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FDIC Enforcement Decisions and Orders

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{{5-31-95 p.C-3977}}
   [11,155] In the Matter of Meetinghouse Cooperative Bank, Boston, Massachusetts, Docket No. FDIC-95-041b (3-29-95).

   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 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 excessive loan losses; 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 without proper internal routine and controls; operating with inadequate provisions for funds management; operating without an adequate investment policy; and failing to control and prevent insider abuse.

   [.1] Management Letter and Audit Report—Compliance Report to FDIC
   [.2] Management—Qualifications—Review
   [.3] Management—Management Plan—Minimum Requirements
   [.4] Allowance for Loan and Lease Losses—Establish/Maintain
   [.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] Funds Management—Written Policy Required
   [.11] Investment Policy—Revision—Minimum Requirements
   [.12] Technical Exceptions—Eliminate/Correct
   [.13] Violations of Law—Eliminate/Correct
   [.14] Institution-Affiliated Parties—Transactions With—Restrictions
   [.15] Bank Secrecy Act—Written Policy Required
   [.16] Electronic Data Processing—Written Policy—Minimum Requirements
   [.17] Fidelity Bond—Notification to Carrier
   [.18] Reports of Condition and Income—Amendment Required

In the Matter of

MEETINGHOUSE COOPERATIVE
BANK

BOSTON,MASSACHUSETTS
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-95-41b

   Meetinghouse Cooperative Bank, Boston, Massachusetts (the "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), 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 March 14, 1995, whereby solely for the purpose of this proceeding and without admitting or denying any unsafe or unsound banking practices or violations of law and/or regulations, the Bank consented to the issuance of an ORDER TO CEASE AND DESIST ("ORDER") by the FDIC.
   The FDIC considered the matter and determined that it had reason to believe that {{5-31-95 p.C-3978}}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 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) engaging in violations of applicable laws and regulations;
   (d) operating with management whose policies and practices are detrimental to the Bank and 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, insurance coverage, title searches or legal opinions, and cash flow and/or operating information;
   (f) engaging in practices which produce 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 without proper internal routines and controls;
   (k) operating with an inadequate funds management policy;
   (l) operating with an inadequate investment policy; and
   (m) failing to control and prevent insider abuse.
   IT IS FURTHER ORDERED that the Bank and its institution-affiliated parties take affirmative action as follows. 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 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) Based on the recommendations contained in the final draft of the November 25, 1994 management letter and audit balance sheet audit of the Bank (the "1994 Management Letter and Audit Report"), the Board of Directors shall take necessary corrective action within thirty (30) days of the date on which the 1994 Management Letter and Audit Report are presented to the Board of Directors. Within sixty (60) days of the presentation of the 1994 Management Letter and Audit Report to the Board of Directors, the Board of Directors shall provide a written report of the Regional Director of the FDIC's Boston Regional Office (the "Regional Director") and the Commissioner of Banks of the Commonwealth of Massachusetts (the "Commissioner") of all actions taken in response to the recommendations of the 1994 Management Letter and Audit Report, and all recommendations contained in the 1994 Management Letter and Audit Report that are not acted upon by the Board of Directors, and the specific reasons therefore.
       (b) Within thirty (30) days from the date on which the final draft of the 1994 Management Letter and Audit Report are presented to the Board of Directors, and after making recommended corrective adjustments, the Board of Directors shall cause amended Reports of Condition and Income to be submitted to the FDIC as necessary.
       (c) The Board of Directors shall cause a full scope audit to be performed in accordance with generally accepted auditing standards for the year ended September 30, 1995 (the "1995 Audit"). The 1995 Audit will include, among other things, a presentation of the balance sheet, statement of income, statement of cash flows, and statement of changes in surplus.
       (d) Based on the recommendations contained in the final draft of the management letter and audit report issued in connection with the 1995 Audit (the "1995 Management Letter and Audit Report"), the Board of Directors shall take necessary corrective action within thirty (30) days of the date on which the 1995 Management Letter and Audit Report are presented to the Board of Directors. Within
    {{5-31-95 p.C-3979}}sixty (60) days of the 1995 Management Letter and Audit Report to the Board of Directors, the Board of Directors shall provide a written report to the Regional Director and the Commissioner of all actions taken in response to the recommendations of the 1995 Management Letter and Audit Report. Also to be reported are any recommendations in the 1995 Management Letter and Audit Report not acted upon by the Board of Directors, and the specific reasons therefore.
       (e) Within thirty (30) days from the date on which the final draft of the 1995 Management Letter and Audit Report are presented to the Board of Directors, and after making recommended corrective adjustments, the Board of Directors shall cause amended Reports of Condition and Income to be submitted to the FDIC as necessary.

