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FDIC Enforcement Decisions and Orders

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{{5-31-92 p.C-789}}
   [10,176] In the Matter of The Central Savings Bank, Lowell, Massachusetts, Docket No. FDIC-91-31b (2-5-91).

   Bank to cease and desist from such unsafe or unsound practices as: operating with an excessive volume of adversely classified assets; operating with inadequate primary capital; engaging in violations of laws and regulations; engaging in practices which produce inadequate operating income and excessive loan losses; failing to provide adequate direction over the affairs of the Bank; and operating with inadequate allowance for loan and lease losses. (This order was terminated by order of the FDIC dated 3-4-92; see ¶ 15,408.)

   [.1] Management—Qualifications—Review
   [.2] Assets—Adversely Classified—Reduce/Eliminate
   [.3] Capital—Capital Structure—Written Plan Required
   [.4] Allowance for Loan and Lease Losses—Increase/Maintain—Report
   [.5] Loans—Risk Position—Reduce—Written Plan Required
   [.6] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.7] Loans—Accrual of Interest—Overdue
   [.8] Loans—Borrower—Written Report Required
   [.9] Real Estate—Appraisal Required
   [.10] Profit Plan—Written Plan—Minimum Requirements—Review
   [.11] Funds Management—Written Policy—Minimum Requirements— Review
   [.12] Technical Exceptions—Deficiencies—Correct
   [.13] Violations of Law—Eliminate/Correct
   [.14] Compliance—Progress Reports—Frequency

In the Matter of

THE CENTRAL SAVINGS BANK
LOWELL, MASSACHUSETTS
(Insured State Nonmember Bank)
ORDER TO CEASE
AND DESIST

   The Central Savings Bank, Lowell, Massachusetts ("Bank"), having been advised of its right to a Notice of Charges and of hearing detailing the unsafe or unsound banking practices and violations of law and/or regulations alleged to have been committed by the Bank and of its right to a hearing on such alleged charges under section 8(b)(1) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1818(b)(1), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") with counsel for the Federal Deposit Insurance Corporation ("FDIC"), dated January 31, 1991, 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 has 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 and its institution-affiliated parties, as that term is defined in section 3(u) of the Act, 12 U.S.C. § 1813(u), cease and desist from the {{5-31-92 p.C-790}} following unsafe or unsound banking practices and violations of law and/or regulations:

       (a) operating with an excessive volume of adversely classified assets;
       (b) operating with inadequate primary capital for the kind and quality of assets held;
       (c) engaging in violations of applicable laws and regulations:
         (i) Part 325, FDIC Rules and Regulations;
         (ii) Chapter 167E, Section 2B, Paragraph 5 and 13; and
         (iii) Chapter 167E, Section 6, Paragraph 5(b);
       (d) engaging in practices which produce inadequate operating income and excessive loan losses;
       (e) failing to provide adequate supervision and direction over the affairs of the Bank to prevent unsafe or unsound practices and violations of law and/or regulations; and
       (f) operating with an inadequate allowance for loan and lease losses for the volume, kind and quality of loans held.
   IT IS FURTHER ORDERED that the Bank and its institution-affiliated parties, take the following affirmative action. Solely for purposes of enforcement of this ORDER by the FDIC pursuant to section 8(i) of the Act, 12 U.S.C. § 1818(i), the Bank and its institution-affiliated parties will not be deemed to be in violation of provisions (a) through (f) above, except to the extent that the Bank is not in compliance with the following provisions:

   [.1] 1. (a) Within ninety (90) days from the effective date of this ORDER, the Bank shall have and retain qualified management. Each member of management shall have qualifications and experience commensurate with his or her duties and responsibilities at the Bank. The qualifications of management shall be assessed on its ability to:

       (i) comply with the requirements of this ORDER,
       (ii) operate the Bank in a safe and sound manner,
       (iii) comply with applicable laws and regulations, and
       (iv) restore all aspects of the Bank to a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness, and liquidity.
   During the life of this ORDER, the Bank shall notify the Regional Director of the FDIC's Boston Regional Office ("Regional Director") and the Commissioner of Banks for the Commonwealth of Massachusetts ("Commissioner") of any changes in management. The notification must include the names and background of any replacement personnel and must be provided prior to the individual assuming the new position.
   (b) The Bank's Board of Trustees shall meet at least monthly, and detailed written minutes of all Board meetings shall be maintained and recorded on a timely basis.

