{{3-31-02 p.C-5290}}
[¶11,869] In the Matter of Connecticut Bank of Commerce, Stamford, Connecticut,
Docket No. 01-178b (11-30-01).
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] ManagementQualifications Specified
[.2] Board of DirectorsOutside Directors Added to Board
[.3] Risk ManagementPlan Required
[.4] Loan PolicyPreparation or Revision of Policy Required
[.5] AssetsCharge-off or Collection
[.6] LoansSpecial Mention
[.7] Loan Loss ReserveEstablishment of or Increase Required
[.8] Credit Administration DeficienciesCorrection Required
[.9] LoansExtensions of CreditTo Borrowers with Existing Adversely
Classified Credits
[.10] Technical ExceptionsCorrection of Technical Exceptions Required
[.11] LoansInternal Grading System Required
[.12] LoansRisk PositionMonitoring Required
[.13] LoansComply with Written Policy
[.14] Budget and Earnings ForecastPreparation Required
[.15] Strategic PlanPreparation of Required
[.16] Conflicts of InterestWritten Policy Required
[.17] CapitalMaintain Tier I Capital
[.18] Violations of LawCorrection of Violations Required
[.19] Board of DirectorsMeetingsRecording of Actions Required
[.20] Bank OperationsInternal Controls, Correction of Weaknesses Required
[.21] Interest Rate Risk PolicyCompliance Required
[.22] Reports of Condition and IncomeAmendment Required
[.23] DividendsDividends Restricted
[.24] Information Technology PlanMinimum Requirements
[.25] Bank Secrecy ActCompliance
[.26] AuditProgram Required
[.27] Brokered DepositsBrokered Deposits Restricted
[.28] BusinessNew Business Restricted
[.29] Security ControlsSecurity Against Tampering Required
{{3-31-02 p.C-5290.1}}
In the Matter of
CONNECTICUT BANK OF COMMERCE
STAMFORD, CONNECTICUT
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-01-178b
Connecticut Bank of Commerce, Stamford, Connecticut ("Insured
Institution"), 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 Insured Institution and of its right to a hearing on
the 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 November 28, 2001, 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 Insured Institution 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 Insured Institution has engaged in unsafe or unsound
banking practices and has committed violations of law and/or
regulations. The FDIC, therefore, accepts the CONSENT AGREEMENT and
issues the following:
ORDER TO CEASE AND DESIST
IT IS HEREBY ORDERED that the Insured Institution, its directors,
officers, employees, agents, and other institution-affiliated parties
(as that term is defined in Section 3(u) of the Act, 12 U.S.C.
§1813(u)), and its successors and assigns cease and desist from the
following unsafe or unsound banking practices and violations:
(a) Operating with a board of directors ("Board") that fails
to provide adequate supervision and direction to the operating
management of the Insured Institution;
(b) Operating with inadequate risk management practices;
(c) Inadequately implementing prior regulatory recommendations,
including the Memorandum of Understanding dated March 23, 1999;
(d) Operating with inadequate supervision of the lending function;
(e) Operating with an excessive volume of poor quality assets;
(f) Engaging in hazardous lending practices, including but not limited
to:
(i) Failing to follow loan policy guidelines and standards;
(ii) Extending credit to borrowers who lack sufficient repayment
ability;
(iii) Failing to provide an adequate loan review and grading system;
(iv) Extending credit without adequate diversification of risk;
(v) Failing to adequately analyze credit risk;
(vi) Failing to obtain or perfect adequate collateral and monitor
collateral margins of secured borrowers;
(vii) Extending credit in a manner for which management lacks
expertise; and
(viii) Extending credit with deficient loan documentation.
(g) Operating with an inadequate allowance for loan and lease
losses;
(h) Operating with marginal earnings;
(i) Operating with an unsupported budgeting process;
(j) Operating with an outdated written strategic plan;
(k) Operating with inadequate disclosure, due diligence, and oversight
of insider-related transactions and potential conflicts of interest;
(l) Operating with marginal capital in relation to the type and quality
of assets held by the Insured Institution;
{{1-31-02 p.C-5291}}
(m) Engaging in violations of applicable federal laws and/or
regulations;
(n) Operating with inadequate Board and Board Credit Committee minutes;
(o) Operating with inadequate internal routines and controls;
(p) Operating with Information Technology deficiencies;
(q) Operating with an inadequate Bank Secrecy Act Program; and
(r) Operating with internal audit weaknesses.
IT IS FURTHER ORDERED that the Insured Institution, its
institution-affiliated parties, and its successors and assigns, take
affirmative action as follows:
[.1]1. (a) During the life of this ORDER, the Insured Institution shall
have management qualified to restore the Insured Institution to a sound
condition. Such management shall include a chief executive officer and
an experienced senior lending officer responsible for supervising the
Insured Institution's overall lending function.
