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FDIC Enforcement Decisions and Orders
{{4-30-04 p.C-5685}} A cease and desist order was issued, based on findings by the FDIC that
it had reason to believe that respondent was engaged in unsafe and
unsound practices.
[.1] ManagementQualifications SpecifiedCharges in, Notification Required
[.2] ManagementPlan Required
[.3] Board of TrusteesPlan Required
[.4] CapitalCapital Restoration Plan RequiredIncrease Required
[.5] Loan Loss ReserveEstablishment of or Increase in Required
[.6] Profit PlanPreparation of Plan Required
[.7] Conflicts of InterestWritten Policy Required
[.8] AssetsReduction Required
[.9] LoansExtensions of CreditCurtail to Existing Borrowers
[.10] Loan PolicyReview Program
[.11] LoansInternal Review and Grading System
[.12] Investment and Investment PolicyReal Estate InvestmentsReduction
Required
[.13] Violations of LawCorrections of Violations Required
[.14] Funds Management and LiquidityPreparation or Revision of Funds
Management Policy Required
[.15] Bank OperationsInternal Routine and Control ProceduresWritten Plan
Required
[.16] Golden Parachute PaymentsProhibited
[.17] Progress ReportWritten Report Required
[.18] Compliance CommitteeBoard of Trustees to Appoint
[.19] Compliance ProgramCompliance Reports
In the Matter of
United-American Savings Bank, Pittsburgh, Pennsylvania,
("Insured Institution"), 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 Insured Institution and of its right to a
hearing on the 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 February 6, 2003, whereby solely for
the purpose of this proceeding and without admitting or denying the
alleged charges of unsafe or unsound banking practices and violations
of law and/or regulations, the Insured Institution 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 Insured Institution had engaged in unsafe or unsound
banking practices and had committed violations of law and/or
regulations. The FDIC, therefore, accepted the CONSENT AGREEMENT and
issued the following:
IT IS HEREBY ORDERED that the Insured Institution, its trustees,
officers, employees, agents, and other institution-affiliated parties
(as that term is defined in Section 3(u) of the Act, 12 U.S.C.
§1813(u)), and its successors and assigns cease and desist from the
following unsafe or unsound banking practices and violations:
(a) engaging in hazardous lending and lax collection practices;
(b) operating the Insured Institution with inadequate capital in
relation to the kind and quality of assets held by the Insured
Institution;
(c) operating the Insured Institution with a large volume of poor
quality assets;
(d) operating the Insured Institution with an inadequate valuation
reserve;
(e) operating the Insured Institution with inadequate liquidity
provisions;
(f) operating the Insured Institution with inadequate funds management
policies and procedures;
(g) operating the Insured Institution with inadequate internal routine
and controls policies;
(h) operating the Insured Institution with an inadequate internal audit
program;
(i) operating the Insured Institution in such a manner as to produce
operating losses;
(j) engaging in violations of applicable Federal laws and regulations,
and in contravention of FDIC Statements of Policy, as more fully set
forth on pages 15-18 of the Report of Examination of the Insured
Institution by the FDIC as of June 30, 2002 ("Report of
Examination");
(k) operating the Insured Institution with management whose policies
and practices are detrimental to the Insured Institution and jeopardize
the safety of its deposits;
(l) operating the Insured Institution with a board of trustees which
has failed to provide adequate supervision over and direction to the
active management of the Insured Institution;
(m) operating the Insured Institution with excessive borrower
concentrations of credit, and an excessive concentration of credit in
its investment property loan portfolio;
(n) failing to heed prior regulatory warnings concerning weaknesses in
underwriting and credit administration in the investment property loan
portfolio;
(o) failing to provide the Insured Institution with operational
personnel who have experience that is adequate to ensure safe and sound
operation of the Insured Institution.
