Federal Deposit
Insurance Corporation

{{3-31-95 p.C-2241}}
   [¶10,530] In the Matter of Bridgewater Co-operative Bank, Bridgewater, Massachusetts, Docket No. FDIC-92-130b (5-8-92).

   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; engaging in practices which produce inadequate operating income; failing to provide adequate supervision over the Bank's affairs; 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 interest rate risk exposure; and operating without proper internal routine and controls. (This order was terminated by order of the FDIC dated 1-13-95; see ¶ 15,952.)

   [.1] Management—Qualifications—Review
   [.2] Management—Management Plan—Minimum Requirements
   [.3] Allowance for Loan and Lease Losses—Establish/Maintain
   [.4] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.5] Loans—Risk Position—Reduce—Written Plan Required
   [.6] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.7] Loan Policy—Written Revision—Minimum Requirements
   [.8] Profit Plan—Minimum Requirements
   [.9] Funds Management—Written Policy Required
   [.10] Investment Policy—Revision—Minimum Requirements
   [.11] Technical Exceptions—Eliminate/Correct
   [.12] Violations of Law—Eliminate/Correct
   [.13] Compliance Reports—Frequency

In the Matter of

BRIDGEWATER CO-OPERATIVE BANK
BRIDGEWATER, MASSACHUSETTS
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-92-130b

   Bridgewater Co-Operative Bank, Bridgewater, Massachusetts ("Bank"), having been {{3-31-95 p.C-2242}}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 May 5, 1992, whereby solely for the purpose of this proceeding and without admitting or denying any allegations or implications of fact or the existence of any unsafe or unsound banking practices or violations of law and/or regulations, or any other factual grounds for the issuance of an ORDER under section 8(b) of the Act, 12 U.S.C. § 1818(b), 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 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 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 inadequate lending and certain lax collection practices, including maintaining an excessive volume of adversely classified loans;
   (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) engaging in practices which produce inadequate operating income and excessive loan losses;
   (g) 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;
   (h) operating with an inadequate allowance for loan and lease losses for the volume, kind and quality of loans held;
   (i) failing to submit Reports of Condition and Income in accordance with prevailing instructions;
   (j) operating with inadequate liquidity;
   (k) operating with excessive interest rate risk exposure; and
   (l) operating without proper internal routine and controls.
   IT IS FURTHER ORDERED, that the Bank (and its institution-affiliated parties, to the extent such parties are subject to this ORDER pursuant to the Act), take affirmative action as set forth below. However, 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 have engaged in any unsafe or unsound banking practice or violation of law and/or regulation described in any of the above provisions, except to the extent the Bank is not in compliance with the following provisions:

   [.1] 1. (a) Within one hundred twenty (120) 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 take effective action toward the accomplishment of the following goals:

   (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) restoration of 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") in writing of any changes in man- {{7-31-92 p.C-2243}}agement in the manner and to the extent required by section 303.14 of the FDIC's Rules and Regulations, 12 C.F.R. § 303.14, with a copy of such notice to the Commissioner of Banks for the Commonwealth of Massachusetts ("Commissioner"). 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.

   (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 staff member 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 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.

(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 a majority of Board members 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) At the next meeting of the nominating committee of the Bank, and at each succeeding meeting of that committee at which individuals are nominated for the office of director, the committee shall nominate individuals who are independent with respect to the Bank in such number as is necessary to cause a majority of the Board of Directors to be and to remain independent with respect to the Bank.
   (iii) For purposes of this ORDER, an individual who is "independent with respect to the Bank" shall be any individual (1) who is not a salaried officer of the Bank (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 (5.0) percent of the Bank's total equity {{7-31-92 p.C-2244}}capital and allowance for loan and lease losses.

   [.4] 3. (a) (i) The Bank's Board of Directors will take all steps necessary to increase the Bank's ratio of Tier 1 capital to total assets ("Tier 1 leverage capital ratio") within the time frames specified as follows: by October 31, 1992, the Bank's Tier 1 leverage capital ratio shall be brought to a level at or in excess of three and three-quarters (3.75) percent and thereafter the Bank's Tier 1 leverage capital ratio shall be maintained at or in excess of such level until April 30, 1993; by April 30, 1993, the Bank's Tier 1 leverage capital ratio shall be brought to a level at or in excess of four and one-half (4.5) percent and thereafter the Bank's Tier 1 leverage {{7-31-92 p.C-2245}}capital ratio shall be maintained at or in excess of such level until October 31, 1993; by October 31, 1993, the Bank's Tier 1 leverage capital ratio shall be brought to a level at or in excess of five (5.0) percent and thereafter the Bank's Tier 1 leverage capital ratio shall be maintained at or in excess of such level until April 30, 1994; by April 30, 1994, the Bank's Tier 1 leverage capital ratio shall be brought to a level at or in excess of five and one-half (5.5) percent and thereafter the Bank's Tier 1 leverage capital ratio shall be maintained at or in excess of such level until October 31, 1994; by October 31, 1994, the Bank's Tier 1 leverage capital ratio shall be brought to a level at or in excess of six (6.0) percent and thereafter the Bank shall continue to maintain its Tier 1 leverage capital ratio at or in excess of such six (6.0) percent level as calculated herein while this ORDER is in effect. At no time while this ORDER is in effect shall the Bank's Tier 1 leverage capital ratio fall below three (3.0) percent. Toward these ends, the Bank shall develop a Capital Plan which will be 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.
   (ii) 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.
   (b) In calculating the Bank's Tier 1 leverage capital ratio under paragraph 3(a) initially, the Bank shall first comply fully with paragraphs 2(a) and (b) of this ORDER. Thereafter, 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.
   (c) Any increase in the Tier 1 leverage capital ratio made by the Bank in order to meet the requirements of paragraph 3(a) of this ORDER may be accomplished by:

   (i) the sale of new offerings of common stock or perpetual preferred stock;
   (ii) the contribution of cash by the directors of the Bank;
   (iii) the collection of all or part of assets classified: (A) "Loss" in the Examination, without loss or liability to the Bank, or (B) "Doubtful" in the Examination, without further or additional 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 remaining balance outstanding with regard to such loans and leases and the remainder, if any, then to the Reserve, and, if the Board of Directors' review of the adequacy of the Reserve required by paragraph 2 of this ORDER indicates that the Reserve has a balance in excess of that required for adequacy, any such excess may be transferred to equity capital through a negative provision to the Reserve;
   (iv) the collection in cash of assets previously charged off;
   (v) the retention of earnings;
   (vi) the sale or other disposition of assets by the Bank or a merger transaction including the Bank;
   (vii) any combination of the above means; or
   (viii) any other means acceptable to the Regional Director and the Commissioner.

   [.5] 4. (a) Within sixty (60) days from the effective date of this ORDER, the Board of Directors shall cause to be developed 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 $50,000 which was classified "Substandard" or "Doubtful," in whole or in part, as of November 4, 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.

   [.6] 5. The Bank shall not extend or renew, directly or indirectly, credit to, or for the benefit of, any borrower who or which 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 Directors first (1) determines that such extension or renewal is in the best interest of the Bank, (2) determines that the Bank has satisfied the requirements set out in paragraph 4 of this ORDER as to such borrower, and (3) approves such extension or renewal. A written record of the Board of Directors' determination and approval of any advance under the terms of this paragraph 5 shall be maintained in the credit file of the affected borrower(s) as well as the minutes of the Board of Directors. Notwithstanding the foregoing provisions, this ORDER shall not require such approvals by the Board of Directors for extensions of credit made pursuant to legally binding contractual commitments entered into be the Bank prior to the date of this ORDER.

   [.7] 6. (a) Within ninety (90) 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 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 Board of Directors, so as to monitor
{{7-31-92 p.C-2248}}management's administration of such distressed credits, and to provide guidance.

[.8] 7. (a) Within ninety (90) 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 Directors will seek to improve the Bank's operating performance;
   (ii) realistic and comprehensive budgets;
   (iii) a budget review process to monitor the income and expenses of the Bank to compare actual figures with budgetary projections; and
   (iv) a description of the operating assumptions that form the basis for, and adequately support, major projected income and expense components.

[.9] 8. (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 ensuring 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.

   [.10] 9. Within sixty (60) days from the effective date of this ORDER, the Bank shall develop and submit to the Regional Director and the Commissioner for review and comment a written investment policy consisting of goals and strategies for improving the quality of the Bank's investment portfolio. No sooner than thirty (30) days, but under no circumstances more than sixty (60) days after such submission to the Regional Director and the Commissioner, the Board of Directors shall approve the written investment policy, taking into consideration any comments received from the Regional Director and/or the Commissioner within such thirty (30) day period, and such approval shall be recorded in the minutes of the Board of Directors. 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 policy and/or any subsequent modification thereto.

   [.11] 10. (a) Within sixty (60) days from the effective date of this ORDER, the Bank shall correct the remediable technical exceptions on loans noted on page 2-d of the FDIC Report of Examination of the Bank as of November 4, 1991.
   (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 FDIC Report of Examination of the Bank as of November 4, 1991 to less than twenty-five (25.0) percent of the Bank's total equity capital and its Reserve.

   [.12] 11. 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 pages 6-b through 6-b-1 of the FDIC Report of Examination of the Bank as of November 4, 1991.

   [.13] 12. Within thirty (30) days from the last day of the month within which this ORDER becomes effective, 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.
   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, to the extent that such parties are subject to this ORDER pursuant to the Act.
   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 8th day of May, 1992.
   Pursuant to delegated authority.