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   [10,075] In the Matter of First American Bank for Savings, Boston, Massachusetts, Docket No. FDIC-90-89b (5-22-90)

   Bank to cease and desist from practices such as failing to reduce excessive volume of adversely classified assets, engaging in speculative real estate lending, failing to allow for losses for the kind and quality of assets held, failing to improve liquidity in relation to brokered deposits, engaging in practices which produce inadequate income, and engaging in hazardous lending and lax collection practices.

   [.1] Management—Qualifications—Compliance
   [.2] Assets—Adversely Classified—Reduce
   [.3] Loans—Extensions of Credit—Curtail
   [.4] Capital—Written Plan—Minimum Requirements
   [.5] Capital—Increase—Methods
   [.6] Asset Valuation Reserve—Adequacy—Review
   [.7] Loans—Extensions of Credit—Curtail
   [.8] Loans—Condominium Construction—Reduce Industry Concentration
   [.9] Liquidity and Funds Management—Minimum Requirements—Review
   [.10] Shareholders—Dividends—Approvals
   [.11] Brokered Deposits—Waiver—Renewal/Rollover
   [.12] Profit Plan—Minimum Requirements—Review
   [.13] Compliance—Progress Reports—Frequency
   [.14] Shareholders—Disclosure—Cease and Desist Order

In the Matter of

FIRST AMERICAN BANK FOR
SAVINGS

BOSTON, MASSACHUSETTS
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

   First American Bank for Savings, Boston, Massachusetts, ("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 §8(b)(1) of the Federal Deposit Insurance Act, 12 U.S.C. section 1818(b)(1), and having waived those rights, entered into a
{{4-1-90 p.C-379}}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 May 15, 1990 whereby, solely for the purpose of this proceeding and without admitting any unsafe or unsound banking practices, violations, or facts asserted or implied herein 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. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

ORDER TO CEASE AND DESIST

   IT IS HEREBY ORDERED, that the Bank, its directors, officers, employees, agents, successors, assigns, and other persons participating in the conduct of the affairs of the Bank, cease and desist from the following unsafe and unsound banking practices:
   a) failing to take appropriate steps to reduce the excessive volume of adversely classified assets;
   b) engaging in hazardous lending and lax collection practices, resulting in an excessive volume of adversely classified loans;
   c) engaging in speculative real estate lending and investing in speculative real estate ventures resulting in an excessive volume of adversely classified assets in these categories, and in the "other real estate" category;
   d) failing to make adequate provision to allowance for losses for the kind and quality of assets held;
   e) engaging in practices which produce inadequate operating income, provided that the retention of assets and liabilities of the Bank on the effective date of this ORDER shall not be deemed "practices";
   f) failing to take appropriate steps to improve the Bank's levels of liquidity in relation to brokered deposits; $100,000 or more deposits and borrowings;
   IT IS FURTHER ORDERED, that the Bank, its directors, officers, employees, agents, successors, assigns, and other persons participating in the conduct of the affairs of the Bank, take affirmative action as follows:

   [.1] 1. (a) No more than 90 days from the effective date of this ORDER, the Bank shall continue to have and thereafter retain qualified management. The acceptability of management shall be assessed on its conduct with respect to: (i) compliance with the requirements of this ORDER, (ii) operation of the Bank in a safe and sound manner, (iii) compliance with applicable laws and regulations, and (iv) maintenance of all aspects of the Bank in a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness and liquidity. As used in this paragraph, "maintenance" includes improvement in quality if necessary to comply with this requirement.
   (b) During the life of this Order, the Bank shall give prior notice to the Regional Director of the FDIC's Boston Regional Office ("Regional Director") and the Commissioner of Banks of the Commonwealth of Massachusetts ("Commissioner"), in writing, of any contemplated changes in senior management (that is, any director or any officer at or above the level of vice president) or the Board of Directors. The notification must include the names and background of any individual assuming the new position.
   (c) The Board of Directors shall provide adequate supervision and direction over the affairs of the Bank.

   [.2] 2. No more than 10 days from the effective date of this ORDER, the Bank: (1) shall eliminate from its books, by charge-off, collection, or other proper entries, all assets or portions of assets classified "Loss" as of the November 3, 1989 Report of Examination; and (2) shall either (a) eliminate from its books by charge-off, collection, or other proper entries, or (b) provide a specific allowance for asset losses by an amount equal to 50 percent of those assets or portions thereof classified "Doubtful" as of November 3, 1989, which have not been previously collected, charged off, or otherwise eliminated by other proper entries. Reduction of these assets through use of proceeds of loans made by the Bank does not constitute collection for the purpose of this paragraph.