(b) Present management shall be assessed on its ability to:
(i) Comply with the requirements of this ORDER;
(ii) Restore and thereafter maintain the Insured Institution in a safe
and sound condition, including management effectiveness, asset quality,
capital adequacy, liquidity adequacy, and earnings adequacy, and
sensitivity to market risk; and
(iii) Comply with all applicable State and Federal laws, regulations,
and FDIC and FFIEC policy statements.
(c) During the life of this ORDER, the Insured Institution shall
notify the Regional Director of the FDIC's Boston Regional Office
("Regional Director") and the Banking Commissioner of the State
of Connecticut Department of Banking ("Commissioner") in writing
of any resignations and/or terminations of any members of its Board
and/or any of its senior executive officer(s), including senior vice
presidents, within 15 days of the event.
(d) The Insured Institution shall comply with section 32 of the Act, 12
U.S.C. §1831i.
(e) (i) To ensure both compliance with this ORDER and qualified
management for the Insured Institution, the Board, within 60 days from
the effective date of this ORDER shall develop a written policy
("Management Policy") which, at a minimum, shall require an
analysis of the Insured Institution's management and staffing
requirements ("Analysis"), shall require clear and concise job
descriptions, shall require periodic evaluations of each employee's
job performance, and shall include the procedures requiring the
periodic review and update of the Management Policy and Analysis. The
Analysis shall, at a minimum, include: (1) both the number and
type of positions needed to properly manage the Insured Institution,
particularly the lending functions, giving appropriate consideration to
the Insured Institution's loan types, loan volume, customer base, and
the number of problem credits, (2) a clear and concise description of
the needed experience for each job including a clear and concise
description of the general duties and responsibilities for lending
officers and their support staff, (3) an evaluation of present
management including whether the current lending officials of the
Insured Institution possess the necessary lending and collection
experience and qualifications required to adequately perform present
and anticipated duties, (4) a plan to recruit, hire or replace
personnel with requisite ability and experience, and (5) a periodic
evaluation of each individual's job performance.
(ii) Within 90 days of the effective date of this ORDER, the Board
shall prepare a written plan of implementation ("Plan")
addressing the Analysis and the Management Policy. The Plan shall
specify the actions to be taken by the Board and the time frames for
each action.
(iii) The Management Policy, Analysis, and Plan, and any subsequent
modifications thereto, shall 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 shall
approve the Management Policy, Analysis, and Plan, which approval shall
be recorded in the minutes of the meeting of the Board. Thereafter, the
Insured Institution, its directors, officers, and employees shall
implement and follow the Management Policy, Analysis, and Plan and any
subsequent modifications thereto. It shall remain the responsibility of
the Board to fully implement the Plan within the specified time frames.
In the event the Plan, or
{{1-31-02 p.C-5292}}
any portion thereof, is not implemented in
accordance with the Plan's specified time frames, the Board shall
immediately advise the Regional Director and Commissioner, in writing,
of specific reasons for deviating from the Plan.
(f) Within 30 days from the effective date of this ORDER, the
Board shall establish a committee of the Board with the responsibility
to ensure that the Insured Institution complies with the provisions of
this ORDER. The members of such committee shall be independent with
respect to the Insured Institution as defined in paragraph 2 of this
ORDER. The committee shall report in writing monthly to the entire
Board, and a copy of the report and any discussion relating to the
report or the ORDER shall be included in the minutes of the Board.
Nothing contained herein shall diminish the responsibility of the
entire Board to ensure compliance with the provisions of this ORDER.
[.2]2. (a) At each meeting of the shareholders at which directors of the
Insured Institution are to be elected, the members of the Board who are
also shareholders shall nominate and support the election of candidates
to the Board who are independent with respect to the Insured
Institution, in such number as is necessary to maintain a majority of
the Board to be and to remain independent with respect to the Insured
Institution.
(b) For purposes of this ORDER, an individual who is "independent
with respect to the Insured Institution" shall be any individual (1)
who is not an employee, in any capacity, of the Insured Institution or
any of its affiliated organizations or who does not own or control more
than five (5.0) percent of the voting stock of the Insured Institution
or its holding company, (2) who is not related by blood, marriage or
common financial interest to any officers or directors of the Insured
Institution or to any stockholders owning more than five (5.0) percent
of the Insured Institution's outstanding shares or affiliates of the
Insured Institution, and (3) who is not indebted to the Insured
Institution, directly or indirectly (including the indebtedness of any
entity in which the individual has a substantial financial interest),
in an amount exceeding five (5.0) percent of the Insured Institution's
total equity capital and allowance for loan and lease losses.
