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FDIC Enforcement Decisions and Orders

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   [10,080] In the Matter of Randolph Savings Bank, Randolph, Massachusetts, Docket No. FDIC-90-105b (6-6-90).

   Bank to cease and desist from practices such as operating with management whose policies and practices are detrimental to Bank; engaging in speculative real estate ventures; engaging in hazardous lending or collection policies in Automo- {{3-31-95 p.C-399}}bile Dealer Program; operating with practices that produce excessive volume of adversely classified assets; failing to adequately adjust its loan valuation reserve; failing to improve Bank's capital position; violating state banking laws; engaging in lending or investments with inadequate documentation; advancing funds without adequate investment plans; failing to account for transactions in a way consistent with safe and sound practices; and failing to develop internal control procedures. (The order was terminated by order of the FDIC dated 1-13-94; see ¶15,951.)
   [.1] Board of Trustees—Supervision of Bank Affairs
   [.2] Management—Qualifications—Compliance
   [.3] Definitions—"Director"—"Independent with respect to Bank"
   [.4] Board of Trustees—Monthly Meetings Required—Procedure
   [.5] Assets—Adversely Classified—Reduce
   [.6] Capital—Increase—Methods
   [.7] Adjusted Primary Capital Ratio—Written Plan—Increase
   [.8] Board of Directors—Record of Actions Relating to Capital
   [.9] Loan Loss Reserves—Reports of Condition and Income—Review by Board of Trustees
   [.10] Loans—Risk Position—Minimum Requirements
   [.11] Loans—Extension of Credit—Curtail
   [.12] Loan Policy—Minimum Requirements—Review
   [.13] Profit Plan—Minimum Requirements—Review
   [.14] Funds Management—Minimum Requirements—Review
   [.15] Technical Exceptions—Concentrations of Credit—Correct/Reduce
   [.16] Violations of Law—Eliminate/Correct
   [.17] Compliance—Progress Reports—Frequency

In the Matter of

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

   Randolph Savings Bank, Randolph, 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, 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 May 29, 1990, whereby solely for the purpose of this proceeding and without admitting or denying any unsafe or unsound banking practices or violations of law and/or regulations, the Bank consented to the issuance of 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 and had violated laws and/or regulations. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

ORDER TO CEASE AND DESIST

   IT IS HEREBY ORDERED, that the Bank, its trustees, officers, employees, agents, successors, assigns, and other person participating in the conduct of the affairs of the Bank, cease and desist from the following unsafe and unsound banking practices and violations of law and regulations:
   (a) operating with management whose policies and practices are detrimental to the Bank;
   (b) engaging after the date of this Order in speculative real estate ventures;
   (c) engaging after the date of this Order in hazardous lending or lax collection practices in the Automobile Dealer Program, including but not limited to failing to develop {{3-31-95 p.C-400}}a plan to reduce the volume of adversely classified loans, extending credit which is inadequately secured, extending credit without first obtaining complete documentation, or failing to enforce programs for repayment of loans through the excessive use of extension agreements;
   (d) operating with unsafe or unsound banking practices which produce an excessive volume of adversely classified assets;
   (e) failing to make adequate adjustments to its loan valuation reserve from time to time in accordance with safe and sound banking practices to reflect the volume, kind, and quality of loans held;
   (f) failing to develop and to pursue plans to improve the Bank's capital position to an adequate level;
   (g) engaging in further violations of Massachusetts General Laws, Chapter 167E, Section 2(b), Paragraph 13;
   (h) engaging after the date of this Order in lending or investments with deficient or inadequate loan and real estate investment documentation, including but not limited to insurance coverage, certificates of title, and recordkeeping for funds used to construct Meetinghouse Village;
   (i) advancing funds without adequate investment plans or Board supervision for Vineyard Haven Marina;
   (j) failing to account accurately for new transactions in a way that is consistent with safe and sound banking practices; or
   (k) failing to develop and implement adequate internal routine and control procedures which are consistent with safe and sound banking practices.
   IT IS FURTHER ORDERED, that the Bank, its trustees, 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) The Board of Trustees shall provide adequate supervision and direction over the affairs of the Bank reasonably calculated, given the present circumstances of the bank, to prevent subsequent unsafe or unsound practices and violations of law and/or regulations.

