Federal Deposit
Insurance Corporation

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   [¶10,270] In the Matter of Seacoast Savings Bank, Dover, New Hampshire, Docket No. FDIC-91-178b (6-28-91).

   Bank to cease and desist from such unsafe or unsound practices as operating with excessive volumes of adversely classified assets; following hazardous lending and lax collection practices; operating with management whose policies are detrimental to the Bank; operating with inadequate loan documentation; engaging in practices which produce inadequate operating income; failing to provide adequate supervision over the Bank's affairs; operating with inadequate allowance for loan and lease losses; failing to recognize losses in a timely manner; operating with inadequate liquidity; and operating without proper internal audit policy and procedures. (This order was terminated by order of the FDIC dated 8-31-92; see ¶15,513.)

   [.1] Management—Qualifications—Review
   [.2] Management—Management Plan—Minimum Requirements
   [.3] Board of Directors—Election—Outside Directors Added
   [.4] Board of Directors—Meetings—Frequency
   [.5] Assets—Adversely Classified—Eliminate/Reduce
   [.6] Loan Loss Reserve—Establish/Maintain
   [.7] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.8] Loans—Risk Position—Reduction—Written Plans Required
   [.9] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.10] Loan Policy—Written Revision—Minimum Requirements
   [.11] Profit Plan—Minimum Requirements
   [.12] Funds Management—Written Policy Required
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   [.13] Internal Audit—Written Policy Required
   [.14] Shareholders—Disclosure—Cease and Desist Order
   [.15] Loans—Concentrations of Credit—Reduction Plan
   [.16] Compliance Reports—Frequency

In the Matter of

SEACOAST SAVINGS BANK
DOVER, NEW HAMPSHIRE
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

   Seacost Savings Bank, Dover, New Hampshire, ("Bank"), having been advised of its right to a Notice of Charges and of Hearing detailing the unsafe or unsound banking practices 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 of the Federal Deposit Insurance Corporation ("FDIC"), dated June 25, 1991, whereby solely for the purpose of this proceeding and without admitting or denying any unsafe or unsound banking practices, 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. 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:

   (a) operating with an excessive volume of adversely classified assets;
   (b) engaging in hazardous lending and lax collection practices, including maintaining an excessive volume of adversely classified loans;
   (c) operating with management whose policies and practices are detrimental to the Bank;
   (d) operating with deficient or 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;
   (e) engaging in practices which produce inadequate operating income and excessive loan losses;
   (f) failing to provide adequate supervision and direction over the affairs of the Bank to prevent unsafe or unsound practices;
   (g) operating with an inadequate allowance for loan and lease losses ("Reserve") for the volume, kind and quality of loans held;
   (h) failing to recognize losses in a timely manner;
   (i) operating with inadequate liquidity; and
   (j) operating without proper internal audit policy and procedures.

   [.1] 1. (a) Within ninety (90) days from the effective date of this ORDER, the Bank shall have and retain qualified management. At a minimum, such management shall include a Loan Workout Officer with experience in collection and loan supervision for the type and quality of the Bank's loans. Such person 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.

   [.2] (b) In order to have acceptable management, within ninety (90) days from the effective date of this ORDER, the Board of Directors 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 officer, and in particular the loan workout officer, 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 Directors 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.

   [.3] (d) (i) The written management plan shall also include the requirement that the Board of Directors of the Bank, or a committee thereof consisting of not less than a majority of Board members who are independent with respect to the Bank, provide supervision over lending, investment and operating policies of the Bank sufficient to ensure that the Bank complies with the provisions of this ORDER.
   (ii) At the next meeting of the shareholders of the Bank, and at each succeeding meeting of the shareholders at which Bank Directors are to be elected, the members of the Board of Directors who are also shareholders shall nominate and support the election of candidates to the Board of Directors who are independent with respect to the Bank, in such number as is necessary to cause a majority of the Board of Directors to be and to remain independent with respect to the Bank.
   (iii) For purposes of this ORDER, an individual who is "independent with respect to the Bank" shall be any individual (1) who is not an officer of the Bank or any of its affiliated organizations and who does not own more than five (5.0) percent of the outstanding shares of the Bank, (2) who is not related by blood, marriage or common financial interest to an officer of the Bank or to any stockholder owning more than five (5.0) percent of the Bank's outstanding shares, and (3) who is not indebted to the Bank, directly or indi- {{8-31-91 p.C-1144}}rectly (including the indebtedness of any entity in which the individual has a substantial financial interest), in an amount exceeding five (5.0) percent of the Bank's total equity capital and allowance for loan and lease losses.

