Federal Deposit
Insurance Corporation

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   [¶10,151] In the Matter of Granite Co-operative Bank, Quincy, Massachusetts, Docket No. FDIC-90-263b (12-10-90).

   Bank to cease and desist from operating with excessive volume of adversely classified assets; engaging in hazardous lending and lax collection practices; operating with inadequate equity capital; operating with inadequate reserve for loan and lease losses; engaging in violations of applicable laws and regulations; operating with management whose practices are detrimental to the Bank; failing to provide adequate supervision and direction over the affairs of the Bank; operating without an adequate business plan; operating with inadequate loan documentation; engaging in practices which produce inadequate income and excessive losses; operating with inadequate liquidity; failing to account properly for transactions; and failing to submit Reports of Condition and Income as required. (This order was terminated by order of the FDIC dated 1-30-92; see ¶ 15,382.)

   [.1] Management—Qualifications
   [.2] Management—Management Plan—Minimum Requirements—Review
   [.3] Board of Directors—Committee to Review Compliance
   [.4] Board of Directors—Election—Independent Directors
   [.5] Assets—Adversely Classified—Eliminate/Reduce
   [.6] Capital—Capital Structure—Written Plan Required—Review
   [.7] Capital—Primary Capital—Increase/Maintain—Methods
   [.8] Loan Loss Reserve—Increase/Maintain
   [.9] Loans—Risk Position—Written Plan—Minimum Requirements— Review
   [.10] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.11] Loan Policy—Revision—Minimum Requirements
   [.12] Business Plan—Written Plan Required—Review
   [.13] Profit Plan—Minimum Requirements—Review
   [.14] Funds Management Policy—Minimum Requirements—Review
   [.15] Investment Policy—Requirements—Review
   [.16] Technical Exceptions—Correct
   [.17] Loans—Concentrations of Credit—Reduce
   [.18] Loans—Special Mention—Correct Deficiencies
   [.19] Violations of Law—Correct
   [.20] Dividends—Restricted
   [.21] Brokered Deposits—Acceptance Limited
   [.22] Shareholders—Disclosure—Cease and Desist Order
   [.23] Compliance—Progress Reports—Frequency

In the Matter of

GRANITE CO-OPERATIVE BANK
QUINCY, MASSACHUSETTS
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

   Granite Co-operative Bank, Quincy, Massachusetts ("Bank"), 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 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), 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 29, 1990, 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 by virtue of the Bank's consent to the entry of this ORDER, the Bank consented to the is- {{2-28-91 p.C-689}}suance 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 Bank had engaged in unsafe or unsound banking practices and had violated laws and/or regulations. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

   IT IS HEREBY ORDERED, that the Bank and its 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 of law and/or regulations:

   (a) operating with an excessive volume of adversely classified assets;
   (b) engaging in hazardous lending and lax collection practices, including maintaining an excessive volume of adversely classified loans;
   (c) operating with inadequate equity capital for the kind and quality of assets held;
   (d) operating with an inadequate reserve for loan and lease losses for the volume, kind and quality of loans held;
   (e) engaging in violations of applicable laws and regulations;
   (f) operating with management whose practices are detrimental to the Bank;
   (g) failing to provide adequate supervision and direction by the Board of Directors over the affairs of the Bank to prevent unsafe or unsound practices and violations of law and/or regulations;
   (h) operating without an adequate business plan;
   (i) operating with deficient or inadequate loan documentation, including but not limited to current financial statements and operating information;
   (j) engaging in practices which produce inadequate operating income and excessive loan losses;
   (k) operating with inadequate liquidity and an excessive liability dependence ratio;
   (l) failing to account properly for transactions; and
   (m) failing to submit Reports of Condition and Income in accordance with prevailing instructions.

   [.1] 1. (a) Within one hundred and twenty (120) days from the effective date of this ORDER, the Bank shall have and retain qualified management. The qualifications of management shall be assessed on its ability to:

   (i) comply with the requirements of this ORDER,
   (ii) operate the Bank in a safe and sound manner.
   (iii) comply with applicable laws and regulations, and
   (iv) restore all aspects of the Bank to a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness and liquidity.