IT IS FURTHER ORDERED that the Insured Institution, its
institution-affiliated parties,
and its successors and assigns, take
affirmative action as follows:
[.1]1. (a) The Insured Institution shall have and retain qualified
management. Each member of management shall have qualifications and
experience commensurate with his or her duties and responsibilities at
the Insured Institution. Such management shall include a chief
executive officer and an experienced senior lending officer responsible
for supervising the Insured Institution's lending and the workout of
problem credits. The qualifications of management shall be assessed on
its ability to:
(i) comply with the requirements of this ORDER;
(ii) improve and thereafter maintain the Insured Institution in a safe
and sound manner;
(iii) comply with all applicable Federal and State laws and
regulations, and FDIC, Interagency and FFIEC policy statements; and
(iv) restore all aspects of the Insured Institution to a safe and sound
condition, including capital adequacy, asset quality, management
effectiveness, earnings, liquidity, and sensitivity to market risk.
(b) During the life of this ORDER, the Insured Institution shall
notify the Regional Director in writing of any resignations and/or
terminations of any members of its board of trustees and/or any of its
executive officers. In addition, the Insured Institution shall comply
with section 32 of the Act, 12 U.S.C. §1831i, which includes a
requirement that the Insured Institution shall notify the Regional
Director in writing at least 30 days prior to any individual assuming a
new position as a senior executive officer or any additions to the
board of trustees of the Insured Institution.
[.2]2. (a) To ensure both compliance with this ORDER and to facilitate
having and retaining qualified management, the board of trustees of the
Insured Institution shall, within 60 days from the effective date of
this ORDER, undertake an in-depth analysis and review of the Insured
Institution's managerial requirements and make a written report
("Management Report") on the Insured Institution's management
needs. The Management Report shall incorporate an analysis of the
Insured Institution's management and staffing requirements and shall,
at a minimum:
(i) provide a review of the composition, policies and practices
of the Insured Institution's current operating management;
(ii) provide a recommendation of whether current operating management
should be changed, or the terms and conditions under which current
operating management should be continued;
(iii) provide an evaluation of each Insured Institution officer
indicating whether these officials possess the ability, experience and
other qualifications required to perform present and anticipated
duties, including adherence to the Insured Institution's established
policies and practices and maintenance of the Insured Institution in a
safe and sound condition;
(iv) identify both the number and type of positions needed to properly
supervise the Insured Institution's lending functions, giving
appropriate consideration to the Insured Institution's loan volume,
customer base and the number of problem credits;
(v) provide a clear and concise description of the general duties and
responsibilities for each Insured Institution officer and their key
support staff;
(vi) identify the skills, experience and compensation required for each
position;
(vii) establish a plan to recruit, hire and/or replace personnel based
on ability and experience;
(viii) establish a plan providing for periodic evaluation of each
individual's job performance; and
(ix) provide for periodic review of the Insured Institution's
management and updating of lending policies and procedures.
(b) The board of trustees of the Insured Institution shall obtain
the services of an outside consultant, acceptable to the FDIC, who is
knowledgeable in the area of bank management, lending, collections and
personnel evaluation to assist the board of trustees in reviewing the
Insured Institution's management needs and preparing the Management
Report. The acceptability of the consultant shall be based on the
consultant's ability to advise the Insured Institution in each of the
areas identified in paragraph 2(a) of this ORDER.
(c) Within 60 days from the effective date of this ORDER, the board of
trustees of the Insured Institution, with the assistance of the outside
consultant, shall prepare a written plan of implementation
("Plan") addressing the findings of the Management Report. The
Plan shall specify the actions to be taken by the board of trustees and
the time frames for each action.
(d) Within 90 days from the effective date of this ORDER, the board of
trustees of the Insured Institution shall prepare a written report
("Written Report") which shall contain (i) a recitation
identifying the recommendations made by the outside consultant which
have been incorporated in the Management Report and Plan; (ii) a
recitation identifying the recommendations made by the outside
consultant which were not incorporated in the Management Report and
Plan and the reasons for not including such recommendations; and (iii)
a copy of any report prepared by the outside consultant.
