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FDIC Enforcement Decisions and Orders

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   [10,094] In the Matter of Bank of Fall River, A Co-operative Bank, Fall River, Massachusetts, Docket No. FDIC-90-141b (7/25/90).

   Bank to cease and desist from such practices as operating with an excessive volume of adversely classified assets, failure of the Board of Directors to provide adequate supervision and direction over affairs of Bank; engaging in hazardous lending, lax collection practices, and speculative real estate lending; operating with inadequate valuation allowqance, inadequate lending and investment policies, and inadequate loand administration procedures; operating with inadequate loan review processes and inadequate real estate appraisal and review procedures; engaging in violations of applicable state law; and failing to correct deficiencies in external audit and submit FDIC Reports of Condition and Income, as instructed.
   [.1] Management—Qualifications—Compliance
   [.2] Assets—Adversely Classified—Reduce
   [.3] Loans—Risk Position—Reduce
   [.4] Capital—Capital Structure—Written Plan
   [.5] General Valuation Reserve—Increase—Review
   [.6] Loan—Extension of Credit—Existing Borrower—Approval
   [.7] Loan Policy—Minimum Requirements—Review
   [.8] Strategic Plan—Asset Quality Standards—Cost of Liabilities
   [.9] Investment and Funds Management Policy—Acceptable Level of Liquidiy
   [.10] Violations of Law—Eliminate/Correct
   [.11] Bank Operations—Internal Routine Controls
   [.12] Reports of Condition and Income—Preparation
   [.13] Compliance—Progress Reports—Frequency
   [.14] Brokered Deposits—Waiver Application

In the Matter of

BANK OF FALL RIVER,
A COOPERATIVE BANK FALL RIVER, MASSACHUSETTS
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-90-141b

   Bank of Fall River, A Co-operative Bank, Fall River, 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 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 July 18, 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:
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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 or unsound banking practices and violations of law and/or regulations:

       (a) operating with an excessive volume of adversely classified assets;
       (b) failure of the Board of Directors to provide adequate supervision and direction over the affairs of the Bank;
       (c) engaging in hazardous lending and lax collection practices, including maintaining an excessive volume of adversely classified loans;
       (d) engaging in speculative real estate lending that has resulted in an excessive volume of adversely classified "Other Real Estate;"
       (e) operating without adequate valuation allowances for the volume, kind and quality of assets held;
       (f) operating with inadequate lending and investment policies;
       (g) operating without adequate loan administration procedures that has resulted in numerous lending technical exceptions, loans listed for special mention and a lending concentration of credit;
       (h) operating without an adequate loan review process including a "watch list;"
       (i) operating without adequate real estate appraisal and review procedures;
       (j) engaging in violations of an applicable law, specifically, Massachusetts General Laws, Chapter 167E, Section 6, paragraph 5(b);
       (k) failing to correct deficiencies noted in the external audit; and
       (l) failing to submit FDIC of Reports of Condition and Income in accordance with prevailing instructions.
IT 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) Within ninety (90) days from the effective date of this ORDER, the Bank shall have, and thereafter continue to 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 or the Board of Directors. The notification must include the names and background of any individual assuming the new position.

   [.2] 2. Within ten (10) days from the effective date of this ORDER, the Bank shall eliminate from its books, by charge-off, collection, or other proper entries, all assets or portions of assets classified "Loss" as of December 8, 1989. Reduction of these assets through use of proceeds of loans made by the Bank does not constitute "collection" or "elimination" for the purpose of this paragraph.

   [.3] 3. (a) Within ninety (90) days from the effective date of this ORDER, the Board of Directors assures that a written plan of action shall be developed to lessen the Bank's risk position in each loan, line of credit or parcel of Other Real Estate aggregating $150,000 or more of which any portion was classified "Substandard" as of December 8, 1989. In developing such plan, the Bank shall, at a minimum:

       (i) review the financial position of each such borrower, including source
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    of repayment, repayment ability, and alternative repayment sources; and
       (ii) evaluate each parcel of Other Real Estate and evaluate the available collateral for each credit to include reinspection or potential reappraisal, including possible actions to improve the Bank's investment or collateral position.
Based upon such review and evaluation, the written plan of action shall establish target dollar levels to which the Bank shall reduce the aggregate dollar volume of "Substandard" classifications within 6 and 12 onths from the effective date of this ORDER, and 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, "reduce" means to (1) collect, (2) charge-off, or (3) improve the quality of such assets so as to warrant removal of the 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.
       (b) The written plan of action described in paragraph 3(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 such submission, the Board of Directors shall approve the written plan of action, or modification, 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 thereto.

   [.4] 4. The Bank shall 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's Rules and Regulations, 12 C.F.R. Part 325. Toward this end, the Banks will develop a Capital Plan which will be submitted to the Commissioner and the Regional Director for approval within sixty (60) days from the effective date of this ORDER, and within 240 days from the effective date of this ORDER, the Bank shall implement such plan. The Capital Plan shall address internal sources of capital augmentaion, including retention of earnings, restriction of asset growth, and asset sales to maintain an adjusted primary capital ratio of at least eight (8.0) percent. For the purposes of this ORDER, the term "adjusted primary capital" is defined in Part 325 of the FDIC's Rules and Regulations.

