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FDIC Enforcement Decisions and Orders

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{{10-31-92 p.TC-141}}
   [15,500] Docket No. FDIC-91-249b (8-5-92)

In the Matter of

DEPOSITORS TRUST COMPANY
LEXINGTON, MASSACHUSETTS
(Insured State Nonmember Bank)
MODIFICATION OF THE ORDER
TO CEASE AND DESIST

   Depositors Trust Company, Lexington, 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), prior to the issuance of the ORDER TO CEASE AND DESIST dated August 15, 1991, Docket No. FDIC-91-249b ("ORDER"), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF A MODIFICATION TO THE ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") with counsel for the Federal Deposit Insurance Corporation ("FDIC"), dated ____, 1992, whereby solely for the purpose of this proceeding and with- {{10-31-92 p.TC-142}} out admitting or denying any unsafe or unsound banking practices or violations of law and/or regulations, the Bank consented to the issuance of a MODIFICATION OF THE ORDER TO CEASE AND DESIST ("MODIFICATION") by the FDIC.
   The FDIC accepted the CONSENT AGREEMENT and hereby modifies the ORDER TO CEASE AND DESIST as follows:
   Paragraph 2(b) is hereby stricken, and in its stead, is inserted the following:

    2. (b) 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 joint Commonwealth/FDIC Report of Examination of the Bank as of February 24, 1992, which have not been previously collected or charged off. Reduction of these assets through use of proceeds of loans made by the Bank, other than to qualified third party borrowers, does not constitute "collection" or "elimination" for the purpose of this paragraph.
   Paragraph 4(a) is hereby stricken and, in its stead, is inserted the following:
    4. (a) Within thirty (30) 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 with book value in excess of $200,000 which was classified "Substandard" or "Doubtful," in whole or in part, as of February 24, 1992. The Bank shall add to its written plan of action loans and other real estate 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;
         (ii) in the case of loans, evaluate the available collateral for each such credit, including possible actions to improve the Bank's collateral position; and
         (iii) 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) by February 15, 1993 and by August 15, 1993, establish target dollar levels to which the Bank shall reduce the aggregate dollar volume of "Substandard" or "Doubtful" classifications as of February 24, 1992 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 Directors for review and notation in the minutes of the Board of Directors. Exhibit A provides the form for the progress report. 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, or where applicable, removal of internal Bank criticism. 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 "reduction" or "collection" for purposes of this paragraph.
   Paragraph 7(a) is hereby stricken and, in its stead, is inserted the following:
    7. (a) By September 15, 1992, the Bank shall have revised its written loan policies and manuals to correct all deficiencies noted on pages 6 of the FDIC Report of Examination of the Bank as of March 18, 1991 and all deficiencies noted on pages 6 of the joint Commonwealth/FDIC Report of Examination of the Bank as of February 24, 1992.
   Paragraph 9 is hereby stricken and, in its stead, is inserted the following:
   9. By August 15, 1992, the Bank shall have revised its written investment policy to correct all deficiencies noted on pages 6 of the joint Commonwealth/FDIC Report of Examination of the Bank as of February 24, 1992. The revised written investment policy shall be submitted to the Regional Director and the Commissioner for review and comment by August 15, 1992. 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 investment policy, taking into consideration any regulatory comments received prior to such approval, and such ap- {{10-31-92 p.TC-143}} proval shall be recorded in the minutes of the Board of Directors. Subsequent modifications to the written investment policy may be made only after giving the Regional Director and the Commissioner written notice of the proposed modification, and after consideration of any responsive comments submitted by the Regional Director and/or the Commissioner within thirty (30) days from their receipt of the notice of proposed modification. No such modification shall become effective until approved by the Board of Directors, and such approval shall be recorded in the minutes of the Board of Directors. The Bank, its directors, officers and employees shall follow the written investment policy and/or any subsequent modification thereto.
   Paragraph 13 is hereby stricken, and in its stead, is inserted the following:
    13. (a) By August 15, 1992, the Bank shall have formulated and commenced implementation of a plan to reduce all loan concentrations as noted on pages 2-b of the joint Commonwealth/FDIC Report of Examination of the Bank as of February 24, 1992 to less than twenty-five (25.0) percent of the Bank's Tier 1 capital.
       (b) By August 31, 1992, the Bank shall have corrected the remediable cited deficiencies in the loans listed for "Special Mention" on pages 2-c of the joint Commonwealth/FDIC Report of Examination of the Bank as of February 24, 1992.
   Paragraph 14 is hereby stricken, and in its stead, is inserted the following:
   14. By September 15, 1992, the Bank shall have eliminated and/or corrected all violations of law and regulations committed by the Bank as described on pages 6-a of the joint Commonwealth/FDIC Report of Examination of the Bank as of February 24, 1992.
   The following provisions are hereby added to the ORDER:
    16. (a) By October 15, 1992, the Bank shall have caused an independent study or audit to be made of all transactions during the time period January 1, 1991 through June 30, 1992 between the Bank and its holding company, Depositors Bancorp ("Holding Company"), and the Bank and the following affiliates: Arlex Oil Corporation, Interstate Gas and Oil Corporation, C&W Transportation, Inc., KEMM Realty Trust, Wm. E. Maloney Foundation, Emerson Gardens 1990 Realty Trust, and MSK Realty Trust ("Covered Affiliates"). The Bank's study or audit shall include a special emphasis on the utilization of the Bank's premises and other property, equipment and personnel by the Holding Company and the Covered Affiliates. Following completion of the study or audit, the Bank's Board of Directors shall promptly review the findings of the study or audit and report those findings in the minutes of the meeting at which it conducts its review.
       (b) Within thirty (30) days of receipt of the findings of the study or audit and based on the actual findings, the Bank's Board of Directors shall make a specific allocation of premises and property rental costs, equipment costs and personnel costs, salary or wages (including personnel benefits) resulting from the transactions between the Bank and the Holding Company and the Bank and the Covered Affiliates. The Bank's Board of Directors shall expressly state the dollar amounts and related items regarding its allocation of costs in the minutes of the meeting at which it makes the allocation. Promptly after making the allocation of costs, the Bank's Board of Directors shall take all reasonable and appropriate action, including legal action, necessary to recover any and all excess or unreimbursed amounts made by the Bank to the Covered Affiliates.
       (c) Within thirty (30) days of receipt of the findings of the study or audit, the Bank's Board of Directors shall finalize and implement a written policy governing all transactions between the Bank and the Holding Company and the Bank and the Covered Affiliates, including but not limited to the following items:
         (i) A requirement that the Holding Company and the Covered Affiliates promptly pay the Bank the fair market cost of using the Bank's premises or other property, equipment and/or personnel. Any such payment shall not be less than the cost to the Bank of each such item or expense borne thereby;
         (ii) A requirement that the Bank's Board of Directors annually or more often approve the method and manner in which the Bank handles transactions {{10-31-92 p.TC-144}} between the Bank and the Holding Company and the Bank and the Covered Affiliates; and
         (iii) A requirement that the Bank's shareholders be regularly informed in writing of the Bank's activities in connection with its dealings with the Holding Company and the Covered Affiliates, and the Bank's expenses incurred in connection with its dealings with the Holding Company and the Covered Affiliates.
   17. The Bank shall not make any payments to, or for the benefit of, any affiliated organization without the prior written consent of the Regional Director and the Commissioner.
   Following the effective date of this MODIFICATION, the Bank shall send to its shareholders a description of this MODIFICATION, (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 MODIFICATION 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.
   This MODIFICATION shall become effective immediately upon its issuance.
   The provisions of the ORDER as modified by this MODIFICATION shall be binding upon the Bank and its institution-affiliated parties.
   This MODIFICATION has been reviewed and concurred in by the Commissioner.
   The provisions of the ORDER as modified by this MODIFICATION shall remain effective and enforceable except to the extent that, and until such time as, any provisions of this ORDER shall have been further modified, terminated, suspended, or set aside by the FDIC.
   Dated at Needham, Massachusetts this 5th day of August, 1992.
   Pursuant to delegated authority.

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