(c) As used in this ORDER, "common financial interest" means any
financial transaction or arrangement whereby the individual and the
officer, director, or shareholder of the Insured Institution share some
degree of financial interest such that their ability to exercise
independent judgment on behalf of the Insured Institution could be
materially impaired. It includes but is not limited to: (1) any common
ownership interest in a closely held corporation, partnership, trust,
sole proprietorship, joint venture, or other business entity, or any
affiliates thereof, in which one or both parties, or related interests
thereof, have a 5% or more ownership interest; (2) any common
ownership interest in a publicly held corporation in which one or both
parties, or related interests thereof, have control; (3) any lending
relationship between the parties or related interests thereof; (4) any
employment relationship where one or both parties is an executive
officer; and (5) any financial relationship between the individual and
a business entity in which an Insider (as defined in Paragraph 13(b) of
this ORDER) of the Insured Institution has either control or is an
executive officer. The terms "related
interest," "control," and "executive officer"
shall have the meaning ascribed to them in section 215.2 of the Rules
and Regulations of the Board of Governors of the Federal Reserve System
(Regulation O), 12 C.F.R. §215.2.
[.3]3. Within 60 days from the effective date of this Order, management
shall:
(a) Evaluate the risk assessment controls and practices used to
determine the quality of risk management practices and determine why
the numerous weaknesses identified in the March 5, 2001 Joint
FDIC/State Report of Examination were not identified internally.
(b) Develop an action plan to improve risk management practices and to
ensure that risk assessment controls and practices remain adequate.
(c) Thereafter, maintain a system(s) that accurately and effectively
identifies, measures, monitors, and controls risks.
[.4]4. Within 60 days from the effective date of the ORDER, the Board and
management shall review and amend the Insured Institution's current
lending practices to comply with the standards outlined in Appendix A
of Part 364 of the FDIC Rules and Regulations.
5. (a) Within 60 days from the effective date of this order, the
Insured Institution shall
{{1-31-02 p.C-5293}}
revise its lending policy to adopt the
recommendations set forth in the March 5, 2001 Joint FDIC/State Report
of Examination. The revisions to the Credit Policy shall include, at a
minimum, the following:
(i) Provisions that provide parameters for identifying and
aggregating related loans;
(ii) Provisions that provide guidelines governing the newly developed
structured finance area;
(iii) Provisions that require complete loan documentation, adequate
analysis, realistic repayment terms, and current credit information
adequate to support the outstanding indebtedness of the borrower;
(iv) Provisions that provide guidance for financing new or expanding
businesses, including provisions requiring the receipt and analysis of
pro forma financial statements and budget projections;
(v) Provisions that provide guidelines for board reporting on
factoring; and
(vi) Provisions that provide guidelines for fraud detection.
(b) Such policies and their implementation shall be in the form
and manner acceptable to the Regional Director and the Commissioner as
determined at subsequent examinations and/or visitations.
[.5]6. (a) Within 10 days from the effective date of this ORDER, the
Insured Institution shall eliminate from its books, by charge-off or
collection, all assets classified "Loss" as reported in the March
5, 2001 Joint FDIC/State Report of Examination, that have not been
previously collected or charged off. Reduction of these assets through
proceeds of other loans made by the Insured Institution is not
considered collection for the purpose of this paragraph.
(b) Within 60 days from the effective date of this ORDER, the Insured
Institution shall formulate and submit to the Regional Director and the
Commissioner for review and approval a written plan of action to reduce
the Insured Institution's risk position in each asset and contingent
liability classified "Substandard" or "Doubtful" in the
March 5, 2001 Joint FDIC/State Report of Examination and which
aggregated $100,000 or more. The Insured Institution shall add to its
written plan of action assets and contingent liabilities which are so
classified in any subsequent examination. Such plan shall include, but
not be limited to, the following:
(i) Target dollar levels to which the Insured Institution will
reduce the volume of adversely classified assets and contingent
liabilities, within three months, six months, and twelve months from
the effective date of this ORDER; and
(ii) Provisions for the submissions of monthly written progress reports
under this Paragraph 6 to the Insured Institution's Board for review
and recordation in the Board minutes. Copies of such reports shall also
be submitted to the Regional Director and the Commissioner on a
quarterly basis. A form of such report is attached as Exhibit A.
(c) As used in Paragraph 6(b), the word "reduce" means (i)
to collect, (ii) to charge off, or (iii) to sufficiently improve the
quality of assets adversely classified to warrant removing any adverse
classification, as determined by the FDIC and the Commissioner.