   [.3] 3. (a) The Board of Directors shall develop a written plan of action to lessen
{{4-1-90 p.C-380}}the Bank's risk position in each loan, real estate parcel owned, or joint venture investment aggregating $1,000,000 or more of which any portion was classified "Substandard" or "Doubtful" in the November 3, 1989 Report of Examination. In developing such plan, the Bank shall, as a minimum:

       (i) review the financial position of each such borrower, real estate venture or other real estate property including source of repayment, repayment ability, and alternative repayment sources; and
       (ii) evaluate the available collateral for each such credit, real estate venture, or other real estate property including possible actions to improve the Bank's collateral position.
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 within 6 and 12 months from the effective date of this ORDER; and (b) provide for the submission of written monthly progress reports to the Bank's Board of Directors for review and notation in the Board minutes. As used in this paragraph 3, "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.
   (b) Within 90 days of the effective date of this ORDER, the written plan of action described by paragraph 3(a) shall be submitted to the Regional Director and the Commissioner for review and comment. No more than 15 days after such submission the Board of Directors shall approve the written plan of action, taking into account any regulatory comments, which approval shall be recorded in the minutes of the Board of Directors. Thereafter, the Bank, its directors, officers and employees shall follow the written plan of action and any subsequent modification. Subsequent modification to the written plan of action will not be adopted until and unless they have been submitted to the Regional Director and Commissioner for comments at least 15 days prior to adoption, and shall take into account any such regulatory comments.

   [.4] 4. (a) The Bank shall take all reasonable and appropriate action to bring the Bank's capital to a sufficient level and thereafter to operate within a capital structure sufficient in relation to the composition and quality of its assets and funding liabilities and in accordance with Part 325 of the FDIC Rules and Regulations. Toward this end the Bank will develop a Capital Plan which will be submitted to the Commissioner and the Regional Director for approval within ninety (90) days of the effective date of this ORDER, and within 240 days from the effective date of this ORDER, the Bank shall begin to implement such plan, and thereafter shall complete implementation of such plan. The Capital Plan shall address both internal and external sources of capital augmentation, including capital infusions, retention of earnings, restriction of asset growth, and asset sales to produce an adjusted primary capital ratio of at least eight (8.0) percent, with stated timetables in which to attain this goal. For the purposes of this ORDER, the term "adjusted primary capital" is defined in Part 325 of the FDIC Rules and Regulations.

   [.5] (b) Any increase in capital necessary to meet the requirements of paragraph 4(a) of this ORDER may be accomplished by the following:

       (i) the sale of common stock and/or perpetual preferred stock, subject to applicable laws and regulations including, but not limited to, Massachusetts General Laws, Chapter 172; or
       (ii) the issuance of subordinated debt; or
       (iii) the collection of assets previously charged-off; or
       (iv) the reduction of the "Loss" assets specified in paragraph 2 of this ORDER without loss or liability to the Bank; or
       (v) the retention of earnings; or
       (vi) any other means acceptable to the Regional Director and the Commissioner; or
       (vii) any combination of the above means.
   (c) if all or part of any increase in capital required by paragraph 4(a) of this ORDER is to be accomplished by the sale of new securities, the Bank's Board of Directors shall forthwith take all necessary steps to adopt and implement a plan for the sale of such securities. Should the implementation of the plan involve a public distribution of the Bank's securities, the Bank shall prepare offering materials fully describing the securities being offered, including an accurate
{{4-1-90 p.C-381}}description of the financial condition of the Bank and the circumstances giving rise to the offering, and other material disclosures necessary to comply with State and Federal securities laws. Prior to the sale of the securities, and in any event, not less than twenty (20) days prior to the dissemination of such materials, the materials used in the sale of the securities shall be submitted to the FDIC, Registration and Disclosure Unit, Washington, D.C. 20429, for review. Any changes requested to be made in the materials by the FDIC shall be made prior to their dissemination.
   (d) If all or any part of the increase in capital is provided by the sale of preferred stock, then all terms and conditions of the issue, including but not limited to those terms and conditions relative to interest rate and the convertibility factor, shall be presented to the Regional Director and the Commissioner for approval.
   (e) In complying with the provisions of paragraph 4 of this ORDER, the Bank shall provide to any subscriber and/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 the Bank securities and which occur before completion of the purchase. The written notice required by this paragraph shall be furnished within ten (10) days of the date such material development or change was planned or occurred, whichever is earlier, to every purchaser and/or subscriber of the Bank's securities who received or was tendered the information contained in the Bank's original offering materials.

