Each depositor insured to at least $250,000 per insured bank



Home > Regulation & Examinations > Bank Examinations > FDIC Enforcement Decisions and Orders




FDIC Enforcement Decisions and Orders

ED&O Home | Search Form | Text Search | ED&O Help


{{3-31-03 p.C-5470}}

   [11,935] In the Matter of First Bank of Central New Jersey, North Brunswick, New Jersey, Docket No. 01-174b (5-28-02.

   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. (This order terminated by order of the FDIC dated 1-16-03; see ¶16,325.)

   [.1] Business Plan—Preparation Required

   [.2] Management—Qualifications Specified

   [.3] Management—Management Report Required

   [.4] Capital Plan—Minimum Requirements Specified
{{7-31-02 p.C-5471}}

   [.5] Loan Policy—Preparation or Revision of Policy Required

   [.6] Interagency Guidance on Subprime Lending—Compliance with Policy Required

   [.7] Assets—Charge-off or Collection

   [.8] Loans—Extensions of Credit—To Borrowers with Existing Adversely Classified Credits

   [.9] Violations of Law—Correction of Violations Required

   [.10] Bank Operations—Internal Routine and Control Procedures—Written Plan Required

   [.11] Reports of Condition and Income—Amendment Required

   [.12] Dividends—Dividends Restricted

   [.13] Golden Parachute Payments—Prohibited

   [.14] Board of Directors—Committee to Review Compliance with Cease and Desist Order Required

In the Matter of
FIRST BANK OF CENTRAL JERSEY
NORTH BRUNSWICK, NEW JERSEY
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

FIDC-01-174b

   FIRST BANK OF CENTRAL JERSEY, North Brunswick, New Jersey ("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 May 28, 2002, 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 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 Insured Institution, its successors and assigns, 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)), CEASE AND DESIST from the following unsafe or unsound banking practices and violations:

       (a) Engaging or entering into hazardous lending and loan administration practices;

       (b) Operating the Insured Institution with inadequate capital in relation to the kind and quality of assets held and anticipated growth of the Insured Institution;

       (c) Operating the Insured Institution with an excessive volume of poor quality assets;

       (d) Operating the Insured Institution with an inadequate allowance for loan and lease losses;

       (e) Operating the Insured Institution with inadequate loan review;

       (f) Operating the Insured Institution with inadequate internal routine and controls and unsatisfactory risk management policies and procedures;

       (g) Operating the Insured Institution in such a manner as to produce unsatisfactory earnings;

       (h) Operating the Insured Institution in
    {{7-31-02 p.C-5472}}

       such a manner as to produce operating losses;

       (i) Operating the Insured Institution with management whose policies and practices are detrimental to the Insured Institution and jeopardize the safety of its deposits;

       (j) Operating the Insured Institution with a board of directors which has failed to provide adequate supervision over and direction to the active management of the Insured Institution;

       (k) Operating the Insured Institution with an excessive concentration of credit in its subprime indirect automobile loan portfolio;

       (l) Operating the Insured Institution without a board of director approved subprime lending program;

       (m) Failing to employ proper accounting methods;

       (n) Failing to provide the Insured Institution with operational personnel who have experience that is adequate to ensure safe and sound operation of the Insured Institution and to ensure compliance with applicable laws and regulations; and

       (o) Engaging in violations of applicable Federal and State laws and/or regulations, as more fully set forth on pages 31-34 of the Joint Report of Examination of the Insured Institution by the FDIC and the State of New Jersey Department of Banking and Insurance ("NJDBI") as of June 30, 2001 (the "Joint Report of Examination").

   IT IS FURTHER ORDERED that the Insured Institution take AFFIRMATIVE action as follows:

   [.1]1. (a) Within 60 days from the effective date of this ORDER, the board of directors of the Insured Institution shall develop and submit to the Regional Director of the New York Regional Office of the FDIC ("Regional Director") and the Commissioner of the Department of Banking and Insurance of the State of New Jersey ("Commissioner") a three-year Strategic Business Plan ("Business Plan"), which includes at a minimum:

       (i) objectives and specific strategies with respect to the Insured Institution's indirect automobile lending program;

       (ii) strategies for managing the various types of risks facing the Insured Institution;

       (iii) a minimum of three years of pro-forma quarterly financial statements, supported by the underlying financial and economic assumptions;

       (iv) projections as to growth, capital, deposit sources, and general investment plans;

       (v) a realistic estimate of the date by which the Insured Institution shall achieve, satisfactory profitability (earnings that are sufficient to support operations and maintain adequate capital and allowance levels after consideration is given to asset quality, growth, and other factors affecting the quality, quantity, and trend of earnings).

