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{{6-30-93 p.TC-198}}
   [15,646] Docket No. FDIC-92-201b (4-2-93)

In the Matter of

THE BANK OF HARTFORD
HARTFORD, CONNECTICUT
(Insured State Nonmember Bank)
MODIFICATION OF THE ORDER
TO CEASE AND DESIST

   The Bank of Hartford, Hartford, Connecticut, ("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), prior to the issuance of the ORDER TO CEASE AND DESIST dated June 30, 1992, Docket No. FDIC-92-201b ("ORDER"), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF A MODIFICATION TO THE ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") with counsel for the Federal Deposit Insurance Corporation ("FDIC"), dated March 18, 1993, whereby solely for the purpose of this proceeding and without admitting or denying any unsafe or unsound banking practices or violations of law and/or regulations, the Bank consented to the issuance of a MODIFICATION ON THE ORDER TO CEASE AND DESIST ("MODIFICATION") by the FDIC.
   The FDIC accepted the CONSENT AGREEMENT and hereby modifies the ORDER TO CEASE AND DESIST as follows:
   The paragraph beginning with the title "ORDER TO CEASE AND DESIST" is amended by deleting "and," at the end of subparagraph (e), deleting the period at the end of subparagraph (f) and, in its stead, inserting "; and" and adding at the end thereof the following:

       (g) operating with management policies and practices which are detrimental to the Bank;
       (h) operating with an inadequate allowance for loan and lease losses for the volume, kind and quality of loans held; and
       (i) engaging in violations of applicable laws and regulations.
Paragraph 2 is hereby stricken and, in its stead, is inserted the following:
2. (a) By April 1, 1993, the Bank shall increase its allowance for loan and lease losses ("Reserve") existing as of Mach 31, 1993 by $1,088,000 at a minimum.
       (b) Immediately after complying with paragraph 2(a), the Bank shall eliminate from its books, by charge-off or collection, all assets of portions of assets classified "Loss" and fifty (50.0) percent of all assets or portions of assets classified "Doubtful" in the FDIC Report of Examination of the Bank as of May 18, 1992 ("Examination"), which have not been previously collected or charged off. Reduction of these assets through use of proceeds of loans made by the Bank, other than loans to qualified third party borrowers, does not constitute "collection" or "elimination" for the purpose of this paragraph.
       (c) Thereafter, the Bank shall maintain its Reserve in accordance with the prevailing requirements of the Instructions for the Reports of Condition and Income ("Instructions"). Toward this end, by May 15, 1993, the Bank's Board of Directors shall establish a comprehensive 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, 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.
       (d) 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 {{6-30-93 p.TC-199}}March 31, 1992 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(d), the Bank shall file amended Reports of Condition and Income by April 1, 1993.
       (e) 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.
Paragraph 4(a) is hereby stricken, and in its stead, is inserted the following:
4. (a) By April 15, 1993, the Board of Directors shall develop a written plan of action to lessen the Bank's risk position with respect to each borrower who or which had outstanding principal debt owing to the Bank in excess of $250,000 and each parcel of other real estate ("ORE") with book value in excess of $250,000 which debt or ORE was classified "Substandard" or "Doubtful," in whole or in part, as of May 18, 1992. The Bank shall add to its written plan of action loans and other real estate in excess of $250,000 which are so classified in any subsequent examination. In developing such plan, the Bank shall, at a minimum:
       (i) in the case of loans: review the financial position of each such borrower, including source of repayment, repayment ability, and alternative repayment sources; and
       (ii) evaluate the available collateral for each such credit, including possible actions to improve the Bank's collateral position.
       (iii) in the case of ORE: evaluate the property and provide cost-benefit analyses of holding the property versus current liquidation value.
Based upon such review and evaluation, the written plan of action shall: (A) establish target dollar levels to which the Bank shall reduce the aggregate dollar volume of "Substandard" or "Doubtful" classifications by September 1, 1993 and March 1, 1994; (B) provide for the submission of written monthly progress reports to the Bank's Board of Directors for review and notation in the minutes of the Board of Directors. Exhibit A provides the form for the progress report. As used in this paragraph 4, "reduce" means to (1) collect, (2) charge off, or (3) improve the quality of such assets so as to warrant removal of any adverse classification by the FDIC and the Connecticut Department of Banking. Payment of loans with the proceeds of other loans made by the Bank, other than loans to qualified third party borrowers, will not constitute "reduction" or "collection" for purposes of this ORDER.    (b) The written plan of action shall be submitted to the Regional Director and the Commissioner for review and comment by April 15, 1993. 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 plan of action, 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 plan of action 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 plan of action and/or any subsequent modification thereto.
Paragraph 7 is hereby stricken, and in its stead, is inserted the following:
   7. By April 15, 1993, the Bank shall have revised its written loan policy to include, at a minimum, a requirement that reappraisals be conducted and obtained consistent with {{6-30-93 p.TC-200}}Part 323 of the FDIC's Rules and Regulations, 12 C.F.R. Part 323. The revised written loan policy shall be submitted to the Regional Director and the Commissioner for review and comment by April 15, 1993. 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.
Paragraph 9 is hereby stricken, and in its stead, is inserted the following:
9. (a) By April 15, 1993 the Bank shall revise its written funds management policy to set out a specific program to improve the Bank's interest rate risk position, which program shall address, at a minimum:
       (i) The Bank's liquidity needs and plans for ensuring that such needs are met on an ongoing basis;
       (ii) goals and strategies for managing and/or improving the Bank's interest rate risk exposure;
       iii) monitoring of the interest rate sensitivity of present investments and deposits and projections of the types of investments and deposits to improve such liquidity position; and
       (iv) coordination of the Bank's loan, investment, operating, and budget and profit planning policies with the written funds management policy.
   (b) The revised written funds management policy shall be submitted to the Regional Director and the Commissioner for review and comment by April 15, 1993. 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 funds management 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 funds management 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 funds management policy and/or any subsequent modification thereto.
The following provisions are hereby added to the ORDER:
   14. By April 15, 1993, the Bank shall revise its written investment policy to consist of goals and strategies for ensuring the quality of the Bank's investment portfolio, including a provision ensuring proper advance analysis of Bank investments. The revised written investment policy shall be submitted to the Regional Director and the Commissioner for review and comment by April 15, 1993. 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 investment 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 investment 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 {{6-30-93 p.TC-201}}and employees shall follow the revised written investment policy and/or any subsequent modification thereto.
   15. By May 15, 1993, the Bank shall eliminate and/or correct all remediable violations of law and regulations committed by the Bank as described on pages 6-a through 6-a-4 of the Examination, and the Bank shall establish written controls and procedures to ensure compliance with applicable law and regulations.
   This MODIFICATION shall become effective immediately upon its issuance.
   The provisions of the ORDER as modified by the MODIFICATION shall be binding upon the Bank and its institution-affiliated parties.
   This MODIFICATION has been reviewed and concurred in by the Commissioner.
   The provisions of the ORDER as modified by this MODIFICATION shall remain effective and enforceable except to the extent that, and until such time as, any provisions of the ORDER shall have been further modified, terminated, suspended, or set aside by the FDIC.
   Dated at Westwood, Massachusetts this 2nd day of April, 1993.
   Pursuant to delegated authority.

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