* Ignored lending safeguards and exceeded the legal lending limits for loans to a single borrower in three separate cases, for which loans totaled $11.5 million.
* Exceeded the limit for loans to officers and violated regulations on overdrafts to officers.
* Invested $14.9 million, or nearly 30 percent of its assets, in loans that are now classified as substandard, doubtful or losses. This total includes the $11.5 million to three borrowers.
Regulators refused to discuss the loans.
Michael Markovitz, a director, stockholder and spokesman for the board of the closed bank, said directors had hoped the regulators would reconsider the classification of some loans.
"Subsequent information suggested there might be substantial recoveries on loans which had previously been classified," he said.
As for the loans to officers, he said, "There was no evidence of self- dealing by any of the outside directors or Mr. Bennett.
There were two, three, maybe four loans to directors of the bank, all under $100,000." Stephen H. Bennett was bank chairman.
Markovitz said he could not comment on any loans to Seth Gardner, who resigned as president of the bank in December.
He and other directors were surprised by the timing of the takeover. They had been negotiating with regulators since Dec. 27, when the state banking department gave them 15 days to come up with a plan to raise $5 million to balance the books and additional funds for the reserve against loan losses.
The regulators finally rejected the plan because they said the bank had been unable to come up with the necessary money.
On Saturday the bank reopened as a branch of the Wilmington Trust Co. The Federal Deposit Insurance Co. has made whole the deposits under $100,000 and sold some of the bank's assets to the Wilmington Trust. The federal agency now has the task of disposing of the remaining assets.
"We were shocked," said James S. Herr, a director and chairman of Herr Foods in Nottingham.
"We had been working with the FDIC for three months but didn't know we were going to be closed down. We couldn't meet their capital requirement.
"The loan classifications weren't up to their standards. We were working, trying to correct the situation, but it's hard to sell property and get the money in quickly enough. It seems like this is something that is happening all over the country."
Markovitz said the bank needed more time to deal with a large loan.
"One loan was the reason for the closing, the loan to Houran Trading Co.," Markovitz said. "That was something that just should not have happened."
Gardner quit in December after bank examiners found he was responsible for ''excessive concentration" of loans to Houran Trading Co. of Union City, N.J., and its affiliates. Houran had overdrawn its account by $2.4 million and had given the bank a note to cover the bounced checks. That sum represented 5 percent of the bank's assets.
The note remains unpaid, and the FDIC is expected to pursue a suit filed by the bank in U.S. District Court in Philadelphia to recover the money.
On Monday Richard Scheff, an attorney for the bank, had said, "The litigation will go forward, full steam ahead." On Tuesday, Scheff was told the FDIC would hire another firm to handle the suit.
Markovitz said the delays of one arm of the government and the haste of another may have pushed the bank over the edge. On Feb. 7, the bank's attorneys paid $1,300 to U.S. Marshals in New Jersey to serve writs freezing Houran's assets. Those writs have yet to be served.
The writs would have allowed the bank to seize cash, real estate, equipment and other assets.
"Somebody like Houran Construction Co. has equipment," Scheff said. ''Once the marshal seizes it, it can't be used."
Typically, writs are powerful legal weapons, he said. "There is enormous
pressure on the owner. If you want to be in business, you pay the judgment. If not, say goodbye to your business."
Although bank officials attempted to delay the required publication of their annual financial statement because of the Houran snafu, state regulators would not be deterred.
On Feb. 19, the bank's statement of condition showed the bank was deeply in the red, with negative capital of $3.2 million.
"At that point, it might be only a matter of time before analysts, consumers or depositors panicked and then there was an even greater risk," said Stephanie Maurer, department spokeswoman.