   [.2](b) Within ninety (90) days of the effective date of this ORDER, the Bank shall have, and thereafter continue to retain, management acceptable to the Regional Director of the FDIC's Boston Regional Director of the FDIC's Boston Regional Office ("Regional Director") and the Commissioner of Banks of the Commonwealth of Massachusetts ("Commissioner"). The acceptability of management shall be assessed on its conduct with respect to: (i) compliance with the requirements of this ORDER; (ii) actions taken to operate the Bank in a safe and sound manner, (iii) compliance with applicable laws and regulations, and (iv) formulation and implementation of plans and policies directed at restoring all aspects of the Bank to a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness and liquidity.
   (c) In order to assess the acceptability of management, the board of trustees shall, in no more than 30 days from the effective date of this ORDER, 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 senior officers, and each staff member of the level of department head or above 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(c)(i) and 1(c)(iii) of this ORDER.
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   (d) The written management plan and any subsequent material modification thereto shall be submitted to the Regional Director and the Commissioner for review and comment. No more than 30 days from the receipt of any comment from the Regional Director or the Commissioner, and after consideration of such comment, the board of trustees shall approve the written management plan and/or any subsequent material modification thereto which approval shall be recorded in the minutes of the board of trustees. Thereafter, the Bank, its trustees, officers, and employees shall implement and follow the written management plan and/or any subsequent modification thereto.
   (e) (i) The written management plan shall also include the requirement that the board of trustees of the Bank, or the Bank's Board of Investment, consists of a majority of members who are independent with respect to the Bank and provides supervision over lending, investment, and operating policies of the Bank sufficient to ensure that the Bank complies with the provisions of this ORDER.

   [.3](ii) 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, (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 five (5) percent of the Bank's total surplus and allowance for loan and lease losses.

   [.4](f) Effective the date of this ORDER, the Bank's board of trustees 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. Nothing in the foregoing sentence shall preclude the board 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. Within ten (10) days of the effective date of this ORDER, the Bank: (a) shall eliminate from its books, by charge-off, collection, or other proper entries, all assets or portions of assets classified "Loss" in the September 8, 1989 Report of Examination; and (b) shall either (i) eliminate from its books by charge-off, collection, or other proper entries, or (ii) if the asset is an extension of credit or lease, increase its allowance for loan and lease losses by an amount equal to, 50 percent of those assets or portions of assets classified "Doubtful" as of September 8, 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.

   [.6] 3. (a) The Bank shall take reasonable and appropriate actions to bring the Bank's capital position to a sufficient level and thereafter to operate within a capital structure sufficient in relation to the composition and quality of its assets 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 Regional Director and the Commissioner for approval within sixty (60) days of the effective date of this ORDER, and within 240 days of the effective date of this ORDER, the Bank shall begin to implement such plan, as approved. 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.
   (b) Any increase in capital necessary to meet the requirements of Paragraph 3(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, 209 C.M.R. 33.00 et seq.; or
       (ii) the direct contribution of cash by the incorporators and/or trustees of the Bank; or
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       (iii) the collection of all or part of assets classified: (A) "Loss" as of September 8, 1989, or (B) "Doubtful" as of September 8, 1989, provided any collection on such assets shall first be applied to that portion of the asset which was not charged off pursuant to paragraph 2 of this ORDER. Reductions to loans and leases classified "Loss" and "Doubtful" shall first be credited to the Bank's allowance for loan and lease losses ("allowance") and, if the board of trustees' review of the adequacy of the allowance required by paragraph 4 of this ORDER indicates that such allowance has the balance in excess of that required for adequacy, any such excess may be transferred to capital through a negative provision for loan and lease losses; or
       (iv) the collection in cash of assets previously charge off; or
       (v) any other means acceptable to the Regional Director and Commissioner; or
       (vi) any combination of the above means.
   (c) If all or part of any increase in total capital required by paragraph 3(a) of this ORDER involves an offering, other than an offering deemed not to be a public securities offering pursuant to 17 C.F.R. 230.506 or as hereafter amended, of the Bank's securities (including a distribution limited only to the Bank's existing incorporators), the Bank shall prepare detailed offering materials fully describing the securities being offered, including an accurate description of the financial condition of the Bank and of this ORDER as well as the circumstances giving rise to the offering, and any other material disclosures necessary to comply with the Federal securities laws. Prior to the sale of the securities, and, in any event not less than 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) In complying with the provisions of paragraph 3(c) of this ORDER, the Bank shall provide to any subscriber and/or purchaser of Bank stock, written notice of any planned or existing development or other change which is 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 3(d) shall be furnished within ten (10) calendar days from the date such material development or change was planned or occurred, whichever is earlier, to every purchaser and/or subscriber of Bank stock who received or was tendered the information contained in the Bank's original offering materials.