   (b) The board of directors of the Insured Institution shall assess, on at least a quarterly basis, the Insured Institution's performance in relation to its Business Plan, shall determine the cause and implications of any substantial deviations therefrom, and shall amend the Business Plan on an ongoing basis as appropriate.

   (c) During the life of this ORDER, the Insured Institution shall immediately notify the Regional Director and the Commissioner in writing of any material adverse developments affecting the Insured Institution's condition, performance or substantial deviation from its Business Plan.

   [.2]2. (a) The Insured Institution 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 Insured Institution. Such management shall include a chief executive officer and an experienced senior lending officer responsible for supervising the Insured Institution's lending and the workout of problem credits. The qualifications of management shall be assessed on its ability to:

       (i) comply with the requirements of this ORDER;

       (ii) improve and thereafter maintain the Insured Institution in a safe and sound manner;

       (iii) comply with all applicable Federal and State laws and regulations, and FDIC, Interagency and FFIEC policy statements;

       (iv) restore all aspects of the Insured Institution to a safe and sound condition, including capital adequacy, asset quality, management effectiveness, earnings and liquidity; and
    {{7-31-02 p.C-5473}}

       (v) successfully implement the Business Plan prepared in accordance with paragraph 1.

   (b) During the life of this ORDER, the Insured Institution shall notify the Regional Director and the Commissioner in writing of any resignations and/or terminations of any members of its board of directors and/or any of its executive officers. In addition, the Insured Institution shall comply with section 32 of the Act, 12 U.S.C. §1831i, which includes a requirement that the Insured Institution 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 the board of directors of the Insured Institution. The Insured Institution shall also notify the Commissioner in writing at least 30 days prior to any individual assuming a new position as a senior executive officer or any additions to the board of directors of the Insured Institution.

   [.3]3. (a) Within 60 days from the effective date of this ORDER, the board of directors of the Insured Institution shall undertake an in-depth analysis and review of the Insured Institution's managerial requirements and make a written report ("Management Report") on the Insured Institution's management needs. The Management Report shall incorporate an analysis of the Insured Institution's management and staffing requirements and shall, at a minimum:

       (i) provide a review of the composition, policies and practices of the Insured Institution's current operating management;

       (ii) provide a recommendation of whether current operating management should be changed, or the terms and conditions under which current operating management should be continued;

       (iii) provide an evaluation of each Insured Institution officer indicating whether these officials possess the ability, experience and other qualifications required to perform present and anticipated duties, including adherence to the Insured Institution's established policies and practices and maintenance of the Insured Institution in a safe and sound condition;

       (iv) identify both the number and type of positions needed to properly supervise the Insured Institution's lending functions, giving appropriate consideration to the Insured Institution's loan volume, customer base and the number of problem credits;

       (v) provide a clear and concise description of the general duties and responsibilities for each Insured Institution officer and their key support staff;

       (vi) identify the skills, experience and compensation required for each position;

       (vii) establish a plan to recruit, hire and/or replace personnel based on ability and experience;

       (viii) establish a plan providing for periodic evaluation of each individual's job performance; and

       (ix) provide for periodic review of the Insured Institution's management and updating of lending policies and procedures.

   (b) Within 60 days from the effective date of this ORDER, the board of directors of the Insured Institution shall prepare and submit to the Regional Director and Commissioner for review and comment 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.

   (c) Within 30 days from receipt of any comments from the Regional Director and the Commissioner, and after consideration of such comments, the board of directors of the Insured Institution shall approve the Management Report Plan, which approval shall be recorded in the minutes of the meeting of the board of directors. It shall remain the responsibility of the board of directors to fully implement the Plan within the specified time frames. In the event the Plan, or any portion thereof, is not implemented, the board of directors shall immediately advise the Regional Director and the Commissioner, in writing, of the specific reasons for deviating from the Plan.