   [.2] (b) Toward this end, within ninety (90) days from the effective date of this ORDER, the Board of Directors shall develop 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 need- {{2-28-91 p.C-690}}ed to manage and supervise properly the affairs of the Bank;
   (ii) identification and establishment within a specified period of such Bank committees as are needed to provide guidance and oversight to active management;
   (iii) development of an organizational chart including definitions of duties;
   (iv) evaluation of each Bank officer and department head 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
   (v) 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)(iv) of this ORDER.

   [.3] (d) (i) The written management plan shall also include the requirement that the Board of Directors of the Bank, or a committee thereof consisting of not less than five members, a majority of whom shall be independent with respect to the Bank, provide supervision over lending, investment and operating policies of the Bank sufficient to ensure that the Bank complies with the provisions of this ORDER.

   [.4] (ii) At the next meeting of the shareholders of the Bank, and at each succeeding meeting of the shareholders at which Bank directors are to be elected, the members of the Board of Directors who are also shareholders shall nominate and support the election of candidates to the Board of Directors who are independent with respect to the Bank, in such number as is necessary to cause a majority of the Board of Directors to be and to remain independent with respect to the Bank.

   (iii) For purposes of this ORDER, an individual who is "independent with respect to the Bank" shall be any individual (1) who is not an officer of the Bank or any of its affiliated organizations (except that for the purpose of this paragraph, the positions of Chairman and Vice Chairman of the Board, and Clerk shall not be considered to be officers of the Bank) and who does not own more than five (5.0) percent of the outstanding shares of the Bank, (2) who is not related by blood, marriage or common financial interest to an officer of the Bank or any of its affiliated organizations or to any stockholder owning more than five (5.0) percent of the Bank's outstanding shares, and (3) who is not indebted to the Bank, 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 Bank's total equity capital and allowance for loan and lease losses.
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   [.5] 2. Within ten (10) days from the effective date of this ORDER, the Bank: (1) shall eliminate from its books, by charge-off or collection, all assets or portions of assets classified "Loss" as of June 4, 1990; 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 allowance for loan and lease losses by an amount equal to fifty (50.0) percent of those assets or portions of assets classified "Doubtful" as of June 4, 1990, 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 parties, does not constitute "collection" or "elimination" for the purpose of this paragraph.

   [.6,.7] 3. (a) The Bank shall operate within a capital structure sufficient in relation to the composition and quality of its assets and funding liabilities, and in accordance with Part 325 of the FDIC's Rules and Regulations. Toward this end, the Bank will develop a capital plan which will be submitted to the Regional Director and Commissioner for approval within ninety (90) 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, restriction of asset growth, and asset sales to produce a ratio of primary capital to total assets ("primary capital ratio") of at least eight (8.0) percent, with stated timetables in which to attain this goal, not to exceed three (3) years from the effective date of this ORDER. The Capital Plan shall be deemed approved by the Regional Director and the Commissioner unless written notice to the contrary from either is received by the Bank within sixty (60) days from the Bank's submission of the Plan. For purposes of this ORDER, the terms "primary capital" and "total assets" are as defined in Part 325 of the FDIC's Rules and Regulations. Any increase in primary capital may be accomplished by the following:

   (i) the sale of new offerings of common stock or perpetual preferred stock;
   (ii) the sale or transfer of existing shares by the Bank's shareholders to individuals who will contribute the required increase in primary capital to the Bank;
   (iii) the direct contribution of cash by the shareholders and/or directors of the Bank;
   (iv) the collection of all or part of assets classified: (A) "Loss" as of June 4, 1990, without loss or liability to the Bank, or (B) "Doubtful" as of June 4, 1990, without further or additional loss or liability to the Bank, provided any collection on such assets shall first be applied to that portion of the asset which was not charged off pursuant to paragraph 2 of this ORDER. Reductions to loans and leases classified "Loss" and "Doubtful" shall first be credited to the Bank's reserve for loan and lease losses ("reserve") and, if the Board of Directors' review of the adequacy of the reserve required by paragraph 4 of this ORDER indicates that such reserve has a balance in excess of that required for adequacy, any such excess may be transferred to equity capital through a negative provision for loan and lease losses:
   (v) the collection in cash of assets previously charged off:
   (vi) any combination of the above means; or
   (vii) any other means acceptable to the Regional Director and Commissioner.

