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   [¶11,652] In the Matter of First Alliance Bank and Trust Company, Manchester, New Hampshire, Docket No. 99-097b (8-27-99)

   A cease and desist order was issued, based on findings by the FDIC that it had reason to believe that respondent had engaged in unsafe and unsound practices.

   [.1] Management—Qualifications Specified
   [.2] Management—Plan Required
   [.3] Loan Loss Reserve—Establishment of or Increase Required
   [.4] Reports on Condition and Income—Amendment Required
   [.5] Capital—Increase Required
   [.6] Loan Policy—Preparation or Revision of Policy Required
   [.7] Real Estate Activities—Conflict of Interest—Revision of Policy Required
   [.8] Loans—Specific Category of Loans, Review Required—Secondary Markets
   [.9] Strategic Plan—Preparation of Required
   [.10] Profit Plan—Preparation of Plan Required
   [.11] Funds Management and Liquidity—Preparation or Revision of Funds Management Policy Required
   [.12] Interest Rate Risk Policy—Update Required
   [.13] Anti-Money Laundering Policy—Preparation or Revision Required
   [.14] Securities Procedure Manual—Complete and Implement
   [.15] Dividends—Dividends Restricted
   [.16] Shareholders—Disclosure of Cease and Desist Order Required

In the Matter of

FIRST ALLIANCE BANK AND
TRUST COMPANY

MANCHESTER, NEW HAMPSHIRE
(Insured State Nonmember Bank)
ORDER TO CEASE
AND DESIST

FDIC-99-097b

   First Alliance Bank and Trust Company, Manchester, New Hampshire, ("Bank"), having been advised of its right to a Notice of Charges and of Hearing detailing the unsafe or unsound banking practices alleged to have been committed by the Bank and of its right to a hearing on such alleged charges under section 8(b)(1) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1818(b)(1), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") with counsel for the Federal Deposit Insurance Corporation ("FDIC"), dated August 18, 1999, whereby solely for the purpose of this proceeding and without admitting or denying any unsafe or unsound banking practices, the Bank consented to the issuance of an ORDER TO CEASE AND DESIST ("ORDER") by the FDIC.
   The FDIC considered the matter and determined that it had reason to believe that the Bank had engaged in unsafe or unsound banking practices. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

ORDER TO CEASE AND DESIST

   IT IS HEREBY ORDERED that the Bank and its institution-affiliated parties, as that term is defined in section 3(u) of the Act, 12 U.S.C. § 1813(u), cease and desist from the following unsafe or unsound banking practices:

    (a) engaging in management policies and practices that are detrimental to the Bank;
    (b) operating with inadequate capital;
    (c) engaging in unduly risky lending practices;
    (d) engaging in practices that produce inadequate operating income;
    (e) failing to provide adequate supervi- {{10-31-99 p.C-4787}}sion and direction over the affairs of the Bank to prevent unsafe or unsound practices; and
    (f) operating with an inadequate allowance for loan and lease losses for the volume, kind and quality of loans held.
   IT IS FURTHER ORDERED that the Bank and its institution-affiliated parties take affirmative action as follows:

   [.1] 1. (a) Within ninety (90) days from the effective date of this ORDER, the Bank shall have and retain qualified personnel in the areas of credit and loan administration. The qualifications shall be assessed on their ability to:

    (i) fulfill their duties in a safe and sound manner,
    (ii) comply with applicable laws and regulations, and
    (iii) restore the lending area to a safe and sound condition.
During the life of this ORDER, the Bank shall notify the Regional Director of the FDIC's Boston Regional Office ("Regional Director") and the Bank Commissioner of the State of New Hampshire Banking Department ("Commissioner") in writing of any changes in management. The notification must include the names and background of any replacement personnel and must be provided prior to the individual's assuming the new position.

