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[¶12,124] In the Matter of United Bank and Trust Company, New Orleans, Louisiana,
Docket No. 03-172b (11-17-03).
A cease and desist order was issued, based on findings by the FDIC that
it had reason to believe that respondent had engaged in unsafe and
unsound practices.
[.1] ManagementQualifications Specified
[.2] Capital PlanMinimum Requirements Specified
[.3] Loan Loss ReserveEstablishment of or Increase Required
[.4] AccountingWritten Policy Required
[.5] Strategic PlanPreparation of Required
[.6] AssetsCharge-off or Collection
[.7] LoansExtensions of CreditTo Borrowers with Existing Adversely Classified Credit
[.8] Loan Review and Grading SystemEstablishment of Required
[.9] Loan PolicyPreparation or Revision of Policy Required
[.10] LoansReal EstateReview Required
[.11] Funds Management and LiquidityPreparation or Revision of Funds Management Policy Required
[.12] Violations of LawCorrections of Violations Required
[.13] DividendsDividends Restricted
[.14] ShareholdersDisclosure of Cease and Desist Order Required
[.15] Progress ReportWritten Report Required
In the Matter of
UNITED BANK AND TRUST COMPANY
NEW ORLEANS, LOUISIANA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-03-172b
United Bank and Trust Company, New Orleans, Louisiana (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 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 November 12, 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 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 committed violations of law 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, its directors, officers,
employees, agents, and other institution-affiliated parties (as that
term is defined in Section 3(u) of the Act, 12 U.S.C. §1818(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 with a large volume of poor quality assets;
(c) Operating with inadequate capital in relation to the kind and
quality of assets held by the Bank;
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(d) Operating with an inadequate loan valuation reserve;
(e) Operating in such a manner as to produce operating losses;
(f) Operating with management whose policies and practices are
detrimental to the Bank and jeopardize the safety of its deposits;
(g) Operating with a board of directors which did not provide adequate
supervision over and direction to the active management;
(h) Operating with inadequate procedures to monitor and manage the
Bank's rate sensitivity; and
(i) Operating in violation of Part 365 of the FDIC Rules and
Regulations, 12 C.F.R. §365; in contravention of Appendix A to Part
364 of the FDIC's Rules and Regulations, Standards for Safety and
Soundness, 12 C.F.R. §364 Appendix A; and in violation of Section
350.7 of the FDIC Rules and Regulations, 12 C.F.R. §350.7.
IT IS FURTHER ORDERED that the Bank, its institution-affiliated
parties, and its successors and assigns, take affirmative action as
follows:
[.1] 1. (a) During the life of this ORDER, the Bank shall have management
qualified to restore the Bank to a sound condition. Such management
shall include a chief executive officer and an experienced senior
lending officer responsible for supervising the Bank's overall lending
function. The chief executive officer and the senior lending official
may be the same person.
(b) Management shall be assessed on its ability to:
(i) Comply with the requirements of this ORDER;
(ii) Improve and thereafter maintain the Bank in a safe and sound
condition, including asset quality, capital adequacy, liquidity
adequacy, earnings adequacy, and sensitivity to market risks; and
(iii) Comply with all applicable State and Federal laws and
regulations, and FDIC and Federal Financial Institutions Examination
Council policy statements.
(c) During the life of this ORDER, the Bank shall notify the
Regional Director of the Dallas Region-Memphis Area Office
("Regional Director ") and the Commissioner of the Office of
Financial Institutions for the State of Louisiana
("Commissioner") in writing of any resignations and/or
terminations of any members of its board of directors and/or any of its
senior executive officer(s) within 15 days of the event.
(d) Bank shall comply with section 32 of the Act, 12 U.S.C. §1831i.
(e) Within 30 days from the effective date of this ORDER, the board of
directors shall establish a committee of the board of directors with
the responsibility to ensure that the Bank complies with the provisions
of this ORDER. At least two-thirds of the members of such committee
shall be directors who are not involved in the daily operation of the
Bank. The committee shall report monthly to the entire board of
directors, and a copy of the report and any discussion relating to the
report or the ORDER shall be included in the minutes of the board of
directors. Nothing contained herein shall diminish the responsibility
of the entire board of directors to ensure compliance with the
provisions of this ORDER.