   [.8] 4. (a) Within thirty (30) days of the effective date of this ORDER and after complying with paragraph 2 of the ORDER, the Bank's Board of Directors shall increase the reserve for loan and lease losses by $329,000 over the level existing at June 4, 1990, at a minimum, and thereafter require that the reserve for loan and lease losses is maintained in accordance with the prevailing requirements of the Instructions for the Reports of Condition and Income ("Instructions").
   (b) 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 December 31, 1989 and the effective date of this ORDER, shall, at a minimum, reflect a reserve for loan and lease losses that should have been maintained in accordance with the Instructions. If necessary to comply with this paragraph 4(b), the Bank shall file amended Reports of Condition and Income within twenty (20) days from the effective date of this ORDER.
   (c) 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 for loan and lease losses, (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 reserve provided.

   [.9] 5. (a) Within ninety (90) days from the effective date of this ORDER, the Board of Directors shall develop a written plan of action designed to lessen the Bank's risk position in each loan or other extension of credit, other real estate parcel or joint venture aggregating $100,000 or more which was classified "Substandard" or "Doubtful" as of June 4, 1990. In developing such plan, the Bank shall, at a minimum:

   (i) review the financial position of each such borrower or project, including source of repayment, repayment ability, and alternative repayment sources;
   (ii) evaluate the available collateral for each such credit, including possible actions to improve the Bank's collateral position; and

   (iii) evaluate the alternatives for liquidating and/or converting other real estate to earning assets.

   [.10] 6. The Bank shall not extend, directly or indirectly, or renew credit to, or for the benefit of, any borrower who has a loan or other extension of credit with the Bank that has been charged off or classified, in whole or in part, "Loss," "Doubtful," or "Substandard," and is uncollected, unless a majority of the Bank's Board of Directors first (1) determines that such advance is in the best interest of the Bank, (2) determines that the Bank has satisfied the requirements set out in paragraph 5 of this ORDER as to such borrower, and (3) approves such advance. A written record of the Board of Directors' determination and approval of any advance under the terms of this paragraph 6 shall be maintained in the credit file of the affected borrower(s) as well as the minutes of the Board of Directors.

   [.11] 7. Within ninety (90) days from the effective date of this ORDER, the Bank shall review the Bank's written loan policy and shall record the results of such review in the Board of Directors' minutes. Thereafter, the Bank, its directors, officers, and employees shall follow the written loan policy. Particular attention should be given to the following:

   (i) the maintenance and review of complete and current credit files on each borrower, including current financial statements;
   (ii) appropriate and adequate collection procedures, including, but not limited to, the actions to be taken against borrowers who fail to make timely payments in accordance with original repayment schedule;
   (iii) the determination and documentation of sources and terms of loan repayment;
   (iv) limitations on the amount advanced in relation to the value of the collateral, and documentation required by the Bank for each type of secured loan;
   (v) guidelines establishing limitations on the maximum volume of loans by type in relation to total assets;
   (vi) procedures to adequately monitor advances on real estate construction loans, such that for each stage of development there exists loan docu- {{2-28-91 p.C-694}}mentation in sufficient detail to evidence that the loan proceeds have been used for the specific purpose intended;
   (vii) procedures for obtaining and reviewing appraisals on real property, in accordance with the Interagency Guidelines for Real Estate Appraisal Policies and Review Procedures;
   (viii) procedures which will ensure that the Bank requires a prudent margin of collateral protection on its secured extensions of credit;
   (ix) periodic review of the overdue, problem and/or adversely classified or special mention loans by the directorate, so as to monitor management's administration of such distressed credits, and to provide guidance; and
   (x) procedures to provide a framework of banking objectives, credit criteria and lending guidelines for the overall prudent credit administration of the bank.

   [.13] 9. (a) Within ninety (90) days from the effective date of this ORDER, the Bank shall develop a written profit plan consisting of goals and strategies for improving the earnings of the Bank, which written profit plan shall include, at a minimum:

   (i) identification of the major areas in, and means by, which the Board of Directors will seek to improve the Bank's operating performance;
   (ii) realistic and comprehensive budgets;
   (iii) a budget review process to monitor the income and expenses of the Bank to compare actual figures with budgetary projections; and
   (iv) a description of the operating assumptions that form the basis for the major projected income and expense components.

