Attached files
file | filename |
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8-K - SMITHTOWN BANCORP INC | v172782_8k.htm |
EX-99.2 - SMITHTOWN BANCORP INC | v172782_ex99-2.htm |
EX-99.1 - SMITHTOWN BANCORP INC | v172782_ex99-1.htm |
EX-99.4 - SMITHTOWN BANCORP INC | v172782_ex99-4.htm |
EXHIBIT
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THE
SUPERINTENDENT OF BANKS OF THE STATE OF NEW YORK
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In
the Matter of
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BANK OF SMITHTOWN | ) | ISSUED UPON CONSENT |
SMITHTOWN, NEW YORK | ) |
PURSUANT
TO SECTION 39
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OF
THE NEW YORK
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) | BANKING LAW | |
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WHEREAS, in recognition of their common goals to ensure
compliance with all
applicable federal and state laws, rules and regulations, and the conduct of
safe and sound banking operations by Bank of Smithtown (the “Bank”), an
institution chartered by the New York State Banking Department (the
“Department”), the deposits of which are insured by the Federal Deposit
Insurance Corporation (the “FDIC”), the Department and the Bank have mutually
agreed to enter into this Order (“Order”); and
WHEREAS, the FDIC recently completed a
Report of Examination reflecting examination of the Bank as of June 30, 2009
(“ROE”); and
WHEREAS, as a result of the ROE, the
Department and the FDIC identified certain supervisory concerns relating to the
conduct of the Bank’s business, including unsafe and unsound banking practices
and violations of law and/or regulations alleged to have been committed by the
Bank; and
WHEREAS, the Superintendent of Banks of
the State of New York (the “Superintendent”) is concerned that the Bank’s
operations were not conducted in a safe and sound manner; and
WHEREAS, the Superintendent possesses
the authority under New York Banking Law (“Banking Law”) Section 39 to issue an
order to the Bank to address supervisory concerns regarding
unlawful and unsafe practices; and
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WHEREAS, the Superintendent believes
that the issuance of this Order is necessary to address the supervisory concerns
with respect to the Bank; and
WHEREAS, on January 29, 2010, the Board
of Directors (the “Board”) of the Bank, at a duly constituted meeting, adopted a
resolution (the “Resolution”):
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1.
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Authorizing
and directing Chairman and CEO, Bradley E. Rock, to enter into this Order
on behalf of the Bank, and to consent to compliance on behalf of the Bank
with each and every provision of this
Order;
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2.
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Waiving
any and all rights to judicial review of this
Order;
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3.
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Waiving
any and all rights to challenge or contest the validity, effectiveness,
terms or enforceability of the provisions of this
Order.
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NOW, THEREFORE, without the Bank
admitting or denying any findings of fact or conclusions of law, and without
this Order constituting an admission of wrongdoing or an adoption, approval or
admission of any allegation made by the Department, and pursuant to the
aforesaid resolution:
IT IS HEREBY ORDERED, pursuant
to Section 39 of the Banking Law, that the Bank, its institution-affiliated
parties, as that term is defined in section 3(u) of the Federal Deposit
Insurance Act (the “Act”), 12 U.S.C. § 1813(u), and its successors and assigns,
take the following affirmative actions:
BOARD PARTICIPATION
AND
SUPERVISION
1. Within 30
days from the effective date of this Order, the Board shall increase its
participation
in the affairs of the Bank and assume full responsibility for the approval of
sound policies
and objectives for compliance with this Order and for the supervision of Bank
management and all the Bank’s activities, including but not limited to asset
growth, loan administration, credit analysis, internal loan review, the
establishment of an adequate allowance for loan and lease losses, and the
mitigation of risks associated with concentrations in commercial real estate
loans, including acquisition, development and construction loans. The Board’s
participation in the Bank’s affairs shall include, at a minimum, monthly
meetings in which the following areas shall be reviewed and approved by the
Board: reports of income and expenses; new, overdue, renewed, insider,
charged-off, delinquent, nonaccrued, nonperforming, classified and recovered
loans; internal loan watch list; investment activities; operating policies; and
individual committee actions. The Board minutes shall document these reviews and
approvals, including the names of any dissenting directors.