[.6]7. Within 90 days of the effective date of this ORDER, the Insured
Institution shall significantly reduce the dollar volume of assets
subject to Special Mention as listed in the March 5, 2001 Joint
FDIC/State Report of Examination, or otherwise sufficiently improve
such assets so as to warrant removal from the Special Mention category.
[.7]8. (a) Within 30 days from the effective date of this Order, the
Insured Institution shall establish and shall thereafter maintain,
through charges to current operating income, an adequate valuation
reserve for loan and lease losses. In determining the adequacy of the
valuation reserve for loan and lease losses, the Board of the Insured
Institution shall at a minimum consider the following:
(i) Prevailing instructions contained in the Federal Financial
Institutions Examination Council booklet entitled
"Instructions-Consolidated Reports of Condition and Income";
(ii) Prevailing regulatory guidance regarding the Allowance for Loan
and Lease Losses, including: (a) FIL-89-93 dated December 21, 1993,
entitled Interagency Statement of Policy on the Allowance for Loan and
Lease Losses; and (b) FIL-63-2001 dated July 25, 2001, entitled
Interagency Policy Statement on Allowance for
{{1-31-02 p.C-5294}}
Loan lease Losses
Methodologies and Documentation for Banks and Savings Associations;
(iii) The volume and mix of the existing loan portfolio, including the
volume and severity of nonperforming loans and adversely classified
credits, as well as an analysis of net charge-offs experienced on
previously adversely classified loans;
(iv) The extent to which loan renewals and extensions are used to
maintain loans on a current basis and the degree of risk associated
with such loans;
(v) The trend in loan growth, including any rapid increase in loan
volume within a relatively short time period;
(vi) Effects of any changes in risk selection and underwriting
standards, and other changes in lending policies, procedures, and
practices;
(vii) General and local economic conditions affecting the
collectibility of the Insured Institution's loans;
(viii) Previous loan loss experience by loan type, including the trend
of net charge-offs as a percent of average loans over the past several
years;
(ix) Off balance sheet credit risks;
(x) The overall risk associated with each concentration of credit
together with the degree of risk associated with each related
individual borrower; and
(xi) Any other factors appropriate in determining future valuation
reserves.
(b) Prior to the submission of any Report of Condition or Report
of Income, the Board of the Insured Institution shall review the
adequacy of the Insured Institution's valuation reserve for loan and
lease losses. The minutes of the Board meetings at which each review is
undertaken shall indicate the results of the review, the amount of any
increase to the reserve, and the basis for the amount of the valuation
reserve. The criteria for the review shall be as set forth in Paragraph
8(a).
(c) Notwithstanding the provisions of Paragraph 8(a) and 8(b) above,
the Insured Institution shall provide, within 30 days of the effective
date of this ORDER, an additional $3.2 Million provision to the
valuation reserve for loan and lease losses as of March 31, 2001.
Thereafter the Insured Institution shall maintain, through charges to
current operating income, an adequate valuation reserve for loan and
lease losses.
(d) In the event that the Regional Director and/or the Commissioner
determine, at subsequent examinations and/or visitations, that the
Insured Institution's valuation reserve for loan and lease losses is
inadequate, the Insured Institution shall amend its Consolidated
Reports of Condition and Income in accordance with Paragraph 23.
[.8]9. Within 90 days of the effective date of this ORDER, the Board and
management shall correct all the credit administration deficiencies
noted on pages 42-43 of the March 5, 2001 Joint FDIC/State Report of
Examination.
[.9]10. (a) Beginning with the effective date of this ORDER, the Insured
Institution shall not extend or renew, directly or indirectly, any
credit to, or for the benefit of, any borrower who has a loan or other
extension of credit with the Insured Institution that has been charged
off or classified, in whole or in part,
"Substandard," "Doubtful," or "Loss" as of
March 5, 2001 unless such extension has been approved by a majority of
the Insured Institution's Board in advance and the Insured
Institution's Board has detailed in the written minutes of the Board
meeting how it has affirmatively determined all of the following: (i)
that the extension of credit is in full compliance with the Insured
Institution's loan policy; (ii) that the extension of credit is
necessary to protect the Insured Institution's interest or is
adequately secured; (iii) that based upon credit analysis the customer
is deemed to be creditworthy; and (iv) that all necessary loan
documentation is on file, including current financial and cash flow
information and satisfactory appraisal, title, and lien documents. The
minutes shall also include the following information about the
extension of credit: (i) The amount adversely classified as of March 5,
2001; (ii) the current balance; (iii) the amount of credit requested;
(iv) a description of the collateral and its value securing the credit;
and (v) a full description of the documentation presented to the Board
including the date of the borrower's most recent financial information
and the borrower's current income or cash flow data.
