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FDIC Enforcement Decisions and Orders

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{{6-30-93 p.TC-207}}
   [15,657] Docket No. FDIC-92-74b (4-23-93).)

In the Matter of

THE SIWOOGANOCK GUARANTY
SAVINGS BANK

LANCASTER,NEW HAMPSHIRE
(Insured State Nonmember Bank)
MODIFICATION OF THE ORDER
TO CEASE AND DESIST

   The Siwooganock Guaranty Savings Bank, Lancaster, 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), prior to the issuance of the ORDER TO CEASE AND DESIST dated March 24, 1992, Docket No. FDIC-92-74b ("ORDER"), 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 20, 1993, 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 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:
Paragraph 1(a) through 1(c) are hereby stricken and, in their stead, are inserted the following:

       1. (a) By July 1, 1993, the Bank shall continue to have and retain qualified management, including a president. Such officers shall have proven ability in managing a bank of comparable size, and shall be provided the necessary written authority to implement the provisions of this ORDER. 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.
During the life of this ORDER, the Bank shall notify the Regional Director of the FDIC's Boston Regional Office ("Regional Director") and the Commissioner {{4-30-93 p.TC-208}}of the State of New Hampshire Banking Department ("Commissioner") in writing of any changes in management. The notification must include the names and background of any replacement personnel and must be provided prior to the individual's assuming the new position.
   (b) No later than May 30, 1993, the Board of Trustees 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 needed to manage and supervise properly the affairs of the Bank;
       (ii) identification and establishment of such Bank committees as are needed to provide guidance and oversight to active management;
       (iii) evaluation of each Bank office, and particularly in the areas of financial accounting and operations, and staff member 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
       (iv) 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 Trustees 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)(iii) of this ORDER.
   (c) The written management plan shall be submitted to the Regional Director and the Commissioner for review and comment by May 30, 1993. No sooner than thirty (30) days, but under no circumstances more than forty-five (45) days after such submission, the Board of Trustees shall approve the written management plan, taking into consideration any regulatory comments, and such approval shall be recorded in the minutes of the Board of Trustees. Subsequent modifications to the written management 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 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 Trustees, and such approval shall be recorded in the minutes of the Board of Trustees. The Bank, its trustees, officers and employees shall implement and follow the written management plan and any subsequent modification thereto.
Paragraphs 2(a) and 2(b) are hereby stricken and, in their stead, are inserted the following:
    2. (a) No later than April 15 1993, the Bank shall increase its allowance for loan and lease losses ("Reserve") existing as of December 31, 1992 by $300,000 at a minimum.
       (b) Immediately after complying with paragraph 2(a), the Bank shall eliminate from its books, by charge-off or collection, all assets or portions of assets classified "Loss" and fifty (50.0) percent of all assets or portions of assets classified "Doubtful" in the FDIC Report of Examination of the Bank as of January 11, 1993 ("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:
       (d) Reports of Condition and Income required to be submitted by the Bank as of December 31, 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 within ten (10) days from the effective date of this ORDER.
Paragraph 3(a)(i) is hereby stricken and, in its stead, is inserted the following:
    3. (a) (i) By September 30, 1993, the Bank shall have Tier 1 capital at or in excess of six (6.0) percent of the Bank's total {{4-30-93 p.TC-209}}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 thirty (30) 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.
Paragraph 4(a) is hereby stricken and, in its stead, is inserted the following:
   4. (a) No later than April 30, 1993, the Board of Trustees 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 debt owing to the Bank in excess of $100,000 and each parcel of other real estate ("ORE") with book value in excess of $100,000 which debt or ORE was classified "Substandard" or "Doubtful," in whole or in part, as of January 11, 1993. The Bank shall add to its written plan of action loans and ORE in excess of $100,000 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 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; and
       (iii) in the case of ORE, evaluate the property and provide cast/benefit analyses of holding the property versus 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 as of January 11, 1993 as well as any additional assets that are in need of criticism according to internal Bank review; and (B) provide for the submission of written monthly progress reports to the Bank's Board of Trustees for review and notation in the minutes of the Board of Trustees. Exhibit A provides the form for the progress report. 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 New Hampshire Banking Department. 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 paragraph.
   (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 by April 30, 1993. No sooner than thirty (30) days, but under no circumstances more than forty-five (45) days after such submission, the Board of Trustees shall approve the written plan of action, taking into consideration any regulatory comments, and such approval shall be recorded in the minutes of the Board of Trustees. 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 their receipt of the notice of proposed modification. No such modification shall become effective until approved by the Board of Trustees, and such approval shall be recorded in the minutes of the Board of Trustees. The Bank, its trustees, officers and employees shall follow the written plan of action and/or any subsequent modification thereto.
Paragraph 6 is hereby stricken and, in its stead, is inserted the following:
   6. No later than April 30, 1993, the Bank shall revise its written loan policy to address lending through standby letters of credit. The revised written loan policy shall be submitted to the Regional Director and the Commissioner for review and comment within such thirty-day period. No sooner than thirty (30) days, but under no circumstances more than forty-five (45) days after such submission, the Board of Trustees shall approve the revised written loan policy, taking into {{6-30-93 p.TC-210}}consideration any regulatory comments, and such approval shall be recorded in the minutes of the Board of Trustees. 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, 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 Trustees, and such approval shall be recorded in the minutes of the Board of Trustees. The Bank, its trustees, officers, and employees shall follow the revised written loan policy and/or any subsequent modification thereto.
Paragraph 12 is hereby stricken and, in its stead, is inserted the following:
   12. No later than May 30, 1993, the Bank shall eliminate and/or correct all violations of law and regulations committed by the Bank as described on pages 6-a of the Examination.
Paragraph 13 is hereby re-numbered as
paragraph 15 and the following new
paragraphs 13 and 14 are hereby added:
   13. No later than June 30, 1993, the Bank shall develop a comprehensive written audit policy. The written audit policy shall be submitted to the Regional Director and the Commissioner for review and comment within such thirty-day period. No sooner than thirty (30) days, but under no circumstances more than forty-five (45) days after such submission, the Board of Trustees shall approve the written audit policy, taking into consideration any regulatory comments, and such approval shall be recorded in the minutes of the Board of Trustees. Subsequent modifications to the written audit 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 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 Trustees, and such approval shall be recorded in the minutes of the Board of Trustees. The Bank, its trustees, officers, and employees shall follow the written audit policy and/or any subsequent modification thereto.
   14. No later than April 15 1993, the Bank shall amend the Reports of Condition and Income ("Reports") for the period December 31, 1991 through December 31, 1992, inclusive, to reflect proper accounting for ORE and nonaccrual loans. Policies and procedures shall be developed to ensure the proper filing of such Reports in the future.
   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 aspects. The description and any accompanying communication, statement, or notice shall be sent 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 this ORDER shall have been modified, terminated, suspended, or set aside by the FDIC.
   Dated at Westwood, Massachusetts this 23rd day of April, 1993.
   Pursuant to delegated authority.

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