   [.4]4. (a) Within 60 days from the effective date of this ORDER, the Insured Institution shall prepare and submit to the Regional Director and Commissioner for review and comment a capital analysis and plan (the "Capital Plan") to address the capital deficiency set forth in the Joint Report of Examination. The Capital Plan shall evaluate the additional risk associated with the Insured Institution's subprime indirect automobile lending category and include steps to increase capital.
{{7-31-02 p.C-5474}}

   (b) Within 90 days from the effective date of this ORDER and during the life of this ORDER thereafter, the Insured Institution shall establish and maintain a total risk-based capital ratio equal to or greater than eight (8%) percent.

   (c) The total risk-based capital ratio shall be calculated utilizing the framework set forth in the FDIC Statement of Policy on Risk-Based Capital, Appendices A and B to Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325, Appendices A and B, except that the following risk weights shall be utilized with respect to the Insured Institution's asset category of indirect automobile loans;

       (i) a 150 percent risk weight shall apply to the indirect automobile loan category when the respective borrower had a credit bureau risk ("FICO") score greater than 660;

       (ii) a 300 percent risk weight shall apply to indirect automobile loan category when the respective borrower had a FICO score equal to or less than 660.

   (d) The total risk-based capital ratio shall be determined quarterly by the Insured Institution as part of its capital analysis conducted in accordance with the guidance provided in the Interagency Expanded Guidance for Subprime Lending Programs and pursuant to paragraph 5 of this ORDER. A copy of the Insured Institution's quarterly capital analysis shall be submitted to the Regional Director and the Commissioner for review and comment.

   (e) Notwithstanding the minimum capital requirement set forth in paragraph 4(b) of this ORDER, the Insured Institution is expected to maintain any capital requirement established by the NJDBI which exceeds the minimum capital requirement set forth in paragraph 4(b) of this ORDER.

   (f) Any increase in capital necessary to meet the risk-based capital ratio required by paragraph 4(b) of this ORDER or such greater capital requirement established by the NJDBI pursuant to paragraph 4(e) 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 of the Insured Institution; or

       (iii) any combination of the above or other method acceptable to the FDIC and the NJDBI.

   (g) If all or part of the increase in capital required by paragraph 4(b) or paragraph 4(e) of this ORDER is accomplished by the sale of new securities, the board of directors of the Insured Institution shall forthwith adopt and implement a plan for the sale of such additional securities, including the voting of any shares owned or proxies held or controlled by them in favor of the plan. Should the implementation of the plan involve a public distribution of Insured Institution securities (including 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 Federal and State securities laws. Prior to the implementation of the plan and, in any event not less than 20 days prior to the dissemination of such materials, the plan and any materials used in the sale of the securities shall be submitted to the FDIC, Registration and Disclosure Section, Washington, D.C. 20429 and the NJDBI. Any changes requested to be made in the plan or materials by the FDIC or NJDBI shall be made prior to their dissemination.

   (h) In complying with the provisions of paragraph 4 of this ORDER, the Insured Institution shall provide to any subscriber and/or purchaser of Insured Institution 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 4 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 Insured Institution securities who received or was tendered the information contained in the Insured Institution's original offering materials.

   (i) 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 risk-based capital required herein.

   [.5]5. (a) Within 30 days from the effective date of this ORDER, the Insured Institution
{{7-31-02 p.C-5475}}

   shall revise, adopt and implement written lending and collection policies and procedures to provide effective guidance and control over the subprime lending activities of the Insured Institution and shall include a review of the adequacy of the Insured Institution's allowance for loan and lease losses.

   (b) For the purpose of this ORDER, the term "subprime" shall have the meaning and characteristics as described in the Interagency Expanded Guidance for Subprime Lending Programs.