(e) Promptly after preparation of the Management Report, Plan, and
Written Report, but no later than 95 days from the effective date of
this ORDER, a copy of the Management Report, Plan, and Written Report
shall be submitted to the Regional Director for review and comment.
Within 30 days from receipt of any comments, and after consideration of
such comments, the board of trustees of the Insured Institution shall
approve the Management Report and Plan, which approval shall be
recorded in the minutes of the meeting of the board of trustees to
fully implement the Plan within the specified time frames. In the event
the Plan, or any portion thereof, is not implemented, the board of
trustees shall immediately advise the Regional Director, in writing, of
the specific reasons for deviating from the Plan.
[.3]3. (a) Within 90 days from the effective date of this ORDER, the board
of trustees shall develop a written analysis and assessment of the
composition and functions of the board of trustees ("Trustees'
Plan"), which shall include, at a minimum:
(i) an evaluation of each member of the board of trustees to
determine whether those individuals and the board as a whole have the
ability, experience, independence, and other qualifications which are
necessary to perform the duties of the board, including providing
effective oversight and guidance of management and staff to ensure
adherence to the board's policies and to maintain the Insured
Institution in a safe and sound condition; and
(ii) a written plan of action to enhance the effectiveness of the board
by either adding new members to the board with the necessary ability,
experience, independence and other qualifications, or requiring
additional education and training for existing members of the board, or
both.
(b) The board of trustees of the Insured Institution shall obtain
the services of an outside consultant, acceptable to the FDIC, who is
knowledgeable in the area of bank management, to assist in evaluating
the board of trustees and preparing the Trustees' Plan. This
consultant may be the same consultant employed to prepare the
Management Report required by paragraph 2(a). In the event that
recommendations made by the consultant are not included in the
Trustees' Plan, the board of trustees shall immediately advise the
Regional Director, in writing, of the specific reasons for which the
recommendations were excluded from the Trustees' Plan.
(c) The Trustees' Plan and any subsequent modifications thereto shall
be submitted to the Regional Director for review and comment. Within 30
days from the receipt of any comments, and after considering such
comments, the board of trustees shall approve the Trustees' Plan
and/or any subsequent modification thereto, which approval shall be
recorded in the minutes of the board of trustees. Thereafter, the board
of trustees of the Insured Institution shall implement and follow the
Trustees' Plan and/or any subsequent modifications thereto.
[.4]4. Within 60 days from the effective date of this ORDER, the Insured
Institution shall develop a written plan to restore the Insured
Institution to "well capitalized" status within the meaning of
section 325.103(b)(1) ("Capital Restoration Plan"), and to
thereafter maintain its total risk-based capital ratio, Tier 1
risk-based capital ratio, and leverage ratio at levels which, but for
section 325.103(b)(1)(iv) of Part 325 of the FDIC's Rules and
Regulations, would be sufficient for it to be deemed well capitalized
within the meaning of section 325.103(b)(1). For the purposes of this
ORDER, the terms total risk-based capital ratio, Tier 1 risk-based
capital ratio, and leverage ratio will have the meanings ascribed to
them in Part 325 of the FDIC's Rules and Regulations, respectively
sections 325.2(y), 325.2(w) and 325.2(m).
[.5]5. (a) Within 30 days from the effective date of this ORDER, the
Insured Institution shall establish and shall thereafter maintain,
through charges to current operating income, an adequate valuation
reserve for loan and lease losses. In determining the adequacy of the
valuation reserve for loan and lease losses, the board of trustees of
the Insured Institution shall at a minimum consider the following:
(i) Prevailing instructions contained in the Federal Financial
Institutions Examination Council booklet entitled
"Instructions-Consolidated Reports of Condition and Income";
(ii) The volume and mix of the existing loan portfolio, including the
volume and severity of nonperforming loans and adversely classified
credits, as well as an analysis of net charge-offs experienced on
previously adversely classified loans;
(iii) The trend in loan growth, including any rapid increase in loan
volume within a relatively short time period;
(iv) General and local economic conditions affecting the collectibility
of the Insured Institution's loans;
(v) Previous loan loss experience by loan type, including the trend of
net charge-offs as a percent of average loans over the past several
years;
(vi) Off balance sheet credit risks;
(vii) The overall risk associated with each concentration of credit
together with the degree of risk associated with each related
individual borrower; and
(viii) Any other factors appropriate in determining future valuation
reserves.
