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FDIC Enforcement Decisions and Orders

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   [10,214] In the Matter of Meritor Savings Bank, Horsham Township, Pennsylvania, Docket No. FDIC-91-76bb (4-5-91).

   Written agreement, pursuant to 12 C.F.R. Part 325, whereby Bank agrees to take corrective action and FDIC agrees not to issue a capital directive or to initiate cease and desist or termination of insurance proceedings. (This agreement was terminated by order of the FDIC dated 5-20-93; see15,673.)

   [.1] Capital—Primary Capital—Increase/Maintain
   [.2] Dividends—Restricted
   [.3] Management—Compensation/Bonuses—Restricted
   [.4] Compliance—Progress Reports—Frequency
   [.5] Definition—"Part 325 Written Agreement"

In the Matter of

MERITOR SAVINGS BANK
HORSHAM TOWNSHIP,
PENNSYLVANIA
(Insured State Nonmember Bank)
WRITTEN AGREEMENT PURSUANT
TO PART 325,
12 C.F.R. PART 325

   This Written Agreement ("Agreement") is made and is effective this 5th day of April, 1991 ("Effective Date") by and among Meritor Savings Bank, Horsham Township, Pennsylvania ("Bank"), a state-chartered stock savings bank whose deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") through the Bank Insurance Fund, the Department of Banking of the Commonwealth of Pennsylvania ("Department"), and the FDIC.
   WHEREAS, the Bank has restructured the composition of its assets and liabilities and increased its capital through various actions, including the sale and/or divestiture of certain of the Bank's profitable assets and/or deposits; and
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   WHEREAS, the Bank's board of directors acknowledges that such actions pose a degree of risk which requires that the Bank achieve and sustain capital ratios above the minimum capital requirement set forth in section 325.3(b) of the FDIC's Rules and Regulations, 12 C.F.R. 325.3(b), for banks whose overall financial condition is fundamentally sound, which are well-managed and which have no material or significant financial weaknesses; and
   WHEREAS, in order to induce the FDIC and the Department to terminate the Memorandum of Understanding entered into among the Bank, the Department, and the Regional Director of the New York Region of the FDIC ("Regional Director") on August 2, 1988; and
   WHEREAS, in order to induce the FDIC to defer initiating proceedings pursuant to section 8(a) or section 8(b) of the Federal Deposit Insurance Act, 12 U.S.C. 1818(a) or (b), and to defer issuing a capital directive pursuant to section 325.6 of the FDIC's Rules and Regulations, 12 C.F.R. 325.6, and to induce the Department to defer issuing a written order under section 733-501 of the Department of Banking Code ("Code"), 71 P.S. 733-501, for as long as the Bank is in compliance with the provisions of this Agreement;
   NOW, THEREFORE, the Bank, the Department, and the FDIC agree as follows:

   [.1] 1. Capital Maintenance.

   (a) Upon the Effective Date of this Agreement, the Bank shall have attained a Primary Capital Ratio and a Risk-Based Capital Ratio, as defined in sections 1(b) and 1(c) hereof, of not less than 8.5 percent and 10.5 percent, respectively, and the Bank shall thereafter maintain such Primary Capital Ratio and such Risk-Based Capital Ratio at not less than 8.5 percent and 10.5 percent, respectively, at all times during the term of this Agreement.
   (b) For the purposes of this Agreement, the Bank's Primary Capital Ratio shall be a fraction in which the numerator is (i) primary capital, as defined in section 325.2(h) of the FDIC's Rules and Regulations, 12 C.F.R. 325.2(h), plus (ii) the remaining balance of the goodwill created in conjunction with the Bank's acquisition of the Western Savings Fund Society, Philadelphia, Pennsylvania ("Western"), to the extent recognized by the FDIC ("grandfathered goodwill"), plus (iii) the unpaid balance of the two subordinated notes (Series A and Series B) issued by Western and assumed by the Bank in conjunction with the Bank's acquisition of Western; and the denominator is the Bank's total assets, as defined in section 325.2(k) of the FDIC's Rules and Regulations, 12 C.F.R. 325.2(k).
   (c) For the purposes of this Agreement, the Bank's Risk-Based Capital Ratio shall be a fraction in which the numerator is (i) qualifying capital (Tier 1 capital plus Tier 2 capital), as defined in the FDIC's Statement of Policy on Risk-Based Capital, 12 C.F.R. Part 325, Appendix A, Part I, plus (ii) the grandfathered goodwill, to the extent recognized by the FDIC; and the denominator is the Bank's risk-weight assets, as defined in the FDIC's Statement of Policy on Risk-Based Capital, 12 C.F.R. Part 325, Appendix A, Part II.
   (d) The terms of this paragraph 1 shall be renegotiated if, by reason of any act of Congress, the Bank may no longer consider grandfathered goodwill as a capital component, or if other changes affecting the calculation of the Primary and/or Risk-Based Capital Ratios are made by reason of any act of Congress which, in the opinion of the FDIC, materially detract from the bank's ability to carry out the terms of this paragraph. Without limiting the forgoing, a material impact would occur if any changes in the method of calculation of the Primary and/or Risk-Based Capital Ratios mandated by any such act of Congress would cause the bank's Primary and/ or Risk-Based Capital Ratios to decline by 100 or more basis points.