   [.14] 10. (a) Within ninety (90) days from the effective date of this ORDER, the Bank shall develop a written funds management policy which shall include, at a minimum, provisions addressing:

   (i) the Bank's liquidity needs and plans designed to insure that such needs are met on an ongoing basis;
   (ii) goals and strategies for managing and/or reducing the Bank's interest rate risk exposure;
   (iii) monitoring of the interest rate sensitivity of present investments and deposits/borrowings and projections of the types of investments and deposits/borrowings to improve such liquidity position;
   (iv) coordination of the Bank's loan, investment, operating, and budget and profit planning policies with the written funds management policy; and
   (v) communication to the Bank's Board of Directors on an ongoing basis of all major funds management decisions.

   [.15] 11. Within ninety (90) days from the effective date of this ORDER, the Bank shall develop a written investment policy consisting of goals and strategies for improving the investments of the Bank including maturity distributions, quality parameters and guidance for the administration of the securities portfolio. The written investment policy shall be submitted to the Regional Director and the Commissioner for review and comment. No sooner than thirty (30) days, but under no circumstances later than forty-five (45) days after such submission, the Board of Directors shall approve the written investment policy, taking into consideration any comments made in writing to the Bank by the Regional Director or Commissioner within such thirty (30) day period, and such approval shall be recorded in the minutes of the board. Subsequent modifications proposed by the Bank to the 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 in writing by the Regional Director and/or the Commissioner within thirty (30) days from such submission 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 investment policy and/or any subsequent modification thereto.

   [.16] 12. (a) Within sixty (60) days from the effective date of this ORDER, the Bank shall correct the remediable technical exceptions on loans noted on pages 2-e through 2-e-1 of the FDIC Report of Examination of the Bank as of June 4, 1990.

   [.17] (b) Within ninety (90) days from the effective date of this ORDER, the Bank shall formulate and commence to implement a plan to reduce all concentrations of credit as noted on page 2-c of the FDIC Report of Examination of the Bank as of June 4, 1990 to less than {{2-28-91 p.C-696}}twenty-five (25.0) percent of total equity capital and reserve for loan and lease losses.

   [.18] (c) Within sixty (60) days from the effective date of this ORDER, the Bank shall correct the cited deficiencies in the loans listed for "Special Mention" on pages 2-b through 2-b-1 of the FDIC Report of Examination of the Bank as of June 4, 1990.

   [.19] 13. Within forty-five (45) days from the effective date of this ORDER, the Bank shall develop and begin to implement, and thereafter shall complete the implementation of, a program acceptable to the Regional Director and Commissioner for correcting or addressing all violations of law and regulations committed by the Bank as described on pages 6-a through 6-a-2 of the FDIC Report of Examination of the Bank as of June 4, 1990. In addition, the Bank shall take all necessary steps to ensure future compliance with all applicable laws and regulations.

   [.20] 14. The Bank shall not pay or declare any dividends without the prior written consent of the Regional Director and the Commissioner.

   [.21] 15. Pursuant to section 337.6 of the FDIC's Rules and Regulations, 12 C.F.R. § 337.6, the Bank shall not accept, renew or rollover any brokered deposits except upon specific application to, and waiver of, the prohibition by the FDIC.

   [.22] 16. Following the effective date of this ORDER, the Bank shall send to its shareholders a description of this ORDER, (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 ORDER 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.

   [.23] 17. Within thirty (30) days from the effective date of this ORDER, and, thereafter, within thirty (30) days from the end of each calendar quarter, the Bank shall furnish written progress reports to the Regional Director and the Commissioner detailing the form and manner of any action taken to secure compliance with this ORDER and the results thereof. In addition, the Bank shall furnish such reports on request of either the Regional Director or the Commissioner. All progress reports and other written responses to this ORDER shall be reviewed by the Board of Directors of the Bank and made a part of the minutes of the Board meeting.
   This ORDER shall become effective ten (10) days from the date of its issuance.
   The provisions of this ORDER shall be binding upon the Bank and its institution-affiliated parties.
   This ORDER has been reviewed and concurred in by the Commissioner.
   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 at Needham, Massachusetts this 10th day of December 1990.