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FDIC Enforcement Decisions and Orders

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   [10,306] In the Matter of Edward S. Buchanan and Massachusetts Bank and Trust, Brockton, Massachusetts, Docket No. FDIC-91-124c&b (8-15-91).

   Bank to cease and desist from such unsafe or unsound practices as operating with excessive volumes of adversely classified assets; following hazardous lending and lax collection practices; operating with inadequate capital; operating in violation of applicable laws or regulations; operating with management whose policies are detrimental to the Bank; operating with inadequate loan documentation; engaging in practices which produce inadequate operating income; failing to provide adequate supervision over the Bank's affairs; paying excessive cash dividends; operating with inadequate allowance for loan and lease losses; failing to submit Reports of Condition and Income in accordance with instructions; operating with inadequate liquidity; operating with excessive volatile liability dependence; operating with inadequate routine and controls policies; purchasing speculative equity securities; operating with inadequate lending and investment policies; purchasing assets which provide no benefit to Bank; paying expenses, for employees and others, for activities with no benefit to Bank; and permitting insiders to use Bank assets for personal reasons. (This order was terminated by orders of the FDIC dated 8-3-92 and 9-21-92; see ¶15,496 and ¶15,527.)

   [.1] Management—Qualifications—Review
   [.2] Management—Management Plan—Minimum Requirements
   [.3] Board of Directors—Election—Outside Directors Added
   [.4] Board of Directors—Meetings—Frequency
   [.5] Loan Loss Reserve—Increase/Maintain—Methods
   [.6] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.7] Loans—Risk Position—Reduce—Written Plan Required
   [.8] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.9] Loans—Overdue—Accrual of Interest
   [.10] Loan Policy—Written Revision—Minimum Requirements
   [.11] Profit Plan—Minimum Requirements
   [.12] Funds Management—Written Policy Required
   [.13] Liquidity—Written Policy—Minimum Requirements
   [.14] Investment Policy—Revision—Minimum Requirements
   [.15] Dividends—Restricted
   [.16] Technical Exceptions—Correct/Eliminate
{{10-31-91 p.C-1317}}
   [.17] Violations of Law—Eliminate/Correct
   [.18] Compliance Reports—Frequency
   [.19] Board of Directors—Election—Outside Directors Added
   [.20] Institution-Affiliated Parties—Transactions—Audits Required

In the Matter of
EDWARD S. BUCHANAN, individually
and as
and institution-affiliated party of
Massachusetts Bank and Trust,
Brockton,
Massachusetts
and
MASSACHUSETTS BANK AND
TRUST

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

   Massachusetts Bank and Trust, Brockton, Massachusetts ("Bank") and Edward S. Buchanan ("Respondent Buchanan"), having received 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 Respondent Buchanan of their 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 August 14, 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 and Respondent Buchanan 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 reasons to believe that the Bank and Respondent Buchanan have engaged in unsafe or unsound banking practices and have 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, Respondent Buchanan and the Bank's 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 following unsafe or unsound banking practices and violations of law and/or regulations:
   (a) operating with an excessive volume of adversely classified assets;
   (b) engaging in hazardous lending and lax collection practices, including maintaining an excessive volume of adversely classified loans and inadequate diversification of risk;
   (c) operating with inadequate capital for the kind and quality of assets held;
   (d) engaging in violations of applicable laws and regulations;
   (e) operating with management whose policies and practices are detrimental to the Bank;
   (f) operating with deficient or inadequate loan documentation, including but not limited to current financial statements, appraisals, insurance coverage, title searches or legal opinions, and cash flow and/or operating information;
   (g) engaging in practices which produce inadequate operating income and excessive loan losses;
   (h) 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;
   (i) paying excessive cash dividends in relation to the Bank's net income and/or capital position;
   (j) operating with an inadequate allowance for loan and lease losses for the volume, kind and quality of loans held;
   (k) failing to submit Reports of Condition and Income in accordance with prevailing instructions;
   (l) operating with inadequate liquidity;
   (m) operating with excessive volatile liability dependence;
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   (n) operating without proper internal routine and controls;
   (o) engaging in the purchase of speculative equity securities;
   (p) operating with inadequate lending and investment policies;
   (q) purchasing, investing, and/or maintaining assets which provide no proven benefit to the Bank;
   (r) paying for, or reimbursing expenses incurred by both bank employees and non-bank employees, unless such expenses provide or provided proven benefit to the Bank, and,
   (s) permitting directors, officers, employees of the Bank, or their immediate family members, from using Bank asset(s) for personal reasons.
   IT IS FURTHER ORDERED, that the Bank and its institution-affiliated parties take affirmative action as set forth below. Solely for purposes of enforcement of this Order under 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 paragraphs (a) through (s) above, except to the extent that the Bank is not in compliance with the following provisions:

[.1] 1. (a) Within sixty (60) days from the effective date of this ORDER, or within the corrective period prescribed by a Notification to Primary Regulator of Findings issued after January 14, 1991 by the FDIC pursuant to section 8(a) of the Act, 12 U.S.C. section 1818(a) ("Notification to Primary Regulatory"), whichever is earlier, the Bank shall have and retain qualified management. At a minimum, such management shall include executive officers with proven ability in managing a bank of comparable size and experience in upgrading a low quality loan portfolio. Such persons shall be provided the necessary written authority to implement the provisions of this ORDER. 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 Boston Regional office ("Regional Director") and the Commonwealth of Massachusetts, Office of the Commissioner of Banks ("Commissioner") in writing of any changes in management at the level of officer. The notification must include the names and background of any replacement personnel and must be provided prior to the individual's assuming the new position.

   [.2] (b) Toward this end, within sixty (60) days from the effective date of this ORDER, the members of the Board of Directors who are independent with respect to the Bank, with the assistance of management, consultants and/or professionals, if considered necessary, shall 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, in particular the President, Executive Vice Presidents, and Treasurer, and staff member to determine whether these individuals possess the ability, experience and other qualifications duties, including adherence to the Bank's established policies and practices, and maintenance of the Bank is 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 Directors 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(b)(i) and 1(b)(iii) of this ORDER.
   (c) The written management plan shall {{10-31-91 p.C-1319}}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 forty-five (45) days after such submission, the Board of Directors shall approve the written management plan, taking into consideration any regulatory comments, and such approval shall be recorded in the minutes of the Board of Directors. Subsequent modifications to the written management 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. No such modification shall become effective until approved by the Board of Directors, and such approval shall be recorded in the minutes of the Board of Directors. The Bank, its directors, officers and employees shall implement and follow the written management plan and/or any subsequent modification thereto.

[.3] (d) (i) The written management plan shall also include the requirement that the Board of Directors of the Bank, or a committee thereof consisting of not less than three (3) individuals who are independent with respect to the Bank, provide supervision over lending, investment and operating policies of the Bank sufficient to ensure that the Bank complies with the provisions of this ORDER.
   (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 and who does not own more than five (5.0) percent of the outstanding shares of the Bank, (2) who is not related by blood, marriage or common financial interest to an officer of the Bank or to any stockholder owning more than five (5.0) percent of the Bank's outstanding shares, 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 (5.0) percent of the Bank's total equity capital and allowance for loan and lease losses.

   [.4] (e) The Bank's Board of Directors 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. A chronological file of all written agendas shall be maintained. Notwithstanding the foregoing, the Board shall not be precluded 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. Attendance of the Board members shall be recorded in the Board minutes, with distinction made between those members physically present and those "attending" through the use of electronic mediums.