   [.2] (b) Within thirty (30) days from the effective date of this ORDER, the Board of Directors shall develop a written analysis and assessment of the Bank's loan and credit administration areas 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 loan and credit administration area;
    (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 in the loan and credit administration area, in particular the Senior Loan Officer, and staff members 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 loan and credit administration area in a safe and sound condition;
    (iv) evaluation of the compensation of each of the above officers and staff members in light of their job descriptions and performance; and
    (v) 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 or staff member positions consistent with the Board's analysis, evaluation and assessment as provided in paragraphs 1(b)(i), 1(b)(iii), and 1(b)(iv) of this ORDER.
   (c) The written management plan shall be submitted to the Regional Director and the Commissioner for review and comment within thirty (30) days, but under no circumstances more than sixty (60) days after such submission, the Board of Directors shall approve the written management plan, taking into consideration any regulatory comments, and such approval shall be recorded in the minutes of the Board of Directors. Subsequent modifications to the written management plan may be made only after giving the Regional Director and the Commissioner written notice of the proposed modification, and after consideration of any responsive comments submitted by the Regional Director and/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 implement and follow the written management plan and/or any subsequent modification thereto.
   (d) The written management plan shall also include the requirement that the Board of Directors of the Bank, or a committee thereof not less than a majority of whose member are independent with respect to the Bank, provide supervision over lending, investment, and operating policies of the Bank sufficient to ensure that the Bank complies with the provisions of this ORDER.
   (e) The Bank's Board of Directors shall meet at least monthly. The Board shall pre- {{10-31-99 p.C-4788}}pare in advance and shall follow a detailed written agenda at each meeting, which shall include consideration of actions of any committees. A chronological file of all written agendas shall be maintained. Notwithstanding the foregoing, the Board shall not be precluded from considering matters other than those contained in the agenda. Detailed written minutes of all Board meetings shall be maintained and recorded on a timely basis.

   [.3] 2. (a) The Bank shall maintain its allowance for loan and lease losses ("Reserve") in accordance with the prevailing requirements of the Instructions for the Reports of Condition and Income ("Instructions"). Toward this end, within (60) days from the effective date of this ORDER, the Bank's Board of Directors shall revise its policy for determining the adequacy of the Bank's Reserve. The policy shall provide for a review of the Reserve at least once each calendar quarter. The review should focus on the results of the Bank's internal loan review, loan loss experience, trends of delinquent and non-accrual loans, an estimate of potential loss exposure on significant credits, concentrations of credit, assessment of risk in the type of loan in the portfolio, 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.

   [.4] (b) Reports of Condition and Income required to be submitted by the Bank as of each Report date, as that term is used in the Instructions, between and including December 31, 1998 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(b), the Bank shall file amended Reports of Condition and Income within ten (10) days from the effective date of this ORDER.
   (c) Prior to the submission of any Report of Condition or Report of Income required to be filed by the Bank after the effective date of this ORDER, the Board of Directors of the Bank shall: (1) review the adequacy of the Bank's Reserve, (2) provide for an adequate Reserve, and (3) accurately report the Reserve in any such Report of Condition and Income. The minutes of the Board meeting at which such review is undertaken shall indicate the results of the review, including any increases in the Reserve, and the basis for determining the amount of allowance provided.

   [.5] 3. (a) Within ninety (90) days from the effective date of this ORDER, the Bank shall have Tier 1 capital as a percentage of the Bank's average assets ("Tier 1 leverage capital ratio") at or in excess of eight (8) percent and shall continue to maintain its Tier 1 leverage capital ratio at or in excess of such level while this ORDER is in effect.
   (b) If, after having achieved the Tier 1 leverage capital ratio specified in paragraph 3(a), such ratio declines below eight (8) percent, the Bank, within thirty (30) days after the date on which said ratio so declined, shall submit a written plan to the Regional Director and the Commissioner for increasing such ratio up to or in excess of eight (8) percent within sixty (60) days after the written plan is implemented. Thereafter, the Bank 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. Upon approval by the Regional Director and the Commissioner, the Bank shall immediately implement the written plan.
   (c) In addition to the requirements of paragraphs 3(a)-(b), the Bank shall comply with the FDIC's Statement of Policy on Risk-Based Capital found in Appendix A to Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325, App. A.
   (d) In complying with the requirements of paragraph 3(c), the Bank shall review the recourse provisions of all contracts for the sale of loans, and include any applicable amounts in its Risk-Based Capital calculation.
   (e) If all or part of any increase in capital made by the Bank in order to meet the requirements of this paragraph 3 involves an offering, other than an offering deemed not to be a public securities offering pursuant to 17 C.F.R. § 230.506 as currently in effect or as hereafter amended, of the Bank's securities (including a distribution limited only to the Bank's existing shareholders), the Bank shall prepare detailed offering materials fully describing the securities being offered, in- {{10-31-99 p.C-4789}}cluding an accurate description of the financial condition of the Bank and of this ORDER as well as the circumstances giving rise to the offering, and any other material disclosures necessary to comply with the Federal securities laws. Prior to the sale of the securities, and, in any event not less than twenty (20) days prior to the dissemination of such materials, the materials used in the sale of the securities shall be submitted to the