(b) Prior to the submission of any Report of Condition or
Report of Income, the board of trustees of the Insured Institution
shall review the adequacy of the Insured Institution's valuation
reserve for loan and lease losses. The minutes of the board meetings at
which each review is undertaken shall indicate the results of the
review, the amount of any increase to the reserve, and the basis for
the amount of the valuation reserve. The criteria for the review shall
be as set forth in Paragraph 5(a).
[.6]6. (a) Within 60 days from the effective date of this ORDER, the
board of trustees shall develop a written profit plan consisting of
goals and strategies for improving the earnings of the Insured
Institution. The written profit plan shall include, at a minimum:
(i) Identification of the major areas in, and means by, which the
board of trustees will seek to improve the Insured Institution's
operating performance;
(ii) Realistic and comprehensive budgets;
(iii) A budget review process to monitor the income and expenses of the
Insured Institution 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 adequately support, major projected income and expense
components.
(b) Such written profit plan and any subsequent modification
thereto shall be submitted to the Regional Director for review and
comment. No more than 30 days after the receipt of any comment from the
Regional Director, the board of trustees shall approve the written
profit plan which approval shall be recorded in the minutes of the
board of trustees. Thereafter, the Insured Institution, its trustees,
officers, and employees shall follow the written profit plan and/or any
subsequent modification.
[.7]7. Within 60 days from the effective date of this ORDER, the
Insured Institution shall develop, adopt and implement written policies
and procedures designed to bring to the attention of each member of the
board conflicts of interest which may exist in approving loans or other
transactions in which officers or trustees of the Insured Institution
("Insiders") are involved. Such policies and procedures shall, at
a minimum, ensure that each member of the board has been apprised of
any potential conflict prior to making a decision and has acted
specifically on any loan or other transaction in which Insiders and/or
their business associates are, directly or indirectly, involved. The
results of the board deliberations as to potential conflicts shall be
reflected in the minutes of the meeting.
[.8]8. (a) Within 180 days from the effective date of this ORDER, the
Insured Institution shall reduce the volume of classified assets on its
books to an amount equal to or less than the sum of the Insured
Institution's total Tier 1 Capital, as defined in section 325.2(v) of
Part 325 of the FDIC's Rules and Regulations, plus the Insured
Institution's Allowance for Loan and Lease Losses.
(b) Within 360 days from the effective
date of this ORDER, the Insured
Institution shall reduce the volume of classified assets on its books
to an amount equal to or less than 50 percent of the sum of the Insured
Institution's total Tier 1 Capital plus the Allowance for Loan and
Lease Losses.
(c) Within 45 days from the effective date of this ORDER, the Insured
Institution shall develop and submit to the Regional Director an
acceptable "workout" or exit strategy for each loan relationship
discussed at pages 23-39 of the Report of Examination, which shall
include a timetable for the repayment, sale or other liquidation of
such loans, or improvement of the credit quality of such loans that
they would no longer be subject to adverse classification.
(d) The Insured Institution shall report on the progress and status of
the workout of, or withdrawal from, each loan relationship discussed in
this paragraph 8(c), in connection with each written progress report to
the Regional Director required under paragraph 19 of this Order.
[.9]9. (a) Beginning with the effect date of this ORDER, the Insured
Institution shall not make any further extension of credit to any
borrower whose loans are charged off, in whole or in part, or are
adversely classified "Loss" or "Doubtful" as of June 30,
2002 and remain uncollected.
