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   [15,582] Docket No. FDIC-92-29b (12-30-92)

In the Matter of

FRAMINGHAM SAVINGS BANK
FRAMINGHAM, MASSACHUSETTS
(Insured State Nonmember Bank)
MODIFICATION OF THE ORDER
TO CEASE AND DESIST

   Framingham Savings Bank, Framingham, 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), prior to the issuance of the ORDER TO CEASE AND DESIST dated January 30, 1992, Docket No. FDIC-92-29b ("ORDER"), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF A MODIFICATION TO THE ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") with counsel for the Federal Deposit Insurance Corporation ("FDIC"), dated December 17, 1992, 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 a MODIFICATION OF THE ORDER TO CEASE AND DESIST ("MODIFICATION") by the FDIC.
   The FDIC accepted the CONSENT AGREEMENT and hereby modifies the ORDER TO CEASE AND DESIST as follows:
Paragraphs 2(a) and (b) are hereby stricken and, in their stead, is inserted the following:

    2. (a) By January 15, 1993, the Bank shall have added $2,200,000 at a minimum to its allowance for loan and lease losses ("Reserve") existing as of June 30, 1992.
       (b) Immediately after complying with paragraph 2(a), the Bank (1) shall eliminate from its books, by charge-off or collection, all assets or portions of assets classified "Loss" in the FDIC Report of Examination of the Bank as of July 27, 1992 ("Examination") which have not been previously collected or charged off; 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, add to Reserve 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 loans to qualified third party borrowers, does not constitute "collection" or "elimination" for the purpose of this paragraph.
Paragraph 2(d) is hereby stricken and, in its stead, is inserted the following:
    2. (d) 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, 1992 and September 30, 1992, shall, at a minimum, reflect a Reserve that should have been maintained in accordance with the Instructions. If necessary to comply with this paragraph 2(d), the Bank shall file amended Reports of Condition and Income by January 15, 1993.
Paragraph 3 is hereby stricken and, in its stead, is inserted the following:
    3. (a)
      (i) By March 31, 1993, the Bank shall have Tier 1 capital at or in excess of four (4.0) percent of the Bank's total assets ("Tier 1 leverage capital ratio") and thereafter shall continue to maintain its Tier 1 leverage capital ratio at or in excess of such level until March 31, 1994; by March 31, 1994, the Bank shall have a Tier 1 leverage capital ratio at or in excess of five (5.0) percent and thereafter shall continue to maintain its Tier 1 leverage capital ratio at or in excess of such level until September 30, 1994; by September 30, 1994, the Bank shall have a Tier 1 leverage capital ratio at or in excess of six (6.0) percent 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 revise its Capital Plan which will be submitted to the Regional Director and the Commissioner for approval by February 2, 1993.
      {{2-28-93 p.TC-174}}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 paragraphs 2(a) and (b) 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 retention of earnings and profits;
         (ii) the sale of new offerings of common stock or perpetual preferred stock;
         (iii) the collection of all or part of assets classified "Loss" within the Examination without loss or liability to the Bank. Reductions to loans 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 six (6.0) percent Tier 1 leverage capital ratio specified in paragraph 3(a)(i), such ratio declines below six (6.0) percent, the Bank, within sixty (60) 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. § 230.506 as currently in effect 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 devel- {{2-28-93 p.TC-175}} opment or other change which is materially different from the information reflected in any offering materials used in connection with the sale of Bank securities if such development or change occurs or is planned prior to the closing of such offering. 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.
Paragraph 4(a) is hereby stricken, and in its stead, is inserted the following:
    4. (a) By January 21, 1993, the Board of Directors shall develop and implement a written plan of action to lessen the Bank's risk position with respect to each borrower who or which had outstanding principal debt owing to the Bank in excess of $500,000 and each parcel of other real estate with book value in excess of $500,000 which was classified "Substandard" or "Doubtful," in whole or in part, as of July 27, 1992. The Bank shall add to its written plan of action loans and other real estate in excess of $500,000 which are so classified in any subsequent examination. In developing such plan, the Bank shall, at a minimum:
         (i) in the case of loans: review the financial position of each such borrower, including source or 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;