[.5] 2. (a) Within ten (10) days from the effective date of this ORDER, the Bank shall increase its allowance for loan and lease losses ("Reserve") existing as of December 31, 1990 by $1,758,000 at a minimum.
   (b) Immediately after complying with paragraph 2(a), 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 all assets or portions of assets other than extensions of credit or leases classified "Doubtful" in the January 14, 1991 FDIC Report of Examination, ("Examination"), which have not been previously collected or charged off. Reduction of these assets through use of proceeds of loans made by the Bank, other than to qualified third party borrowers, does not constitute "collection" or "elimination" for the purpose of this paragraph.
   (c) Thereafter, the Bank shall maintain its Reserve in accordance with the prevailing requirements of the Instructions for the Reports of Condition and Income ("Instructions"). Toward this end, within sixty (60) days from the effective date of this ORDER, the Bank's Board of Directors shall establish a comprehensive policy for determining the adequacy of the Bank's Reserve. 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
{{10-31-91 p.C-1320}}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 adequacy of the Reserve in relation to the loss potential in the loan portfolio will be reviewed by the Board of Directors and adjustments to the Reserve will be made accordingly. Details of these reviews will be incorporated into the minutes of the Board of Directors, including the methodology used to determine the adjustments made.
   (d) 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 June 30, 1990 and the effective date of this ORDER, shall, at a minimum, reflect a Reserve that should have been maintained in accordance with the Instructions. If necessary to comply with this paragraph 2(d), the Bank shall file amended Reports of Condition and Income within ten (10) days from the effective date of this ORDER.
   (e) 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 Directors of the Bank shall: (1) review the adequacy of the Bank's Reserve, (2) provide for an adequate Reserve, and (3) accurately report the Reserve 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 Reserve, and the basis for determining the amount of allowance provided.

[.6] 3. (a) (i) By December 31, 1991, the Bank shall have Tier 1 capital of at least four (4.0) percent of its total assets ("Tier 1 leverage capital ratio"), and shall maintain such level of capital until June 30, 1992. By June 30, 1992, the Bank shall have a Tier 1 leverage capital ratio of at least four and three quarters (4.75) percent, and shall maintain such level of capital until December 31, 1992. By June 30, 1993, the Bank shall have a Tier 1 leverage capital ratio of at least five and one quarter (5.25) percent, and shall maintain such level of capital until December 31, 1993. By December 31, 1993, the Bank shall have a Tier 1 leverage capital ratio of at least six (6.0) percent and shall maintain such level of capital while this ORDER is in effect. Any increase(s) in Tier 1 capital necessary to comply with this paragraph may be accomplished by:

       (1) the sale of new offerings of common stock or perpetual preferred stock;
       (2) the sale or transfer of existing shares by the Bank's shareholders to individuals who will contribute the required increase in capital to the Bank;
       (3) the direct contribution of cash by the shareholders and/or directors of the Bank;
       (4) the collection of all or part of assets classified: (A) "Loss" as of January 14, 1991, without loss or liability to the Bank, or (B) "Doubtful" as of January 14, 1991, 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(b) of this ORDER. Reductions to loans and leases classified "Loss" and "Doubtful" shall first be credited to the Bank's Reserve and, if the Board of Directors' review of the adequacy of the Reserve required by paragraph 2(a) of this ORDER indicates that such Reserve has a balance in excess of that required for adequacy, any such excess may be transferred to capital through a negative provision to the Reserve;
       (5) the collection in cash of assets previously charged off;
       (6) any combination of the above means; or
       (7) any other means acceptable to the Regional Director and the Commissioner
Nothing in this ORDER shall be construed to impose an obligation on the Bank's directors or shareholders to contribute all or any of the capital required by this paragraph 3.
   (ii) Toward this end, the Bank shall develop a Capital Plan which will be
{{10-31-91 p.C-1321}}submitted to the Regional Director and the Commissioner for approval within ninety (90) days from the effective date of this ORDER. The Capital Plan should address both internal and external sources of capital augmentation, including capital infusions, retention of earnings, restrictions of asset growth and asset sales.
   (iii) For purposes of this ORDER, the terms "Tier 1 capital" and "total assets" shall have the meanings ascribed to them in the revised Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325, which became effective April 10, 1991.
   (iv) In calculating the Bank's Tier 1 leverage capital ratio under paragraph 3 of this ORDER, such ratio and its component parts shall be determined only after the Bank has made such additions to its Reserve so as to bring the Reserve into compliance with the prevailing requirements of the Instructions and charged off any losses identified subsequent to the Examination.
   (v) If, after having achieved the six (6.0) percent Tier 1 leverage capital ratio specified in paragraph 3(b)(i), such ratio declines below six (6.0) 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 six (6.0) percent within sixty (60) days after the written plan is implemented. Thereafter, the Bank shall continue to maintain its Tier 1 leverage capital ratio at or in excess of such level as calculated herein while this ORDER is in effect. Upon approval by the Regional Director and the Commissioner, the Bank shall immediately implement the written plan.
   (b) In addition to the requirements of paragraph 3(a), 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) If all or part of any increase in capital made by the Bank in order to meet the requirements of this paragraph 3 involves an offering, other than an offering deemed not to be a public securities offering pursuant to 17 C.F.R. section 230.506 or as hereafter amended, of the Bank's securities (including a distribution limited only to the Bank's existing shareholders), 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 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 Section, 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.
   (e) The Bank's Board of Directors 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(d) of this ORDER, including, at a minimum, any action to increase its capital by each of the methods specified in paragraphs 3(a)(i)(1) through 3(a)(i)(7) of this ORDER.