[.2].2 (a) Within thirty (30) days of the effective date of this ORDER, the
Bank shall submit a capital plan to the Regional Director and
Commissioner for review and comment. Within one hundred and twenty
(120) days from the effective date of this ORDER, the Bank shall have
Tier I capital equal to or greater than seven percent (7.00%) of the
Bank's Part 325 total assets, and Total Risk-Based capital equal to or
greater than ten percent (10.00%) of the Bank's Part 325 total
assets. Thereafter, during the life of this ORDER, the Bank shall
maintain Tier I capital equal to or greater than seven percent (7.00%)
of the Bank's Part 325 total assets and Total Risk-Based capital equal
to or greater than ten percent (10.00%) of the Bank's Part 325 total
assets. The Tier I capital required under this paragraph shall be the
minimum Tier I capital required under Part 325 of the FDIC Rules and
Regulations, 12 C.F.R. Part 325.
(b) Any increase in Tier I capital necessary to meet the ratio required
by Paragraph 2(a) of this ORDER may be accomplished by the following:
(i) The sale of new securities in the form of common stock; or
(ii) The direct contribution of cash by the directors, shareholders, or
holding company of the Bank; or
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(c) If all or part of the increase in Tier I capital required by
Paragraph 2(a) of this ORDER is accomplished by the sale of new
securities, the Bank's board of directors shall adopt and implement a
plan for the sale of such additional securities, including the voting
of any shares owned or proxies held or controlled by them in favor of
the plan. Should the implementation of the plan involve a public
distribution of the Bank's securities (including a distribution
limited only to the Bank's existing shareholders), the Bank shall
prepare offering materials fully describing the securities being
offered, including an accurate description of the Bank's financial
condition and the circumstances giving rise to the offering, and any
other material disclosures necessary to comply with the Federal
securities laws. Prior to the implementation of the plan and, in any
event, not less than 20 days prior to the dissemination of such
materials, the plan and any materials used in the sale of the
securities shall be submitted to the FDIC, Registration, Disclosure, &
Securities Unit, 550 17th Street, N.W., Room F-6043, Washington, D.C.
20429, for review. Any changes requested to be made in the plan or
materials by the FDIC shall be made prior to their dissemination. If
the Regional Director allows any part of the increase in Tier I capital
to be provided by the sale of noncumulative perpetual preferred stock,
then all terms and conditions of the issue including, but not limited
to, those terms and conditions relative to the interest rate and any
convertibility factor, shall be presented to the Regional Director for
prior approval.
(d) In complying with the provisions of Paragraph 2 of this ORDER, the
Bank shall provide, to any subscriber and/or purchaser of the Bank's
securities, written notice of any planned or existing development or
other changes which are materially different from the information
reflected in any offering materials used in connection with the sale of
the Bank's securities. The written notice required by this Paragraph
shall be furnished within 10 days from the date such material
development or change was planned or occurred, whichever is earlier,
and shall be furnished to every subscriber and/or purchaser of the
Bank's securities who received or was tendered the information
contained in the Bank's original offering materials.
(e) For purposes of this ORDER, the terms "Tier I Capital,"
"Part 325 total assets," and "Total Risked-Based Capital"
shall have the meanings ascribed to them in Part 325 of the FDIC's
Rules and Regulations, subsections 325.2(v), 325.2(x), and 325.2(y) 12
C.F.R. §§ 325.2(v) (x), and (y), respectively. The Capital
Calculations schedule on page 25 of the Report of Examination provides
the method for determining the ratio of Tier I capital to Part 325
total assets as required by this ORDER.
(f) The Bank shall not lend funds directly or indirectly, whether
secured or unsecured, to any purchaser of Bank stock or to any investor
by any other means for any portion of any increase in Tier I capital
required herein.
