Federal Deposit
Insurance Corporation

{{2-28-95 p.C-2092}}
   [¶10,484] In the Matter of East Bridgewater Savings Bank, East Bridgewater, Massachusetts, Docket No. FDIC-92-71b (3-27-92).

   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 inadequate capital; operating in violation of applicable laws or regulations; 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 submit Reports of Condition and Income in accordance with instructions; operating with inadequate policies; operating with excessive interest rate risk exposure; operating without proper internal routine and controls; operating with inadequate risk diversification; operating with inadequate accounting procedures; and operating without a code of conduct. (This order was terminated by order of the FDIC dated 12-20-94; see ¶15,946.)

   [.1] Management—Qualifications—Review
   [.2] Management—Management Plan—Minimum Requirements
   [.3] Allowance for Loan and Lease Losses—Establish/Maintain
   [.4] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.5] Loans—Risk Position—Reduce—Written Plan Required
   [.6] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.7] Loans—Overdue—Accrual of Interest
   [.8] Loan Policy—Written Revision—Minimum Requirements
   [.9] Profit Plan—Minimum Requirements
   [.10] Funds Management—Written Policy Required
   [.11] Investment Policy—Revision—Minimum Requirements
   [.12] Strategic Plan—Preparation Required
   [.13] Violations of Law—Eliminate/Correct
   [.14] Call Reports—Correct Deficiencies
   [.15] Technical Exceptions—Eliminate/Correct
   [.16] Loans—Concentrations of Credit—Reduction Plan
   [.17] Loans—Special Mention—Correct Deficiencies
   [.18] Compliance Reports—Frequency

{{5-31-92 p.C-2093}}
In the Matter of

EAST BRIDGEWATER SAVINGS
BANK
EAST BRIDGEWATER,
MASSACHUSETTS
(Insured State Nonmember Bank)
ORDER TO CEASE
AND DESIST

   East Bridgewater Savings Bank, East Bridgewater, 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), 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 March 17, 1992, whereby solely for the purpose of this proceeding, and without admitting or denying any allegations or implications of fact or existence of any unsafe or unsound banking practice, violation of law or regulation, the Bank consented to the issuance of this 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:

   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. section 1813(u), to the extent such parties are subject to this ORDER pursuant to the Act) cease and desist from the following unsafe or unsound banking practices and violations of law and/or regulations:

   (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 inadequate equity capital for the kind and quality of assets held;
   (d) engaging in violations of MGLc. 167E, §§ 2B(13) and 6(5)(b) and 12 C.F.R. § 326.4;
   (e) operating with management whose policies and practices are detrimental to the Bank;
   (f) operating with deficient or inadequate loan documentation, including but not limited to current financial statements, title opinions, appraisals, and operating/rental information;
   (g) engaging in practices which produce inadequate operating income and excessive loan losses;
   (h) failing to provide adequate supervision and direction over the affairs of the Bank to prevent unsafe or unsound practices and violations of law and/or regulations;
   (i) operating with an inadequate allowance for loan losses for the volume, kind and quality of loans held;
   (j) failing to submit Reports of Condition and Income in accordance with prevailing instructions;
   (k) operating with inadequate policies;
   (l) operating with excessive interest rate risk exposure;
   (m) operating without proper internal routine and controls;
   (n) operating with inadequate risk diversification;
   (o) operating with inadequate accounting procedures;
   (p) operating without a code of conduct.

   [.1] 1. (a) Within one hundred twenty
{{5-31-92 p.C-2094}}(120) days from the effective date of this ORDER, the Bank shall have and retain qualified management. At a minimum, such management shall include a president/ chief executive officer with proven ability in managing a bank of comparable size, a chief financial officer/treasurer with proven ability in financial planning, budgeting, gap management and familiarity with generally accepted accounting principles as well as regulatory reporting, and a senior lending officer with an appropriate level of lending, collection and loan supervision experience for the type and quality of the Bank's loans. Such persons 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 thirty (30) days from the effective date of this ORDER, the Board of Trustees or an authorized committee thereof whose activities shall be subject to ratification by the full Board of Trustees at the next meeting shall cause to be developed 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 at the rank of Assistant Vice President or above, and in particular the President/ Chief Executive Officer, Treasurer and Vice President-Mortgages, 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.