   [.2] 2. Within ten (10) days from the effective date of this ORDER, the Bank shall eliminate from its books, by charge-off or collection, all assets or portions of assets classified "Loss", and fifty (50.0) percent of those assets or portions of assets classified "Doubtful" as of March 9, 1990, which have not been previously collected or charged off. 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) 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 Regional Director and the Commissioner for approval within one hundred twenty (120) days from the effective date of this ORDER. Immediately upon receipt of the Regional Director's and the Commissioner's approval of the Bank's Capital Plan, including any modifications to the plan suggested by these regulatory authorities, the Bank shall begin to implement such plan.
   The Capital Plan shall address both internal and external sources of capital augmentation, including capital infusions, retention of earnings, restriction of asset {{4-30-91 p.C-791}}growth, and asset sales, with the goal of producing primary capital at or in excess of eight (8.0) percent of the Bank's total assets ("primary capital ratio"), with stated timetables in which to attain this goal. For purposes of this ORDER, the terms "primary capital" and "total capital" shall have the meanings ascribed to them in Part 325 of the FDIC Rules and Regulations, 12 C.F.R. Part 325.
   (b) If, during the period this ORDER is in effect, the ratio specified in paragraph 3(a) reaches eight (8.0) percent and subsequently declines below eight (8.0) percent, the Bank, within thirty (30) days after the date on which the said ratio so declined, shall submit a written plan to the Regional Director and the Commissioner for increasing such ratio up to or in excess of eight (8.0) percent within sixty (60) days after the written plan is implemented. Upon approval by the Regional Director and the Commissioner, the Bank shall immediately implement the written plan.
   (c) Any increase in capital necessary to meet the requirements of Paragraph 3(a) or 3(b) of this ORDER may be accomplished by the following:

       (i) the direct contribution of cash by the trustees of the Bank; or
       (ii) the collection of all or part of assets classified: (A) "Loss" as of March 9, 1990, without loss or liability to the Bank, or (B) "Doubtful" as of March 9, 1990, without loss or liability to the Bank, 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 a balance in excess of that required for adequacy, any such excess may be transferred to equity capital through a negative provision for loan and lease losses;
       (iii) the collection in cash of assets previously charged off; or
       (iv) any combination of the above means; or
       (v) any other means acceptable to the Regional Director and the Commissioner.
   (d) 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) and 3(b) of this ORDER, including any action to increase its capital by each of the methods specified in paragraphs 3(c)(i) through 3(c)(v) of this ORDER.

   [.4] 4. (a) Within thirty (30) days from the effective date of this ORDER, the Bank shall increase its allowance for loan and lease losses existing as of March 9, 1990 by $3,200,000 at a minimum. Thereafter, 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 the including June 30, 1990 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. If necessary to comply with this paragraph 4(b), the Bank shall file amended Reports of Condition and Income within ten (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 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 Income. The minutes of the Board meeting at which such review is undertaken shall indicate the results of the review, including any increases in the allowance, and the basis for determining the amount of allowance provided.

   [.5] 5. (a) Within sixty (60) days from the effective date of this ORDER, the Board of Trustees shall develop or cause to be developed a written plan of action to
{{4-30-91 p.C-792}}lessen the Bank's risk position in each extension of credit/related extensions of credit, including real estate holdings, joint venture positions, and investments in subsidiaries, aggregating $500,000 or more which was classified "Substandard" or "Doubtful" as of March 9, 1990. In developing such plan, the bank shall, at a minimum:

       (i) review the financial position of each such borrower, including source of repayment, repayment ability, and alternative repayment sources; and
       (ii) evaluate the available collateral for each such credit, including possible actions to improve the Bank's collateral position.
   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 six (6) and twelve (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. (Exhibit A provides the form for this progress report.) As used in this paragraph 5, "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 the Commonwealth of Massachusetts Department of Banking. Payment of loans with the proceeds of the other loans made by the Bank will not constitute "reduction" or "collection" for purposes of this ORDER.
   (b) The written plan of action described by paragraph 5(a) shall be submitted to the Regional Director and the Commissioner for review and comment. No sooner than thirty (30) days, but under no circumstances more than sixty (60) days after such submission, the Board of Trustees shall approve the written plan of action, taking into consideration any regulatory comments, and such approval shall be recorded in the minutes of the Board of Trustees.
   (c) Subsequent modifications to the written plan of action may be made only after giving the Regional Director and the Commissioner written notice of the proposed modification, and after consideration of any responsive comments submitted by the Regional Director and/or the Commissioner within thirty (30) days from their receipt of the notice of proposed modification. However, if time is of the essence, oral notification to the Regional Director and the Commissioner is acceptable so long as it is followed by subsequent written confirmation. No modification to the written plan of action shall become effective until approved by the Board of Trustees, and such approval shall be recorded in the minutes of the Board of Trustees. The Bank, its trustees, officers and employees shall follow the written plan of action and/or any subsequent modification thereto.

   [.6] 6. The Bank shall not extend or renew, directly or indirectly, credit to, or for the benefit of, any borrower who has a loan or other extension of credit with the Bank that has been charged off or classified, in whole or in part, "Loss," "Doubtful," or "Substandard," and is uncollected, unless a majority of the Bank's Board of Trustees first (1) determines that such advance is in the best interest of the Bank, (2) determines that the Bank has satisfied the requirements set out in paragraph 5 of this ORDER as to such borrower, and (3) approves such advance. 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.

