Federal Deposit
Insurance Corporation

{{8-31-93 p.C-1630}}
   [¶10,375] In the Matter of First American Bank of Virginia, McLean, Virginia, Docket No. FDIC-91-348b (11-4-91).

   Bank to cease and desist from such unsafe or unsound practices as failing to provide adequate supervision over the Bank's affairs; operating with management whose policies are inadequate for the needs of the Bank; operating with inadequate capital; operating with excessive volumes of adversely classified assets; following deficient lending and lax collection practices; and engaging in practices which produce inadequate operating income. (This order was terminated by order of the FDIC dated 6-28-93; see ¶ 15,692.)

   [.1] Management—Qualifications—Review
   [.2] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.3] Allowance for Loan and Lease Losses—Establish/Maintain
   [.4] Assets—Adversely Classified—Eliminate/Reduce
   [.5] Assets—Problem Assets—Individual Written Plans
   [.6] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.7] Loans—Special Mention—Correct Deficiencies
   [.8] Loans—Risk Position—Reduce—Written Plan Required
   [.9] Loan Policy—Written Revision—Minimum Requirements
   [.10] Budget and Earnings Forecast—Preparation Required
   [.11] Dividends—Restricted
   [.12] Liquidity—Written Policy—Requirements
   [.13] Affiliated Organizations—Transactions With—Review
   [.14] Shareholders—Disclosure—Cease and Desist Order
   [.15] Compliance Reports—Frequency

In the Matter of

FIRST AMERICAN BANK OF
VIRGINIA
McLEAN, VIRGINIA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

   First American Bank of Virginia, McLean, Virginia ("Bank"), having been advised of its right to receive a written Notice of Charges and of Hearing detailing unsafe or unsound banking practices alleged to have been committed by the Bank and of its right to a hearing regarding such alleged charges under section 8(b)(1) of the Federal Deposit Insurance 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 a representative of the Legal Division of the Federal Deposit Insurance Corporation ("FDIC"), dated October 30, 1991, whereby solely for the purpose of this proceeding and without admitting or denying any of the alleged charges of unsafe or unsound banking practices, 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. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

   IT IS HEREBY ORDERED, that the Bank, its institution-affiliated parties, as such term is defined in section 3(u) of the Act, 12 U.S.C. § 1813(u), and its successors and
{{1-31-92 p.C-1631}}assigns cease and desist from the following alleged unsafe or unsound banking practices:

   A. Failing historically to provide adequate supervision and direction over the affairs of the Bank by the board of directors of the Bank;
   B. Operating the Bank with management whose policies and practices historically have been inadequate for the needs of the Bank;
   C. Operating the Bank with equity capital that is inadequate for the kind and quality of assets held by the Bank;
   D. Operating the Bank with an excessive volume of adversely classified assets and past due loans;
   E. Engaging in deficient lending practices and ineffective and lax collection practices, including, but not limited to, extending credit with inadequate diversification of risk; and
   F. Engaging in practices which produce inadequate operating income and excessive loan losses.

   [.1] 1. Within 90 days from the effective date of this ORDER, the Bank shall have and retain qualified senior management. For purposes of this ORDER, the term "senior management" shall not include any position below the level of senior vice president. At a minimum, such management shall include a chief executive officer with proven ability in managing a bank of comparable size and qualified senior officers having appropriate levels of lending, collection and loan supervision experience necessary to supervise the upgrading of a low quality loan portfolio. Such persons shall be provided the necessary written authority to implement the provisions of this ORDER. The qualifications of senior 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) operate all aspects of the Bank in a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness, and liquidity. So long as this ORDER remains in effect, the Bank shall notify the Regional Director of the FDIC's Atlanta Regional Office ("Regional Director") in writing of any proposed changes in senior management. Such notification shall be in addition to any application and prior approval requirements established by section 32 of the Act, 12 U.S.C. § 1831i, and implementing regulations, must include the names and qualifications of any replacement personnel, and must be provided at least thirty (30) days prior to the individual assuming the new position.

   [.2] 2. (a) Within 30 days after March 31, 1992, and within 30 days after each June 30, September 30, December 31 and March 31 date thereafter while this ORDER remains in effect, the Bank shall calculate its Tier 1 capital as a percentage of its total assets ("capital ratio") as of the nearest preceding June 30, September 30, December 31, and March 31 date. If such capital ratio is less than 6.0 percent, the Bank shall, within 90 days from the date of such calculation, take all possible steps necessary to increase its Tier 1 capital by an amount sufficient to raise its capital ratio to not less than 6.0 percent as of the nearest preceding June 30, September 30, December 31 or March 31 date. Any such increase in Tier 1 capital required by this paragraph 2(a) of the ORDER may be accomplished by any one or more of the following:

   (i) The sale of new securities in the form of common stock or noncumulative perpetual preferred stock;
   (ii) The collection in cash of all or part of assets, other than loans, classified "Loss" or "Doubtful" as of January 22, 1991, and charged off in accordance with paragraph 4 of this ORDER;
   (iii) The direct contribution of cash by the directors and/or shareholders of the Bank;
   (iv) The collection in cash of assets, other than loans, previously charged off; or
   (v) Any other means acceptable to the Regional Director.

ment 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 to the Bank's existing shareholder), the Bank shall prepare detailed offering materials fully describing the securities being offered, including an accurate description of the financial condition of the Bank and of this ORDER as well as the circumstances giving rise to the offering, and any other material disclosures necessary to comply with applicable Federal securities laws. Prior to the sale of such securities through a public distribution and, in any event, not less than twenty (20) days prior to the dissemination of such materials, the materials used in the sale of the securities shall be submitted to the FDIC, Registration and Disclosure Section, Washington, D.C. 20429 for review. Any changes in such offering materials requested by the FDIC shall be made prior to their dissemination.
   (2) In complying with the provisions of paragraph 2(b)(1) of this ORDER, the Bank shall provide to any subscriber and/or purchaser of Bank securities written notice of any planned or existing development or other change which is materially different from the information reflected in any offering materials used in connection with the sale of Bank securities. The written notice required by this paragraph 2(b)(2) shall be furnished within ten (10) calendar days from the date that such material development or change was planned or occurred, whichever is earlier, and shall be furnished to every purchaser and/or subscriber of Bank securities who received or was tendered the information contained in the Bank's original offering materials.

   [.3] 3. Within 30 days from the effective date of this ORDER, and concurrently with compliance with the requirements of paragraph 4 of this ORDER, the Bank shall have and continually maintain an adequate allowance for loan and lease losses in accordance with the prevailing requirements of the Instructions for the Reports of Condition and Income, by charges against current earnings. In complying with the requirements of this paragraph 3 of the ORDER, the Bank's board of directors shall, at a minimum, review the adequacy of the Bank's allowance for loan and lease losses at least once for each calendar quarter. The minutes of the board meeting at which such review is undertaken shall indicate the results of the review, the amount of any recommended increases in the allowance, and the basis for determining the amount of allowance provided.

   [.4] 4. Within 30 days from the effective date of this ORDER, the Bank shall eliminate from its books, by collection, charge-off or other proper entries, all assets or portions of assets classified "Loss" and one-half of all assets or portions of assets classified "Doubtful" by the FDIC as a result of its examination of the Bank as of January 22, 1991, which have not been previously collected or charged off, unless within the thirty-day period the Bank submits to the Regional Director a written request for treatment other than as provided in this paragraph 4 of the ORDER. Upon receipt of the Regional Director's response to a written request submitted within the thirty-day period, the Bank shall take action with respect to the relevant asset, or portion of the asset, that is in accordance with the terms of the Regional Director's response. Reduction of these assets through use of proceeds of loans made by the Bank does not constitute collection for the purpose of this paragraph 4 of the ORDER.

   [.5] 5. (a) Within 90 days from the effec- {{1-31-92 p.C-1633}}tive date of this ORDER, the Bank shall submit to the Regional Director a written plan of action to reduce each borrowing relationship involving extensions of credit that were adversely classified by the FDIC as of January 22, 1991, and which aggregated $1,000,000 or more as of that date. Following submission, such plan of action shall thereafter be implemented and monitored by the Bank, and progress reports regarding implementation of the action plans shall be submitted by the Bank to the Regional Director with the other reporting requirements set forth in paragraph 15 of this ORDER.
   As used in paragraph 5(a) of the ORDER, "reduce" means to (i) collect, (ii) charge off, or (iii) improve the quality of such assets sufficiently to warrant removal of any adverse classification by the FDIC.

[.6] 6. (a) Effective the 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" or "Doubtful", and is uncollected unless a majority of the Bank's board of directors or the board's Executive Committee first: (i) determines that such extension is in the best interest of the Bank; (ii) determines that the Bank has satisfied the requirements set out in paragraph 5(a) of this ORDER as to such borrower; and (iii) approves such extension. Furthermore, the Bank shall notify the Regional Director in writing within ten (10) days after any such approval by the Bank's board of directors or the board's Executive Committee. The Regional Director may, in his sole discretion, withdraw the approval authority granted under this paragraph 6(a) of the ORDER by written notification to the Bank.
   (b) Effective the 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 classified, in whole or in part, "Substandard", and is uncollected, unless a majority of the Bank's board of directors or the board's Executive Committee first: (i) determines that such extension is in the best interest of the Bank; (ii) determines that the Bank has satisfied the requirements set out in paragraph 5(a) of this ORDER as to such borrower; and (iii) approves such extension. A written record of the board of directors' or Executive Committee's determination and approval of any extension of credit under this paragraph 6(b) of the ORDER shall be maintained in the credit file(s) of the affected borrower(s) as well as the minutes of the board of directors.
   (c) The requirements of this paragraph 6 of the ORDER shall not prohibit the Bank from renewing or extending the maturity of any credit already extended to the borrower, provided such action is in accordance with both Federal and state laws, rules and regulations, and further provided all interest due at the time of such renewal or extension is collected in cash from the borrower.

