intention to declare and pay such dividends and the Regional Director and the Commissioner shall both, within such 30 day period, provide the Bank with written statements of nonobjection to such declaration and payment of dividends.

   [.18] 18. Within 180 days after the effective date of this ORDER, the board of directors shall establish an organizational structure that includes, but is not limited to, the following:
       (a) Description of officer positions;
       (b) Lines of reporting;
       (c) Responsibilities and delegated authorities; and
       (d) A means by which an officer may request approval for non-delegated actions from the board of directors.

   [.19] 19. Within 60 days from the effective date of this ORDER, and thereafter on an annual basis, the Bank shall review the total compensation (both current and deferred) being paid to all Bank officers to determine whether the total compensation received by each such person is reasonable in relation to the services provided to the Bank and in relation to written performance goals to be developed by the Bank. At a minimum, such written performance goals will take into account relative job descriptions, responsibilities and accountabilities, and corporate objectives. The minutes of the board meeting at which such review is undertaken shall indicate the results of the review and the basis for determination of the reasonableness of the compensation. Fur the purposes of this paragraph 19, "compensation" refers to any and all salaries, bonuses, and other benefits of every kind and nature whatsoever, whether paid directly, or indirectly.

   [.20] 20. Within 30 days from the effective date of this ORDER, any compensation received by directors for attending board of directors meetings and/or board committee meetings shall be explicitly set at a fixed amount per director. Any deviations therefrom shall require approval by the board of directors.

    [.21] 21. (a) Within 30 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 2 through 2-2 of the May 2, 1994 Report of Examination for compliance with the Bank Secrecy Act ("BSA Report") and the related rules and regulations. In addition, the Bank shall take all steps necessary to ensure future compliance with the Bank Secrecy Act and its related regulations.
       (b) Within 30 days from the effective date of this ORDER, the Bank shall develop and/or review and revise a written Bank Secrecy Act compliance program ("BSA Program") to ensure its conformance with section 326.8(c) of the FDIC's Rules and Regulations, 12 C.F.R. § 326.8(c).
       (c) Such BSA Program, as revised, shall, at a minimum:
         (i) provide for each of the elements listed in sections 326.8(c)(1)-(4) of the FDIC's Rules and Regulations, 12 C.F.R. §§ 326.8(c)(1)-(4), and in the FDIC's Policy Statement entitled "Guidelines for Monitoring Bank Secrecy Act Compliance," FDIC bank letter (BL-16-87) dated May 18, 1987;
         (ii) provide for the continued administration of the BSA Program, reasonably designed to assure and monitor compliance with the recordkeeping and reporting requirements set forth in the Bank Secrecy Act, 31 U.S.C. §§ 5311–5326, and its implementing regulations, 31 C.F.R. Part 103; and
         (iii) incorporate the recommendations described on pages 1 through 1–5 of the BSA Report.
       (d) The board of directors shall approve the BSA Program and any subsequent modification thereto, and such approvals shall be recorded in the minutes of the board of directors. Thereafter, the Bank shall implement and follow the written BSA Program and any subsequent modification thereto.
       (e) Within 30 days from the effective {{12-31-94 p.C-3810}}date of this ORDER, the Bank shall designate or reaffirm the designation of:
         (i) the individual or individuals responsible for coordinating and monitoring day-to-day compliance with the Bank Secrecy Act and implementing regulations;
         (ii) the individual or individuals qualified and responsible for conducting independent testing of the Bank's compliance with the Bank Secrecy Act and its implementing regulations; and
         (iii) the individual or individuals qualified and responsible for training appropriate Bank personnel in the requirements of and compliance with the Bank Secrecy Act and implementing regulations.
       The board of directors shall approve such designations, and such approvals shall be recorded in the minutes of the board of directors. Thereafter, the board of directors shall regularly and thoroughly review and monitor the performance and activities of the designated individuals.
       (f) A copy of the revised written BSA Program, as required by paragraph 21(b) of this ORDER, and the identity of the individuals designated pursuant to paragraph 21(e) of this ORDER, as well as any additional or replacement personnel so designated in the future, shall be submitted to the Regional Director for review and comment.

   [.22] 22. Following the effective date of this ORDER, the Bank shall send to its shareholders and 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 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 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.

   [.23] 23. Within 60 days from the effective date of this ORDER, the Bank board of directors shall develop or revise, adopt, and implement a written portfolio policy to provide effective guidance and control over the investment function of the Bank. A copy of the proposed policy shall be forwarded to the Regional Director and Commissioner for review. At minimum, the policy shall include the following:

       (a) A statement of the Bank's strategies and goals for each type of security carried in the portfolio, including a description of anticipated held-to-maturity, trading, and available-for-sale activities;
       (b) A provision that the board shall review and approve the overall portfolio policy and management's documented strategies annually, or more frequently if appropriate. The approvals shall be reflected in the minutes of the meeting of the board of directors;
       (c) A requirement that the board of directors or a committee thereof shall review the Bank's securities activities and holdings no less than quarterly. Such a review shall include an evaluation of the Bank's adherence to Financial Accounting Standards Board Statement No. 115 and current regulatory policy statements concerning securities activities;
       (d) Specific guidelines as to the designation of securities as held-to-maturity, trading, and available-for-sale;
       (e) The establishment of stop-less limits for any trading activities;
       (f) The establishment of internal controls to ensure that securities activities are consistent with the portfolio policy and the investment strategies of the Bank; and
       (g) A requirement that securities be reported in accordance with generally accepted accounting principles including FASB Statement No. 115.

   [.24] 24. Within 90 days from the effective date of this ORDER, the Bank shall take all necessary steps to eliminate all deficiencies noted in all assets scheduled as "Special Mention" by either the FDIC as a result of its examination of the Bank as of January 3, 1994 or by the Department as a result of its examination of the Bank as of December 31, 1993 and, within 90 days from the receipt of any subsequent Report of Examination from the FDIC or the Commissioner, the Bank shall take the necessary steps to eliminate all deficiencies noted in all assets scheduled as "Special Mention" in each such Report.

   [.25] 25. Within 30 days from the effec- {{12-31-94 p.C-3811}}tive date of this ORDER, the Bank shall fully implement its program for managing interest rate risk ("IRR"), including the holding, at a minimum, of monthly meetings of the Bank's Asset/Liability Committee ("ALCO"). Reports of the Bank's IRR and liquidity positions shall be presented at least monthly to the board of directors. The minimum time periods set forth in this paragraph are not to be construed as standards for the frequency of analyses, ALCO meetings, and reports to the Bank's board of directors. In appropriate circumstances, prudent banking will dictate that more frequent analyses of the Bank's IRR and liquidity positions take place, that more frequent ALCO meetings be held, and more frequent reports be made by management to the Bank's board of directors.

   [.26] 26. The Bank's board of directors shall appoint a committee composed of at least three Outside Directors as defined in paragraph 1(c) of this ORDER, 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 meeting of the Bank's board of directors.
   27. 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: October 12, 1994.
   Pursuant to delegated authority.

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