   [.7] (e) If, during the period this ORDER is in effect, the adjusted primary capital ratio declines below eight (8) percent, the Bank, within 30 days after the date on which the said ratio so declined, shall develop and begin to implement a written plan to increase such ratio up to or in excess of eight (8) percent. As soon after the implementation of the written plan as is practicable, the Bank's adjusted primary capital shall equal or exceed eight (8) percent and the Bank shall thereafter continue to maintain its capital ratio at or in excess of such level as calculated herein while this ORDER is in effect.

   [.8] (f) The Bank's board of trustees shall maintain in its minutes a written record of all actions taken by the Bank to comply with the capital requirements of paragraphs 3(a) through 3(e) of this ORDER, including, at a minimum, any action to increase its capital by each of the methods specified in paragraphs 3(b)(i) through 3(b)(vi) of this ORDER.

   [.9] 4. (a) The Bank shall maintain an allowance for loan and lease losses in accordance with the prevailing requirements of the Instructions for the Reports of Condition and Income ("Instructions").
   (b) 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 December 31, 1989, and the effective date of this ORDER, shall, at a minimum, reflect an allowance for loan and lease losses that should have been maintained in accordance with the Instructions and the findings of the September 8, 1989 Report of Examination. In order to comply with this paragraph 4(b), the Bank shall file amended Reports of Condition and Income within 10 days from the effective date of this ORDER.
   (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 trustees {{3-31-95 p.C-403}}of the Bank shall: (1) review the adequacy of the Bank's allowance for loan and lease losses, (2) provide for an adequate allowance, and (3) accurately report the allowance in any such Report of Condition and Report of Income. Review of Other Real Estate and exposure therein shall be undertaken in a similar manner as the loan portfolio review. The minutes of the board meeting at which such reviews are undertaken shall indicate the results of the reviews, including any increases in the allowances, and the basis for determining the amount of allowances provided.

   [.10] 5. (a) Within 75 days from the effective date of this ORDER, the board of trustees shall develop a written plan of action to lessen the Bank's risk position in each line of credit or parcel of Other Real Estate aggregating $50,000 or more which was classified "Substandard" or "Doubtful" as of September 8, 1989. In developing such plan, the Bank shall, at a minimum:

       (i) review the financial position of each such borrower or real estate investment, including source of repayment, repayment ability, and alternative repayment sources; and
       (ii) evaluate the available collateral for each such credit or real estate investment, 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 3, 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 trustees for review and notation in the board minutes. As used in this paragraph, "reduce" means to (1) collect, (2) charge off, or (3) improve the quality of such assets so as to warrant removal of any adverse classification by the FDIC and Commonwealth of Massachusetts Department of Banking. Payment of loans with the proceeds of other loans made by the Bank will not constitute "reduction" or "collection" for purposes of this ORDER, provided that the foregoing shall not apply to loans made by the Bank in compliance with the terms of its lending policy to finance bona fide purchases of properties previously mortgaged to the Bank by third parties not related to or affiliated with the selling borrower.
   (b) The written plan of action described by paragraph 5(a) and any subsequent modification thereto shall be submitted to the Regional Director and the Commissioner for review and comment. No more than thirty (30) days after submission, the board of trustees shall approve the written plan of action, which approval shall be recorded in the minutes of the board of trustees. Thereafter, the Bank, its trustees, officers, and employees shall follow the written plan of action and any subsequent modification thereto.
   [.11] 6. Effective the date of this ORDER, the Bank shall not extend, 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 5 of this ORDER as to such borrower, and (3) gives approval for such advance individually or by approving a schedule or project budget with which the advance is consistent. A written record of the board of trustees' 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 trustees.