   [.4] (e) 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.

   [.5] 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 December 31, 1990 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 does not constitute "collection" or "elimination" for the purpose of this paragraph.

   [.6] (b) Thereafter, the Bank shall maintain its Reserve in accordance with the prevailing requirements of the Instructions for the Reports of Condition and Income ("Instructions"). Toward this end, within sixty (60) days from the effective date of this ORDER, the Bank's Board of Directors shall establish a comprehensive policy for determining the adequacy of the Bank's Reserve. The policy shall provide for a review of the Reserve at least once each calendar quarter. The review should focus on the results of the Bank's internal loan review, loan loss experience, trends of delinquent and non-accrual loans, an estimate of potential loss exposure on significant credits, concentrations of credit, and present and prospective economic conditions. Review of other real estate and exposure therein shall be undertaken along the same lines as the aforementioned loan portfolio review. The adequacy of the Reserve in relation to the loss potential in the loan portfolio will be reviewed by the Board of Directors and adjustments to the Reserve will be made accordingly. Details of these reviews will be incorporated into the minutes of the Board of Directors, including the methodology used to determine the adjustments made.
   (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 Reserve, (2) provide for an adequate Reserve, and (3) accurately report the Reserve 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 Reserve, and the basis for determining the amount of allowance provided.

   [.7] 3. (a) (i) During the life of this ORDER, the Bank shall maintain a Tier 1 capital ratio of not less than six (6) percent of the Bank's total assets ("Tier 1 leverage capital ratio"). Toward this end, the Bank shall develop a Capital Plan which will be submitted to the Regional Director and the Commissioner for approval within one hundred and twenty (120) 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 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), off balance sheet items classified loss, liabilities not shown on the Bank's books, estimated losses on con- {{8-31-91 p.C-1145}}tingent 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 date (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 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) 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) 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 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;
   (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.

   [.8] 4. (a) Within ninety (90) 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 which was classified "Substandard" or "Doubtful," in whole or in part, as of December 31, 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.

   [.9] 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 {{8-31-91 p.C-1147}}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.

   [.10] 6. Within sixty (60) days from the effective date of this ORDER, the Bank shall revise its written loan policy, which revision shall include, at a minimum, provisions designed to correct and prevent deficiencies cited on page 6-1 of the Report of Examination dated December 31, 1990. The revised written loan 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 forty-five (45) 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 minutes 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, 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 revised written loan policies and/or any subsequent modification thereto.

   [.11] 7. (a) Within one hundred and twenty (120) days from the effective date of this ORDER, the Bank shall develop a written profit 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 assumptions that form the basis for, and adequately support, major projected income and expense components.

   [.12] 8. (a) Within thirty (30) 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 liquidity needs and plans for insuring that such needs are met on an ongoing basis;
   (ii) goals and strategies for managing and/or improving the Bank's volatile liability dependency
   (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.

   [.13] 9. Within thirty (30) days from the effective date of this ORDER, the Bank shall develop a written internal audit policy which shall provide for adequate internal routines and controls. In addition, the Board shall provide for the implementation of such policy.
   10. The Bank shall not declare or pay any dividends unless:

   (a) such declarations and payments are made in accordance with applicable State and Federal laws and regulations;
   (b) after payment of such dividends, the Tier 1 capital ratio specified in paragraph 3(a)(i) shall not be less than six (6) percent and the Bank's allowance for loan and lease losses shall be adequate as described in paragraph 2 of this ORDER;
   (c) such declaration and payment of dividends shall be approved in advance by the Board of Directors of the Bank; and
   (d) 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.

   [.15] 12. Within sixty (60) days from the effective date of this ORDER, the Bank shall formulate and implement a plan to reduce all concentrations as noted on page 2-b of the FDIC's Report of Examination of the Bank as of December 31, 1990 to less than twenty-five (25.0) percent of total primary capital and allowance for loan and lease losses.

   [.16] 13. 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 28th day of June, 1991.
   Pursuant to delegated authority.