   [.6] 5. Within thirty (30) days of the effective date of this ORDER and after complying with paragraph 2 of this ORDER, the Bank's Board of Directors shall increase the asset valuation reserves by $34,000,000 over the level existing at September 30, 1989, as a minimum, and thereafter require that the reserves be maintained at an adequate level by periodic charges to operating revenue. Within sixty (60) days of the effective date of this ORDER, the Bank's Board of Directors shall establish a comprehensive policy for determining the adequacy of the valuation reserves. For the purpose of this determination, the adequacy of the reserves shall be determined after the charge-off of all assets classified "Loss." The policy shall provide for a review of the reserves 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, estimated exposure on joint venture investments and other real estate properties, potential loss exposure on significant credits, concentrations of credit and present and prospective economic conditions. The minutes of the Board of Directors' meetings at which such reviews are conducted shall indicate the result of the review. Said reviews should be completed at least twenty-five (25) days after the end of each quarter in order that any loss provisions determined to be appropriate by the Board of Directors with respect to the valuation reserves may be properly reported in the quarter Reports of Condition and Income.

   [.7] 6. Following the effective date of this ORDER, the Bank shall not directly extend 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, or knowingly extend credit indirectly to such a borrower, or for the benefit of such a borrower, 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 3 of this ORDER as to 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 6 shall be maintained in the credit file of the affected borrower(s) as well as the minutes of the Board of Directors.

   [.8] 7. Within sixty (60) days of the effective date of this ORDER, the bank shall formulate and begin to implement, and thereafter shall complete implementation of, a plan to substantially reduce its industry concentration in condominium construction loans.

   [.9] 8. Within sixty (60) days of the effective date of this ORDER, the Bank shall formulate, adopt and thereafter strictly follow revisions to its liquidity and funds
{{4-1-90 p.C-382}}management policies. These revisions should provide that the Bank shall take all reasonable and appropriate efforts to bring the Bank's liquidity to an acceptable level and thereafter operate the Bank with an acceptable level of liquidity. The policy shall include but not be limited to the following:
   (a) provisions establishing liquidity targets and specific plans to increase the volume and percentage of temporary (short term) liquid investments to an adequate level; and
   (b) objectives and strategies for lessening the reliance on brokered deposits, deposits of $100,000 or more, and other volatile borrowings.

   [.10] 9. As of the effective date of this ORDER, the Bank shall not declare or pay any cash 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 adjusted primary capital ratio specified in paragraph 4 shall not be less than eight (8.0) percent and the Bank's valuation reserves shall be adequate as described in paragraph 5 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.

   [.11] 10. Upon receipt of this ORDER, if the Bank still has brokered deposits, the Bank, as an undercapitalized institution, if it has not already done so, will make a waiver application for the renewal or roll-over of said brokered deposits under Section 337.6 of the FDIC's Rules and Regulations.

   [.12] 11. (a) The Board of Directors shall develop a written profit plan consisting of goals and strategies for improving the earnings of the Bank. The written profit plan shall include, as 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.
   (b) Within 90 days of the effective date of this ORDER, the written profit plan shall be submitted to the Regional Director and the Commissioner for review and comment. No more than 15 days after such submission the Board of Directors shall approve the written profit plan, taking into account any regulatory comments which approval shall be recorded in the minutes of the Board of Directors. Subsequent modification to the written plan of action will not be adopted until and unless they have been submitted to the Regional Director and Commissioner for comments at least 15 days prior to adoption, and shall take into account any such regulatory comments.

   [.13] 12. 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 within thirty (30) days after the end of each calendar quarter beginning immediately after the effective date of this ORDER. Such quarterly reports shall include: the most recent profit and loss statement and balance sheet of the Bank and each of the Bank's subsidiaries; a status and balance report on each classified asset; and an update on the industry concentration explained in paragraph 7. 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.

   [.14] 14. Following the effective date of this ORDER, the Bank shall send as part of its usual distribution of annual disclosure documents to its shareholders, a description of this ORDER, in compliance with the requirements of Section 12 of the Securities Exchange Act of 1934. The description shall fully describe the ORDER in all material respects.
   The provisions of this ORDER shall be binding upon the Bank, its directors, officers, employees, agents, successors, assigns, and other persons participating in the conduct of the affairs of the Bank.
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   This ORDER has been reviewed and concurred in by the Commissioner of Banks for the Commonwealth of Massachusetts.
   This ORDER shall become effective ten (10) days from the date of its issuance.
   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.
   Pursuant to delegated authority.
   Dated at Needham, Massachusetts this 22nd day of May, 1990.

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