[.2] (a) Within ninety (90) days from the date of written copy of the 1994 Management Letter and Audit Report specified in paragraph one (1) of this ORDER are presented the Board, the Bank shall have and retain qualified management. At a minimum, such management shall include a President/Chief Executive, Vice President, and Vice President/Treasurer who have proven ability in managing a bank of comparable size, instituting the necessary systems of control, 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. 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 and the Commissioner in writing of any changes in management. The notification must include the names and background of any replacement personnel and must be provided prior to the individual's assuming the new position.
   [.3] (b) The Board of Directors shall cause to be developed an independent written analysis and assessment of the Bank's management and staffing needs (the "Management Plan"). A copy of the 1994 Management Letter and Audit Report specified in paragraph one (1) of this ORDER are to be provided to the individual or entity conducting the management analysis. The management analysis shall take into consideration the recommendations and conclusions of the 1994 Management Letter and Audit Report in assessing management. The management analysis 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 and staff member, and in particular the Vice President/Treasurer, to determine whether the 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 2(b)(i) and 2(b)(iii) of this ORDER.
   (c) The Management Plan shall be submitted to the Regional Director and the Commissioner for review and comment within sixty (60) days of the audit report being presented to the Board of Directors. 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 Management Plan, taking into consideration any written regulatory comments received by the Bank from the Regional Director and/or the Commissioner during the thirty (30) day period following such submission, and {{5-31-95 p.C-3980}}such approval shall be recorded in the minutes of the Board of Directors. Subsequent modifications to the 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 Management Plan and/or any subsequent modification thereto.
    (d) (i) The 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 an officer of the Bank or any of its affiliated organizations, (2) who is not related by blood, marriage or common financial interest to an officer or director of the Bank, (3) who is not indebted to the Bank, directly or indirectly (including the indebtedness of any entity in which the individual has a substantial interest, in any amount exceeding five (5.0) percent of the Bank's total equity capital and allowance for loan and lease losses and (4) who has not received more than $1,000 in fees or services performed for the Bank (excluding Board of Directors and committee fees) in each of the last two calendar years preceding the date of the ORDER.
   (e) The Board of Directors shall meet at least monthly. The Board of Directors 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. No withstanding the foregoing, the Board of Directors shall not be precluded from considering matters other than those contained in the agenda. Detailed written minutes of all Board of Directors meeting shall be maintained and recorded on a timely basis.

[.4] 3. (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 March 31, 1994 by $1,600,000 at a minimum.
   (b) No later than ten (10) days after complying with paragraph 3(a), the Bank shall eliminate from its books, by chargeoff 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 May 9, 1994 (the "Examination Report"), 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 constitution "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 ninety (90) 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 of delinquent and non-accrual loans, an estimate of potential loss exposure on significant credits, concentrations of credit, and present and prospective economic condi- {{5-31-95 p.C-3981}}tions. 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 December 31, 1992 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 3(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 of Directors 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] 4. (a) The Bank shall have Tier 1 capital at or in excess of six (6.0) 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 as calculated in this ORDER while this ORDER is in effect.
   (b) If the Tier 1 leverage capital ratio specified in paragraph 4(a) declines below six (6.0) percent as of a date the Bank is deemed to have notice of its capital level pursuant to Section 325.102(b) of the FDIC's Rules and Regulations, 12 C.F.R. § 325.102(b), the Board of Directors, 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 one hundred and twenty (120) 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 in this ORDER while this ORDER is in effect. Upon approval by the Regional Director and the Commissioner, the Bank shall immediately implement the written plan.
   (c) In addition to the requirements of paragraphs 4(a)-(b), 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.
   (d) Any increase in the Tier 1 leverage capital ratio made by the Bank in order to meet the requirements of this section four (4) may be accomplished by:

       (i) the sale of new offerings of common stock or perpetual preferred stock;
       (ii) the collection of all or part of assets classified "Loss" within the Examination Report without loss or liability to the Bank;
       (iii) if the Board of Directors' review of the adequacy of the Reserve required by section three (3) 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 of cash or assets previously charged off;
       (v) the reduction of the total assets of the Bank through sale of assets or by other means;
       (vi) any combination of the above means; or
       (vii) any other means acceptable to the Regional Director and the Commissioner.
   (e) If all or part of any increase in capital made by the Bank in order to meet the requirements of this paragraph four (4) 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 lim- {{5-31-95 p.C-3982}}ited 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.
   (f) In complying with the provisions of paragraph 4(e) 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 4(f) 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.
   (g) 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 4(a) through 4(f) of this ORDER, including, at a minimum, any action to increase its Tier 1 capital.

[.6] 5 (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 $150,000 and each parcel of other real estate ("ORE") with book value in excess of $45,000 which debt or ORE was classified "Substandard" or "Doubtful," in whole or in part, as of the Examination Report. The Bank shall add to its written plan of action loans and ORE in excess of such limits 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;
       (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 "Substandard" or "Doubtful" classifications as of the Examination Report 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 summary and quarterly detailed 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 detailed progress report.] As used in this paragraph five (5), "reduce" means to (1) collect, (2) charge off, or (3) improve the quality of such assets so as to warrant removal of any adverse classification by the FDIC and the Commonwealth of Massachusetts Division of Banks. Payment of loans with the proceeds of other loans made by the Bank, other than loans to qualified third party borrowers, shall not constitute "reduction" or "collection" for purposes of this paragraph.
   (b) The written plan of action described by paragraph 5(a) shall be submitted to the Regional Director and the Commissioner for review and comment 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 written regulatory comments received by the Bank from the Regional Director and/or the Commissioner during the thirty (30) day period following such submission, and such approval shall be recorded in the minutes of the Board of Directors. Subsequent modifica- {{5-31-95 p.C-3983}}tions 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.

   [.7] 6. 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 five (5) 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 extension or renewal under the terms of this paragraph six (6) 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, 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 by the Bank prior to January 1, 1995.

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

[.9] 8. (a) Within ninety (90) days from the effective date of this ORDER, the Bank shall revise its written loan policy. The revised loan policy (the "Loan Policy") shall include, at a minimum:

       (i) the lending authority of the loan officer;
       (ii) the lending authority of a loan or security 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) documentation and procedural guidelines for loans to insiders (where "insiders" is defined to mean Bank employees, officers and directors), related {{5-31-95 p.C-3984}}interests of insiders (where "related interests" has the meaning ascribed to that term at 12 C.F.R. § 215.2(n)), and relatives of insiders (where "relatives" is defined to mean the parents, children or spouses of insiders);
       (xvii) procedures for the review of appraisals;
       (xviii) types of loans to be granted and procedures for each type;
       (xix) requirements and procedures for a comprehensive watchlist, which includes, at a minimum: 1) requirements for a monthly review by the Board of Directors, 2) identification of loans that require management's attention, which at a minimum, include loans classified (internally or externally) Substandard or Doubtful, 3) for each loan identified, a statement in regards to the status of the loan and management's strategy in regard to resolving the identified problems, and 4) a requirement for regular reporting to the Board of Directors as to the status of each loan and management's actions thereof;
       (xx) procedures to address reversal of loan payments when payment is not realized (i.e. NSF checks);
       (xxi) delineation of the bank's trade area;
       (xxii) procedures for identifying, supervising, and collecting problem loans;
       (xxiii) periodic review of the overdue loans by the Board of Directors, so as to monitor management's administration of such distressed credits, and to provide guidance; and
       (xxiv) procedures to monitor and report on the real estate tax status of all property securing loans.
   (b) The Loan Policy 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 Loan Policy, taking into consideration any written regulatory comments received by the Bank from the Regional Director and/or the Commissioner during the thirty (30) day period following such submission, and such approval shall be recorded in the minutes of the Board of Directors. Subsequent modifications to the 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 Loan Policy and/or any subsequent modification thereto.