(b) Beginning with the effective date of this ORDER, the Insured
Institution shall not make any further extension of credit to any
borrower thereof whose loans in the aggregate exceed $50,000 and are
adversely classified "Substandard" as of June 30, 2002, unless
such extension has been approved by a majority of the Insured
Institution's board of trustees in advance and the Insured
Institution's board of trustees has detailed in the written minutes of
the meeting how it has affirmatively determined all of the following:
(i) That the extension of credit is in full compliance with the Insured
Institution's loan policy; (ii) that it is necessary to protect the
Insured Institution's interest or that the extension of credit is
adequately secured; (iii) that based upon credit analysis the
customer is deemed to be creditworthy; and (iv) that all necessary
loan documentation is on file, including current financial and cash
flow information and satisfactory appraisal, title, and lien documents.
The minutes shall also include the following information about the
extension of credit: (i) The amount adversely classified as of June 30,
2002; (ii) the current balance; (iii) the amount of credit
requested; (iv) a description of the collateral and its value securing
the credit; and (v) a full description of the documentation presented
to the board of trustees including the date of the borrower's most
recent financial information and the borrower's current income or cash
flow data.
[.10]10. Within 60 days from the effective date of this ORDER, the Insured
Institution shall review its written loan policy and make whatever
changes may be necessary to provide for the safe and sound
administration of all aspects of the lending function. Specific
procedures shall be included for prior approval of loans to trustees,
officers and principal shareholders and their related interests in
compliance with applicable laws and regulations. Loan documentation,
repayment programs, collection and charge-off procedures and internal
loan review shall also be included as a part of the review. The Insured
Institution shall adopt changes it considers necessary and appropriate
and management shall reaffirm its intent to comply with the policy, as
amended. Evidence of management's reaffirmation shall be reduced to
writing. The policy and its implementation shall be in a form and
manner acceptable to the Regional Director as determined at subsequent
examinations and/or visitations.
[.11]11. (a) Within 30 days of the effective date of this ORDER, the board
shall establish an internal loan review and grading system
("System") to periodically review the Insured Institution's loan
portfolio and identify and categorize problem credits. At a minimum the
System shall provide for:
(i) The identification of the overall quality of the loan
portfolio;
(ii) The identification and amount of each delinquent loan;
(iii) An identification or grouping of loans that warrant the special
attention of management;
(iv) For each loan identified, a statement of the amount and an
indication of the degree of risk that the loan will not be fully repaid
according to its terms and the reason(s) why the particular loan merits
special attention;
(v) An identification of credit and collateral documentation
exceptions;
(vi) The identification and status of each violation of law, rule or
regulation;
(vii) An identification of loans not in conformance with the Insured
Institution's lending policy, and exceptions to the Insured
Institution's lending policy;
(viii) An identification of insider loan transactions; and
(ix) A mechanism for reporting periodically, no less than quarterly, to
the board of trustees on the status of each loan identified and the
action(s) taken by management.
(b) A copy of the reports submitted to the board, as well as
documentation of the action taken by the Insured Institution to
collect or strengthen assets identified as problem credits, shall be
kept with the minutes of the board of trustees.
[.12]12. (a) Within 360 days from the effective date of this ORDER, the
Insured Institution shall reduce the investment property concentration
to an amount which shall be less than 300 percent of the Insured
Institution's Tier 1 capital.
(b) Within 720 days from the effective date of this ORDER, the Insured
Institution shall reduce the investment property concentration to an
amount which shall be less than 200 percent of the Insured
Institution's Tier 1 capital.
[.13]13. Within 60 days from the effective date of this ORDER, the Insured
Institution shall eliminate and/or correct all violations of law and
contraventions of FDIC, Interagency and FFIEC guidance and policy
statements, as described on pages 15-18 of the Report of Examination of
the Insured Institution as of June 30, 2002. In addition, the Insured
Institution shall take all steps necessary to ensure future compliance
with all applicable laws and regulations, and all FDIC, Interagency and
FFIEC guidance and policy statements.