   [.5] 5. Within thirty (30) days from the effective date of this ORDER and after complying with paragraph 2 of this ORDER, the Bank's Board of Directors shall increase the general valuation reserve for loans by $700,000 over the level existing at September 30, 1989, at a minimum, and thereafter require that the reserve be maintained at an adequate level by periodic charges to operating revenue. Within sixty (60) days from the effective date of this ORDER, the Bank's Board of Directors assures that a comprehensive policy for determining the adequacy of the valuation reserve shall be established. For the purpose of this determination, the adequacy of the reserve shall be determined after the charge-off of all loans classified "Loss." The policy shall provide for a review of the reserve at least once each calendar quarter. The review should focus on the results of the Bank's internal loan review, loan loss experience, trends of delinquent and non-accrual loans, an estimate of potential loss exposure on significant credits, concentrations of credit, and present and prospective economic conditions. Review of Other Real Estate and exposure therein shall be undertaken along the same lines as the aforementioned loan portfolio review. The minutes of the Board of Directors' meetings at which such review is undertaken shall indicate the result of the review. Said review should be completed at least ten (10) days prior to 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 reserve may be properly reported in the quarterly Reports of Condition and Income.

   [.6] 6. The Bank shall not extend, directly or indirectly, credit to, or for the benefit of, any individual or entity who or which has a loan or other extension of credit from the Bank that has been charged off or classified, in whole or in part, "Loss," or "Substandard," and is uncollect, 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 {{12-31-90 p.C-473}}Bank has satisfied the requirements set out in paragraph 3 of this ORDER as to such individual or entity, and (3) gives approval for such advance. A written record of the Board of Directors' determination and approval of any advance shall be maintained in the credit file of the affected borrower(s) as well as in the minutes of the Board of Directors. The requirements of this paragraph do not prohibit the Bank from renewing any credit already extended to a borrower.

   [.7] 7. No later than ninety (90) days from the effective date of this ORDER, the Bank shall operate pursuant to a revised written lending policy which provides effective guidance and control over the Bank's lending function and promotes qualitative enhancement, minimization of risk, asset diversification, and liquidity considerations. The Bank's loan policy and practices required by this paragraph, at a minimum, shall include the following:

       (i) a provision establishing a limit on aggregate extensions of credit to a maximum level of $800,000 per borrower, for all new credit relationships;
       (ii) provisions which define credit criteria and limits on proposed real estate construction and/or rehabilitation-type financing and condominium loans, including the requirement that such borrowers will be required to inject sufficient investment capital to bring the proposed loan to appraised value ratio to 80% or less;
       (iii) provisions which promote loan diversification;
       (iv) provisions establishing a loan review process which at a minimum establishes a "watch list" which 1) identifies each appropriate loan with a statement why the loan merits special attention and 2) provides for at least monthly reporting to the Board of Directors with the actions taken by management clearly detailed;
       (v) provisions that assure adherence to FDIC instructions for reporting purposes regarding non-accrual loans; all loans delinquent 90 days or more shall be placed in non-accrual status unless well secured and in the process of collection;
       (vi) provisions addressing the deficiencies detailed in the Report of Examination dated December 8, 1989 concerning "loan policy" and contained on pages 1-a-1 and 6-a.
The revised written lending policy shall be submitted to the Regional Director and the Commissioner for review and comment. Within thirty (30) days after receipt of regulatory comments, the Board of Directors shall approve the revised written lending policy, taking into consideration any regulatory comments, and such approval shall be noted in the minutes of the Board.

   [.8] 8. Within sixty (60) days from the effective date of this ORDER, the Bank shall develop and implement a program for correcting the technical exceptions detailed under "Assets Listed for Technical Exception" on pages 2-e in the December 8, 1989 Report of Examination.
   [.9] 9. Within ninety (90) days from the effective date of this ORDER, the Bank shall submit to the Commissioner and the Regional Director a strategic plan that will outline the goals and objectives of the Bank, including defining the types of loans and investments to be made and the sources of funds. Said plan shall consider asset quality standards and volatility and cost of liabilities, as well as general staffing levels, to accomplish the designated goals.
   10. Within forty-five (45) days from the effective date of this ORDER, the Bank shall formulate, adopt, and thereafter strictly follow revisions to the written Investment and Funds Management Policies acceptable to the Regional Director and the Commissioner. These revisions should ensure that the Bank will operate with an acceptable level of liquidity. The policy shall include, but not be limited to the following:

       (a) a description of the responsibility of the Bank's Board of Directors in establishing overall investment and asset-liability management objectives and in reviewing, approving, or ratifying investment transactions and funds management activities;
       (b) provisions establishing liquidity targets and specific plans;
       (c) guidelines on rate sensitivity to establish acceptable levels of interest rate risk;
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    (d) provisions for coordination of the Bank's loan, investment, operating budget, and profit planning policies.

   [.10] 11. Within forty-five (45) days from the effective date of this ORDER, the Bank shall eliminate and/or correct the violations of law which are more fully set out on page 6-b of the Report of Examination of the Bank as of December 8, 1989. In addition, the Bank shall take all necessary steps to ensure future compliance with all applicable laws and regulations.

   [.11] 12. Within ninety (90) days from the effective date of this ORDER, the Bank shall correct all operating deficiencies in internal routine and controls as set forth on page 6-c in the December 8, 1989 Report of Examination.

   [.12] 13. Within ninety (90) days from the effective date of this ORDER, the Bank shall establish a system to ensure the accurate preparation of FDIC Reports of Condition and Income.

   [.13] 14. Within thirty (30) days from the effective date of this ORDER, and, thereafter, within thirty (30) days after 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. 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 each asset concentration, technical exception, and violation of law. All progress reports and other written responses to this ORDER shall be reviewed by the Board of Directors of the Bank and such review shall be made part of the minutes of the Board meeting.

   [.14] 15. Upon receipt of this ORDER, if the Bank still has brokered deposits, the Bank, as an undercapitalized institution, will make a waiver application for the renewal or rollover of said brokered deposits under section 337.6 of the FDIC's Rules and Regulations, 12 C.F.R. § 337.6.
   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.
   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 25th day of July, 1990.

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