[.10] 9. (a) Within sixty (60) days from the effective date of this ORDER, the Bank shall revise the funds management policy. The revised funds management policy (the "Funds Management Policy") shall include, at a minimum:

       (i) methods for repricing deposits and loans;
       (ii) goals and strategies for managing and/or improving the Bank's interest rate risk exposure and provisions requiring that the Bank's position be regularly measured and reported to the Board of Directors;
       (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;
       (iv) coordination of the Bank's loan, investment, operating, and budget and profit planning policies with the written funds management policy; and,
       (v) alternative funding sources.
   (b) The 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 Funds Management Policy, taking into consideration any written regulatory comments received by the Bank from the Regional Director and/or the Commissioner during the thirty (30) day period following such submission, and such approval shall be recorded in the min- {{5-31-95 p.C-3985}}utes of the Board of Directors. Subsequent modifications to the 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 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 Funds Management Policy and/or any subsequent modification thereto.

[.11] 10. (a) Within sixty (60) days from the effective date of thi
ORDER, the Bank shall revise the written investment policy to consist of goals and strategies that address the weaknesses identified in management's present investment practices. The revised investment policy (the "Investment Policy") shall at a minimum address trading activities the bank engaged in, option activity, and standards of selection that thoroughly address quality, maturity, diversification, and marketability of the Bank's investments, including mutual funds and equity issues, and the diversification of its portfolio. The Investment Policy may be part of the Funds Management Policy referred to in paragraph nine (9) of this ORDER.
   (b) The Investment Policy shall be submitted to the Regional Director and the Commissioner for review and comment within such sixty (60) day period. 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 Investment Policy, taking into consideration any written regulatory comments received by the Bank from the Regional Director and/or the Commissioner during the thirty (30) day period following such submission, and such approval shall be recorded in the minutes of the Board of Directors. Subsequent modifications to the 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 Investment Policy and/or any subsequent modification thereto.

[.12] 11. (a) Within ninety (90) days from the effective date of this ORDER, the Bank shall correct any remedial technical exceptions on loans noted on pages 3e of the Examination Report.
   (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 3h of the Examination Report 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 cited deficiencies in the loans listed for "Special Mention" on pages 3d of the Examination Report.
   (d) Within ninety (90) days from the effective date of this ORDER, the Bank shall correct the cited deficiencies in the internal routines and controls on pages 8a.1 of the Examination Report.

   [.13] 12. Within ninety (90) days from the effective date of this ORDER, the Bank shall eliminate and/or correct any remediable violations of law and regulations committed by the Bank as described on pages 8.30–8.46 of the Examination Report.

   [.14] 13. As of the effective date of this ORDER, the Bank shall not make any payments to, or knowingly for, the benefit of, any affiliated organizations of the Bank, or insiders or related interests of insiders or relatives of insiders (where the terms "insiders," "related interest of insiders" and "relatives of insiders" are defined as set forth in paragraph 8(a)(xvi) of this ORDER) without the prior written consent of the Regional Director and the Commissioner, provided, however, that this paragraph thirteen (13) does not include:
   (a) payments made or indemnification provided pursuant to the obligations of {{5-31-95 p.C-3986}}the Bank under the express provisions of its charter, by-laws, contracts, or board resolutions, as such charter, by-laws, contracts or board resolutions existed on December 31, 1994, or provided pursuant to the obligations of the Bank under applicable laws and regulations, or
   (b) payment of wages or salaries to Bank officers or employees at the same level as such wages or salaries were paid in January of 1995.
For purposes of this paragraph thirteen (13), a payment shall be deemed to have been made "knowingly" for the benefit of an individual or his/her related interest if the Bank knew, or upon reasonable inquiry could have known, that the extension or renewal of credit was for the benefit of that individual or his/her related interest.