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MANAGEMENT
2.
(a) The Bank shall have and
retain qualified management. Each member of management shall possess
qualifications and experience commensurate with his or her duties and
responsibilities at the Bank. The qualifications of management
personnel shall be evaluated on their ability to:
(1) comply
with the requirements of this Order;
(2) operate
the Bank in a safe and sound manner;
(3) comply
with applicable laws, rules, and regulations; and
(4) restore
all aspects of the Bank to a safe and sound condition, including improving
management effectiveness, asset quality, loan and appraisal review, credit
administration, capital and earnings.
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(b) While
this Order is in effect, the Bank shall notify the Superintendent in writing of
any additions, resignations or terminations of any members of its Board or any
of its senior executive officers within 15 days of the event. For
purposes of this Order, “senior executive officer” is defined in section
303.101(b) of the FDIC Rules and Regulations, 12 C.F.R. §
303.101(b). In addition, the Bank shall establish procedures to
ensure compliance with section 32 of the Act, 12 U.S.C. § 1831i, and Subpart F
of Part 303 of the FDIC’s Rules and Regulations.
REDUCTION OF COMMERCIAL
REAL ESTATE
CONCENTRATIONS
3. (a) Within
60 days from the effective date of this Order, the Bank shall develop and submit
a written plan, acceptable to the Superintendent, for systematically reducing
and monitoring its commercial real estate (“CRE”) loan concentration of credit
identified in the ROE to an amount which is commensurate with the Bank’s
business strategy, management expertise, size, and location. For
purposes of the plan, “reduce” means to charge-off or collect CRE loans or to
increase Tier 1 capital. Such plan shall include, but not be limited
to:
(1) a
prohibition of any advance that would increase the CRE concentration unless the
advance is pursuant to an existing loan agreement or the Board has submitted to
the Superintendent a detailed written statement giving reasons why the advance
is in the best interests of the Bank and received the Superintendent’s written
approval of the advance;
(2) percent
of capital to which the Bank shall reduce the concentration, the justification
for the capital percentages set forth in the plan, and timeframes for achieving
such reductions;
(3)
provisions requiring compliance with the Interagency Guidance on
Concentrations in Commercial Real Estate Lending, Sound Risk Management
Practices (Financial
Institution Letter (“FIL”) 104-2006, issued December 12, 2006) and Managing Commercial Real Estate
Concentrations in a Challenging Environment (FIL-22-2008, issued March
17, 2008);
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(4)
provisions for controlling and monitoring CRE lending, including plans to
address the rationale for CRE loan levels as they relate to growth and capital
targets, segmentation and testing of the CRE loan portfolio to detect and limit
concentrations with similar risk characteristics, and contingency plans for the
reduction or mitigation of current CRE concentrations; and
(5) provisions
for the submission of monthly written progress reports to the Board for review
and notation in minutes of the Board meetings.
(b) The
Bank shall submit the plan to the Superintendent for review and
comment. Within 30 days after the Superintendent has responded to the
plan, the Board shall adopt the plan as amended or modified by the
Superintendent, which approval shall be recorded in the minutes of the Board
meeting. The plan shall be implemented immediately to the extent that
the provisions of the plan are not already in effect at the Bank.
LOAN
POLICY
4. (a) Within
60 days from the effective date of this Order, and annually thereafter, the
Board shall review the Bank’s loan policy and procedures for effectiveness and,
based upon this review, shall make all necessary revisions to the policy in
order to strengthen the Bank’s lending procedures and abate additional loan
deterioration. Each revision shall be submitted to the Superintendent
for review and comment upon its completion. After the Superintendent
has responded to the policies, the Board shall adopt the policies as amended or
modified by the Superintendent and immediately implement the policies to the
extent that they are not
already in effect at the Bank.