(b) Beginning with the effective date of this ORDER, the Insured
Institution shall not renew any loan without the full collection of
interest due. The issuance of separate notes to the borrowing customer
or a third party, the proceeds of which pay interest due, shall not
satisfy the requirements of this paragraph
{{1-31-02 p.C-5295}}
unless these separate notes
receive prior Board approval in the same manner as outlined in
Paragraph 10(a).
[.10]11. Beginning with the effective date of this ORDER, the Insured
Institution shall initiate and implement a program to correct the
technical exceptions as detailed on pages 126-128 of the March 5, 2001,
Joint FDIC/State Report of Examination. For all credit extensions, the
Insured Institution shall ensure that all appropriate documentation is
obtained before credit is extended.
[.11]12. (a) Within 30 days of the effective date of this ORDER, the Board
shall establish an effective internal loan review and grading system
("System") to periodically review the Insured Institution's loan
portfolio and identify and categorize problem credits. At a minimum the
System shall provide for:
(i) The identification of 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 reason(s) why the particular loan merits
special attention;
(v) An identification of credit and collateral documentation
exceptions;
(vi) The identification and status of each loan in apparent violation
of law, rule or regulation;
(vii) An identification of exceptions to the lending policy and loans
not in conformance with the Insured Institution's lending policy;
(viii) An identification of insider loan transactions;
(ix) Guidelines for ensuring that all significant loans are reviewed by
individuals who are not part of, or influenced by anyone associated
with, the loan origination approval process;
(x) Establishing the frequency of reviews;
(xi) Determining the scope of review for significant loans and those
with major credit risks; and
(xii) A mechanism for reporting periodically, no less than quarterly,
to the Board on the status of each loan identified and the action(s)
taken by management.
(b) Within 60 days of the effective date of this ORDER the Insured
Institution shall ensure that the scope of the external loan review
function is sufficient to assure independence and address the
weaknesses noted in the March 5, 2001 Joint FDIC/State Report of
Examination.
(c) A copy of any internal or external loan review report submitted to
the Board, as well as documentation of the action taken by the Insured
Institution to collect or strengthen assets identified as problem
credits, shall be kept with the minutes of the Board.
[.12]13. (a) As of the effective date of this ORDER, the Insured Institution
shall adequately monitor concentrations of credit risk. At least
quarterly, concentration risks shall be reviewed, quantified, assessed,
and eliminated or reduced to the extent possible. A current list of
concentrations shall be reported to the Board quarterly. For the
purposes of this Board reporting, concentrations shall be defined to
include concentrations of 25% or more of Tier 1 Capital by individual
borrower, small interrelated group of individuals, or single repayment
source or project.
(b) During the life of this ORDER, the Insured Institution shall
maintain a system of identifying all interrelated borrowing
relationships. All such relationships involving Insiders, or
individuals or entities that have common financial interests with one
or more Insiders, shall be reported to the Board quarterly. For
purposes of this ORDER, the term "Insider" shall have the meaning
ascribed to it in section 215.2 of Regulation O, 12 C.F.R. §215.2,
and shall also include relationships established by blood or marriage.
(c) Within 30 days of the effective date of this ORDER, the Insured
Institution shall establish prudent limits on extensions of credit to,
and asset purchases through, any single obligor, or related parties,
subject to the following limits:
(i) Direct obligations, combined with obligations extended under
lease purchase facilities, shall be limited to 25% of Tier 1 Capital;
(ii) Accounts Receivable purchased from one seller (or the related
interests of one
{{1-31-02 p.C-5296}}
seller) shall be limited to 100% of Tier 1 Capital;
and
(iii) Combination relationships (relationships which involve direct
obligations and/or lease purchases, and accounts receivable purchases)
with one obligor shall be limited to 100% of Tier 1 Capital, provided
that any direct obligation and/or lease purchase facility portion shall
be limited to 25% of Tier 1 Capital.
(d) Notwithstanding the foregoing, the Insured Institution shall,
with respect to its financial transactions, comply with any and all
relevant State statutes regarding legal lending limitations. Further,
the Insured Institution shall continue to limit its aggregate exposure
in accounts receivable purchase facility financing to no greater than
30% of net loans, in accordance with the provisions of the current
loan policy.
[.13]14. (a) Within 30 days of the effective date of this Order, the Insured
Institution shall adopt and implement policies and procedures to ensure
that all extensions of credit and/or renewals comply with the Insured
Institution's loan policies including, but not limited to, current
financial statements and current appraisals. Any exceptions to, or
deviations from, the Insured Institution's established direct or
indirect lending policies, shall be noted in writing along with the
name of the loan's originating officer. Documentation of the Insured
Institution's review shall be made a part of the Insured
Institution's loan file. A written report shall be submitted monthly
to the Board concerning the Insured Institution's adherence to the
loan policies, noting any exceptions to or deviations from the loan
policies established by the Insured Institution's Board, the loan
officer responsible for the exception or deviation, and the date the
exception or deviation received the Insured Institution Board's
approval. The report shall be made a part of the minutes of the Board
meeting.
