Consent Order  Colonial Co-Operative Bank

Date:	08/07/2012
Organization:	Division of Banks
Location:	Gardner, MA

Colonial Co-Operative Bank, Gardner, MA - Consent Order

FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C.

and

COMMONWEALTH OF MASSACHUSETTS
DIVISION OF BANKS

CONSENT ORDER

FDIC -12-177b

In the Matter of

COLONIAL CO-OPERATIVE BANK
GARDNER, MASSACHUSETTS

(Insured State Nonmember Bank)

The Federal Deposit Insurance Corporation ("FDIC") is the appropriate Federal banking agency for Colonial Co-operative Bank, Gardner, ("Bank"), under 12 U.S.C. § 1813(q), and the Commonwealth of Massachusetts Division of Banks ("Division") is the appropriate State banking agency for the Bank under Massachusetts General Law .

The Bank, by and through its duly elected and acting Board of Directors ("Board"), has executed a STIPULATION AND CONSENT TO THE ISSUANCE OF A CONSENT ORDER ("CONSENT AGREEMENT"), dated August 2, 2012, that is accepted by the FDIC and the Division. With the CONSENT AGREEMENT, the Bank has consented, without admitting or denying any charges of unsafe or unsound banking practices and violations of law or regulations relating to deterioration in the quality of the loan and investment portfolios, management’s failure to act to improve the Bank’s overall financial condition, management’s failure to ensure compliance with statutory requirements, internal policies, and an outstanding Memorandum of Understanding with the FDIC and the Division of Banks effective May 31, 2011, to the issuance of this Consent Order ("ORDER") by the FDIC and the Division

Having determined that the requirements for issuance of an order under 12 U.S.C. § 1818(b) and under Massachusetts General Laws Chapters 167 and 170 have been satisfied, the FDIC and the Division hereby order that the Bank, its institution-affiliated parties, and its successors and assigns take affirmative action as follows:

BOARD PARTICIPATION

1. (a) The Board shall increase its participation in the affairs of the Bank, assuming full responsibility for the approval of sound policies and objectives and for the supervision of all of the Bank's activities, consistent with the role and expertise commonly expected for directors of banks of comparable size.

(b) This participation shall include meetings to be held no less frequently than monthly at which, at a minimum, the following areas shall be reviewed and approved: reports of income and expenses; new, overdue, renewed, insider, charged off, and recovered loans; investment activity; liquidity levels and funds management; adoption or modification of operating policies; individual committee reports; audit reports; internal control reviews including managements' responses; reconciliation of general ledger accounts; and, compliance with this ORDER. Board minutes shall document these reviews and approvals, including the names of any dissenting directors.

2. (a) The Bank shall notify the Area Director of the Boston Area Office ("Area Director") and the Commonwealth of Massachusetts Commissioner of Banks ("Commissioner") in writing of any additions, resignations or terminations of any members of its Board or any of its "senior executive officers" (as that term is defined in section 303.101(b) of the FDIC’s Rules and Regulations, 12 C.F.R. § 303.101(b)) within 10 days of the event. Any notification required by this subparagraph shall include a description of the background(s) and experience of any proposed replacement personnel and must be received at least thirty (30) days prior to the individual(s) assuming the new position(s).

(b) The Bank shall also establish procedures to ensure compliance with section 32 of the Act, 12 U.S.C. § 1831i, and Subpart F of Part 303 of the FDIC's Rules and Regulations, 12 C.F.R. Part 303, as well as receive approval from the Division.

3. The Board and management shall comply with all recommendations set forth in any independent management assessment.

COMPLIANCE COMMITTEE

4. (a) Within thirty (30) days from the effective date of this ORDER, the Board shall establish a compliance committee ("Compliance Committee"), a majority of which are members who are not now, and have never been, involved in the daily operations of the Bank, with the responsibility of ensuring compliance with the provisions of this ORDER.

(b) The Compliance Committee shall monitor compliance with this ORDER and submit a written report monthly to the entire Board, and a copy of the report and any discussion related to the report or this ORDER shall be part of the minutes of the Board meeting. Copies of the monthly report shall be submitted to the Area Director and the Commissioner as part of the progress reports required by this ORDER. Nothing contained herein shall diminish the responsibility of the entire Board to ensure compliance with the provisions of this ORDER.