[.7] 4. (a) Within sixty (60) days from the effective date of this ORDER, the Board of Directors shall develop a written plan of action to lessen the Bank's risk position with respect to each borrower who or which had outstanding principal debt owing to the Bank in excess of $150,000 which was classified "Substandard" or
{{10-31-91 p.C-1322}}"Doubtful," in whole or in part, as of January 14, 1991, and each parcel of other real estate ("ORE") which was classified "Substandard" or "Doubtful," in whole or in part, as of January 14, 1991. 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 also: (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 Directors for review and notation in the Board minutes. Exhibit A provides the form for the 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 Office of the Commissioner of Banks. 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) (i) Within sixty (60) days from the effective date of this ORDER, the Board of Directors shall develop and implement a written plan of action to eliminate all debt and equity securities which were classified "Substandard" or "Doubtful", in whole or in part, in the Examination.
       (ii) During the life of this ORDER, the Bank shall not invest, directly or indirectly, in an subinvestment quality securities, as such term is defined in the FDIC's DBS Manual of Examination Policies.
       (iii) During the life of this ORDER, the Bank shall not invest, directly or indirectly, in any equity security unless a majority of the Bank's Board of Directors first (1) determines that such an investment is in the best interest of the Bank, (2) gives approval for such investment and (3) obtains permission from the Regional Director and the Commissioner. A written record of the Board of Directors' determination and approval of any investment shall be maintained in the credit file of the affected issuer(s) as well as in the minutes of the Board of Directors.
   (c) The written plans of action described by paragraphs 5(a) and 5(b) 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 forty-five (45) days after such submission, the Board of Directors 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 Directors. Subsequent modifications to the written 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. No such modification shall become effective until approved by the Board of Directors, and such approval shall be recorded in the minutes of the Board of Directors. The Bank, its directors, officers and employees shall follow the written plan of action and/or any subsequent modification thereto.

   [.8] 5. 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," in the Examination and is uncollected, 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 5 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.

   [.9] 6. The Bank shall not accrue interest
{{10-31-91 p.C-1323}}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 reserve on its books all previously accrued but uncollected interest on any loan that has ceased to accrue but uncollected interest on any loan that has ceased to accrue interest pursuant to this provision.