(b) Evidence of the review and establishment of procedures to ensure
compliance with the loan policy shall be reduced to writing. The 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.
[.14]15. (a) Within 60 days from the effective date of this ORDER, and
annually thereafter, the Board of the Insured Institution shall develop
a written budget that corresponds to the strategic plan referenced in
paragraph 16 of this ORDER. The budget shall include, at a minimum:
(i) Realistic and comprehensive budget assumptions;
(ii) A description of the operating assumptions that form the basis
for, and adequately support, major projected income and expense
components; and
(iii) A budget review process to monitor the income and expenses of the
Insured Institution to compare actual figures with budgetary
projections on not less than a quarterly basis.
(b) Such written budget and any subsequent modifications thereto
shall be submitted to the Regional Director and the Commissioner for
review and comment. Within 30 days from the receipt of any comment, the
Board shall approve the written budget and such approval shall be
recorded in the minutes of the Board. Thereafter, the Insured
Institution, its directors, officers, and employees shall follow the
written budget and any subsequent modifications thereto.
[.15]16. Within 90 days from the effective date of this ORDER, the Insured
Institution shall formulate and submit to the Regional Director and
Commissioner for review and comment a realistic and comprehensive
written strategic plan that corresponds to the written budget
referenced in paragraph 15 of this ORDER. The plan required by this
paragraph shall include, but not be limited to, an assessment of the
Insured Institution's current financial condition and market area, and
a description of the operating assumptions that form the basis for
major projected income and expense components. Within 30 days following
the receipt of any comment, and after consideration of such comment,
the Board shall approve the strategic plan, and such approval shall be
recorded in the minutes of the Board. Thereafter, the Insured
Institution, its directors, officers, and employees shall follow the
strategic plan and any subsequent modifications thereto.
[.16]17. Within 60 days from the effective date of this ORDER, the Insured
Institution shall develop, adopt, and implement written policies and
procedures designed to bring to the attention of each member of the
Board potential conflicts of interest in approving loans or other
transactions in which Insiders are involved. Such policies and
procedures shall, at a minimum, require the disclosure of the nature of
the Insider's relationship to the borrower, such as family
relationship, common ownership of real or personal property, and
business association(s) with the borrower or any entity in which the
borrower has an ownership interest. Such policies and procedures shall
also, at a minimum, require the disclosure
{{1-31-02 p.C-5297}}
of the nature of the
Insider's relationship to parties involved in participations or
purchase and sale transactions of Insured Institution assets. In
addition, the policies and procedures shall ensure that each member of
the Board has been apprised of any potential conflict prior to making a
decision, and shall ensure that underwriting standards, the level of
due diligence, and credit risk monitoring applied to loans or other
transactions in which Insiders and/or their business associates are,
directly or indirectly, involved are at a minimum consistent with
non-Insider credit relationships. The results of Board deliberations as
to potential conflicts shall be reflected in the minutes of the Board
meeting. If the loan or transaction in question is one that may be
approved by a committee of the Board or of the Insured Institution
rather than the Board, the policies and procedures shall require the
disclosure of the foregoing information not only to the Board but also
to the members of any applicable committees prior to the approval of
the loan or transaction, and the minutes of each applicable committee
shall reflect deliberations of all potential conflicts.
[.17]18. (a) (i) Within 90 days from the effective date of this ORDER, the
Insured Institution shall have Tier 1 capital at or in excess of seven
and one-half (7 1/2) percent of the Insured Institution's Part 325
total assets ("Tier 1 leverage capital ratio") and shall continue
to maintain its Tier 1 leverage capital ratio at or in excess of such
level as calculated herein while this ORDER is in effect. Toward this
end, the Insured Institution shall develop a Capital Plan which shall
be submitted to the Regional Director and the Commissioner for approval
within 30 days from the effective date of this ORDER. The Capital Plan
should address both internal and external sources of capital
augmentation, including capital infusions, retention of earnings,
restrictions of asset growth and asset sales.
(ii) For purpose 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, 12 C.F.R. Part 325.
The "Capital Calculations" page in the March 5, 2001 Joint
FDIC/State Report of Examination provides the method for determining
the ratio of Tier 1 capital to adjusted Part 325 total assets as
required by this ORDER.
