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FDIC Enforcement Decisions and Orders

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   [10,883] In the Matter of The Boston Bank of Commerce, Boston, Massachusetts, Docket No. FDIC-93-207b (10-5-93).

   Bank to cease and desist from such unsafe or unsound practices as operating with excessive volumes of adversely classified assets; operating with inadequate capital; operating with management policies and practices detrimental to the Bank; engaging in practices which produce inadequate operating income; failing to submit Reports of Condition and Income in accordance with instructions; and operating with inadequate liquidity. (This order was modified by order of the FDIC dated 3-24-95; see ¶ 15,986.)

   [.1] Management—Qualifications—Review
   [.2] Assets—Adversely Classified—Eliminate/Reduce
   [.3] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.4] Loans—Risk Position—Reduce—Written Plans Required
   [.5] Loans—Extensions of Credit—Written Plans Required
   [.6] Loans—Delinquent—Reduce—Written Plan Required
   [.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] Dividends—Restricted
   [.12] Shareholders—Disclosure—Cease and Desist Order
   [.13] Technical Exceptions—Eliminate/Correct
   [.14] Reports of Condition and Income—Amendment Required
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In the Matter of

THE BOSTON BANK OF
COMMERCE

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

FDIC-93-207b

   The Boston Bank of Commerce, Boston, Massachusetts, ("Bank"), having been advised of its right to a Notice of Charges and of Hearing detailing the unsafe or unsound banking practices 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 24, 1993, whereby solely for the purpose of this proceeding and without admitting or denying any unsafe or unsound banking practices, 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. 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:
   (a) operating with an excessive volume of adversely classified assets;
   (b) operating with inadequate capital for the kind and quality of assets held;
   (c) engaging in management policies and practices which are detrimental to the Bank;
   (d) engaging in practices which produce inadequate operating income and excessive loan losses;
   (e) failing to submit Reports of Condition and Income in accordance with prevailing instructions; and
   (f) operating with inadequate liquidity.
   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 (f) above, except to the extent that the Bank is not in compliance with the following provisions.

[.1] 1. (a) The Board of Directors of the Bank shall ensure that each member of management has qualifications and experience commensurate with his or her duties and responsibilities at the Bank, and that such persons are provided the necessary written authority to implement the provisions of this ORDER. 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") in writing of any changes in management at the level of Senior Vice President and above. 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.
   (b) 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.

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   [.2] 2. If not previously accomplished, 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 all assets or portions of assets classified "Doubtful" in the FDIC Report of Examination of the Bank as of March 1, 1993 ("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 loans to qualified third party borrowers, does not constitute "collection" or "elimination" for the purpose of this paragraph.

[.3] 3. (a) (i) By October 31, 1993, the Bank shall have Tier 1 capital at or in excess of five (5.0) percent of the Bank's total assets ("Tier 1 leverage capital ratio") and shall continue to maintain its Tier 1 leverage capital ratio at or in excess of such level until March 31, 1994; by March 31, 1994, the Bank shall have a Tier 1 leverage capital ratio at or in excess of six (6.0) percent and 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. Toward this end, the Bank shall develop a Capital Plan which will be submitted to the Regional Director and the Commissioner for approval within forty-five (45) days from the Bank's receipt of the Examination. 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 Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325.
   (b) In calculating the Bank's Tier 1 leverage capital ratio under paragraph 3(a) initially, the Bank shall first comply fully with paragraph 2 of this ORDER. Thereafter, such ratio and its component parts shall be determined only after the Bank has made such additions to its allowance for loan and lease losses ("Reserve") so as to bring the Reserve into compliance with the prevailing requirements of the Instructions for the Reports of Condition and Income ("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 noncumulative perpetual preferred stock;
       (ii) the retention of earnings;
       (iii) the collection of all or part of assets classified "Loss" in the Examination without loss or liability to the Bank. 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 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.
   (d) If, after having achieved the Tier 1 leverage capital ratio specified in paragraph 3(a)(i), such ratio declines below six (6.0) percent, the Bank, within sixty (60) days after the date on which 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.
   (e) In addition to the requirements of paragraphs 3(a)-(d), 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's Rules and Regulations, 12 C.F.R. Part 325, App. A.
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   (f) 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. § 230.506 as currently in effect 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.
   (g) In complying with the provisions of paragraph 3(f) 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 if such development or change occurs or is planned prior to the closing of such offering. The written notice required by this paragraph 3(g) 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.
   (h) 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(g) of this ORDER, including, at a minimum, any action to increase its Tier 1 capital by each of the methods specified in paragraphs 3(c)(i) through 3(c)(vi) of this ORDER.

