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FDIC Enforcement Decisions and Orders

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   [10,222] In the Matter of Amoskeag Bank, Manchester, New Hampshire, Docket No. FDIC-91-116b (4-19-91).

   Bank to cease and desist from operating with an excessive volume of adversely classified assets; operating with inadequate capital; operating in violation of laws and regulations; and operating with inadequate liquidity. (This order was terminated by order of the FDIC dated 10-17-91; see15,344.)

   [.1] Board of Directors—Meetings—Frequency—Written Record Required
   [.2] Assets—Adversely Classified—Eliminate/Reduce
   [.3] Capital—Capital Plan—Written Plan—Minimum Requirements
   [.4] Loans—Risk Position—Reduce
   [.5] Loans—Extensions of Credit—Existing Borrowers—Limits
   [.6] Profit Plan—Written Plan Required
   [.7] Funds Management—Policy Revision Required
   [.8] Dividends—Restricted
   [.9] Compliance—Progress Reports—Frequency

In the Matter of

AMOSKEAG BANK
MANCHESTER, NEW HAMPSHIRE
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

   Amoskeag Bank, Manchester, New Hampshire ("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 April 11, 1991, 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 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:
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ORDER TO CEASE AND DESIST

   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:

       (a) operating with an excessive volume of adversely classified assets;
       (b) operating with inadequate capital for the kind and quality of assets held;
       (c) engaging in violations of applicable laws and regulations; and
       (d) operating with inadequate liquidity.
   IT IS FURTHER ORDERED, that the bank and its institution-affiliated parties take affirmative action as follows:

   [.1] 1. The Bank's Board of Directors shall meet at least monthly. The Board shall prepare in advance and shall follow a detailed written agenda at each meeting, which shall include consideration of actions of any committees. A chronological file of all written agendas shall be maintained. Notwithstanding the foregoing, the Board shall not be precluded from considering matters other than those contained in the agenda. Detailed written minutes of all Board meetings shall be maintained and recorded on a timely basis.

   [.2] 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" in the May 21, 1990 FDIC Report of Examination ("Examination"); 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.

   [.3] 3. (a) (i) On or before December 31, 1992, the Bank shall increase Tier 1 capital to not less than six (6.0) percent of the Bank's total assets ("Tier 1 leverage capital ratio") and 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 will be submitted to the Regional Director and the 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, 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 paragraph 2 of this ORDER. Thereafter, such ratio and its component parts shall be determined only after the Bank has made such additions to its allowance for loan and lease losses ("Reserve") so as to bring the Reserve into compliance with the prevailing requirements of the Instructions for the Reports of Condition and Income ("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 sale of new offerings of common stock or perpetual preferred stock;
       (ii) the direct contribution of cash by the directors of the Bank;
       (iii) the collection of all or part of assets classified "Loss" within the Examinations without loss or liability to the Bank. Reductions to loans and leases 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 of that required for adequacy, any such excess may be transferred to equity capital through a negative provision to the Reserve;
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       (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 six (6.0) percent Tier 1 leverage capital ratio called for in paragraph 3(a)(i), such ratio declines below six (6.0) percent, the Bank, within thirty (30) 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 six (6.0) percent within sixty (60) 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. section 230.506 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 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. 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.