(b) Any increase in Tier 1 capital necessary to meet the ratio required
by Paragraph 18(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 directors, shareholders, or
parent Insured Institution holding company of the Insured Institution;
or
(iii) Any other method acceptable to the FDIC and the Commissioner.
(c) If, after having achieved the Tier 1 leverage capital ratio
specified in paragraph 18(a), such ratio declines below seven and
one-half (7 1/2) percent, the Insured Institution, 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 seven and one-half (7 1/2)
percent within sixty (60) days after the written plan is implemented.
Thereafter, the Insured Institution shall continue to maintain its Tier
1 leverage capital ratio at or in excess of such level while this ORDER
is in effect. Upon approval by the Regional Director and the
Commissioner, the Insured Institution shall immediately implement the
written plan.
(d) In addition to the requirements of paragraphs 18(a)-(c), the
Insured Institution shall comply with the FDIC's Statement of Policy
on Risk-Based Capital found in Appendix A to Part 325 of the FDIC Rules
and Regulations, 12 C.F.R. Part 325, App. A.
(e) If all or part of the increase in the Tier 1 leverage capital ratio
required by Paragraph 18(a) of this ORDER is accomplished by the sale
of new securities, the Board of the Insured Institution shall 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 the Insured Institution's securities (including
{{1-31-02 p.C-5298}}
a distribution limited only to the Insured Institution's existing
shareholders), the Insured Institution shall prepare offering materials
fully describing the securities being offered, including an accurate
description of the financial condition of the Insured Institution and
the circumstances giving rise to the offering, and any other material
disclosures necessary to comply with the Federal 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, Disclosure, and Securities Operations Unit, 550
17th Street, N.W., Room F-6043, Washington, D.C. 20429, and to the
Commissioner, for review. Any changes requested to be made in the plan
or materials by the FDIC shall be made prior to their dissemination. If
the Regional Director and the Commissioner allow any part of the
increase in the Tier 1 leverage capital ratio to be provided by the
sale of noncumulative perpetual preferred stock, then all terms and
conditions of the issue, including but not limited to those terms and
conditions relative to the interest rate and any convertibility factor,
shall be presented to the Regional Director and the Commissioner for
prior approval.
(f) In complying with the provisions of Paragraph 18 of this ORDER, the
Insured Institution shall provide to any subscriber and/or purchaser of
the Insured Institution's 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 Insured Institution securities. The written
notice required by this paragraph shall be furnished within 10 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 the Insured Institution's securities
who received or was tendered the information contained in the Insured
Institution's original offering materials.
(g) The Insured Institution shall not lend funds directly or
indirectly, whether secured or unsecured, to any purchaser of Insured
Institution stock or to any investor by any other means for any portion
of any increase in the Tier 1 leverage capital ratio required herein.
(h) The Insured Institution's Board shall maintain in its minutes a
written record of all actions taken by the Insured Institution to
comply with the capital requirements of paragraphs 18(a) through 18(g)
of this ORDER.
[.18]19. Within 60 days from the effective date of this ORDER, the Insured
Institution shall eliminate and/or correct all apparent violations of
law and regulations as described in the March 5, 2001 Joint FDIC/State
Report of Examination. In addition, the Insured Institution shall
henceforth comply with all applicable laws and regulations.
[.19]20. (a) Beginning with the effective date of this ORDER, minutes of
Board and committee meetings shall contain sufficient detail to reflect
the substance of significant discussions and the rationale to support
significant decisions.
(b) Beginning with the effective date of this ORDER, the Board shall
review the appropriateness and use of quorum guidelines and enforce
compliance with the guidelines.
[.20]21. Within 60 days from the effective date of this ORDER, the Insured
Institution shall eliminate and/or correct all internal routine and
control deficiencies as described in the March 5, 2001 Joint FDIC/State
Report of Examination.
[.21]22. Within 60 days from the effective date of this ORDER, the Insured
Institution shall ensure full compliance with the Joint Interagency
Policy Statement on Interest Rate Risk.
[.22]23.(a) Within 30 days from the effective date of this ORDER, the
Insured Institution shall review all Consolidated Reports of Condition
and Income filed with the FDIC on and after March 31, 2001, and shall
amend and file with the FDIC and the Commissioner amended Consolidated
Reports of Condition and Income which accurately reflect the financial
condition of the Insured Institution as of the date of each such
Report.
(b) In addition to the above and during the life of this ORDER, the
Insured Institution shall file with the FDIC Consolidated Reports of
Condition and Income that accurately reflect the financial condition of
the Insured Institution as of the reporting period. In particular such
Reports shall include any adjustment in the Insured Institution's
books made necessary or appropriate as a consequence of any State or
FDIC examination
{{6-30-02 p.C-5299}}
of the Insured Institution during that reporting
period.
