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{{1-31-93 p.C-1043}}

   [10,243] In the Matter of Durfee Attleboro Bank, Fall River, Massachusetts, Docket No. FDIC-91-142b (6-4-91).

   Bank to cease and desist from such unsafe or unsound practices as operating with an excessive volume of adversely classified assets; operating with inadequate allowance for loan and lease losses; operating with inadequate capital; engaging in unsafe and unsound lending and collection policies; operating with inadequate liquidity; paying excessive cash dividends; operating with inadequate loan documentation; and operating in violation of applicable laws or regulations. (This order was terminated by order of the FDIC dated 11-12-92; see ¶15,555.)

   [.1] Assets—Adversely Classified—Eliminate/Reduce
   [.2] Allowance for Loan and Lease Losses—Increase/Maintain
   [.3] Capital—Tier 1 Capital—Increase
   [.4] Loans—Risk Position—Reduction Required
   [.5] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.6] Funds Management—Written Policy Required
   [.7] Dividends—Restricted
   [.8] Technical Exceptions—Eliminate/Correct
   [.9] Violations of Law—Eliminate/Correct
   [.10] Compliance Reports—Frequency

In the Matter of

DURFEE ATTLEBORO BANK
FALL RIVER, MASSACHUSETTS
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

   Durfee Attleboro Bank, Fall River, Massachusetts ("Bank"), having been advised of its right to a Notice of Charges and of {{1-31-93 p.C-1044}}Hearing detailing the (a) unsafe or unsound banking practices and (b) violations of law and/or regulations as described on pages 6-a-1 through 6-a-4 of the Federal Deposit Insurance Corporation's Report of Examination of the Bank as of July 16, 1990, 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 May 16, 1991, whereby solely for the purpose of this administrative proceeding and without admitting or denying any alleged unsafe or unsound banking practices or alleged 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:

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 and violations of law and/or regulations, as specified and detailed in the Report of Examination of the Bank as of July 16, 1990:

       (a) operating with an excessive volume of adversely classified assets;
       (b) operating with an inadequate allowance for loan and lease losses for the volume, kind and quality of loans held;
       (c) operating with inadequate capital for the kind and quality of assets held;
       (d) engaging in unsafe and unsound lending and collection practices, including maintaining an excessive volume of adversely classified loans;
       (e) operating with inadequate liquidity and an inadequate asset/liability management policy;
       (f) paying excessive cash dividends in relation to the Bank's net income and/or capital position;
       (g) operating with inadequate loan documentation, including but not limited to current financial statements, insurance coverage, title searches or legal opinions, and cash flow and/or operating information; and
       (h) engaging in violations of applicable laws and regulations;
   IT IS FURTHER ORDERED, that the Bank and its institution-affiliated parties take the affirmative action set forth in Paragraphs 1 through 10 below. However, solely for purposes of enforcement of this ORDER by the FDIC pursuant to section 8(i) of the Act, 12 U.S.C. § 1818(i), the Bank will not be deemed to have engaged in any of the unsafe or unsound banking practices or violations of law and/or regulation described in paragraphs (a) through (h) above, except to the extent the Bank is not in compliance with said paragraphs 1 through 10 below:

   [.1] 1. 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 July 16, 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 July 16, 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 loans to qualified third party borrowers, does not constitute "collection" or "elimination" for the purpose of this paragraph.

   [.2] 2. (a) Within thirty (30) days from the effective date of this ORDER, the Bank shall have increased its allowance for loan and lease losses existing as of July 16, 1990 by $3,692,500 at a minimum. Thereafter, the Bank shall maintain an allowance for loan and lease losses 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 June 30, 1990 and the effective date of this ORDER, shall, at a minimum, reflect {{8-31-91 p.C-1045}} an allowance for loan and lease losses that should have been maintained in accordance with the Instructions. If necessary to comply with this paragraph 2(b), the Bank shall file amended Reports of Condition and Income within ten (10) 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 allowance for loan and lease losses, (2) provide for an adequate allowance, and (3) accurately report the allowance 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 allowance, and the basis for determining the amount of allowance provided.