MANAGEMENT

5. (a) Within sixty (60) days from the effective date of this ORDER, the Board shall have and retain qualified management, including a chief executive officer and an appropriate number and type of senior officers, with the requisite knowledge, skills, ability, and experience, giving consideration to the size and complexity of the Bank, to operate the Bank in a safe and sound manner, and in compliance with applicable laws and regulations, and restore the Bank to a satisfactory financial condition, including, but not limited to, capital adequacy, asset quality, management effectiveness, earnings, liquidity, sensitivity to market risk, information technology, and Bank Secrecy Act/Anti-Money Laundering compliance. Each member of management shall be provided appropriate written authority from the Board to implement the provisions of this ORDER.

(b) Immediately, and periodically during the life of this ORDER, but no less frequently than annually, management shall be assessed on its ability to:

(i) Comply with the requirements of this ORDER; all applicable State and Federal laws and regulations; FDIC and FFIEC policy statements; and the Bank’s approved policies and procedures; and

(ii) Restore and thereafter maintain the Bank in a safe and sound condition, including, but not limited to, capital adequacy, asset quality, earnings, management effectiveness, liquidity, sensitivity to market risks, information technology, and Bank Secrecy Act/Anti-Money Laundering compliance.

STRATEGIC PLAN

6. (a) Within one hundred twenty (120) days after the effective date of this ORDER, the Board shall develop and submit for review as required by subparagraph (c), a written strategic plan ("Strategic Plan") covering an operating period of at least three years, supported by an operating budget and consisting of goals and strategies, consistent with sound banking practices, and taking into account the Bank's other written plans, policies, or other actions as required by this ORDER. The Strategic Plan shall contain an assessment of the Bank's current financial condition and market area, and a description of the operating assumptions that form the basis for major projected income and expense components.

(b) The Strategic Plan shall address short-term goals and operating plans to comply with the terms of this ORDER and correct all regulatory criticisms; intermediate goals and project plans; and long-range goals and project plans. In addition, the Strategic Plan shall address, at a minimum:

(i) Strategies for pricing policies and asset/liability management;

(ii) The anticipated average maturity and average yield on loans and securities; the average maturity and average cost of deposits; the level of earning assets as a percentage of total assets; and the ratio of net interest income to average earning assets;

(iii) The dollar volume of total loans, total investment securities, and total deposits;

(iv) Plans for sustaining adequate liquidity, including back-up lines of credit to meet any unanticipated deposit withdrawals;

(v) Goals for reducing problem loans;

(vi) Plans for attracting and retaining qualified individuals to fill vacancies in the lending and accounting functions;

(vii) Financial goals, including pro forma statements for asset growth, capital adequacy, and earnings; and

(viii) Formulation of a mission statement and the development of a strategy to carry out that mission.

(c) The Strategic Plan shall be submitted to the Area Director and the Commissioner for non-objection or comment. Within thirty (30) days from receipt of non-objection or any comments from the Area Director and the Commissioner, and after incorporation and adoption of all comments, the Board shall approve the Strategic Plan, which approval shall be recorded in the minutes of the Board meeting. Thereafter, the Bank shall implement and fully comply with the Strategic Plan.

CAPITAL MAINTENANCE

7. (a) Within ninety (90) days after the effective date of this ORDER, the Bank, after establishing an adequate Allowance for Loan and Lease Losses (ALLL), shall maintain its Tier 1 Leverage Capital ratio equal to or greater than 7.5 percent of the Bank’s Average Total Assets.

(b) In addition, 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 Rules and Regulations, 12 C.F.R. Part 325, App. A.

(c) In the event any ratio falls below the established minimum, the Bank shall notify the Area Director and the Commissioner and shall increase capital in an amount sufficient to comply with this provision within sixty (60) days.