[.4] 4. (a) Within forty-five (45) 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 $200,000 and each parcel of other real estate ("ORE") with book value in excess of $200,000 which debt or ORE was classified "Substandard" or "Doubtful," in whole or in part, as of March 1, 1993. The Bank shall add to its written plan of action loans and ORE in excess of $200,000 which are so classified in any subsequent 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
       (ii) evaluate the available collateral for each such credit, including possible actions to improve the Bank's collateral position; and
       (iii) in the case of ORE, 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 reduce the aggregate dollar volume of assets classified "Substandard" or "Doubtful" in the Examination, as well as any additional assets that are in need of criticism according to internal Bank review; (B) provide for the submission of written quarterly progress reports to the Bank's Board of Directors for review and notation in the minutes of the Board of Directors (Exhibit A provides the form for the quarterly progress report); and (C) provide for the submission of written monthly summary progress reports to the Board of Directors for review and notation in the Board minutes. 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 Massachusetts Division of Banks. Payment of loans with the proceeds of the other loans made by the Bank, other than loans to qualified third party borrowers, will not constitute "reduc- {{12-31-93 p.C-3457}}tion" or "collection" for purposes of this paragraph.
   (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 forty-five (45) 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 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.

   [.5] 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) the Bank is obligated to make such advance by a binding enforceable contract that was in force on August 11, 1993; or (B) 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, either individually or by approving a schedule or project budget with which the extension or renewal is consistent. A written record of the Board of Directors' determination and approval of any extension or renewal 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.

   [.6] 6. Within sixty (60) days from the effective date of this ORDER, the Bank shall develop and implement a written plan to reduce and maintain overall delinquent loans to a level below $4,500,000.00. Delinquent loans for the purposes of this ORDER will be determined as of the fifteenth day of each month. Reduce will mean that a delinquent loan is paid current to within thirty (30) days of its next due date through collection efforts and without the advance of funds by the Bank in any manner. Such written plan shall be submitted to the Regional Director and the Commissioner for review and comment within sixty (60) 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, 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 and/or any subsequent modification thereto.

   [.7] 7. Within thirty (30) days from the effective date of this ORDER, the Bank shall revise its written loan policy. At a minimum, the revised written loan policy shall specifically address portfolio mix and risk diversification, limitations on the maximum volume of loans in relation to total assets, and appraisal procedures consistent with FDIC regulations and guidelines. The revised written loan policy shall be submitted to the Regional Director and the Commissioner for review and comment within thirty (30) 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 {{12-31-93 p.C-3458}}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. 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 Board of Directors shall consider 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. The Bank, its directors, officers, and employees shall follow the revised written loan policy and/or any subsequent modification thereto.

[.8] 8. (a) Within forty-five (45) days from the effective date of this ORDER, the Bank shall develop a revised written profit plan consisting of goals and strategies for improving the earnings of the Bank, which revised 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.
   (b) The revised written profit plan shall be submitted to the Regional Director and the Commissioner for review and comment within forty-five (45) 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 revised 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 revised 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 revised written profit plan and/or any subsequent modification thereto.

[.9] 9. (a) Within sixty (60) days from the effective date of this ORDER, the Bank shall develop a revised written funds management policy. The revised written funds management policy shall address the need for more specific standards for liquidity and volatile liability dependency ratios, and 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 revised written funds management policy.
   (b) The revised written funds management policy shall be submitted to the Regional Director and the Commissioner for review and comment within sixty (60) 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 revised 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 revised 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
{{12-31-93 p.C-3459}}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 funds management policy and/or any subsequent modification thereto.

   [.10] 10. Within sixty (60) days from the effective date of this ORDER, the Bank shall develop a revised written investment policy consisting of goals and strategies for maintaining the quality of the Bank's investment portfolio, including procedures for the selection of securities dealers consistent with the applicable FDIC policy statement, and specific guidelines for investment in leeway securities. The revised written investment policy shall be submitted to the Regional Director and the Commissioner for review and comment within sixty (60) 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 revised written investment 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 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 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 investment policy and/or any subsequent modification thereto.

   [.11] 11. The Bank shall not pay or declare any dividends or make any payments to The Boston Bank of Commerce Employee Stock Ownership Trust without the prior written consent of the Regional Director and the Commissioner.

   [.12] 12. 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 Section, 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.

   [.13] 13. (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-e 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 concentrations as noted on page 2-b 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 of the Examination.
   (d) Within sixty (60) days from the effective date of this ORDER, the Bank shall correct the cited deficiencies in administration, supervision, and control referenced on page 1-a-2 of the Examination.

   [.14] 14. (a) 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 March 31, 1993, and the effective date of this ORDER, shall be completed in accordance with the Instructions. If necessary to comply with this paragraph 14(a), the Bank shall file amended Reports of Condition and Income within thirty (30) days from the effective date of this ORDER.
   (b) 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 review the accuracy of such Report of Condition or {{12-31-93 p.C-3460}}Report of Income. The minutes of the Board meeting at which such review is undertaken shall indicate the results of the review.
   15. Within forty-five (45) 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 within forty-five (45) days of the 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 supersede the Memorandum of Understanding among the Bank, the Regional Director and the Commissioner dated June 21, 1991.
   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 Westwood, Massachusetts this 5th day of October, 1993.
   Pursuant to delegated authority.

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