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(b) The
initial revisions to the Bank’s loan policy required by this paragraph, at a
minimum, shall address the recommendations contained in the ROE and provide for
the following:
(1)
documentation
of lines of authority and operational responsibilities within the loan
department;
(2)
the
identification, monitoring, and timely reporting of past due loans, loans with
emerging credit weaknesses, and exceptions to the loan policy;
(3)
adequate
underwriting standards and procedures for loans, loan renewals, and appraisal
reviews, including but not limited to standards regarding the type and quality
of financial statements required to support a credit from the initial
underwriting through the life of the loan;
(4)
increased
Board and Audit Committee oversight of the Bank’s independent loan review
function;
(5)
expansion
of the Bank’s appraisal policy to ensure reappraisals or evaluations take place
when real estate collateral deteriorates;
(6)
expansion
of the Bank’s construction loan policy to ensure that waivers of liens or the
equivalent are obtained for every advance made on construction
projects;
(7)
compliance
with Part 323 of the FDIC’s Rules and Regulations; 12 CF.R. Part 323; Interagency Guidelines on Real Estate Appraisals and
Evaluations (FIL 74-94, issued November 11, 199); and the Statement of Policy on Uniform Retail Credit
Classification and Account Management Policy (FIL-40-2000, issued June
29, 2000);
(8)
determinations
of whether extensions of credit constitute “Troubled
Debt Restructuring”;
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(9)
guidelines
regarding the use and reporting of interest reserves, including limitations on
their use and prudent lines of authority for approving their use;
(10)
an
internal loan watch list and a written plan to lessen the risk position in each
line of credit identified as a problem credit on the Bank’s internal loan watch
list; and
(11)
a
non-accrual policy in accordance with the Federal Financial Institutions
Examination Council’s Instructions for the Consolidated Reports of Condition and
Income.
LOAN
REVIEW
5. (a) Within
60 days from the effective date of this Order, the Board shall revise its
independent loan review program to ensure that it is consistent with the Bank’s
loan review policy and that it is sufficiently comprehensive to assess risks in
Bank lending and minimize credit losses. At a minimum, the revised
program shall provide for:
(1) increased
monitoring and oversight of loan review by the Board and
management;
(2) an
increase in the scope and depth of loan review;
(3) an
assessment of the overall quality of the loan portfolio;
(4) increased
staffing of the Bank’s Independent Loan Review (“ILR”) with personnel who are
independent and meet minimum qualifications;
(5) effective
loan classification or credit grading systems that identify, monitor, and
address asset quality problems in an accurate and timely manner;
(6)
adequate
documentation and narratives to support credit ratings and
demonstrate that the ILR conducted an independent quarterly review of the
Allowance for Loan and Lease Losses (“ALLL”);
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(7)
procedures
to identify and report exceptions to the Interest Reserve Policy;
(8)
identification
of credit and collateral documentation exceptions and an action plan to address
the identified deficiencies;
(9)
identification
of loans that are not in conformance with the Bank's lending policy or laws,
rules, or regulations and an action plan to address the identified deficiencies;
and
(10)
documentation
of the rationale for the Bank assigning a different classification than the
ILR.
(b) The
Bank shall submit the revised program to the Superintendent for review and
comment. Within 30 days from receipt of any comment from the
Superintendent, and after due consideration of any recommended changes, the Bank
shall approve the revised program, which approval shall be recorded in the
minutes of the corresponding Board meeting. Thereafter, the Bank
shall implement and fully comply with the program.
CLASSIFIED ASSETS -
CHARGE-OFF AND PLAN FOR
REDUCTION
6. (a) Within
30 days from the effective date of this Order, the Bank shall, to the extent
that it has not previously done so, eliminate from its books, by charge-off or
collection, all assets or portions of assets classified “Loss” by the FDIC in
the ROE. Elimination or reduction of these assets through proceeds of
loans made by the Bank shall not be considered “collection” for the purpose of
this paragraph.