         (iii) in the case of other real estate: evaluate the property and provide cost/ benefit analyses of holding the property verses current liquidation value.
    Based upon such review and evaluation, the written plan of action shall: (A) establish target dollar levels to which the Bank shall reduce the aggregate dollar volume of "Substandard" or "Doubtful" classifications by May 30, 1993 and November 30, 1993; (B) provide for the submission of written quarterly progress reports to the Bank's Board of Directors for review and notation in the Board minutes (Exhibit A provides the form for the progress report); and (C) provide for the submission of written monthly summary progress Reports to the Board of Directors for review and notation in the Board minutes. 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 and the Massachusetts Department of Banking. Payment of loans with the proceeds of 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.
Paragraph 6 is hereby stricken, and in its stead, is inserted the following:
    6. (a) By February 21, 1993, the Bank shall have revised its written loan policies and manuals to include, at a minimum:
         (i) limitations on the amount of overdrafts to a single borrower;
         (ii) limitations on the aggregate amount of overdrafts to all customers;
         (iii) limitations on the maximum volume of loans to total assets; and
         (iv) collection policies and procedures for the administration of commercial loans.
       (b) The revised written loan policy shall be submitted to the Regional Director and the Commissioner for review and comment by February 21, 1993. 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 revised written loan policy, taking into consideration any regulatory comments, and such approval shall be recorded in the minu- {{2-28-93 p.TC-176}} tes of the Board of Directors. Subsequent modifications to the revised written loan policy may be made only after giving the Regional Director and the Commissioner written notice of the 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 Board of Directors shall consider any comments submitted by the Regional Director and/or the Commissioner within thirty (30) days from their receipt of the notice of proposed modification. The Bank, its Directors, officers, and employees shall follow the revised written loan policies and/or any subsequent modification thereto.
Paragraph 11 is hereby stricken, and in its stead, is inserted the following:
   11. By January 21, 1993, the Bank shall eliminate and correct the remediable violations of law and regulations committed by the Bank as described on pages 6-a through 6-a-5 of the Examination and the Bank shall establish written controls and procedures to ensure compliance with applicable law and regulations.
Paragraph 12 is hereby stricken, and in its stead, is inserted the following:
   12. By January 21, 1993, the Bank shall correct the internal routine and controls deficiencies cited on page 6-b of the Examination, and institute procedures to prevent their recurrence.
Paragraph 14 is hereby re-numbered as paragraph 15 and the following new paragraph 14 is hereby added:
    14. (a) By February 21, 1993, the Bank shall have revised its written investment policy to include, at a minimum:
         (i) guidelines providing for a review process prior to purchases; and
         (ii) definition of authorizations concerning the Bank's trading account.
       (b) The revised written investment policy shall be submitted to the Regional Director and the Commissioner for review and comment by February 21, 1993. 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 revised written investment 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 revised written investment policy may be made only after giving the Regional Director and the Commissioner written notice of the 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 Board of Directors shall consider any comments submitted by the Regional Director and/or the Commissioner within thirty (30) days from their receipt of the notice of proposed modification. The Bank, its Directors, officers, and employees shall follow the revised written loan policies and/or any subsequent modification thereto.
   Following the effective date of this MODIFICATION, the Bank shall send to its shareholders a description of this MODIFICATION, (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 MODIFICATION 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.
   This MODIFICATION shall become effective immediately upon its issuance.
   The provisions of the ORDER as modified by this MODIFICATION shall be binding upon the Bank and its institution-affiliated parties.
   This MODIFICATION has been reviewed and concurred in by the Commissioner.
   The provisions of the ORDER as modified by this MODIFICATION shall remain effective and enforceable except to the extent that, and until such time as, any provisions of the ORDER shall have been further modified, terminated, suspended, or set aside by the FDIC.
   Dated at Westwood, Massachusetts this 30th day of December, 1992.
   Pursuant to delegated authority.

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