   (c) The policies and procedures shall, at a minimum, include provisions which will bring the Insured Institution's loan policy into conformance with the standards and guidance set forth in the Interagency Guidance on Subprime Lending, the Interagency Expanded Guidance for Subprime Lending Programs and the FFIEC Uniform Retail Credit Classification and Account Management Policy. The Insured Institution's revised subprime lending policies and procedures and their implementation shall be in a form and manner acceptable to the Regional Director and the Commissioner. At a minimum, the policies shall include the following:

       (i) establishment of risk management policies and procedures including procedures to classify subprime loans in accordance with (1) the Interagency Guidance on Subprime Lending, (2) the Interagency Expanded Guidance for Subprime Lending Programs, and (3) the FFIEC Uniform Retail Credit Classification and Account Management Policy;

       (ii) establishment of policies and procedures for the timely review and analysis of the adequacy of the Insured Institution's allowance for loan and lease losses and the regulatory capital allocated to support the Insured Institution's subprime lending program. The Insured Institution shall fully document the methodology and analysis utilized to support the allowance for loan and lease losses and the regulatory capital allocated to support the Insured Institution's subprime lending program. The Insured Institution's capital adequacy analysis and procedures should include stress and shock testing as such terms are described in the Interagency Expanded Guidance for Subprime Lending Programs and an estimation of the indirect automobile loan category's susceptibility to deteriorating economic, market and business conditions;

       (iii) establishment of subprime lending policies and procedures that include minimum credit standards and loan review, including portfolio and transaction level testing, loan classification guidelines, and a provision to the effect that deviations from the written lending policies and procedures shall require the prior approval of the board of directors of the Insured Institution;

       (iv) a requirement that a schedule of all loans approved, including loan modifications, extensions and renewals shall be reviewed by the board of directors of the Insured Institution on a monthly basis;

       (v) a provision ensuring that delinquencies are accurately reported to the board of directors on a monthly basis;

       (vi) a provision specifically outlining the collection procedures to be taken by the Insured Institution when borrowers fail to make timely payments; and

       (vii) procedures for obtaining, maintaining and reviewing complete and current credit files on each borrower.

   (d) Within 30 days from the effective date of this ORDER, the board of directors of the Insured Institution shall adopt and implement a written program for an accurate accounting of the Insured Institution's indirect automobile loan category, including automobile repossessions and subsequent automobile sales. The written program shall include, but not be limited to, hiring a qualified loan officer for the workout of problem credits; developing management information systems to monitor subprime loan activity; developing internal and external audit functions and accounting policies to accurately account for repossessed automobile assets and gains and/or losses on sales of Insured institution-financed automobiles; and the elimination of residual loan balances.

   (e) 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.

   [.6]6. Immediately upon the effective date of this ORDER, the Insured Institution shall not extend, either directly or indirectly, any new or additional credit, with respect to
{{7-31-02 p.C-5476}}

   subprime lending activities until such time that the Insured Institution complies with the Interagency Expanded Guidance for Subprime Lending Programs and receives the prior written consent of the Regional Director and the Commissioner.

   [.7]7. (a) Within 10 days from the effective date of this ORDER, the Insured Institution shall eliminate from its books, by collection or charge-off, all items or portions of items classified "Loss" by the FDIC and the NJDBI as a result of the Joint Report of Examination of the Insured Institution, which have not been previously charged-off or collected.

   (b) In addition, and so long as this ORDER remains in effect, the Insured Institution shall, within 30 days from the receipt of any subsequent report of examination of the Insured Institution from the FDIC or the NJDBI, eliminate from its books, by collection or charge-off, all items or portions of items classified "Loss" and fifty (50%) percent of all items or portions of items classified "Doubtful" in said report of examination. Elimination of these items through the use of the proceeds of loans or other extensions of credit made by the Insured Institution does not constitute collection for the purpose of this ORDER.

   [.8]8. (a) Immediately upon the effective date of this ORDER, the Insured Institution 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 interests), to or for the benefit of any borrower who is obligated in any manner to the Insured Institution on any extension of credit, or portion thereof, which has been charged-off the books of the Insured Institution ("Charged-Off Borrower"), in whole or in part, so long as any portion of such extension of credit, whether that portion was charged-off, remains uncollected.