   [.3] 3. (a) (i) Within twelve (12) and twenty-four (24) months from the effective date of this ORDER, the Bank shall have Tier 1 capital at or in excess of five and one-half (5.5) and six (6.0) percent of the Bank's total assets ("Tier 1 leverage capital ratio"), respectively, and shall continue to maintain its Tier 1 leverage capital ratio at or in excess of such levels 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 term "Tier 1 capital" means the sum of common stockholders' equity, noncumulative perpetual preferred stock (including any related surplus), and minority interests in consolidated subsidiaries, minus all intangible assets other than mortgage servicing rights (to the extent that such rights are allowance as capital in Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325, as existing on the date of the issuance of the ORDER and as hereinafter amended), off balance sheet items classified loss, liabilities not shown on the Bank's books, estimated losses on contingent liabilities, differences in accounts which represent shortages, any other losses identified subsequent to the Examination which have either not been recognized on the Bank's books or have not been collected or otherwise settled, and investments in securities subsidiaries subject to 12 C.F.R. § 337.4.
   (iii) For purposes of this ORDER, the term "total assets" means the average of total assets required to be included in the Bank's "Reports of Condition and Income," as this report may from time to time be revised, as of the most recent report data (and after making any necessary subsidiary adjustments as described in 12 C.F.R. § 325.5(d) and (e) of the FDIC's Rules and Regulations in effect as of the date of the issuance of this ORDER), minus intangible assets other than mortgage servicing rights (to the extent that such rights are allowable as capital in Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325, as existing on the date of the issuance of the ORDER and as hereinafter amended) and any other assets that are deducted in determining Tier 1 capital.
   (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-c) 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 sale of new offerings of common stock or perpetual preferred stock;
       (ii) the direct contribution of cash by Bank's directors;
       (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 {{8-31-91 p.C-1046}} 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;
       (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 ratios specified in paragraph 3(a)(i), such ratios decline below five and one-half (5.5) and six (6.0) percent, respectively, 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 the specified ratio within ninety (90) 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 ninety (90) days from the effective date of this ORDER, the Board of Directors shall develop a written plan of action of lessen the Bank's risk position in each extension of credit aggregating $100,000 or more which was classified "Substandard" or "Doubtful" as of July 16, 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: (A) estab- {{2-28-93 p.C-1047}}lish target dollar levels to which the Bank shall reduce the aggregate dollar volume of those transactions classified as "Substandard" or "Doubtful" as of July 16, 1990, within six (6) and twelve (12) months from 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 is the form to be used for this purpose]. 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. Payment of loans with the proceeds of the 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.
   (b) The written plan of action described by paragraph 4(a) 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 sixty (60) days after such submission, the Board of Directors shall approve the written plan of action, taking into consideration any regulatory comments received prior to such approval, 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 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 plan of action and/or any subsequent modification.

   [.5] 5. The Bank shall not extend additional credit to, 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" in the FDIC's Report of Examination as of July 16, 1990, 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. Notwithstanding the foregoing provisions, this Order shall not require such approvals by the Board of Directors for extensions of credit made pursuant to legally binding contractual commitments entered into by the Bank prior to the effective date of this Order.

   [.6] 6. (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:

       (i) the Bank's anticipated liquidity needs and plans for insuring that such needs are met on an ongoing basis;
       (ii) goals and strategies for continued management of the Bank's interest rate risk exposure;
       (iii) monitoring of the interest rate sensitivity of present investments and deposits and projections of the types of investments and deposits to improve such liquidity position; and
       (iv) coordination of the Bank's loan, investment, operating, and budget and profit planning policies with the written funds management policy.
   (b) The written funds management 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 more than sixty (60) days after such submission, the Board of Directors shall approve the written funds management policy, taking into consideration any regulatory comments, and such approval shall be recorded in the minutes of the Board of Directors. Subsequent modifications to the written funds management policy may be made only after giving the Regional Director and the Commissioner written no- {{2-28-93 p.C-1048}}tice of the proposed modification, and after consideration of any responsive comments submitted by the Regional Director and/or the Commissioner 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 funds management policy and/or any subsequent modification thereto.

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

   [.8] 8. Within ninety (90) days from the effective date of this ORDER, the Bank shall correct the remediable technical exceptions on loans noted on pages 2-e of the FDIC's Report of Examination of the Bank as of July 16, 1990.

   [.9] 9. Within sixty (60) days from the effective date of this ORDER, the Bank shall eliminate and/or correct all remediable violations of law and regulations committed by the Bank as described on pages 6-a-1 through 6-a-4 of the FDIC's Report of Examination of the Bank as of July 16, 1990.

   [.10] 10. 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.
   Dated at Needham, Massachusetts this 4th day of June, 1991.
   Pursuant to delegated authority.

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