[.3] 3. (a) Within 30 days from the effective date of this ORDER, the Bank
shall establish and thereafter maintain, through charges to current
operating income, an adequate valuation reserve for loan and lease
losses ("ALLL"). In determining the adequacy of the ALLL, the
board of directors of the Bank shall, at a minimum, consider the
following:
(i) The prevailing instructions contained in the Federal
Financial Institutions Examination Council booklet entitled
"InstructionsConsolidated 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 extent to which loan renewals, extensions, and/or loan
assumptions by another party are used to maintain loans on a current
basis and the degree of risk associated with such loans;
(iv) The trend in loan growth, including any rapid increase in loan
volume within a relatively short time period;
(v) The general and local economic conditions affecting the
collectibility of the Bank's loans;
(vi) The previous loan loss subsequent experience by loan type,
including the trend of net charge-offs as a percent of average loans
over the past several years;
(vii) Off balance sheet credit risks;
(viii) The overall risk associated with each concentration of credit,
together with
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the degree of risk associated with each related
individual borrower; and
(ix) 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 directors of the Bank shall review the adequacy
of the Bank's ALLL and make such charges as are necessary to current
operating income to provide an ALLL. 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 ALLL, and the basis for the
amount of the ALLL. The criteria for the review shall be as set forth
in Paragraph 3(a).
(c) Notwithstanding the provisions of Paragraph 3(a) and 3(b) above,
the Bank shall achieve, within 30 days of the effective date of this
ORDER, an ALLL, after charge-off of loans classified "Loss" as
required in Paragraph 6(a), below, of not less than $335,000.00 as of
December 31, 2002, and shall thereafter maintain, through charges to
current operating income, an adequate ALLL.
(d) In the event that the Regional Director and/or the Commissioner
determine, at subsequent examinations and/or visitations, that the
Bank's ALLL is inadequate, the Bank shall amend its Consolidated
Reports of Condition and Income as appropriate.
(e) The requirements of Paragraph 3(c), above, are not to be construed
as a standard for future operations.
[.4] 4. Within 45 days from the effective date of the ORDER, the board of
directors shall submit to the Regional Director and Commissioner for
review and comment the most current ALLL calculation and the
methodology used in reaching that calculation. The methodology shall
include the Board's consideration of the factors listed in Paragraph
3(a) above and the method by which the Board measured reserve
requirements for real estate loans; and taking into account, Generally
Accepted Accounting Principals and Financial Accounting Standard Board
Opinions #114 and #118.
[.5] .5 Within 30 days from the effective date of this ORDER, the Bank's
board of directors shall reaffirm and implement all terms and
conditions of the "20032004 Strategic Performance Plan"
approved by the Bank's Board of Directors on January 21, 2003. The
Bank's implementation of the "20032004 Strategic Performance
Plan" and any subsequent modification thereto, shall be documented
in the minutes of the board of directors. Such implementation shall be
in a form and manner acceptable to the Regional Director and the
Commissioner as determined at subsequent examinations and/or
visitations.
[.6] 6. (a) Within 10 days from the effective date of this ORDER, the Bank
shall eliminate from its books, by charge-off or collection, all assets
classified "Loss" as of December 31, 2002, that have not been
previously collected or charged-off. Reduction of these assets through
the proceeds of other loans made by the Bank is not considered
collection for the purpose of this Paragraph.
(b) Within 60 days from the effective date of this ORDER, the Bank
shall formulate and submit to the Regional Director and the
Commissioner for review and approval, a written plan of action directed
at lessening the Bank's risk position in each line of credit or other
asset which was classified "Substandard" as of December 31, 2002,
and which aggregated $100,000 or more. Such plan shall include, but not
be limited to, the following:
(i) Target dollar levels to which the Bank will reduce each line
of credit or other asset within three months, six months, and twelve
months from the effective date of this ORDER; and
(ii) Provisions for the submission of monthly written progress reports
under this Paragraph to the Bank's board of directors for review and
recordation in the board minutes.
(c) As used in Paragraph 6, the word "reduce" means (1) to
collect, (2) to charge-off, or (3) to sufficiently improve the quality
of assets adversely classified to warrant removing any adverse
classification, as determined by the FDIC.
[.7] 7. (a) Beginning with the effective date of this ORDER, the Bank shall
not extend, directly or indirectly, any additional 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" and is uncollected. The requirements of this
Paragraph shall not prohibit the Bank from renewing (after collection
in cash of interest
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due from the borrower) any credit already extended
to any borrower.