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

   [.8] 8. Within thirty (30) days from the effective date of this ORDER, the Bank shall submit to the Regional Director and the Commissioner a detailed history of the Bank's relationship with Richard Boyle and his related business interests in which he has majority ownership. The history shall include {{6-30-92 p.C-793}}such information as origination dates, terms, amounts, present balances, types, collateral, purchase price and appraisals of collateral relative to loans to Mr. Boyle and loans to or investments in his related business interests, as well as information regarding Mr. Boyle's role in the Maple Street joint venture.

   [.9] 9. Within thirty (30) days from the effective date of this ORDER, the Bank shall request an appraisal on the property owned by Boston North Associates, Inc. in the name of Boston North-Tinkham Nominee Trust located in Londonderry, New Hampshire. The appraisal shall be prepared by an appraiser approved by the Regional Director and the Commissioner. Upon completion, copies of the appraisal shall be submitted to the Regional Director and the Commissioner.

   [.10] 10. (a) Within one hundred twenty (120) 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 shall be submitted to the Regional Director and the Commissioner for review and comment. No sooner than thirty (30) days, but under no circumstances more than sixty (60) days after such submission, the Board of Trustees shall approve the written profit plan, taking into consideration any regulatory comments, and such approval shall be recorded in the minutes of the Board of Trustees.
   (c) Subsequent modifications to the written profit plan may be made only after giving the Regional Director and the Commissioner written notice of the proposed modification, and after consideration of any responsive comments submitted by the Regional Director and/or the Commissioner within thirty (30) days from their receipt of the notice of proposed modification. However, if time is of the essence, oral notification to the Regional Director and the Commissioner is acceptable so long at it is followed by subsequent written confirmation. No modification to the written profit plan shall become effective until approved by the Board of Trustees, and such approval shall be recorded in the minutes of the Board of Trustees. The Bank, its trustees, officers, and employees shall follow the written profit plan and/or any subsequent modification thereto.

   [.11] 11. (a) Within one hundred twenty (120) days from the effective date of this ORDER, the Bank shall develop a written funds management policy which shall include, at a minimum:

       (i) the Bank's liquidity needs and plans for insuring that such needs are met on an ongoing basis;
       (ii) goals and strategies for managing and/or improving the bank's interest rate risk exposure;
       (iii) established limits for maximum investments in real estate joint ventures and subsidiaries in relation to the Bank's capital position;
       (iv) 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
       (v) 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 shall be submitted to the Regional Director and the Commissioner for review and comment. No sooner than thirty (30) days, but under no circumstances more than sixty (60) days after such submission, the Board of Trustees shall approve the written funds management policy, taking into consideration any regulatory comments, and such approval shall be recorded in the minutes of the Board of Trustees.
{{6-30-92 p.C-794}}
   (c) Subsequent modifications to the written funds management policy may be made only after giving the Regional Director and the Commissioner written notice of the proposed modification, and after consideration of any responsive comments submitted by the Regional Director and/or the Commissioner within thirty (30) days from their receipt of the notice of proposed modification. However, if time is of the essence, oral notification to the Regional Director and the Commissioner is acceptable so long as it is followed by subsequent written confirmation. No modification to the written funds management policy shall become effective until approved by the Board of Trustees, and such approval shall be recorded in the minutes of the Board of Trustees. The Bank, its trustees, officers and employees shall follow the written funds management policy and/or any subsequent modification thereto.

   [.12] (a) Within sixty (60) days from the effective date of this ORDER, the Bank shall endeavor to correct the technical exceptions on loans noted on page 2-d of the Commonwealth's Report of Examination of the Bank as of March 9, 1990.
   (b) Within (60) days from the effective date of this ORDER, the Bank shall formulate and implement a plan to reduce all concentrations as noted on page 2-b of the Commonwealth's Report of Examination of the Bank as of March 9, 1990 to less than twenty-five (25.0) percent of total primary capital and allowance for loan and lease losses.

   [.13] 13. Within sixty (60) days from the effective date of this ORDER, the Bank shall eliminate and/or correct all remediable violations of law and regulations committed by the Bank as described on page 6-A of the Commonwealth's Report of Examination of the Bank as of March 9, 1990.

   [.14] 14. Within sixty (60) days from the effective date of this ORDER, and thereafter, within thirty (30) days from the end of each calendar quarter, the Bank shall furnish written progress reports to the Regional Director and the Commissioner detailing the form and manner of any action taken to secure compliance with this ORDER and the results thereof. The quarterly progress report shall include the most recent criticized asset report (Exhibit A) referred to in Paragraph 5. In addition, the Bank shall furnish such reports on request of either the Regional Director or the Commissioner. All progress reports and other written responses to this ORDER shall be reviewed by the Board of Trustees of the Bank and made a part of the minutes of the Board meeting.
   This ORDER shall become effective ten (10) days from the date of its issuance and supersedes the Memorandum of Understanding dated February 15, 1989.
   The provisions of this ORDER shall be binding upon the Bank and its institution-affiliated parties.
   This ORDER has been reviewed and concurred in by the Commissioner.
   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 5th day of February, 1991.

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