Federal Deposit
Insurance Corporation

{{7-31-94 p.C-2763}}
   [¶10,652] In the Matter of Commercial Bank and Trust Company, Lowell, Massachusetts, Docket No. FDIC-92-298b (10-5-92).

   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 with management policies detrimental to the Bank; operating with inadequate loan documentation; engaging in practices which produce inadequate operating income; operating in violation of applicable laws or regulations; and operating with inadequate provisions for funds management. (This order was terminated by order of the FDIC dated 5-10-94; see ¶ 15,866.)

   [.1] Management—Qualifications—Review
   [.2] Management—Management Plan—Minimum Requirements
   [.3] Board of Directors—Election—Outside Directors Added
   [.4] Assets—Adversely Classified—Eliminate/Reduce
   [.5] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.6] Loans—Risk Position—Reduce—Written Plans Required
   [.7] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.8] Loans—Overdue—Accrual of Interest
   [.9] Loan Policy—Written Revision—Minimum Requirements
   [.10] Profit Plan—Minimum Requirements
   [.11] Funds Management—Written Policy Required
   [.12] Dividends—Restricted
   [.13] Shareholders—Disclosure—Cease and Desist Order
   [.14] Technical Exceptions—Eliminate/Correct
   [.15] Violations of Law—Eliminate/Correct
   [.16] Affiliated Companies—Payments for Benefit of—FDIC Consent Required

In the Matter of

COMMERCIAL BANK AND TRUST
COMPANY
LOWELL, MASSACHUSETTS
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-92-298b
   Commercial Bank and Trust Company, 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 September 29, 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, 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:

   IT IS HEREBY ORDERED that the Bank and its institution-affiliated parties, as that {{7-31-94 p.C-2764}}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;
   (c) operating with inadequate capital for the kind and quality of assets held;
   (d) engaging in management policies and practices which are detrimental to the Bank;
   (e) operating with deficient or inadequate loan documentation, including but not limited to current financial statements, and/or operating information;
   (f) engaging in practices which produce inadequate operating income and excessive loan losses;
   (g) engaging in violations of applicable laws and regulations; and,
   (h) operating without an adequate funds management policy.
   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 ct, 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 (h) 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 thereafter continue to 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.

   [.2] (b) Within ninety (90) days from the effective date of this ORDER, the Board of Directors shall develop, with such assistance from the Bank's management or any outside consultants as the Board may deem appropriate, 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 at the level of vice president and above to determine whether these individuals possess the ability, experience and other qualifications required to perform present and anticipated duties, including adherence to the Bank's established policies and practices, and maintenance of the Bank in a safe and sound condition; and
   (iv) a plan of action to recruit and hire any additional or replacement personnel with the requisite ability, experience and other qualifications which the Board of 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, 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 for the purpose of ensuring the Bank's compliance with the provisions of this ORDER.

   [.3] (ii) At the next meeting of the shareholders of the Bank, and at each succeeding meeting of the shareholders at which Bank directors are to be elected, the members of the Board of Directors who are also shareholders shall nominate and support the election of candidates to the Board of Directors 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 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 $200,000, including unfunded credit lines; provided, however, that notwithstanding the foregoing, any director as of the effective date hereof, other than a director who is also an officer of the Bank, who is indebted to the Bank, on the effective date hereof, in an amount exceeding $200,000, including unfunded credit lines, shall be deemed to be "independent with respect to the Bank" for purposes of clause (3) above so long as no further extension of credit, which results in indebtedness to the Bank in an amount exceeding $200,000, including unfunded credit lines, is made by the Bank to such director.

[.4] 2. (a) The Bank shall eliminate from its books, by charge-off or collection, all assets or portions of assets classified "Loss" in the FDIC Report of Examination of the Bank as of March 23, 1992 ("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 constitution "collection" or "elimination" for the purpose of this paragraph.
   (b) Thereafter, the Bank shall maintain its Reserve in accordance with the pre- {{12-31-92 p.C-2766}}vailing requirements of the Instructions for the Reports of Condition and Income ("Instructions").
   (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 Directors of the Bank shall: (1) review the adequacy of the Bank's Reserve, (2) cause the Bank to provide for an adequate Reserve, and (3) cause the Bank to 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.

[.5] 3. (a) (i) The Bank shall increase its ratio of Tier 1 capital to total assets ("Tier 1 leverage capital ratio") in accordance with the following schedule: by December 31, 1992, the Bank's Tier 1 leverage capital ratio shall be brought to a level of at least four (4.0) percent; by June 30, 1993, the Bank's Tier 1 leverage capital ratio shall be brought to a level of at least four and one-quarter (4.25) percent; by December 31, 1993, the Bank's Tier 1 leverage capital ratio shall be brought to the level of four and one-half (4.5) percent; by June 30, 1994, the Bank's Tier 1 leverage capital ratio shall be brought to a level of at least four and three-quarters (4.75) percent; and by December 31, 1994, the Bank's Tier 1 leverage capital ratio shall be at least six (6.0) percent and the Bank shall thereafter 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. At no time while this ORDER is in effect shall the Bank's Tier 1 leverage capital ratio fall below two (2.0) 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 subject to applicable laws and regulations, including but not limited to Massachusetts General Laws Chapter 172;
   (ii) the retention of earnings;
   (iii) the collection of all or part of assets classified "Loss" within the Examination without loss or liability to the Bank, subject to the following sentence. Reductions to loans and leases classified "Loss" 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 of this ORDER indicates that such 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) any combination of the above means; or
   (vi) any other means acceptable to the Regional Director and the Commissioner.