   [.12] 7. (a) Within sixty (60) days of the effective date of this ORDER, the Bank shall revise its written loan policy to include, at a minimum:

       (i) the lending authority of each loan officer;
       (ii) the lending authority of a loan or executive committee, if any;
       (iii) the responsibility of the board of trustees in reviewing, ratifying, and approving loans;
       (iv) the guidelines under which unsecured loans will be granted;
       (v) the guidelines for rates of interest and terms of repayment for unsecured loans and secured loans;
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       (vi) limitations on the amount advanced in relation to the value of the collateral and the documentation required by the Bank for each type of secured loan;
       (vii) the maintenance and review of complete and current credit files on each borrower;
       (viii) appropriate and adequate collection procedures, including, but not limited to, the actions to be taken against borrowers who fail to make timely payments;
       (ix) guidelines establishing limitations on the maximum volume of loans in relation to total assets;
       (x) appropriate limitations on extension of credit through overdrafts and cash items;
       (xi) the determination and documentation of sources and terms of loan repayment;
       (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 designations of nonaccrual loans;
       (xvi) procedures for identifying, supervising, and collecting problem loans; and
       (xvii) periodic review of the overdue, problem, and/or adversely classified or special mention loans by the trustees, so as to monitor management's administration of such distressed credits, and to provide guidance.
   (b) The revised written loan policy and any subsequent modification thereto shall be submitted to the Regional Director and the Commissioner for review and comment. Prior to submission, the board of trustees shall approve the written loan policy and/or any subsequent modification thereto which approval shall be recorded in the minutes of the board of trustees. Thereafter, the Bank, its trustees, officers and employees shall follow the written loan policy and/or any subsequent modification thereto.

   [.13] 8. (a) No more than 60 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.
   (b) The written profit plan and any subsequent modification thereto shall be submitted to the Regional Director and the Commissioner for review and comment. The board of trustees shall approve the written profit plan and any subsequent modification thereto which approval shall be recorded in the minutes of the board of trustees. Thereafter, the Bank, its trustees, officers, and employees shall follow the written profit plan and/or any subsequent modification thereto.

   [.14] 9. (a) Within sixty (60) days of 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) 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.
   (b) The written funds management policy and any subsequent modification thereto shall be submitted to the Regional Director and the Commissioner for review and comment. The board of trustees shall approve the written funds management policy and any subsequent modification thereto which approval shall be recorded in the minutes of {{1-31-94 p.C-405}}the board of trustees. Thereafter, the Bank, its trustees, officers, and employees shall follow the written funds management policy and/or any subsequent modification thereto.

   [.15] 10. (a) No more than 60 days from the effective date of this ORDER, the Bank shall formulate and begin to implement, and thereafter shall complete implementation of, a plan to correct the technical exceptions on loans noted on pages 2-d through 2-d-2 of the FDIC's Report of Examination of the Bank as of September 8, 1989.
   (b) No more than 60 days from the effective date of this ORDER, the Bank shall formulate and begin to implement, and thereafter shall complete implementation of, a plan to reduce all concentrations of credit as noted on page 2-b of the FDIC's Report of Examination of the Bank as of September 8, 1989, to less than 25 percent of total capital and allowance for loan and lease losses.
   (c) No more than 60 days from the effective date of this ORDER, the Bank shall formulate and begin to implement, and thereafter shall complete implementation of, a plan to correct the cited deficiencies in the Other Assets listed for "Special Mention" on page 2-c of the FDIC's Report of Examination of the Bank as of September 8, 1989.

   [.16] 11. No more than 60 days from the effective date of this ORDER, the Bank shall formulate and begin to implement, and thereafter shall complete implementation of, a plan to eliminate and/or correct all GROUP A violations of law and regulations committed by the Bank as described on page 6-a of the FDIC's Report of Examination of the Bank as of September 8, 1989.

   [.17] 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 every 90 days, beginning 30 days from the effective date of the ORDER. 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.
   13. This ORDER has been reviewed and concurred in by the Commissioner of Banks of the Commonwealth of Massachusetts.
   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, its trustees, officers, employees, agents, successors, assigns, and other persons participating in the conduct of the affairs of the Bank.
   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 6th day of June, 1990.

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