8. (a) Within ninety (90) days of the effective date of this ORDER, the Board shall develop a capital plan ("Capital Plan") that shall be submitted to the Area Director and the Commissioner for review and comment. Within 30 days of receipt of all such comments from the Area Director and the Commissioner, and after consideration of all such comments, the Board shall approve the revised plan, which approval shall be recorded in the minutes of the meetings of the Board. Thereafter, the Board shall implement and fully comply with the Capital Plan. The Board shall review and update the Bank's Capital Plan on an annual basis, or more frequently if necessary. Copies of the reviews and updates shall be submitted to the Area Director and the Commissioner. At a minimum, the Capital Plan shall include:

(i) Specific plans to achieve the capital levels required under the Capital Plan and this ORDER;

(ii) Specific plans for the maintenance of adequate capital that may in no event be less than the requirements of the provisions of this paragraph;

(iii) Projections for asset growth and capital requirements, and such projections shall be based upon a detailed analysis of the Bank’s current and projected assets, liabilities, earnings, fixed assets, and off-balance sheet activities, each of which shall be consistent with the Bank’s Strategic Plan;

(iv) Projections for the amount and timing of the capital necessary to meet the Bank’s current and future needs;

(v) The primary source(s) from which the Bank will strengthen its capital to meet the Bank’s needs; and,

(vi) Contingency plans that identify alternative sources of capital should the primary source(s) under (v) above not be available.

(b) The Board shall ensure that the Bank has processes, personnel, and control systems to ensure implementation of and adherence to the Capital Plan developed pursuant to this provision.

PROFIT PLAN

9. (a) Within ninety (90) days after the effective date of this ORDER, and within the first thirty (30) days of each calendar year thereafter, the Bank shall formulate and submit for review as described in subparagraph (c), a written profit and budget plan ("Profit Plan") consisting of goals and strategies, consistent with sound banking practices, and taking into account the Bank's other written plans, policies, or other actions as required by this ORDER.

(b) The Profit Plan shall include, at a minimum:

(i) Identification of the major areas in, and means by, which the Board 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 on not less than a quarterly basis; and

(iv) A description of the operating assumptions that form the basis for and support major projected income and expense components.

(c) Such Profit Plan and any subsequent modification thereto shall be submitted to the Area Director and the Commissioner for review and comment. Within thirty (30) days after the receipt of any comment from the Area Director and/or the Commissioner, and after incorporation and adoption of such comments, the Board shall approve the Profit Plan, which approval shall be recorded in the minutes of the meeting of the Board. Thereafter, the Bank shall implement and fully comply with the Profit Plan.

CHARGE-OFF OF ASSETS CLASSIFIED AS LOSS

10. (a) Within thirty (30) days after 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" by the FDIC or the Commissioner in the current Report of Examination that have not been previously collected or charged off. Elimination or reduction of such assets with the proceeds of other Bank extensions of credit shall not be considered "collection" for purposes of this paragraph.

(b) Within thirty (30) days after the receipt of any future Report of Examination of the Bank from the FDIC and/or Division, the Bank shall eliminate from its books, by charge-off or collection, all assets or portions of assets classified "Loss" in the Report of Examination that have not been previously collected or charged off.

CLASSIFIED ASSETS REDUCTION

11. (a) Within one hundred twenty (120) days after the effective date of this ORDER, the Bank shall submit for review as described in subparagraph (c), a written plan ("Classified Asset Plan") to reduce the Bank’s risk position in each asset in excess of $250,000 which is classified "Doubtful" or "Substandard" in the January 17, 2012 Report of Examination For purposes of this provision, "reduce" means to collect, charge-off, or improve the quality of the asset so as to warrant its removal from the adverse classification by the FDIC and the Division.

(b) The Classified Asset Plan shall include, at a minimum, the following:

(i) An action plan to review, analyze and document the current financial condition of each classified borrower including source of repayment, repayment ability, and alternative repayment sources, as well as the value and accessibility of any pledged or assigned collateral, and any possible actions to improve the Bank's collateral position;

(ii) A schedule for reducing the outstanding dollar amount of each adversely classified asset, including timeframes for achieving the reduced dollar amounts (at a minimum, the schedule for each adversely classified asset must show its dollar balance on a quarterly basis); and

(iii) Provide for the submission of monthly written progress reports to the Board for review and notation in minutes of the Board meetings.