   [.2] 2. Dividends.

   While this Agreement is in effect, the Bank shall not declare or pay any dividends, whether in cash, stock or otherwise, on its common stock, unless written notice of the Bank's intention to declare or pay dividends is received by both the Regional Director and the Department at least 30 days prior to any such declaration or payment, and neither the Regional Director (or his delegatee) nor the Department object in writing to the declaration or payment of any such dividend during such prior notice period.
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   [.3] 3. Executive Officer Compensation.

   While this Agreement is in effect, the Bank shall not increase the compensation, including but not limited to salary and bonus payments, of any of its executive officers, unless a written notice which expressly indicates the basis for such adjustment in compensation is received by both the Regional Director and the Department at least 30 days prior to any such declaration or payment, and neither the Regional Director (or his delegatee) nor the Department object in writing to the declaration or payment of any such compensation during such prior notice period; provided, however, that no notice shall be required prior to an increase which is a cost of living adjustment which does not exceed the ratio of (i) the average of the monthly Consumer Price Index for All Urban Consumers (CPU-1), U.S. City Average, All Items, for the twelve-month period ending the most recently available month prior to the proposed increase, over (ii) such average for the comparable twelve-month period ending the same month of the prior year, and which increase is granted in general to employees and officers of the Bank, including executive officers. For the purposes of this Agreement, the term "executive officer" shall include the chairman of Meritor Financial Group, the president of the Bank, the executive vice-presidents of the Bank, the senior vice-presidents of the Bank, the director of the wholesale banking division of the Bank, the director of credit and portfolio management of the Bank, and any other officers of the Bank who in the future hold positions of similar responsibility.

   [.4] 4. While this Agreement is in effect, the Bank shall provide to the Department and the Regional Director quarterly progress reports by no later than the 27th day of the month following the close of each calendar quarter. The reports shall, at a minimum, contain a comparative earnings performance analysis for the Bank for the previous quarter and year-to-date, including narrative discussions of significant variances from the budgeted monthly and yearly amounts. These reports shall also contain a schedule showing the current status, including book balance, of assets classified in the most recent report of examination of the Bank by the FDIC, and shall provide narrative discussions regarding intended disposition of assets, including the aggregate amount of assets of related parties, with balances exceeding $10,000,000.
   For the purposes of this Agreement, all references to Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325, and to any section or subsection thereof, shall mean such Part, section, or subsection as in effect on the Effective Date of this Agreement.
   All technical words or terms used in this Agreement for which meanings are not specified or otherwise provided by the provisions of this Agreement shall, insofar as applicable, have meanings as defined in or ascertainable from the context of Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325, and any such technical words or terms used in this Agreement not so defined or ascertainable shall have meanings that are consistent with those contained in or ascertainable from the FDIC or Department reports of examination of the Bank, and/or the Rules, Regulations and Policies of the FDIC and/or the Department, or, if the meaning of any such technical words or terms used in this Agreement cannot be determined by reference to said reports of examination, Rules, Regulations, or Policies, then they shall have meanings in accordance with the best custom and usage in the banking industry in the Commonwealth of Pennsylvania.

   [.5] This Agreement has been duly authorized, executed and delivered, and constitutes, in accordance with its terms, a valid and binding obligation of the Bank. It is understood and agreed that this Agreement is a "written agreement" as that term is defined and referred to in Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325, a "written agreement entered into between the insured depository institution and the Corporation" as that term is used in section 8(a) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. 1818(a), a "written Agreement entered into with the agency" as that term is used in section 8(b) of the Act, 12 U.S.C. 1818(b), and a "written agreement between the depository institution and such agency" as that term is used in section 8(i) of the Act, 12 U.S.C. 1818(i), and is enforceable by actions and proceedings pursuant to sections 8(a), 8(b), and/or 8(i) of the Act.
   The provisions of this Agreement shall be binding upon the Department and the FDIC and any of their successors in interest and upon the Bank, its successors, assigns, directors, officers, employees, agents, and other institution-affiliated parties, as defined in section 3(u) of the Act, 12 U.S.C. 1813(u).
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   The provisions of this Agreement shall remain effective and enforceable, except to the extent, and until such time as, any provisions of this Agreement shall have been modified by the Department and the FDIC upon the written request of the Bank, or terminated, suspended, or set aside by the Department and the FDIC, whether upon the request of the Bank or otherwise.
   Upon the Effective Date of this Agreement, the Memorandum of Understanding entered into among the Bank, the Department, and the Regional Director on August 2, 1988, shall be terminated.
   Nothing contained in this Agreement shall limit the ability of the Department, or the Board of Directors of the FDIC or its delegatees, from taking such further supervisory action, including but not limited to actions or proceedings pursuant to sections 8(a), 8(b), or 8(i) of the Act or section 733-501 of the Code, as they may deem appropriate under the circumstances.
   IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written, by their duly authorized officer or designated agent. A certified copy of the resolution of the board of directors of the Bank authorizing the execution of this Agreement is attached hereto and made a part hereof.

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