   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, (2) who is not related by blood, marriage or common financial interest to an officer of the Bank, and (3) who is not indebted to the Bank, directly or indirectly (including the indebtedness of any entity in which the individual has a substantial financial interest), in an amount exceeding the greater of $200,000.00 or five (5.0) percent of the Bank's total equity capital and allowance for loan losses.

   [.3] 2. (a) Within ten (10) days from the effective date of this ORDER, the Bank shall increase (by recovery and/or provisions) its allowance for loan losses ("Reserve") existing as of June 30, 1991 by $450,000 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 (other than securities) classified "Doubtful" in the FDIC's Report of Examination of the Bank as of July 1, 1991 ("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 to qualified third party borrowers, does not constitute "collection" or "elimination" for the purpose of this paragraph.
   (c) 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 ninety (90) days after the new President/ CEO selected pursuant to Article 1 of this ORDER takes office, but in no event more than one hundred eighty (180) days from the effective date of this ORDER, the Bank's Board of Trustees or an authorized committee thereof whose actions shall be subject to ratification by the full Board of Trustees at the next meeting 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, among other things, 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. The adequacy of the Reserve in relation to the loss potential in the loan portfolio will be reviewed by the Board of Trustees or an authorized committee thereof, whose actions shall be subject to the ratification by the full Board of Trustees at the next meeting and adjustments to the Reserve will be made accordingly. Details of these reviews will be incorporated into the minutes of the Board of Trustees, including the methodology used to determine the adjustments made. Review of other real estate and exposure therein shall be undertaken along the same lines as the aforementioned loan portfolio review.
   (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, 1991 and the effective date of this ORDER, shall, at a minimum, reflect a Reserve that should have been main- {{5-31-92 p.C-2096}}tained 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 sixty (60) days after the new President/CEO selected pursuant to Article 1 of this ORDER takes office, but in no event more than one hundred fifty (150) days from the effective date of this ORDER.

   [.4] 3. (a) (i) Immediately upon the effective date of this ORDER, the Bank shall have Tier 1 capital at or in excess of five and one-half (5.5) percent of the Bank's total assets ("Tier 1 leverage capital ratio") and within nine (9) months from the effective date of this ORDER shall have a Tier 1 Leverage Capital ratio at or in excess of five and three-quarter (5.75) percent, and within fifteen (15) months from the effective date of this ORDER 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 develop a Capital Plan which will be submitted to the Regional Director and the Commissioner for approval within ninety (90) days after the new President/CEO selected pursuant to Article 1 of this ORDER takes office, but in no event more than one hundred eighty (180) 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 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.

   (i) the sale of new offerings of common stock or perpetual preferred stock;
   (ii) 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 Trustees' or authorized committee's (whose activities were ratified by the full Board of Trustees), 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;
   (iii) the collection in cash of assets previously charged off;
   (iv) any combination of the above means; or
   (v) any other means acceptable to the Regional Director and the Commissioner.

   [.5] 4. (a) Within ninety (90) days after the new President/CEO selected pursuant to Article 1 of this ORDER takes office, but in no event more than one hundred eighty (180) days from the effective date of this ORDER, the Board of Trustees shall cause to be developed 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 July 1, 1991. 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.

   [.6] 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 Trustees 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 either individually or as part of the Bank's workout plan for such borrower. A written record of the Board of Trustees' 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 Trustees or committee. Notwithstanding the foregoing, nothing in this paragraph 5 shall prevent the Bank from funding legally binding credit commitments that the Bank had made and which were outstanding prior to the effective date of this ORDER.