(c) The Classified Asset Plan shall be submitted to the Area Director and the Commissioner for non-objection or comment. Within thirty (30) days from receipt of non-objection or any comments from the Area Director and the Commissioner, and after incorporation and adoption of all comments, the Board shall approve the Classified Asset Plan, which approval shall be recorded in the minutes of the Board meeting. Thereafter, the Bank shall implement and fully comply with the Classified Asset Plan.

(d) For purposes of the Classified Asset Plan, the reduction of adversely classified assets in the Report of Examination shall be detailed using quarterly targets expressed as a percentage of the Bank’s Tier 1 Capital plus the Bank’s ALLL and may be accomplished by:

(i) Charge-off;

(ii) Collection;

(iii) Sufficient improvement in the quality of adversely classified assets so as to warrant removing any adverse classification, as determined by the FDIC or the Division; or

(iv) Increase in the Bank’s Tier 1 Capital.

INTEREST RATE RISK AND SENSITIVITY

12. (a) Within sixty (60) days from the effective date of this ORDER, the Board shall review, amend if necessary, and submit for review as described in subparagraph (c), the Bank’s written interest rate risk policy ("IRR Policy").

(b) At a minimum, the IRR policy shall include guidelines for the following:

(i) Measures designed to control the nature and amount of interest rate risk the Bank takes, including those that specify risk limits and define lines of responsibilities and authority for managing risk;

(ii) A system for identifying and measuring interest rate risk, including a periodic calculation to measure interest rate risk exposure at various time horizons, and establish target ratios;

(iii) Establish goals and strategies for reducing and managing the Institution's interest rate risk exposure;

(iv) A system for monitoring and reporting risk exposures; and

(v) A system of internal controls, review, and audit to ensure the integrity of the overall risk management process.

(c) The Bank shall submit the IRR Policy and any future modifications to the Area Director and the Commissioner for review and comment. Within thirty (30) days of receipt of all such comments from the Area Director and the Commissioner, and after incorporation and adoption of all comments, the Bank shall approve the revised IRR policy, which approval shall be recorded in the minutes of the meeting of the Board. Thereafter, the Bank shall implement and fully comply with the policy. Annually or more frequently thereafter, while this ORDER is in effect, the Board shall review this plan for adequacy and, based upon the above criteria, shall make necessary revisions to the plan.

PROGRESS REPORTS

13. (a) Within forty-five (45) days of the end of the first quarter following the effective date of this ORDER, and within forty-five (45) days of the end of each quarter thereafter, the Bank shall furnish to the Area Director and the Commissioner written progress reports detailing the form, manner, and results of any actions taken to secure compliance with this ORDER. All progress reports and other written responses to this ORDER shall be reviewed by the Board and made a part of the Board minutes.

(b) Such written progress reports shall provide cumulative detail of the Bank’s progress toward achieving compliance with each provision of the ORDER, including at a minimum:

(i) Description of the identified weaknesses and deficiencies;

(ii) Provision(s) of the ORDER pertaining to each weakness or deficiency;

(iii) Actions taken or in-process for addressing each deficiency;

(iv) Results of the corrective actions taken;

(v) The Institution’s status of compliance with each provision of the ORDER; and

(vi) Appropriate supporting documentation.

(c) Progress reports may be discontinued when the Area Director and the Commissioner has, in writing, released the Institution from making additional reports.

The provisions of this ORDER shall not bar, stop, or otherwise prevent the FDIC, the Commonwealth of Massachusetts Division of Banks, or any other federal or state agency or department from taking any other action against the Bank or any of the Bank’s current or former institution-affiliated parties.

This ORDER shall be effective on the date of issuance.

The provisions of this ORDER shall be binding upon the Bank, its institution-affiliated parties, and any successors and assigns thereof.

The provisions of this ORDER shall remain effective and enforceable except to the extent that and until such time as any provision has been modified, terminated, suspended, or set aside by the FDIC and the Division.

Issued Pursuant to Delegated Authority

Dated this seventh day of August, 2012.

By:

Daniel E. Frye, Area Director
Boston Area Office
Division of Risk Supervision Management
Federal Deposit Insurance Corporation

By:

Hon. David J. Cotney, Commissioner
Commonwealth of Massachusetts
Division of Banks

Terminated on January 19, 2017