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

       (i) the lending authority of the loan officer;
       (ii) the lending authority of a loan or executive committee, if any;
       (iii) the responsibility of the Board of Directors 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;
       (vi) with regard to secured loans: (1) limitations on the amount advanced in relation to the value of the collateral, and (2) 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 appraisal 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;
       (xvii) periodic review of the overdue, problem and/or adversely classified or special mention loans by the Board of Directors, so as to monitor management's administration of such distressed credits, and to provide guidance;
       (xviii) guidelines governing the receipt and review of appraisals on all extensions of credit secured by real estate;
       (xix) guidelines governing the extension of credit to any director, officer, employee, or stockholder owning five (5.0) percent or more of the outstanding shares of stock.
   (b) The revised written loan 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 forty-five (45) days after such submission, the Board of Directors shall approve the revised written loan policy, taking into consideration any regulatory comments, and such approval shall be recorded in the minutes of the Board of Directors. Subsequent modifications to the revised written loan 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. No such modification shall become effective until approved by the Board of Directors, and such approval shall be recorded in the minutes of the Board of Directors. The Bank, its directors, officers and employees shall follow the revised written loan policy and/or any subsequent modification thereto.
{{10-31-91 p.C-1324}}
       (c) (i) The Bank shall not approve, grant, make, commit to, or fund any loan or other extension of credit, or rewrite or renew any such loan or credit, directly or indirectly, to any major stockholder of the Bank, such stockholder's immediate family members, or their related interest(s) unless:
         1) the loan or other extension of credit does not involve more than the normal risk of repayment or present other unfavorable features and,
         2) has been approved in advance by a majority of the Bank's entire Board of Directors and,
         3) after written notification to the Regional Director, the Regional Director or his designee does not object to the transaction;
       (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;
       (iv) a description of the operating assumptions that form the basis for, and adequately support, major projected income and expense components; and
       (v) a provision requiring that any expense submitted to the Bank for payment must have adequate documentation to support its merit as a Bank related expense, and such expense must be expressly approved by the Board of Directors in the minutes of the meeting of the Bank's Board of Directors; and,
       (vi) a provision requiring the payment of salary and benefits to Bank officers be established at a level commensurate with salaries and benefits paid to officers who hold similar positions in banks of comparable size and complexity within the Bank's immediate geographic location.
   [.11] 8. 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 forty-five (45) days after such submission, the Board of Directors 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 Directors. 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. No such modification shall become effective until approved by the Board of Directors, and such approval shall be recorded in the minutes of the Board of Directors. The Bank, its directors, officers, and employees shall follow the written profit plan and/or any subsequent modification thereto.

[.12] 9. (a) Within sixty (60) 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) 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 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 forty-five (45) days after such submission, the Board of Directors 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 Directors. 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. No such modifi- {{10-31-91 p.C-1325}}cation shall become effective until approved by the Board of Directors, and such approval shall be recorded in the minutes of the Board of Directors. The Bank, its directors, officers and employees shall follow the written funds management policy and/or any subsequent modification thereto.

[.13] 10. (a) Within sixty (60) days from the effective date of this ORDER, the Bank shall formulate a plan for improving liquidity and reducing the Bank's dependency upon volatile liabilities to fund loans and long-term assets. The plan shall include, but not be limited to, the following:

       (i) target levels to which the bank will reduce the amount of loans and other long-term assets which are funded by potentially volatile liabilities within six (6) and twelve (12) months from the effective date of this ORDER;
       (ii) target levels to which the Bank will reduce the relationship of loans to deposits within six (6) and twelve (12) months from the effective date of this ORDER;
       (iii) a restriction on borrowings by the bank to that amount required for seasonal credit needs and to meet deposit withdrawals; and,
       (iv) target levels to which the Bank will reduce the relationship of large depositors to total deposits within 6 and 12 months from the effective date of this ORDER.
   (b) The liquidity 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 forty-five (45) days after such submission, the Board of Directors shall approve the liquidity plan, taking into consideration any regulatory comments, and such approval shall be recorded in the minutes of the Board of Directors. Subsequent modifications to the liquidity 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. No such modification shall become effective until approved by the Board of Directors, and such approval shall be recorded in the minutes of the Board of Directors. The Bank, its directors, officers and employees shall follow the liquidity plan and/or any subsequent modification thereto.

   [.14] 11. Within sixty (60) days from the effective date of this ORDER, the Bank shall revise its written investment policy consisting of goals and strategies for improving the quality of the Bank's investment portfolio, including the orderly divestiture of speculative equity securities and thereafter establish a limit for investment in equity securities to no more than twenty-five (25.0) percent of the Bank's total equity capital and its Reserve. The written investment 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 forty-five (45) days after such submission, the Board of Directors shall approve the written investment plan, taking into consideration any regulatory comments, and such approval shall be recorded in the minutes of the board. Subsequent modifications to the written investment 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. No such modification shall become effective until approved by the Board of Directors, and such approval shall be recorded in the minutes of the Board of Directors. The Bank, its directors, officers and employees shall follow the written investment plan and/or any subsequent modification thereto.