    FDIC
    Registration and Disclosure Section
    550 17th Street, N.W.
    Washington, D.C. 20429
for review. Any changes requested to be made in the materials by the FDIC shall be made prior to their dissemination.
   (f) In complying with the provisions of paragraph 3(e) of this ORDER, the Bank shall provide to any subscriber and/or purchaser of Bank stock, written notice of any planned or existing development or other change which is 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 3(f) shall be furnished within ten (10) calendar days from the date such material development or change was planned or occurred, whichever is earlier, to every purchaser and/or subscriber of Bank stock who received or was tendered the information contained in the Bank's original offering materials. Nothing in this paragraph, or in paragraph 3(e), shall be deemed or is intended to create a private right of action on behalf of any person not a party to the Consent Agreement pursuant to which this ORDER was issued.
   (g) The Bank's Board of Directors shall maintain in its minutes a written record of all actions taken by the Bank to comply with the capital requirements of paragraphs 3(a) through 3(f) of this ORDER, including, at a minimum, any action to increase its Tier 1 capital.

   [.6] 4. Within ninety (90) days from the effective date of this ORDER, the Bank shall revise its written loan policy to govern all areas of lending. The revised written loan policy shall be submitted to the Regional Director and the Commissioner for review and comment within such ninety-day period. 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 revised 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 policy and/or any subsequent modification thereto.

   [.7] 5. Within thirty (30) days from the effective date of this ORDER, the Bank shall revise the construction lending program to eliminate conflicts of interest arising from the practice of a loan originator also performing his own real estate inspections.

   [.8] 6. Within thirty (30) days from the effective date of this ORDER, the Bank shall institute a management information system to monitor delinquency on loans sold to the secondary market to determine the bank's exposure under its recourse commitments.

   [.9] 7. (a) Within ninety (90) days from the effective date of this ORDER, the Bank shall develop a comprehensive strategic plan that shall address basic concepts of the Bank's strengths, weaknesses, opportunities, and vulnerabilities. The strategic plan shall also address lines of business and strategies.
   (b) The strategic plan shall be submitted to the Regional Director and the Commissioner for review and comment within such ninety-day period. 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 Strategic Plan, taking into consideration any regulatory comments, and such approval shall be recorded in the minutes of the Board of Directors. Subsequent modifications to the strategic plan may be made only after giving the Regional Director and the Commissioner written notice of the proposed modification, and after consideration of any responsive comments submitted by the Regional Direc- {{10-31-99 p.C-4790}}tor 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 strategic plan and/or any subsequent modification thereto.

   [.10] 8. (a) Within ninety (90) days from the effective date of this ORDER, the Bank shall develop a written profit plan consisting of goals and strategies for improving the earnings of the Bank, which written profit plan shall include, at a minimum:

    (i) identification of the major areas in, and means by, which the Board of Directors will seek to improve the Bank's operating performance;
    (ii) realistic and comprehensive budgets;
    (iii) a budget review process to monitor the income and expenses of the Bank to compare actual figures with budgetary projections; and
    (iv) a description of the operating assumptions that form the basis for, and adequately support, major projected income and expense components.
   (b) The written profit plan shall be submitted to the Regional Director and the Commissioner for review and comment within ninety (90) days from the effective date of this ORDER. 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 profit plan, taking into consideration any regulatory comments, and such approval shall be recorded in the minutes of the Board of Directors. Subsequent material modifications to the written profit plan may be made only after giving the Regional Director and the Commissioner written notice of the proposed modification, and after consideration of any responsive comments submitted by the Regional Director and/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 profit plan and/or any subsequent modification thereto.

   [.11] 9. Within thirty (30) days from the effective date of this ORDER, the Bank shall improve the method of reporting liquidity to the Board. The report shall include, at a minimum, sources and uses of funds, estimated run-off of large and small CDs, a more accurate liquidity position, long range liquidity plans including Year 2000 implications, and contingency scenarios.

   [.12] 10. Within thirty (30) days from the effective date of this ORDER, the Bank shall update the Interest Rate Risk Policy to reflect current practices. The policy should also provide for the calculation or parameters for the effect of interest rate changes on the Bank's capital.

   [.13] 11. Within thirty (30) days from the effective date of this ORDER, the Bank shall locate its existing Anti-Money Laundering Policy or develop such a policy.

   [.14] 12. Within thirty (30) days from the effective date of this ORDER, the Bank shall complete and implement the Security Procedures Manual.

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

   [.16] 14. 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 shall be made prior to dissemination of the description, communication, notice, or statement.
   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 {{6-30-00 p.C-4791}}progress reports and other written responses to this ORDER shall be reviewed by the Board of Directors of the Bank and made a part of the minutes of the Board meeting.
   This ORDER shall become effective ten (10) days from the date of its issuance.
   The provisions of this ORDER shall be binding upon the Bank and its institution-affiliated parties.
   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.
   Pursuant to delegated authority.
   Dated at Braintree, Massachusetts this 27th day of August, 1999.

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