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FDIC Enforcement Decisions and Orders

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   [12,019] In the Matter of United-American Savings Bank, Pittsburgh, Pennsylvania, Docket No. 03-001b (2-6-03).

(This order was terminated by order of the FDIC dated 1-28-04; see ¶16,369.)

   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] Management—Qualifications Specified—Charges in, Notification Required

   [.2] Management—Plan Required

   [.3] Board of Trustees—Plan Required

   [.4] Capital—Capital Restoration Plan Required—Increase Required

   [.5] Loan Loss Reserve—Establishment of or Increase in Required

   [.6] Profit Plan—Preparation of Plan Required

   [.7] Conflicts of Interest—Written Policy Required

   [.8] Assets—Reduction Required

   [.9] Loans—Extensions of Credit—Curtail to Existing Borrowers

   [.10] Loan Policy—Review Program

   [.11] Loans—Internal Review and Grading System

   [.12] Investment and Investment Policy—Real Estate Investments—Reduction Required

   [.13] Violations of Law—Corrections of Violations Required

   [.14] Funds Management and Liquidity—Preparation or Revision of Funds Management Policy Required

   [.15] Bank Operations—Internal Routine and Control Procedures—Written Plan Required

   [.16] Golden Parachute Payments—Prohibited

   [.17] Progress Report—Written Report Required
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   [.18] Compliance Committee—Board of Trustees to Appoint

   [.19] Compliance Program—Compliance Reports

In the Matter of
UNITED-AMERICAN SAVINGS BANK
PITTSBURGH, PENNSYLVANIA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

FDIC-03-001b

   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:

ORDER TO CEASE AND DESIST

   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,
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   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.
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   (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).
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   [.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
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   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;
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       (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).


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   (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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