   (b) Immediately upon the effective date of this ORDER, the Insured Institution 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 Insured Institution on any loan or other extension of credit that has been adversely classified ("Classified Borrower"), in whole or in part, as a result of the Joint Report of Examination of the Insured Institution, or as a result of any subsequent examination of the Insured Institution by the FDIC or the NJDBI, so long as such loan or other extension of credit remains classified or uncollected. This paragraph 8(b) shall not prohibit the Insured Institution 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) All documentation related to the Insured Institution's decision to extend credit to a Charged-Off Borrower or Classified Borrower shall be maintained by the Insured Institution.

   [.9]9. Within 60 days from the effective date of this ORDER, the Insured Institution shall eliminate and/or correct all violations of law and/or regulations, as described on pages 31-34 of the Joint Report of Examination of the Insured institution. In addition, the Insured Institution shall take all steps necessary to ensure future compliance with all applicable Federal and State laws and regulations and FDIC, Interagency and FFIEC guidance and policy statements.

   [.10]10. Within 90 days from the effective date of this ORDER, the Insured Institution'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 Insured Institution, 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 as a result of the Joint Report of Examination of the Insured Institution. 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.

   [.11]11. (a) Within 30 days from the effective date of this ORDER, the Insured Institution shall review all Reports of Condition and Income filed with the FDIC on and after September 30, 2000 and shall amend and file with the FDIC amended 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 which 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
{{8-31-02 p.C-5477}}

   made necessary or appropriate as a consequence of any FDIC or NJDBI examination of the Insured Institution during that reporting period and the results of the Joint Report of Examination of the Insured Institution.

   [.12]12. The Insured Institution shall not declare or pay either directly or indirectly any dividends, whether in cash, stock, or otherwise, on any class of its stock, without the prior written consent of the Regional Director and the Commissioner.

   [.13]13. Immediately upon the effective date of this ORDER, the Insured Institution shall:

       (a) Not enter into any agreements with present and former officers of the Insured Institution which constitute "golden parachute payments", as defined in section 18(k)(4) of the Act, 12 U.S.C. §1828(k)(4);

       (b) Rescind all agreements or portions of agreements with present and former officers of the Insured Institution which constitute "golden parachute payments";

       (c) Cease making any payments to present and former officers of the Insured Institution which constitute "golden parachute payments"; and

       (d) Take whatever legal steps are necessary to obtain reimbursement from all former officers of the Insured Institution or any payments which have already been made to them and which constitute "golden parachute payments".

   [.14]14. The board of directors of the Insured Institution shall appoint a committee (the "Compliance Committee") composed of at least three directors who are not now and have never been involved in the daily operations of the Insured Institution and whose composition is acceptable to the Regional Director and the Commissioner, to monitor the Insured Institution'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 Insured Institution's board of directors a written report of its findings, detailing the form, content, and manner of any action taken to ensure 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 Insured Institution's board of directors. Nothing contained herein shall diminish the responsibility of the entire board of directors to ensure compliance with the provisions of this ORDER.

   15. The Insured Institution shall provide on a monthly basis to the Regional Director and Commissioner reports for the prior month as follows:

   (a) Consolidated and Insured Institution only statements of condition and income;

   (b) Report of performance indicators for the month including:

       (i) calculations providing Tier 1 leverage capital and Tier 1 and total risk-based capital ratios;

       (ii) return on average assets (annualized to date);

       (iii) net interest margin (annualized to date);

   (c) Loan portfolio reports of delinquency and charge-off activity.

   (d) The term "Tier 1 capital" shall have the meaning ascribed to it in Part 325 of the FDIC's Rules and Regulations, section 325.2(t), 12 C.F.R. 325.2(t).

   16. By the 30th day after the end of the calendar quarter following the effective date of this ORDER, and by the 15th day after the end of every calendar quarter thereafter, the Insured Institution 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.

   17. Following the effective date of this ORDER, the Insured Institution shall send each shareholder a description of this ORDER. The description shall fully describe the ORDER in all material respects.

   The effective date of this ORDER shall be ten (10) days from the date of its issuance as set forth below.

   The provisions of this ORDER shall be binding upon the Insured Institution, 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.

   Pursuant to delegated authority.

   Dated: May 28, 2002.

ED&O Home | Search Form | Text Search | ED&O Help

Last Updated 6/6/2003 legal@fdic.gov