   [.15] 12. The Bank shall not pay or declare, directly or indirectly, a dividend of any kind without the prior written consent of the Regional Director and the Commissioner.

[.16] 13. (a) Within sixty (60) days from the effective date of this ORDER, the Bank shall correct the technical exceptions on loans noted on pages 2-e through 2-e-2 of the Examination.
   (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 through 2-b-2 of the Examination to less
{{10-31-91 p.C-1326}}than twenty-five (25.0) percent of the Bank's total equity capital and its Reserve.
   (c) Within (60) days from the effective date of this ORDER, the Bank shall correct the cited deficiencies in the loans listed for "Special Mention" on pages 2-c through 2-c-2 of the Examination.
   (d) Within (60) days from the effective date of this ORDER, the Bank shall correct the internal routine and control deficiencies cited on pages 6-b and 6-b-1 of the Examination.

   [.17] 14. Within sixty (60) days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of law and regulations committed by the Bank as described on pages 6-a through 6-a-4 of the Examination.

   [.18] 15. Within thirty (30) 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. 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 Directors of the Bank and made a part of the minutes of the Board meeting.

   [.19] 16. The Board of Directors shall take immediate steps, consistent with the Bank's bylaws and the laws of the Commonwealth of Massachusetts, to cause a majority of the Bank's Board of Directors to be independent with respect to the Bank.

[.20] 17. (a) Within thirty (30) days from the effective date of this ORDER, the Bank shall cause an independent study or audit ("Audit") to be made of all transactions not individually pre-authorized in writing by the Bank's Board of Directors occurring from January 1, 1985 through the effective date of this ORDER involving the following:

       (i) the bank's purchase of, and expenses related to automobiles owned by the Bank or any subsidiary or affiliate of the Bank;
       (ii) the purchase of, and expenses related to the yacht owned by the Bank or any subsidiary or affiliate of the Bank;
       (iii) salaries, benefits, and/or reimbursement for expenses paid directly to any major stockholder of the Bank, such stockholder's immediate family members, or their related interest(s);
       (iv) credit charges paid by the Bank directly or indirectly on behalf of any major stockholder of the Bank, such stockholder's immediate family members, or their related interest(s); and,
       (v) all such transactions which are discussed in any FDIC or Commonwealth of Massachusetts Report of Examination during such period.
The purpose of the Audit shall be to assist the Bank in determining whether the Bank should seek restitution from or institute legal action against any major stockholder of the Bank, such stockholder's immediate family members, or their related interest(s), or other individuals responsible for such transactions, to recover unwarranted benefits received, or damages or loss sustained by the Bank from such transactions. Toward this end, the Audit shall identify, at a minimum, the following:
       1) A description of the nature and purpose of the transaction;
       2) Date(s) of transaction;
       3) Parties involved, (including individuals or their related interest(s) benefitting from such transactions);
       4) Amounts involved;
       5) The manner in which such transactions were approved and/or authorized, and the officers and/or directors who approved and/or authorized such transaction on behalf of the Bank;
       6) The cost, or amount of loss or damage to the Bank resulting from such transaction; and
       7) The amount of benefit received by any individuals or their related interest(s) from such transactions.
Following completion of the Audit, the members of the Bank's Board of Directors who are independent with respect to the Bank shall promptly review the findings of the Audit, seek restitution, when warranted, from any individuals or entities who or which have received unwarranted benefits from such transactions, consult with legal counsel to determine the appropriateness of institution legal ac- {{4-30-94 p.C-1327}}tion based upon the Audit's findings, and report those findings and the Bank's proposed course of action in these matters to the Regional Director and the Commissioner.
   (b) Within thirty (30) days of receipt of the findings of the Audit, the Bank's Board of Directors shall finalize and implement a written policy governing all transactions between the Bank and its directors and/or officers, their immediate family members and/or their related interest(s).
   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 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.
   Dated at Needham, Massachusetts this 15th day of August, 1991.
   Pursuant to delegated authority.

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