   [.7] 6. The Bank shall not accrue interest on any loan that is, or becomes, ninety (90) days or more delinquent as to principal or interest, unless the loan is both well secured and in the process of collection. For purposes of this paragraph 6, "well secured" and "in the process of collection" shall have the same meaning as those terms have in the prevailing Instructions for the Reports of Condition and Income. Within five (5) days after the effective date of this ORDER, the Bank shall have reversed on its books all previously accrued but uncollected interest on any loan that has ceased to accrue interest pursuant to this provision.

   [.8] 7. (a) Within ninety (90) days after the new President/CEO selected pursuant to Article 1 of this ORDER takes office, but in no event more than one hundred eighty (180) days from the effective date of this ORDER, the Bank shall revise its written loan policy, which revision shall include, at a minimum:
   the lending authority of each loan officer;
   the lending authority of a loan or executive committee, if any;

   (iii) the responsibility of the Board of Trustees the Board of Investment and authorized committees thereof whose actions shall be subject to ratification by the full Board of Trustees at the next meeting in reviewing, ratifying and approving loans;
   (iv) a description of the types of loans offered as well as specific guidelines under which credit will be extended including but not limited to unsecured loans;
   (v) the guidelines for rates of interest and terms of repayment for all loans;
   (vi) with regard to secured loans: (1) limitations on the amount advanced in relation to the value of the collateral, and (2) the documentation required by the Bank for each type of secured loan including but not limited to outside appraisals in conformance with FDIC Rules and Regulations Part 323;
   (vii) the maintenance and review of complete and current credit files on each borrower including but not limited to the maintenance and documented analysis of current financial statements and the determination and documentation of sources and terms of loan repayment;
   (viii) appropriate and adequate collection procedures, including, but not limited to, the actions to be taken against borrowers who fail to make timely payments, and delineated responsibility for the collections process;
   (ix) guidelines establishing limitations on the maximum volume of loans in relation to total assets as well as a delineated lending area;
   (x) appropriate limitations on extension of credit through overdrafts and cash items;
   (xi) procedures and guidelines establishing a loan grading system;
   (xii) retention of lien searches and appraisals covering personal property and liens on real estate;
   (xiii) maintenance of written, individual loan file comments by officers;
   (xiv) provisions addressing the capitalization of accrued and unpaid interest on loans;

   (xv) procedures regarding designation of nonaccrual loans;
   (xvi) procedures for identifying, supervising, and collecting problem loans;
   (xvii) monthly review of the overdue, problem and/or adversely classified or special mention loans by the Board of Trustees, so as to monitor management's administration of such distressed credits, and to provide guidance;
   (xviii) guidelines for loans originated for sale on the secondary market;
   (xix) accounting guidelines for in substance foreclosures;
   (xx) provisions requiring prior Board approval for any changes in borrowers loan terms;
   (xxi) guidelines requiring specific documentation in regard to construction loans prior to each advance aimed at insuring that funds are used for the purpose for which they are intended;
   (xxii) guidelines establishing limitations as to concentrations of credit and loans to one borrower;
   (xxiii) procedures for Board supervision of management's compliance with established loan policy.

   [.9] 8. (a) Within ninety (90) days after the new President/CEO selected pursuant to Article 1 of this ORDER takes office, but in no event more than one hundred eighty (180) 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 Trustees 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.

   [.10] 9. (a) Within sixty (60) days after the new President/CEO selected pursuant to Article 1 of this ORDER takes office, but in no event more than one hundred fifty (150) 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 interest rate risk exposure;
   (iii) deposit and loan pricing strategies; and
   (iv) coordination of the Bank's loan, investment, operating, and budget and profit planning policies with the written funds management policy.