[.15] 14. (a) Within sixty (60) days from the effective date of this ORDER, the Bank shall develop a written Bank Secrecy Act Policy. The Bank Secrecy Act Policy shall address all relevant provisions of the Bank Secrecy Act and shall include, at a minimum, provisions for training personnel in the requirements of the Bank Secrecy Act and the accurate completion of Currency Transaction Reports.
   (b) The Bank Secrecy Act Policy shall be submitted to the Regional Director and the Commissioner for review and comment within such sixty (60) day period. 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 Bank Secrecy Act Policy, taking into consideration any written regulatory comments received by the Bank from the Regional Director and/or the Commissioner during the thirty (30) day period following such submission, and such approval shall be recorded in the minutes of the Board of Directors. Subsequent modifications to the Bank Secrecy Act 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 Bank Secrecy Act Policy and/or any subsequent modification thereto.

[.16] 15. (a) Within ninety (90) days from the effective date of this ORDER, the Bank shall develop a written Electronic Data Processing Policy (the "EDP Policy"). The policy shall address, at a minimum:

       (i) restrictions on the authorized use of the file maintenance system, including (1) the identification of employees, officers, and/or committees authorized to initiate and/or make changes to previous entries in the Bank's general ledger using the Bank's file maintenance system, (2) standards establishing when such changes are warranted, and (3) a requirement that the Board of Directors review all such changes on a monthly basis;
       (ii) the frequency with which the Bank will audit the EDP system, and the scope of such audits;
       (iii) the development or acquisition of operations and procedures manuals;
       (iv) the retention of copies of software/hardware vendor contracts;
       (v) contingency plans;
       (vi) the appointment and responsibilities of an EDP security officer;
       (vii) retention and safekeeping of periodic reports produced by the EDP system;
       (viii) the maintenance of an activity log; and
       (ix) daily backup procedures and requirements for the retention and off-site safekeeping of backup tapes.
   (b) The EDP Policy shall be submitted to the Regional Director and the Commissioner for review and comment within such ninety (90) day period. 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 EDP Policy, taking into consideration any written regulatory comments received by the Bank from the Regional Director and/or the Commissioner during the thirty (30) day period following such submission, and such approval shall be recorded in the minutes of the Board of Directors. Subsequent modifications to the EDP Policy may be made {{6-30-95 p.C-3987}}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 EDP Policy and/or any subsequent modification thereto.

   [.17] 16. Within thirty (30) days from the effective date of this ORDER, the Board of Directors shall cause adequate notification to be made to the Bank's fidelity bond carrier of any events of which the bond carrier should have been and has not yet been notified under the terms of the Bank's fidelity bond policy. After notification to the carrier is made, the Board of Directors shall make necessary inquiries to determine if the fidelity bond remains valid. In the event the fidelity bond is found to be invalid, the Board of Directors will obtain adequate fidelity bond coverage immediately. The Board of Directors shall provide the Regional Director and Commissioner with copies of all correspondence or details of all contacts with the fidelity bond carrier in regards to the requirements of this paragraph sixteen (16).

   [.18] 17. The Board shall adopt procedures that ensure all Reports of Condition and Income submitted after the date of this ORDER are prepared accurately and in accordance with outstanding instructions for the Reports of Condition and Income.
   18. Within thirty (30) days from the effective date of this ORDER, and, thereafter, within forty (40) 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 (including any actions taken to implement the recommendations set forth in the 1994 Management Letter and Audit Report and the 1995 Management Letter and Audit Report), 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 and made a part of the minutes of the Board of Directors 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.
   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 29th day of March, 1995.
   Pursuant to delegated authority.

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