[.14]14. Within 60 days from the effective date of this ORDER, the Insured
Institution shall develop or revise, adopt, and implement a written
liquidity and funds management policy, including procedures to measure,
monitor and control liquidity and interest rate risk. Such policy
and its implementation shall be in a form and manner acceptable to the
Regional Director as determined at subsequent examinations and/or
visitations.
[.15]15. Within 60 days from the effective date of this ORDER, the Insured
Institution's board of trustees shall revise, adopt and implement
written policies and procedures to provide effective guidance and
control over the internal routine and controls of the Insured
Institution, in accordance with safe and sound banking practices. Among
other provisions, the revised policies and procedures shall
specifically provide for correction of all internal routine and
controls deficiencies scheduled in the Report of Examination of the
Insured Institution as of June 30, 2002. Such policy and its
implementation shall be in a form and manner acceptable to the Regional
Director as determined at subsequent examinations and/or visitations.
[.16]16. Immediately upon the effective date of this ORDER, the Insured
Institution shall:
(a) Not enter into any agreements with present and former officers
of the Insured Institution which constitute "golden parachute
payments", as defined in section 18(k)(4) of the Act, 12 U.S.C.
§1828(k)(4);
(b) Rescind all agreements or portions of agreements with present and
former officers of the Insured Institution which constitute "golden
parachute payments";
(c) Cease making any payments to present and former officers of the
Insured institution which constitute "golden parachute payments";
and
(d) Take whatever legal steps are necessary to obtain reimbursement
from all former officers of the Insured Institution of any payments
which have already been made to them and which constitute "golden
parachute payments".
[.17]17. By the 15th day of each month, the Insured Institution will provide
to the Regional Director, reports for the prior month as follows:
(a) Insured Institution statements of condition and income;
(b) Reports of performance indications for the month including:
(i) Calculations providing Tier 1 leverage capital leverage and
Tier 1 and total risk-based capital ratios;
(ii) Return on average assets (annualized to date); and
(iii) Net interest margin (annualized to date).
(c) Loan portfolio reports of delinquency and charge-off activity.
(d) The term "Tier 1 capital" shall have the meaning ascribed to
it in Part 325 of the FDIC's Rules and Regulations, §325.2(t), 12
C.F.R. §325.2(t).
[.18]18. The board of trustees of the Insured Institution shall appoint a
committee (the "Compliance Committee") composed of at least three
trustees who are not now and have never been involved in the daily
operations of the Insured Institution, and whose composition is
acceptable to the Regional Director, to monitor the Insured
Institution's compliance with this ORDER. Within 30 days from the
effective date of this ORDER, and at monthly intervals thereafter, such
Compliance Committee shall prepare and present to the Insured
Institution's board of trustees a written report of its findings,
detailing the form, content, and manner of any action taken to ensure
compliance with this ORDER and the results thereof, and any
recommendations with respect to such compliance. Such progress reports
shall be included in the minutes of the meeting of the Insured
Institution's board of trustees. Nothing contained herein shall
diminish the responsibility of the entire board of trustees to ensure
compliance with the provisions of this ORDER.
[.19]19. By the 30th day after the end of the calendar quarter following the
effective date of this ORDER, and by the 15th day after the end of
every calendar quarter thereafter, the Insured Institution shall
furnish written progress reports to the Regional Director detailing the
form, content, and manner of any actions taken to secure compliance
with this ORDER, and the results thereof.
The provisions of this ORDER shall be binding upon the Insured
Institution, its trustees, officers, employees, agents, successors,
assigns, and other institutions-affiliated parties of the Insured
Institution.
This ORDER shall become effective 10 days from the date of its
issuance.
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: 2-6-03
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