   [.11] 10. Within thirty (30) days after the new President/CEO selected pursuant to Article 1 of this ORDER takes office, but in no event more than one hundred twenty (120) days from the effective date of this ORDER, the Bank shall develop a written investment policy consisting of goals and strategies for maintaining and/or improving the quality of the Bank's investment portfolio. The policy should also include guidelines for portfolio diversification in order to limit concentrations of investments dependent upon one particular industry. The written investment 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 Trustees shall approve the written investment policy, taking into consideration any written comments on such policy which the Bank shall have received from the Regional Director or the Commissioner, and such approval shall be recorded in the minutes of the board. Subsequent modifications to the written investment policy may be made only after giving the Regional Director and the Commissioner written notice of the proposed modification, and after consideration of any written comments on such proposal which the Bank shall have received from 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 investment plan and/or any subsequent modification thereto.

   [.12] 11. (a) Within ninety (90) days after the new President/CEO selected pursuant to Article 1 of this ORDER takes office, but in no event more than one hundred eighty (180) days from the effective date of this ORDER, the Bank shall develop a written strategic plan outlining long and short term goals and strategies for bank operations.
   (b) The written strategic plan 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 Trustees shall approve the written strategic plan, taking into consideration any written comments on such plan which the Bank shall have received from the Regional Director or the Commissioner, and {{5-31-92 p.C-2101}} such approval shall be recorded in the minutes of the Board of Trustees. Subsequent modifications to the written strategic plan may be made only after giving the Regional Director and the Commissioner written notice of the proposed modification, and after consideration of any written comments on such modification which the Bank shall have received from 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 strategic plan and/or any subsequent modification thereto.

   [.13] 12. Within sixty (60) days after the new President/CEO selected pursuant to Article I of this ORDER takes office, but in no event more than one hundred fifty (150) days from the effective date of this ORDER, the Bank shall eliminate and/or correct all remediable apparent violations of law and regulations described on page 6-a of the FDIC's Report of Examination of the Bank as of July 1, 1991.

   [.14] 13. Within sixty (60) days after the new President/CEO selected pursuant to Article 1 of this ORDER takes office, but in no event more than one hundred fifty (150) days from the effective date of this ORDER, the Bank shall correct the call reporting deficiencies cited on page 1-6 of the FDIC's Report of Examination of the Bank as of July 1, 1991 and file amended call reports reflecting such corrections.

   [.15] 14. (a) Within sixty (60) days after the new President/CEO selected pursuant to Article 1 of this ORDER takes office, but in no event more than one hundred fifty (150) days from the effective date of this ORDER, the Bank shall correct the all remediable technical exceptions on loans noted on pages 2-e through 2-e-1 of the FDIC's Report of Examination of the Bank as of July 1, 1991.

   [.16] (b) Within sixty (60) days after the new President/CEO selected pursuant to Article 1 of this ORDER takes office, but in no event more than one hundred fifty (150) days from the effective date of this ORDER, the Bank shall formulate and implement a plan to reduce all concentrations as noted on pages 2-b through 2-b-1 of the FDIC's Report of Examination of the Bank as of July 1, 1991.

   [.17] (c) Within sixty (60) days after the new President/CEO selected pursuant to Article 1 of this ORDER takes office, but in no event more than one hundred fifty (150) days from the effective date of this ORDER, the Bank shall correct the remediable cited deficiencies in the loans listed for "Special Mention" on pages 2-c through 2-c-1 of the FDIC's Report of Examination of the Bank as of July 1, 1991.
   (d) Within sixty (60) days after the new President/CEO selected pursuant to Article 1 of this ORDER takes office, but in no event more than one hundred fifty (150) days from the effective date of this ORDER, the Bank shall correct the internal routine and control deficiencies cited on pages 1-6 and 6-b of the FDIC's Report of Examination of the Bank as of July 1, 1991.

   [.18] 15. Within thirty (30) days after the new President/CEO selected pursuant to Article 1 of this ORDER takes office, but in no event more than one hundred fifty (150) 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 Trustees 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 (to the extent such parties are subject to this ORDER pursuant to the Act).
   This ORDER has been reviewed and concurred in by the Commissioner.
   The provisions of this ORDER shall remain effective and enforceable except to the {{5-31-92 p.C-2102}} 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 27th day of March, 1992.
   Pursuant to delegated authority.