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FDIC Enforcement Decisions and Orders

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   [15,652] Docket No. FDIC-91-205b (4-16-93).

In the Matter of

FAIRFIELD FIRST BANK & TRUST
COMPANY

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

   Fairfield First Bank & Trust Company, Southport, Connecticut, ("Bank"), having been advised of its right to a Notice of {{6-30-93 p.TC-203}}Charges and of Hearing detailing the unsafe or unsound banking practices and violations of law and/or regulations alleged to have been committed by the Bank and of its right to a hearing on 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 July 24, 1992, Docket No. FDIC-91-205b ("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 30, 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 OF 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:
Paragraph 1(a) is hereby amended as follows:
The language "Within ninety (90) days from the effective date of this ORDER," is hereby deleted, and in its stead is inserted the language "By March 15 1993,"
Paragraph 1(b) is hereby stricken, and in its stead, is inserted the following:

       1. (b) In order to have acceptable management, by April 15 1993 the Board of Directors shall obtain an independent outside evaluation that will provide a written analysis and assessment of the Bank's management and staffing needs ("management plan"), which shall include, at a minimum:
         (i) identification of both the type and number of officer positions needed to manage and supervise properly the affairs of the Bank;
         (ii) identification and establishment of such Bank committees as are needed to provide guidance and oversight to active management;
         (iii) evaluation of each Bank officer to determine whether these individuals possess the ability, experience and other qualifications required to perform present and anticipated duties, including adherence to the Bank's established policies and practices, and maintenance of the Bank in a safe and sound condition; and
         (iv) a plan of action to recruit and hire any additional or replacement personnel with the requisite ability, experience and other qualifications, which the Board of Directors determines are necessary to fill Bank officer or staff member positions consistent with the Board's analysis, evaluation and assessment as provided in paragraphs 1(b)(i) and 1(b)(iii) of this ORDER.
Paragraph 2(a) and (b) are hereby stricken and, in their stead, is inserted the following:
    2. (a) By December 31, 1992 the Bank shall have increased its allowance for loan and lease losses ("Reserve") existing as of March 31, 1992 by $1,000,000 at a minimum.
       (b) Immediately after complying with paragraph 2(a), the Bank (1) shall eliminate from its books, by charge-off or collection, all assets or portions of assets classified "Loss" in the FDIC Report of Examination of the Bank as of April 20, 1992 ("Examination") which have not been previously collected or charged off; and (2) shall either (A) eliminate from its books by charge-off or collection, or (B) if the asset is an extension of credit or lease, increase its Reserve by an amount equal to, fifty (50.0) percent of those assets or portions of assets classified "Doubtful" in the 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 to qualified third party borrowers, does not constitute "collection" or "elimination" for the purpose of this paragraph.
Paragraph 2(d) is hereby stricken and, in its stead, is inserted the following:
    2. (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 March 31, 1992 and June 30, 1992, shall, at a minimum, reflect a Reserve that should have been maintained in accordance with {{6-30-93 p.TC-204}}the Instructions. If necessary to comply with this paragraph 2(d), the Bank shall file amended Reports of Condition and Income by December 31, 1992.
Paragraph 3 is hereby stricken and, in its stead, is inserted the following:
    3. (a) (i) By March 15 1993, the Bank shall have Tier 1 capital at or in excess of five (5.0) percent of the Bank's total assets ("Tier 1 leverage capital ratio") and thereafter 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 Bank shall develop a Capital Plan which shall have been submitted to the Regional Director and the Commissioner for approval by February 2, 1993. 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 purposes of this ORDER, the terms "Tier 1 capital" and "total assets" shall have the meanings ascribed to them in the revised Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325, which became effective April 10, 1991.
   (b) In calculating the Bank's Tier 1 leverage capital ratio under paragraph 3(a) initially, the Bank shall first comply fully with paragraphs 2(a) and (b) of this ORDER. Thereafter, such ratio and its component parts shall be determined only after the Bank has made such additions to its Reserve so as to bring the Reserve into compliance with the prevailing requirements of the Instructions and charged off any losses identified subsequent to the Examination.
   (c) Any increase in the Tier 1 leverage capital ratio made by the Bank in order to meet the requirements of paragraph 3(a) of this ORDER may be accomplished by:
       (i) the retention of earnings and profits;
       (ii) the sale of new offerings of common stock or perpetual preferred stock;
       (iii) the collection of all or part of assets classified "Loss" within the Examination without loss or liability to the Bank. Reductions to loans classified "Loss" shall first be credited to the Bank's Reserve and, if the Board of Directors' review of the adequacy of the Reserve required by paragraph 2 of this ORDER indicates that such Reserve has a balance in excess may be transferred to equity capital through a negative provision to the Reserve;
       (iv) the collection in cash of assets previously charged off;
       (v) any combination of the above means; or
       (vi) any other means acceptable to the Regional Director and the Commissioner.