(b) Beginning with the effective date of this ORDER, the Bank shall not
make any further extension of credit to any borrower thereof whose
loans in the aggregate exceed $50,000 and were adversely classified
"Substandard" as of December 31, 2002, unless such extension has
been approved by a majority of the Bank's board of directors in
advance and the Bank's board of directors 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
Bank's loan policy;
(ii) That it is necessary to protect the Bank'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 December 31, 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
directors, including the date of the borrower's most recent financial
information and the borrower's current income or cash flow data.
(c) This Paragraph shall not prohibit the Bank from extending
funds, pursuant to a valid pre-existing loan commitment or unfunded
letter of credit, to any borrower whose other loans were adversely
classified as of December 31, 2002, provided all necessary loan
documentation is on file for such borrower, including current financial
and cash flow information and satisfactory appraisal, title and lien
documents.
(d) If any borrower, whose loans were adversely classified as of
December 31, 2002, has a pre-existing loan commitment or unfunded
letter of credit with the Bank, and such commitment or letter of credit
expires, it shall not be renewed or extended unless the Bank complies
with the provisions of Paragraph 7(a) or 7(b), respectively, as
appropriate.
(e) Beginning with the effective date of this ORDER, the Bank shall not
renew any loan without the full collection of interest due. The
issuance of separate notes to the borrowing customer or a third party,
the proceeds of which pay interest due, shall not satisfy the
requirements of this Paragraph unless these separate notes receive
prior board approval in the same manner as outlined in Paragraph 7(b).
[.8] 8. (a) Within 30 days of the effective date of this ORDER, the board
shall establish an effective internal loan review and grading system
("System") to periodically review the Bank's loan portfolio, and
identify and categorize problem credits, assets, or letters of credit.
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 asset;
(iii) The 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 loan will not be fully repaid
according to its terms and the reason(s) why the particular loan merits
special attention;
(v) The identification of credit and collateral documentation
exceptions;
(vi) The identification and status of each violation of law, rule, or
regulation;
(vii) The identification of assets not in conformance with the Bank's
policies, and exceptions to the Bank's lending policy;
(viii) The identification of insider loan transactions; and
(ix) The mechanism for reporting periodically, no less than quarterly,
to the board of directors on the status of each asset identified and
the action(s) taken by management.
(b) A copy of the reports submitted to the board of directors, as
well as documentation of the action taken by the Bank to collect or
strengthen assets identified as problem credits, shall be kept with the
minutes of the board of directors.
(c) Within 90 days from the effective date of this ORDER, the
Bank's board of directors shall
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establish and appoint a loan committee
to review and approve in advance all extensions of credit, and/or
renewals that when aggregated with all other extensions of credit
(including unfunded loan commitments and unfunded letters of credit) to
the borrower, either directly or indirectly, exceed or would exceed
$200,000. At least two-thirds of the members of the loan committee
shall be comprised of directors not involved in daily operations of the
Bank. The review should include financial, income, and cash flow
information, collateral values, lien information, repayment terms, past
performance by the borrower, the purpose of the extension, and whether
the extension complies with the Bank's loan policy, applicable laws,
rules and regulations. The loan committee shall maintain written
minutes, which detail the information reviewed by the loan committee,
its conclusions, approvals, denials, recommendations, and reasons for
the approval of any credit which does not fully comply with the review
requirements set forth in this Paragraph. At least monthly, the loan
committee shall submit its written minutes to the board of
directors.
[.9] 9. Within 60 days from the effective date of this ORDER, the Bank shall
review its written loan policy and make whatever changes may be
necessary to the loan policy to provide for the safe and sound
administration of all aspects of the lending function. At a minimum,
the Bank shall:
(a) Amend the loan policy to establish clear and measurable
underwriting standards as to creditworthiness, cash flow, net worth,
and debt-service to income, and a method for documenting the Bank's
consideration of each standard in the loan file. The policy shall also
provide that the loans that do not meet the measurable standards shall
receive prior Board approval and that the reasons for granting the
credit are documented in the Board minutes.
(b) Amend the loan policy to establish procedures to ensure that
complete and current financial information for each borrower is
maintained by the Bank, both at loan inception and, with the exception
of first mortgages on one-to-four family homes that are performing as
agreed, on an on-going basis.
(c) Specific procedures shall be included to ensure the establishment
of effective repayment programs, effective collection and charge-off
procedures, and overdraft extension procedures.