(b) Within
60 days from the effective date of this Order, the Bank shall formulate
and submit a detailed written plan to the Superintendent to reduce the remaining
assets classified “Doubtful” and “Substandard” in the ROE. The plan
shall address each asset so classified where the borrower and any related
interest has an aggregate indebtedness to the Bank with a balance of $1,000,000
or greater, as identified in the ROE. In addition, the Bank’s plan
shall contain a schedule detailing the projected reduction of total classified
assets on a quarterly basis and contain a provision requiring the submission of
monthly progress reports to the Board and mandating a review by the
Board.
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(c) The
Bank shall present the plan to the Superintendent for review. Within
30 days after the Superintendent has responded to the plan, the Board shall
adopt the plan as amended or modified by the Superintendent, which approval
shall be recorded in the minutes of the Board meeting. The Bank
shall then immediately initiate measures detailed in the plan to the extent such
measures have not been initiated.
(d) While
this Order is in effect, the Bank shall eliminate from its books, by charge-off
or collection, all assets or portions of assets classified “Loss” as determined
at any future examination.
ALLOWANCE FOR LOAN
AND LEASE
LOSSES
7. The
ALLL should be funded by charges to current operating income, and should be
calculated in accordance with generally accepted accounting standards and ALLL
supervisory guidance. The Bank shall at all times maintain a
reasonable ALLL. Prior to the end of each calendar quarter, the Board
shall review the adequacy of the Bank’s ALLL. Such reviews shall
include, at minimum, the analysis required by Financial Accounting Standards
Board Statement Numbers 5 and 114, the Bank’s loan loss experience, an estimate
of potential loss exposure in the portfolio, trends of delinquent and
non-accrual loans and prevailing and prospective economic
conditions. The minutes of the Board meetings at which such reviews
are undertaken shall include complete details of the reviews and the resulting
recommended increases in the ALLL.
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RESTRICTION ON ADVANCES TO
CLASSIFIED BORROWERS
8. (a) While
this Order is in effect, the Bank shall not extend, directly or indirectly, any
additional credit to or for the benefit of any borrower whose existing credit
has been classified Loss by the FDIC as the result of its examination of the
Bank, either in whole or in part, and is uncollected, or to any borrower who is
already obligated in any manner to the Bank on any extension of credit,
including any portion thereof, that has been charged off the books of the Bank
and remains uncollected. The requirements of this paragraph shall not
prohibit the Bank from renewing credit already extended to a borrower after full
collection, in cash, of interest due from the borrower or from extending
additional credit to a borrower if the Board has submitted to the Superintendent
a detailed written statement giving reasons why failure to extend such credit
would be detrimental to the best interests of the Bank and received written
approval of the extension of credit from the Superintendent.
(b) While
this Order is in effect, the Bank shall not extend, directly or indirectly, any
additional credit to or for the benefit of any borrower whose extension of
credit is classified “Doubtful” and/or “Substandard” by the FDIC as the result
of its examination of the Bank, either in whole or in part, and is uncollected,
unless the Board has signed a detailed written statement giving reasons why
failure to extend such credit would be detrimental to the best interests of the
Bank. The statement shall be placed in the appropriate loan file,
included in the minutes of the applicable Board meeting, and submitted to the
Superintendent in the Progress Reports described in Paragraph 16 of this
Order.
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BUDGET AND PROFIT
PLAN
9. (a) Within
45 days from the effective date of this Order, the Bank shall formulate and
submit to the Superintendent for review and comment a written profit plan and a
realistic, comprehensive budget for all categories of income and expense for the
calendar year 2010. The plan required by this paragraph shall contain
formal goals and strategies, be consistent with sound banking practices, reduce
discretionary expenses, take into account loan quality deterioration, provide
for an adequate ALLL, improve the Bank’s overall earnings and net interest
income, and describe the operating assumptions that form the basis for major
projected income and expense components, including executive officers’
compensation. For purposes of this paragraph, “compensation” refers
to any and all salaries, bonuses and other benefits of every kind or nature
whatsoever, both current and deferred, whether paid directly or
indirectly.