[.6] 4. (a) Within ninety (90) 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 $100,000, and each parcel of other real estate with book value in excess of $100,000, which was classified "Substandard" or "Doubtful," in whole or in part, in the Examination. In developing such plan, the Bank shall, at a minimum:

   (i) in the case of loans, review the financial position of each such borrower, including source of repayment, repayment ability, and alternative repayment sources, and evaluate the available collateral for each such credit, including possible actions to improve the Bank's collateral position; and
   (ii) in the case of other real estate, evaluate the property and provide cost/ benefit analyses of holding the property versus current liquidation value. Based upon such review and evaluation, the written plan of action shall: (A) establish target dollar levels to which the Bank shall, within six (6) and twelve (12) months from the effective date of this ORDER, reduce the aggregate dollar volume of "Substandard" or "Doubtful" classifications in the Examination, as well as any additional assets that are in need of criticism according to internal Bank review; and (B) provide for the submission of written monthly progress reports to the Bank's Board of {{12-31-92 p.C-2768}}Directors for review and notation in the Board minutes for any such assets over $200,000. In addition, the plan shall include other provisions for the reduction of any additional items that may be subject to similar criticism according to the Bank's internal review and submission of progress reports on the same. All progress reports required under this paragraph shall be in the form of Exhibit A attached hereto, or in any other form that includes such information as is contained in such Exhibit A. As used in this paragraph 4, "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 Commissioner. Payment of loans with the proceeds of other loans made by the Bank, other than loans to qualified third-party borrowers, will not constitute "reduction" or "collection" for purposes of this ORDER.
   (b) The written plan of action described by paragraph 4(a) shall be submitted to the Regional Director and the Commissioner for review and comment within ninety (90) days from the effective date of this ORDER. No sooner than thirty (30) days, but under no circumstances more than sixty (60) days after such submission, the Board of Directors shall approve the written plan of action, taking into consideration any comments received from the Regional Director and/or the Commissioner within such thirty-day period, 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 any subsequent modification thereto.

   [.8] 6. 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 6, "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.

   [.9] 7. Within sixty (60) days from the effective date of this ORDER, the Bank shall review the Bank's written loan policy and shall record the results of such review in the Board of Directors' minutes. Thereafter, the Bank, its directors, officers, and employees shall follow the written loan policy.

[.10] 8. (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 {{12-31-92 p.C-2769}}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.

[.11] 9. (a) Within ninety (90) days from the effective date of this ORDER, the Bank shall revise its written funds management policy. The revised policy 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, or, if necessary, 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 maintain an acceptable liquidity position; and
   (iv) coordination of the Bank's loan, investment, operating, and budget and profit planning policies with the written funds management policy.

   [.12] 10. The Bank shall not pay or declare any dividends without the prior written consent of the Regional Director and the Commissioner.

   [.13] 11. Following the effective date of this ORDER, the Bank shall send to its shareholders a description of this ORDER, (1) in conjunction with the Bank's next shareholder communication, and also (2) in conjunction with its notice or proxy statement preceding the Bank's next shareholder meeting. The description shall fully describe the ORDER in all material respects. The description and any accompanying communication, statement, or notice shall be sent to the FDIC, Registration and Disclosure Sec- {{12-31-92 p.C-2770}}tion, Washington, D.C. 20429, for review at least twenty (20) days prior to dissemination to shareholders. Any changes requested to be made by the FDIC shall be made prior to dissemination of the description, communication, notice, or statement.

[.14] 12. (a) Within sixty (60) days from the effective date of this ORDER, the Bank shall correct any remediable technical exceptions on loans noted on page 1–2 of the Examination.
   (b) Within sixty (60) days from the effective date of this ORDER, the Bank shall formulate and implement a plan to reduce all credit concentrations and to evaluate and reduce, if deemed by the Board of Directors to be prudent, all other concentrations, as noted on pages 2-b and 2-b-1 of the Examination to less than twenty-five (25.0) percent of the Bank's Tier 1 capital.
   (c) Within sixty (60) days from the effective date of this ORDER, the Bank shall correct the remediable cited deficiencies in the loans listed for "Special Mention" on pages 2-c and 2-c-1 of the Examination.

   [.16] 15. As of the effective date of this ORDER, the Bank shall not make any payments to, or for the benefit of, any corporation which is an "affiliate" of the Bank within the meaning of section 23A of the Federal Reserve Act, 12 U.S.C. § 371c, without the prior written consent of the Regional Director and the Commissioner.
   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.
   This ORDER supersedes and replaces the Memorandum of Understanding dated October 11, 1991, among the Board of Directors, the Regional Director and the Commissioner, which is of no further force or effect.
   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 5th day of October, 1992.
   Pursuant to delegated authority.