(d) Provide for a system of records to monitor the maintenance of
current and complete loan documentation to ensure that the credits
comply with the Bank's loan policies, including but not limited to,
current financial statements, current appraisals, current collateral
values, and current insurance coverage. Any exceptions to, or
deviations from, the Bank's established direct or indirect lending
policies, shall be noted in writing along with the name of the loan's
originating officer. A written monthly report of the findings shall be
submitted to the Bank's board of directors noting any exceptions to or
deviations from the loan policies established by the Bank's board of
directors, the loan officer responsible for the exception or deviation,
and the corrective actions taken to remedy the deficiencies. The report
shall be made a part of the minutes of the board meeting.
(e) Provide for a periodic review, at least monthly, of the Bank's
loan policy. When reviewing the policy, the Bank shall consider the
recommendations provided by the Regional Director and/or the
Commissioner in any reports of examination or other official
communication. Decisions not to incorporate the recommendations shall
be documented in the board minutes.
(f) Amend the loan policy to conform to the requirements of Appendix A
of Part 365 of the FDIC Rules and Regulations, 12 C.F.R. Part 365.
[.10] 10. (a) Within 90 days from the effective date of this ORDER, the
Bank shall conduct a review of all real estate loans to identify the
loans that exceed the Supervisory Loan-to-Value Limits ("LTVs")
set forth in Appendix A to Part 365 of the FDIC Rules and Regulations,
12 C.F.R. Part 365 ("Appendix A"). A written report identifying
the loans exceeding the LTVs shall be filed with the Bank's board of
directors. The Board shall review the report and determine whether the
aggregate dollar amount of these loans is in conformance with the
aggregate capital limitations for loans that exceed the LTVs as
provided in Appendix A. The Board shall document its findings in the
minutes of the Board's meeting at which the review took place and
attach a copy of the report to the minutes.
(b) Within 90 days from the effective date of this ORDER, the Bank
shall establish a
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system for monitoring and reporting to the Bank's
board, the Bank's compliance with the capital limitations in Appendix
A for loans that exceed the LTVs.
[.11] 11. Within 60 days from the effective date of this ORDER, the Bank
shall revise and adopt a written funds management policy to adequately
measure, monitor, and control the Bank's sensitivity to interest rate
changes. The written funds management policy shall be submitted to the
Regional Director and the Commissioner for review and comment.
[.12] 12. Within 60 days from the effective date of this ORDER, the Bank
shall eliminate and/or correct all violations of law or regulation, as
well as all contraventions of FDIC policy, which are set out on pages
1012 of the Report of Examination of the Bank as of December 31,
2002. In addition, the Bank shall, henceforth, comply with all
applicable laws and regulations.
[.13] 13. While this ORDER is in effect, the Bank shall not declare or pay as
cash dividends on its capital stock without the prior written approval
of the Regional Director and the Commissioner.
[.14] 14. Following the effective date of this ORDER, the Bank shall
send to its shareholders, or otherwise furnish a description of this
ORDER, (i) in conjunction with the Bank's next shareholder
communication, and also (ii) in conjunction with its notice or proxy
statement preceding the Bank's next shareholder meeting. The
description shall fully describe the ORDER in all material respects.
The description and any accompanying communication, statement, or
notice shall be sent to both the FDIC, Division of Supervision,
Registration, Disclosure, & Securities Unit, 550 17th Street, N.W.,
Room F-6043, Washington, D.C. 20429, and to the Louisiana Office of
Financial Institutions, Post Office Box 94095, Baton Rouge, Louisiana
70804-9095, for review at least 20 days prior to dissemination to
shareholders. Any changes requested to be made by the FDIC or Louisiana
Office of Financial Institutions shall be made prior to dissemination
of the description, communication, notice, or statement.
[.15] 15. On the fifteenth day of the second month following the effective
date of this ORDER, and on the fifteenth day of every third month
thereafter, the Bank shall furnish written progress reports to the
Regional Director and the Commissioner detailing the form and manner of
any actions taken to secure compliance with this ORDER and the results
thereof. Such reports may be discontinued when the corrections required
by this ORDER have been accomplished and the Regional Director has
released the Bank in writing from making further reports.
16. This ORDER shall become effective 10 days from the date of its
issuance.
17. 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 and the Commissioner.
Pursuant to delegated authority.
Dated: November 17, 2003