(b) Within
30 days after the end of each calendar quarter following completion of the
profit plan and budget required by this paragraph, the Board shall evaluate the
Bank’s actual performance in relation to the written profit plan and budget,
record the results of the evaluation, and note any actions taken by the Bank in
the minutes of the Board meeting when such evaluation is
undertaken.
(c) A
written profit plan and budget shall be prepared for each calendar year for
which this Order is in effect and shall be submitted to the Superintendent for
review and comment within 30 days after the end of each year. Within
30 days after the Superintendent has responded to the plan, the Board shall
adopt the plan as amended or modified by the Superintendent, which approval
shall be recorded in the minutes of the Board meeting. The plan shall
be implemented immediately to the extent that the provisions of the plan are not
already in effect at the Bank.
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CAPITAL PLAN
10. (a) Not
later than June 30, 2010, the Bank shall have and maintain the following minimum
capital levels (as defined in Part 325 of the FDIC's Rules and Regulations, 12
C.F.R. Part 325), after establishing an adequate allowance for loan and lease
losses:
(1)
Tier 1
capital at least equal to 7 percent of total assets;
(2)
Tier 1
risk-based capital at least equal to 9 percent of total risk-weighted assets;
and
(3)
Total
risk-based capital at least equal to 11 percent of total risk-weighted
assets.
(b) 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.
(c) Within
30 days of the last day of each calendar quarter, the Bank shall determine, from
its Reports of Condition and Income, its capital ratios for that calendar
quarter.
(d) In
the event any capital ratio is or falls below the minimum required by this
Order, the Bank shall immediately notify the Superintendent and (i) within 60
days shall increase capital in an amount sufficient to comply with this Order,
or (ii) within 60 days shall submit a written plan to the Superintendent,
describing the primary means and timing by which the Bank shall increase its
capital ratios up to or in excess of the minimum requirements set forth in this
Order, as well as a contingency plan for the sale or merger of the Bank in the
event the primary sources of capital are not available. Within 10
days of receipt of all such comments from the Superintendent, and after
consideration of all such comments, the Board shall approve the written capital
plan, which approval shall be recorded in the minutes of the meeting of the
Board. Thereafter,
the Bank shall implement and fully comply with the written plan.
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(e) If
all or any part of the additional capital required by the provisions of this
Order is accomplished by the sale of new securities, the Board shall adopt and
implement a plan for the sale of such additional securities, including the
voting of any shares owned or proxies held or controlled by them in favor of the
plan. Should the implementation of the plan involve a public
distribution of the Bank's securities (including a distribution limited only to
the Bank's existing shareholders), the Bank shall prepare offering materials
fully describing the securities being offered, including an accurate description
of the financial condition of the Bank and the circumstances giving rise to the
offering, and any other material disclosures necessary to comply with the
federal securities laws. Prior to the implementation of the plan and,
in any event, not less than 20 days prior to the dissemination of such
materials, the plan and any materials used in the sale of the securities shall
be submitted to the Superintendent and the FDIC's Accounting, Registration,
Disclosure, and Securities Unit, 550 17th Street, N.W. Washington, D.C. 20429
for review and comment. Any changes in the plan or materials requested shall be
made prior to the dissemination of the materials.
(f)
If the Bank is permitted to increase its Tier 1 capital by the sale
of non-cumulative perpetual preferred stock, then all terms and conditions of
the issue, including but not limited to those terms and conditions relative to
the interest rate and any convertibility factor, shall be presented to the
Superintendent for prior approval.
