Federal Deposit
Insurance Corporation

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   [¶10,162] In the Matter of Braintree Co-operative Bank, Braintree, Massachusetts, Docket No. FDIC-91-1b (1-9-91).

   Bank to cease and desist from operating with an excessive volume of adversely classified loans; engaging in hazardous lending practices; operating with inadequate capital; engaging in violations of laws and regulations; operating with management whose policies and practices are detrimental to the Bank; operating with deficient loan documentation; engaging in practices which produce inadequate income and excessive losses; failing to provide adequate supervision over the affairs of the Bank; operating with inadequate allowance for loan and leases losses; failing to submit reports as required; operating with excessive interest rate risk exposure; and operating without proper internal routine and controls. (This order was terminated by order of the FDIC dated 3-16-94; see ¶ 15,827.)

   [.1] Management—Qualifications—Review
   [.2] Management—Management Plan—Minimum Requirements—Review
   [.3] Board of Directors—Election—Independent Directors
   [.4] Board of Directors—Meetings—Frequency—Written Record Required
   [.5] Assets—Adversely Classified—Reduce/Eliminate
   [.6] Capital Structure—Written Plan—Minimum Requirements-Review
   [.7] Capital—Increase—Methods
   [.8] Allowance for Loan and Lease Losses—Maintain—Report
   [.9] Loans—Risk Position—Reduce—Written Plan Required
   [.10] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.11] Loans—Accrual of Interest
   [.12] Loan Policy—Written Revision Required—Review
   [.13] Profit Plan—Written Plan—Minimum Requirements—Review
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   [.14] Funds Management Policy—Minimum Requirements—Review
   [.15] Technical Exceptions—Correct
   [.16] Loans—Concentrations—Reduce
   [.17] Loans—Special Mention
   [.18] Violations of Law—Eliminate/Correct
   [.19] Compliance—Progress Reports—Frequency

In the Matter of

BRAINTREE CO-OPERATIVE BANK
BRAINTREE, MASSACHUSETTS
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

   Braintree Co-operative Bank, Braintree, 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 January 8, 1991, whereby solely for the purpose of settling this proceeding and without admitting any allegations or implications of fact or the existence of any unsafe or unsound banking practices or violations of law and/or regulations or any other ground for issuance of an order under section 8(b) of the Act, 12 U.S.C. § 1818(b), the Bank consented to the issuance of an ORDER TO CEASE AND DESIST ("ORDER") by the FDIC.
   The FDIC considered the matter and determined that it had reason to believe that the Bank had engaged in unsafe or unsound banking practices and had violated laws and/or regulations. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

ORDER TO CEASE AND DESIST

   IT IS HEREBY ORDERED, that the Bank and its institution affiliated parties, as that term is defined in section 3(u) of the Act, 12 U.S.C. § 1813(u), cease and desist from the following unsafe or unsound banking practices:

   (a) operating with an excessive volume of adversely classified assets;
   (b) engaging in hazardous lending practices, including maintaining an excessive volume of adversely classified loans;
   (c) operating with inadequate capital for the kind and quality of assets held;
   (d) engaging in violations of applicable laws and regulations, including Section 6, Paragraphs 2 and 4 and Section 2(B), Paragraphs 6 and 13, Chapter 167E of the Massachusetts General Laws;
   (e) operating with management whose policies and practices are detrimental to the Bank;
   (f) operating with deficient or inadequate loan documentation, including but not limited to current financial statements, and cash flow and/or operating information;
   (g) engaging in practices which produce inadequate operating income and excessive loan and Other Real Estate losses;
   (h) 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;
   (i) operating with an inadequate allowance for loan and lease losses for the volume, kind, and quality of loans held;
   (j) failing to submit Reports of Condition and Income in accordance with prevailing instructions, including the requirements of FASB 15 and APBO 21, nonaccrual guidelines, and adequate provisions for loan and Other Real Estate losses;
   (k) operating with excessive interest rate risk exposure; and
   (l) operating without proper internal routine and controls.

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   [.1] 1. (a) Within one hundred twenty (120) days from the effective date of this ORDER, the Bank shall have, and thereafter continue to retain, qualified management. Such management shall include the retention of qualified individuals to perform the duties of executive officers. These individuals shall be given stated written authority by the Board, including, as appropriate, responsibility for implementing and maintaining lending, investment, and operating policies in accord with sound banking practices. 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) Toward this end, within ninety (90) days from the effective date of this ORDER, the Board of Directors shall develop 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, in particular the Chief Executive Officer, Vice President/Lending Officer, and Treasurer 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 officers with the requisite ability, experience and other qualifications, which the Board of Directors determines are necessary to fill Bank officer positions consistent with the Board's analysis, evaluation and assessment as provided in paragraphs 1(b)(i) and 1(b) (iii) of this ORDER.

