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FDIC Enforcement Decisions and Orders

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   [15,764] Docket No. FDIC-91-220b (12-9-93)

In the Matter of

PEPPERELL TRUST COMPANY
BIDDEFORD, MAINE
(Insured State Nonmember Bank)
MODIFICATION OF THE ORDER
TO CEASE AND DESIST

   Pepperell Trust Company, Biddeford, Maine ("Bank"), having been advised of its right to a Notice of Charges and of Hearing ("Notice") detailing the unsafe or unsound banking practices and violations of law and/or regulations alleged to have been committed {{2-28-94 p.TC-251}}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 July 26, 1991, Docket No. FDIC-91-220b ("ORDER"), and having been advised of its right to receive a Notice detailing the FDIC's factual support which forms the basis for modifying the ORDER, and of its right to a hearing on such alleged charges under section 8(b)(1) of the Act, 12 U.S.C. § 1818(b)(1), and Part 308 of the FDIC's Rules of Practice and Procedures, 12 C.F.R. Part 308, 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 of the Federal Deposit Insurance Corporation ("FDIC"), dated November 17, 1993, whereby solely for the purpose of his 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:
Paragraph 2(b) is hereby stricken and, in its stead, is inserted the following:

       2. (b) Within ten (10) days of the effective date of this MODIFICATION 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 June 7, 1993, and any subsequent Reports of Examination, ("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.
Paragraphs 4(a) and (b) are hereby stricken and, in their stead, are inserted the following:    4. (a) 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 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 $150,000 which was classified "Substandard" or "Doubtful", in whole or in part as of June 7, 1993, he Banks hall 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 cost/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 the Examination 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 Directors for review and notation in the minutes of the Board of Directors. 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 Bureau of Banking of the State of Maine. 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 Superintendent for review and comment within thirty (30) days from the effective date of {{2-28-94 p.TC-252}}this ORDER. 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, 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 Superintendent written notice of the proposed modification, and after consideration of any responsive comments submitted by the Regional Director and/or the Superintendent 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 plan of action and/or any subsequent modification thereto.
Paragraph 10 (d) is hereby added:
    10. (d) Within sixty (60) days from the effective date of this ORDER, the Bank shall formulate and implement a plan to correct the Internal Routine and Control deficiencies noted on page 6-b of the Examination.
Paragraph 12 is hereby renumbered as paragraph 14 and the following new paragraphs 12 and 13 are hereby added:
   12. Within sixty (60) days from the effective date of this ORDER, the Bank shall develop a written audit policy. The written audit policy shall be submitted to the Regional Director and the Superintendent for review and comment within such thirty-day period. 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 audit 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 audit policy may be made only after giving the Regional Director and the Superintendent written notice of the proposed modification, and after consideration of any responsive comments submitted by the Regional Director and/or the Superintendent 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 audit policy and/or any subsequent modification thereto.
   13. Within sixty (60) days from the effective date of this ORDER, the Bank shall develop a written ethics/conflicts of interest policy. The written ethics/conflicts of interest policy shall be submitted to the Regional Director and the Superintendent for review and comment within such thirty-day period. 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 ethics/conflicts of interest 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 ethics/conflicts of interest policy may be made only after giving the Regional Director and the Superintendent written notice of the proposed modification, and after consideration of any responsive comments submitted by the Regional Director and/or the Superintendent 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 ethics/conflicts of interest policy and/or any subsequent modification thereto.
   14. 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 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.
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   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 Superintendent.
   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 modified, terminated, suspended, or set aside by the FDIC.
   Dated at Westwood, Massachusetts this 9th day of December, 1993.
   Pursuant to delegated authority.

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