(g) The
Bank shall provide to any subscriber or purchaser of the Bank’s securities
written notice of any planned or existing development or other changes which are
materially different from the information reflected in any offering materials
used in connection with the sale of Bank securities. The written notice required
by this paragraph shall be furnished within 10
days from the date such material development or change was planned or occurred,
whichever is earlier, and shall be furnished to every subscriber and purchaser
of the Bank’s securities who received or was tendered the information contained
in the Bank's original offering materials.
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(h) For
purposes of this Order, all terms relating to capital shall be calculated
according to the methodology set forth in Part 325 of the FDIC's Rules and
Regulations.
GROWTH PLAN
11. While
this Order is in effect, the Bank shall not increase its Average Total Assets
during any quarter without providing, at least 30 days prior to its
implementation, a growth plan to the Superintendent. Such growth
plan, at a minimum, shall include the funding source to support the projected
growth, as well as the anticipated use of funds. This growth plan
shall not be implemented without the prior written consent of the
Superintendent.
COMPLIANCE
COMMITTEE
12. Within
45 days from the effective date of this Order, the Board shall establish a
subcommittee of the Board charged with the responsibility of ensuring that the
Bank complies with the provisions of this Order. The subcommittee
shall report monthly to the entire Board, and a copy of the report and any
discussion related to the report or the Order shall be included in the minutes
of the Board meeting. Nothing contained herein shall diminish the
responsibility of the entire Board to ensure compliance with the provisions of
this Order.
DIVIDEND
RESTRICTION
13. As
of the effective date of this Order, the Bank shall not declare or pay any
dividend without the prior written consent of the Superintendent.
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CORRECTION OF
VIOLATIONS
14. Beginning
on the effective date of this Order, the Bank shall take steps necessary,
consistent with other provisions of this Order and sound banking practices, to
correct and prevent the unsafe or unsound banking practices and/or violations of
law or regulation and all contraventions of federal banking agency policies and
procedures and guidelines that were identified in the ROE.
SHAREHOLDERS
15.
After the
effective date of this Order, the Bank shall send a copy of this Order, or
otherwise furnish a description of this Order, to its shareholders (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 Order
in all material respects. The description and any accompanying
communication, statement, or notice shall be sent to the addressee set forth in
Section 18 at least 20 days prior to dissemination to
shareholders. Any changes requested by the Superintendent shall be
made prior to dissemination of the description, communication, notice, or
statement.
PROGRESS
REPORTS
16.
Within 45
days after the end of the first calendar quarter following the effective date of
this Order, and within 45 days after the end of each successive calendar
quarter, the Bank shall furnish written progress reports to the Superintendent
detailing the form and manner of any actions taken to secure compliance with
this Order and the results thereof. Such reports may be discontinued
when the corrections required by the Order have been accomplished and the
Superintendent has released the Bank in writing from making additional
reports.
ORDER
EFFECTIVE
17. This
Order shall be binding upon the Bank, its successors and assigns, and all
institution-affiliated
parties of the Bank. The provisions of this Order shall remain
effective and enforceable except to the extent that, and until such time as, any
provision of this Order shall have been modified, terminated, superseded, or set
aside in writing by the Department.
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18. No
provision of this Order shall bar, estop, or otherwise prevent or preclude the
Department or any federal or state agency or department from taking any other or
further action affecting the Bank or any of their current or former
institution-affiliated parties.
NOTICES
19.
All communications regarding this Order shall be sent to:
Martin D.
Cofsky, Deputy Superintendent of Banks
New York
State Banking Department
One State
Street
New York,
NY 10004-1511
By order
of the Superintendent, effective this 29th, day of
January, 2010.
Pursuant to delegated authority. | |||||
Dated: January 29, 2010 | |||||
NEW YORK STATE | BANK OF SMITHTOWN | ||||
BANKING DEPARTEMENT | |||||
By: |
/S/
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By: |
/S/
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Martin
D. Cofsky
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Bradley
E. Rock
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Deputy
Superintendent of Banks
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Chairman
and C.E.O
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