   [.3] (d) (i) The written management plan shall also include the requirement that the Board of Directors of the Bank, or a committee thereof consisting of not less than a majority of Board members who are independent with respect to the {{3-31-91 p.C-740}} 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, (2) who is not related by blood, marriage, or common financial interest to an officer of the Bank, and (3) who is not indebted to the Bank, directly or indirectly (including the indebtedness of any entity in which the individual has a substantial financial interest), in an amount exceeding five (5.0) percent of the Bank's total surplus and allowance for loan and lease losses.

   [.4] (e) 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.

   [.5] 2. Within ten (10) days from the effective date of this ORDER, the Bank: (1) shall eliminate from its books, by charge-off or collection, all assets or portions of assets classified "Loss" as of April 20, 1990: and (2) shall either (A) eliminate from its books by charge-off or collection, or (B) if the asset is an extension of credit or lease, increase its allowance for loan and lease losses by an amount equal to, fifty (50.0) percent of those assets or portions of assets classified "Doubtful" as of April 20, 1990, 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.

   [.6] 3. (a) The Bank shall take all reasonable and appropriate action to bring the Bank's capital to a sufficient level and thereafter to operate within a capital structure sufficient in relation to the composition and quality of its assets and funding liabilities and in accordance with Part 325 of the FDIC Rules and Regulations. Toward this end, the Bank will develop a Capital Plan which will be submitted to the Regional Director and the Commissioner for approval within sixty (60) days from the effective date of this ORDER. Immediately upon receipt of the Regional Director's and the Commissioner's approval of the Bank's Capital Plan, including any modifications to the plan suggested by these regulatory authorities, the Bank shall begin to implement such plan. The Capital Plan shall be deemed approved by the Regional Director and the Commissioner unless written notice to the contrary from either is received by the Bank within sixty (60) days from the Bank's submission of the Plan. The Capital Plan shall address the prospects for both internal and external sources of capital augmentation, including capital infusions, retention of earnings, restriction of asset growth, and asset sales, with the goal of producing core capital elements (Tier 1) at or in excess of six (6.0) percent of the Bank's total assets ("leverage capital ratio"), with stated timetables in which to attain this goal. For the purposes of this ORDER, the terms "core capital elements (Tier 1)" and "total assets" shall have the meanings ascribed to them in Appendix A to Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325, App. A and Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325, respectively.

   [.7] (b) If, after having achieved the leverage capital ratio specified in paragraph 3(a), such ratio declines below six (6.0) percent, the Bank, within sixty (60 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 the ratio up to or in excess of six (6.0) percent within a period of time to be set by the Regional Director {{3-31-91 p.C-741}} and the Commissioner. Upon approval by the Regional Director and Commissioner, the Bank shall immediately implement the written plan.
   (c) Any increase in capital necessary to meet the requirements of Paragraph 3(a) or 3(b) of this ORDER may be accomplished by the following:

   (i) the retention of earnings; or
   (ii) the sale of common stock and/or perpetual preferred stock, subject to applicable laws and regulations, including but not limited to Massachusetts General Laws, Chapter 172; or
   (iii) the issuance of subordinated debt; or
   (iv) the collection of assets previously charged off; or
   (v) the reduction of the "Loss" assets specified in Paragraph 2 of this ORDER without loss or liability to the Bank; or
   (vi) any other means acceptable to the Regional Director and the Commissioner; or
   (vii) any combination of the above means.

   [.8] 4. (a) The Bank shall maintain an allowance for loan and lease losses in accordance with the prevailing requirements of the Instructions for the Reports of Condition and Income ("Instructions")
   (b) 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, 1990, and the effective date of this ORDER, shall, at a minimum, reflect an allowance for loan and lease losses that is in accordance with the Instructions. If necessary to comply with this paragraph 4(b), the Bank shall file amended Reports of Condition and Income within ten (10) days from the effective date of this ORDER.
   (c) Prior to the submission of any Report of Condition or Report of Income required to be filed by the Bank after the
{{3-31-91 p.C-742}}effective date of this ORDER, the Board of Directors of the Bank shall: (1) review the adequacy of the Bank's allowance for loan and lease losses, (2) provide for an adequate allowance, and (3) cause the Bank to accurately report the allowance 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 allowance, and the basis for determining the amount of allowance provided.

   [.9] 5. (a) Within sixty (60) days from the effective date of this ORDER, the Board of Directors or a committee of directors who are independent with respect to the Bank shall develop, with the assistance of Bank management, 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 which was classified "Substandard" or "Doubtful" in whole or in part as of April 20, 1990. In developing such plan, the Bank shall, at a minimum:

   (i) review the financial position of each such borrower, including source of repayment, repayment ability, and alternative repayment sources; and
   (ii) evaluate the available collateral for each such credit, including possible actions to improve the Bank's collateral position.

   [.10] 6. The Bank shall not extend, directly or indirectly, or renew credit to, or for the benefit of, any borrower who 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 advance is in the best interest of the Bank, (2) determines that the Bank has satisfied the requirements set out in paragraph 5 of this ORDER as to such borrower, if applicable, and (3) approves such advance. A written record of the Board of Directors' determination and approval of any advance under the terms of this paragraph 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 provisions, this Order shall not require such approvals by the Board of Directors for extensions of credit made pursuant to legally binding contractual commitments entered into by the Bank prior to the effective date of this Order.
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   [.11] 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 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.