   [.4] 4. (a) Within sixty (60) days from the effective date of this ORDER, 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 balance of debt owing to the Bank of $500,000 or more which was classified "Substandard" or "Doubtful" in whole or in part as of May 21, 1990. 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 also: (A) establish a plan by which the Bank shall reduce the aggregate dollar volume of "Substandard" or "Doubtful" loan classifications to not more than $100,000,000 within one hundred and eight (180) days of the effective date of this ORDER and $60,000,000 within two hundred and forty {{6-30-91 p.C-987}}(240) days of the effective date of this order; 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 provides one form for the progress report, although some other format which provides the same information as Exhibit A will be acceptable.
   (b) Within thirty (30) days from the effective date of this ORDER, the Board of Directors shall develop a written plan of action to lessen the Bank's position in other real estate owned as of May 21, 1990. In developing such plan, the Bank shall: (A) establish a plan by the Bank shall reduce the aggregate dollar volume of other real estate owned to not more than $40,000,000 within one hundred and eighty (180) days of the effective date of this ORDER, and other real estate owned classified "Substandard" or "Doubtful" to not more than $25,000,000 within two hundred and forty (240) days of the effective date of this ORDER; 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.
   (c) As used in paragraphs 4(a) and 4(b), "reduce" means to (1) collect, (2) charge off, or (3) improve the quality of such asserts so as to warrant removal of any adverse classification by the FDIC. Payment of loans with the proceeds of the other loans made by the Bank, other than to qualified third party borrowers, will not constitute "reduction" or "collection" for purposes of this ORDER.
   (d) The written plans of action described by paragraph 4(a) and 4(b) shall be submitted to the Regional Director and the Commissioner for review and comment. No sooner than thirty (30) days, but under no circumstances more than forty-five (45) days after such submission, the Board of Directors shall approve the written plans of action, taking in to consideration any regulatory comments made in writing to the Bank by the Regional Director or the Commissioner within such thirty (30) day period, and such approval shall be recorded in the minutes of the Board of Directors. Subsequent modifications to the written plan 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 in writing within thirty (30) days from the 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 plans of action and/or any subsequent modifications.
   (e) The requirements of paragraphs 4(a) and 4(b) are not to be construed as standards for future operations. In addition, the Bank shall eventually reduce the total of all adversely classified assets.

   [.5] 5. The Bank shall not extend or renew, directly or indirectly, 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 4 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 5 shall be maintained in the credit file of the affected borrower(s), as well as the minutes of the Board of Directors.

   [.6] 6. (a) Within thirty (30) days from the effective date of this ORDER, the Bank shall develop a written policy 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 as-
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    sumptions that form the basis for, and adequately support, major projected income and expense components.
   (b) The written profit plan shall be submitted to the Regional Director and the Commissioner for review and comment. No sooner than thirty (30) days, but under no circumstances more than forty-five (45) days after such submission, the Board of Directors shall approve the written profit plan, taking into consideration any regulatory comments made in writing to the Bank by the Regional Director or Commissioner within thirty (30) days, and such approval shall be recorded in the minutes of the Board of Directors. Subsequent modifications to the written profit plan 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 in writing 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 profit plan and/or any subsequent modification thereto.

   [.7] 7. (a) Within thirty (30) days from the effective date of this ORDER, the Bank shall revise its written funds management policy with a goal toward increasing its liquidity ratio to at least ten (10.0) percent by June 30, 1991. The policy shall include, at a minimum:

       (i) the Bank's liquidity needs and plans for insuring that such needs are met on an ongoing basis, including a contingency plan for dealing with unforeseen deposit withdrawals; and
       (ii) coordination of the Bank's loan, investment, operating, and budget and profit planning policies with the written funds management policy.
   (b) The computation of the liquidity ratio specified in paragraph 7(a) shall be determined in accordance with the procedures outlined in the "Liquidity and Funds Management" schedule, page 5-a of the FDIC Report of Examination.

   [.8] 8. The Bank shall not declare or pay any dividends unless:

       (i) such declarations and payments are made in accordance with applicable State and Federal laws and regulations;
       (ii) after payment of such dividends, the Tier 1 capital ratio shall not be less than six (6.0) percent and the Bank's allowance for loan and lease losses shall be adequate;
       (iii) such declaration and payment of dividends shall be approved in advance by the Board of Directors of the Bank; and
       (iv) such declaration and payment of dividends shall be approved in advance, in writing, by the Regional Director and the Commissioner, which approval shall not be unreasonably withheld.

   [.9] 9. Within thirty (30) days from the end of the next calendar quarter, and thereafter, within thirty (30) days from the end of each succeeding 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.
   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 19th day of April, 1991.

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