   [.7] 7. Within 90 days from the effective date of this ORDER, the Bank shall either correct the cited deficiencies in the assets listed for "Special Mention" on pages 2-c through 2-c-3 of the FDIC's Report of Examination of the Bank as of January 22, 1991, or shall prepare and submit to the Regional Director a written plan of action to reduce any such asset in the manner specified in paragraph 5(b) of this ORDER. Any plan of action submitted shall thereafter be implemented and monitored by the Bank, and progress reports regarding implementation of the action plans shall be submitted by the Bank to the Regional Director with the other reporting requirements set forth in paragraph 15 of this ORDER.

   [.8] 8. Within 90 days from the effective date of this ORDER, the Bank shall establish a system for identifying its total risk exposure related to acquisition, development, and construction lending, including funded extensions of credit, unfunded commitments, and in-substance foreclosures. Further, within 90 days from the effective date of this ORDER, the Bank shall devise, submit to the Regional Director for review and comment, and, upon receipt of the Regional Director's notification to proceed, implement a plan to reduce such risk exposure to a prudent and reasonable level. Such plan need not require that the Bank refuse to extend or renew credit to sound borrowers.

   [.9] 9. (a) Within 60 days from the effec- {{1-31-92 p.C-1634}}tive date of this ORDER, the Bank shall review and revise its written loan policy to provide for the safe and sound administration of all aspects of the Bank's lending function. The Bank's loan policy shall, at a minimum, be revised to address the deficiencies in the policy described on pages 1 and 6-a of the FDIC's Report of Examination of the Bank as of January 22, 1991.
   (b) The revised written loan policy and any subsequent modification thereto shall be submitted to the Regional Director for review and comment. No more than 45 days after the receipt of any comment from the Regional Director, the board of directors shall approve the written loan policy and/or any subsequent modification thereto, which approval shall be recorded in the minutes of the board of directors. Thereafter, the Bank shall implement and follow the written loan policy and/or any subsequent modification thereto.

[.10] 10. (a) Not later than January 31, 1992, the Bank shall submit its budget and earnings forecast for calendar year 1992 to the Regional Director for review and comment.
   (b) As long as this ORDER remains in effect, the Bank shall prepare realistic and comprehensive calendar year budget and earnings forecasts on a consolidated basis as of January 1 of each subsequent year and shall submit them to the Regional Director for review and comment no later than January 31 of the budget year.
   (c) In preparing the budget and earnings forecasts required by this paragraph 10 of the ORDER, the Bank shall, at a minimum:

   (i) Identify the major areas in, and means by, which the board of directors will seek to improve the Bank's operating performance, with particular emphasis on improving the Bank's net interest margin and reducing controllable overhead expenses; and
   (ii) Describe the operating assumptions that form the basis for, and adequately support, major projected income and expense components.

   [.11] 11. As of the effective date of this ORDER, the Bank shall not pay any cash dividends without the prior written consent of the Regional Director.

[.12] 12. (a) Effective the date of this ORDER, the Bank's liquidity needs shall be assessed on a monthly basis and plans shall be established that are designed to ensure that such needs are met on an ongoing basis. The aforementioned assessment and plans shall include, at a minimum: (i) scheduled maturities of certificates of deposit; (ii) volatility of demand deposits; (iii) amounts and types of loan commitments and standby letters of credit; (iv) continuing availability and volatility of present funding sources; (v) impact of deterioration in asset quality; and (vi) impact of loan sales and participations.
   (b) The Bank's funds management performance shall be reported to the Regional Director concurrently with the other reporting requirements specified in paragraph 15 of this ORDER.

   [.13] 13. Within 90 days from the effective date of this ORDER, the Bank shall review its service contract with First American Metro Corporation and take all possible steps to correct the deficiencies in the contract described on page 6-b-1 of the FDIC's Report of Examination of the Bank as of January 22, 1991. The Bank's board of directors shall approve any contract revisions, and such approval shall be recorded in the minutes of the board of directors.

   [.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 this ORDER in all material respects. The description and any accompanying communication, statement or notice shall be sent to the FDIC, Registration and Disclosure Section, Washington, D.C. 20429, for review at least 20 days prior to dissemination to shareholders. Any changes requested to be made by the FDIC shall be made prior to dissemination of the description, communication, notice or statement.
{{2-28-93 p.C-1635}}

   [.15] 15. Within 45 days from December 31, 1991, and within 45 days following the end of each calendar quarter thereafter, the Bank shall furnish written progress reports to the Regional Director 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. 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 appropriate board meeting.
   16. The provisions of this ORDER shall become effective ten (10) days from the date of its issuance and shall be binding upon the Bank, its institution-affiliated parties and its successors and assigns. Further, 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.
   Dated at Atlanta, Georgia, this 4th day of November, 1991.
   Pursuant to delegated authority.