   [.12] 8. Within ninety (90) days from the effective date of this ORDER, the Bank shall revise its written loan policy. The revised policy shall, at a minimum, include the recommendations found on page 1-a of the April 20, 1990 Report of Examination. The revised written loan policy shall be submitted to the Regional Director and the Commissioner for review and comment. No sooner than thirty (30) days, but under no circumstances more than forty-five (45) days after such submission, the Board of Directors shall approve the revised written loan policy, 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 revised written 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 revised written loan policies and/or any subsequent modification thereto.

   [.13] 9. (a) Within ninety (90) days from the effective date of this ORDER, the Board of Directors or a committee of directors who are independent with respect to the Bank shall develop, with the assistance of Bank management, 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 Bank will seek to improve its 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.

   [.14] 10. (a) Within ninety (90) days from the effective date of this ORDER, the Bank shall revise its written funds management policy to include, at a minimum, the recommendations contained in the April 20, 1990, Report of Examination as well as the following:

   (i) the Bank's liquidity needs and plans for insuring that such needs are met on an ongoing basis;
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   (ii) goals and strategies for managing and/or improving the Bank's interest rate risk exposure;
   (iii) monitoring of the interest rate sensitivity of present investments and deposits and projections of the types of investments and deposits to improve such liquidity position; and
   (iv) coordination of the Bank's loan, investment, operating, and budget and profit planning policies with the written funds management policy.

   [.15] 11. (a) Within sixty (60) days from the effective date of this ORDER, the Bank shall correct the remediable technical exceptions on loans noted on pages 2-e and 2-e-1 of the Commonwealth's Report of Examination of the Bank as of April 20, 1990.

   [.16] (b) Within (60) days from the effective date of this ORDER, the Bank shall formulate and implement a plan to reduce all concentrations as noted on page 2-b of the Commonwealth's Report of Examination of the Bank as of April 20, 1990, to less than twenty-five (25.0) percent of total capital and allowance for loan and lease losses.

   [.17] (c) Within (60) days from the effective date of this ORDER, the Bank shall correct the remediable deficiencies in the loans listed for "Special Mention" on page 2-c of the Commonwealth's Report of Examination of the Bank as of April 20, 1990.

   [.18] 12. Within sixty (60) days from the effective date of this ORDER, the Bank shall eliminate and/or correct all remediable violations of law and regulations committed by the Bank as described on page 6-1 of the Commonwealth's Report of Examination of the Bank as of April 20, 1990.

   [.19] 13. Within thirty (30) days from the end of the calendar quarter ending on March 31, 1991, and, thereafter, within thirty (30) days from the end of each subsequent calendar quarter, the Bank shall furnish written progress reports to the Regional Director and the Commissioner detailing the form and manner of any action taken to secure compliance with this ORDER and the results thereof. In addition, the Bank shall furnish such reports on request of either the Regional Director or the Commissioner. All progress reports and other written responses to this ORDER shall be reviewed by the Board of Directors of the Bank and made a part of the minutes of the Board meeting.
   This ORDER shall become effective ten (10) days from the date of its issuance.
   The provisions of this ORDER shall be binding upon the Bank and its institution-affiliated parties.
   This ORDER has been reviewed and concurred in by the Commissioner of Banks of the Commonwealth of Massachusetts.
   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.
   Pursuant to delegated authority.
   Dated at Needham, Massachusetts this 7th day of January, 1991

CRITICIZED BORROWER REPORT AS OF:
_____
__________
BORROWER(S):
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__________
ASSET BALANCE(S) AND RATING CRITICISM (SPECIAL MENTION, SUB-STANDARD, DOUBTFUL OR LOSS):
CLASSIFIED LOAN BALANCE(S): $ _____
PRESENT LOAN BALANCE(S): $ _____
CRITICISM _____
AMOUNT CHARGED OFF TO DATE _____
FUTURE POTENTIAL CHARGEOFF _____
__________________________________________________________________________
PRESENT STATUS^*(Include past due status, nonaccrual, significant progress of collection, deterioration, etc.):
__________________________________________________________________________
FINANCIAL AND/OR COLLATERAL SUPPORT (Include brief summary of most current financial info, appraised value of collateral and/or estimated value and date thereof, bank's lien position and amount of available equity, if any, guarantor(s) info, etc.):
__________________________________________________________________________
PROPOSED PLAN OF ACTION TO ELIMINATE ASSET CRITICISM(S) AND TIME FRAME FOR ITS ACCOMPLISHMENT:
__________________________________________________________________________
IDENTIFIED SOURCE OF REPAYMENT AND DEFINED REPAYMENT PROGRAM (Repayment program should coincide with source of repayment):
__________________________________________________________________________
Use this form for complying with the reporting requirements of paragraph 5(b) of the FDIC's Order to Cease and Desist. Submit your reports quarterly, in writing, until notified otherwise by the FDIC Regional Director and the Commissioner.
^*Any increase in the loans should be fully explained in the PRESENT STATUS section.