   (d) If, after having achieved the Tier 1 leverage capital ratio specified in paragraph 3(a)(i), such ratio declines below five (5.0) percent, the Bank, within ninety (90) 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 five (5.0) percent within one hundred eighty (180) days after the written plan is implemented. Thereafter, the Bank shall continue to maintain its Tier 1 leverage capital ratio at or in excess of such level as calculated herein while this ORDER is in effect. Upon approval by the Regional Director and the Commissioner, the Bank shall immediately implement the written plan.
   (e) In addition to the requirements of paragraphs 3(a)-(d), the Bank shall comply with the FDIC's Statement of Policy on Risk-Based Capital found in Appendix A to Part 325 of the FDIC Rules and Regulations, 12 C.F.R. Part 325, App. A.
   (f) If all or part of any increase in capital made by the Bank in order to meet the requirements of this paragraph 3 involves an offering, other than an offering deemed not to be a public securities offering pursuant to 17 C.F.R. § 230.506 as currently in effect or as hereafter amended, of the Bank's securities (including a distribution limited only to the Bank's existing shareholders), the Bank shall prepare detailed offering materials fully describing the securities being offered, including an accurate description of the financial condition of the Bank and of this ORDER as well as the circumstances giving rise to the offering, and any other material disclosures necessary to comply with the Federal securities laws. Prior to the sale of the securities, and, in any event not less than {{6-30-93 p.TC-205}}twenty (20) days prior to the dissemination of such materials, the materials used in the sale of the securities shall be submitted to the FDIC, Registration and Disclosure Section, Washington, D.C. 20429, for review. Any changes requested to be made in the materials by the FDIC shall be made prior to their dissemination.
   (g) In complying with the provisions of paragraph 3(f) of this ORDER, the Bank shall provide to any subscriber and/or purchaser of Bank stock, written notice of any planned or existing development or other change which is materially different from the information reflected in any offering materials used in connection with the sale of Bank securities if such development or change occurs or is planned prior to the closing of such offering. The written notice required by this paragraph 3(g) shall be furnished within ten (10) calendar days from the date such material development or change was planned or occurred, whichever is earlier, to every purchaser and/or subscriber of Bank stock who received or was tendered the information contained in the Bank's original offering materials.
   (h) The Bank's Board of Directors shall maintain in its minutes a written record of all actions taken by the Bank to comply with the capital requirements of paragraphs 3(a) through 3(g) of this ORDER, including, at a minimum, any action to increase its Tier 1 capital by each of the methods specified in paragraphs 3(c)(i) through 3(c)(vi) of this ORDER.
Paragraph 4(a) is hereby stricken, and in its stead, is inserted the following:
    4. (a) By March 31, 1993, the Board of Directors shall develop and implement of 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 $150,000 which was classified "Substandard" or "Doubtful," in whole or in part, as of April 20, 1992. The Banks shall add to its written plan of action all borrowers with debt in excess of $150,000 so classified in any subsequent examination. In developing such plan, the Bank shall, at a minimum:
       (i) 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.
Based upon such review and evaluation, the written plan of action shall: (A) set forth a program for the reduction of the aggregate dollar volume of "Substandard" or "Doubtful" classifications by September 30, 1993 and by March 31, 1994; and (B) provide for the submission of written monthly progress reports to the Bank's Board of Directors for review and notation in the Board minutes. Exhibit A to the ORDER 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.
Paragraph 10 is hereby stricken, and in its stead, is inserted the following:
   10. By April 15, 1993, the Bank shall submit a plan of action to reduce Industry Concentrations as noted on pages 2-b of the Examination to less than one-hundred (100.0) percent of Tier 1 capital. For purposes hereof, a single 1 to 4 family residence or land suitable for development only as a single 1 to 4 family residence shall not be deemed to be a "real estate project" if the borrower is not otherwise substantially involved in the business of acquiring, developing, constructing or investing in real estate projects.
Paragraph 13 is hereby stricken, and in its stead, is inserted the following:
13. (a) By December 31, 1992, the Bank shall have corrected the internal routine and controls deficiencies cited on page 6-c of the Examination, and institute procedures to prevent their recurrence.
   (b) By December 31, 1992, the Bank shall have corrected the cited deficiencies in the loans listed for "Special Mention" on pages 2-c of the Examination.
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Paragraph 15 is hereby stricken, and in its stead, is inserted the following:
   15. By December 31, 1992, the Bank shall have eliminated and corrected the violation of law and regulations committed by the Bank as described on pages 6-b of the Examination.
   Following the effective date of this MODIFICATION, the Bank shall send to its shareholders a description of this MODIFICATION, (1) in conjunction with the Bank's next shareholder communication, and also (2) in conjunction with its notice or proxy statement preceding the Bank's next shareholder meeting. The description shall fully describe the MODIFICATION in all material respects. The description and any accompanying communication, statement, or notice shall be sent to the FDIC, Registration and Disclosure Section, Washington, D.C. 20429, for review at least twenty (20) days prior to dissemination to shareholders. Any changes requested to be made by the FDIC shall be made prior to dissemination of the description, communication, notice, or statement.
   This MODIFICATION shall become effective immediately upon its issuance.
   The provisions of the ORDER as modified by this 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 16th day of April, 1993.
   Pursuant to delegated authority.

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