[.23]24. The Insured Institution shall not declare and pay cash dividends in
any amount without the prior written consent of the Regional Director
and the Commissioner.
[.24]25. (a) Within 60 days from the effective date of this ORDER, the
Insured Institution shall develop a plan with a timetable ("IT
Plan") to correct the following deficiencies noted in the
Information Technology Report of Examination dated March 31, 2001
("IT Exam"):
(i) Correct outstanding audit exceptions from prior audits and
the exceptions noted in the IT Exam;
(ii) Correct segregation of duty weaknesses;
(iii) Implement a comprehensive security policy;
(iv) Provide for an ongoing security assessment program and a network
penetration program to include a formalized incident response plan; and
(v) Address other deficiencies noted in the IT Exam.
(b) The IT Plan and any subsequent modification thereto shall be
submitted to the Regional Director and Commissioner for review and
comment. Within 30 days from receipt of any comment, and after
consideration of such comment, the Board shall approve the IT Plan, and
such approval shall be recorded in the minutes of the Board.
Thereafter, the Insured Institution, its directors, officers, and
employees shall implement and follow the IT Plan and any subsequent
modifications thereto.
[.25]26. Within 30 days from the effective date of this ORDER, the Insured
Institution shall establish an adequate plan to comply in all material
respects with the Bank Secrecy Act and section 326.8 of the FDIC Rules
and Regulations, 12 C.F.R. §326.8. Thereafter, the Insured
Institution shall comply in all material respects with the plan.
[.26]27. Within 90 days from the effective date of this ORDER, the Insured
Institution's Board shall adopt and implement a comprehensive written
audit program for internal and external audits. A copy of the audit
program shall be submitted to the Regional Director and Commissioner
for review and comment. Within 30 days from the receipt of any comment,
and after consideration of such comments, the Board shall approve the
audit program, and such approval shall be recorded in the minutes of
the Board. The Insured Institution shall thereafter implement and
enforce the audit program and any subsequent modifications thereto. The
internal auditor shall make written monthly reports of audit findings
directly to the Insured Institution's Board or Board Audit Committee.
The minutes of the meetings of the Board and Board Audit Committee
shall reflect consideration of these reports and describe any action
taken as a result thereof.
[.27]28. During the life of this ORDER, the Insured Institution shall not
accept, renew, or roll over brokered deposits other than 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)(2) of the FDIC's
Rules and Regulations, as amended, 12 C.F.R. §337.6(a)(2).
[.28]29. (a) During the life of this ORDER, the Insured Institution shall
notify the Regional Director and Commissioner of any new lines of
business under consideration by the Insured Institution. For purposes
of this paragraph "new lines of business" means any activity not
conducted by the Insured Institution as of March 31, 2001.
(b) The notification required by subsection (a) shall be in writing not
less than 30 days prior to the proposed commencement date of the new
line of business. The notification shall include prospective operating
policies and procedures to be adopted as part of the new line of
business.
(c) Subsequent to the regulatory notification provided in this
paragraph, the Insured Institution shall not commence any new line of
business without Board approval and notation in the official Board
minutes.
(d) Nothing in this paragraph shall be deemed to relieve the Insured
Institution from compliance with all other applicable statutes and
regulations, including but not limited to, section 24 of the Federal
Deposit Insurance Act, 12 U.S.C. §1831a, and Part 362 of the FDIC
Rules and Regulations, 12 C.F.R. Part 362.
{{6-30-02 p.C-5300}}
[.29]30. During the life of this ORDER, the Insured Institution shall
establish and implement security controls with respect to tenants
occupying the premises of the Insured Institution. At a minimum, such
security controls shall ensure that the computer systems, paper files,
and other information systems of the Insured Institution are protected
from tampering by such tenants, their agents, employees, and visitors.
Such controls and their implementation shall be in the form and manner
acceptable to the Regional Director and the Commissioner as determined
at subsequent examinations and/or visitations.
31. Within 30 days from the end of each calendar quarter, the Board
shall furnish written progress reports to the Regional Director and the
Commissioner detailing the form and manner of any actions taken to
secure compliance with this ORDER and the results thereof. Such reports
may be discontinued when the corrections required by this ORDER have
been accomplished and the Regional Director and the Commissioner have
released the Insured Institution in writing from making further
reports. All progress reports and other written responses to this ORDER
shall be reviewed by the Board and consideration thereof shall be
included in the official Board minutes.
The provisions of this ORDER shall be binding upon the Insured
Institution, its directors, officers, employees, agents, successors,
assigns, and other institution-affiliated parties of the Insured
Institution.
This ORDER shall become effective 10 days from the date of its
issuance.
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: November 30th, 2001.