Each depositor insured to at least $250,000 per insured bank



Home > Regulation & Examinations > Bank Examinations > FDIC Enforcement Decisions and Orders




FDIC Enforcement Decisions and Orders

ED&O Home | Search Form | Text Search | ED&O Help


{{1-31-04 p.C-5924}}
{{1-31-04 p.C-5924}}

   [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] Management—Qualifications Specified

   [.2] Capital Plan—Minimum Requirements Specified

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

   [.4] Accounting—Written Policy Required

   [.5] Strategic Plan—Preparation of Required

   [.6] Assets—Charge-off or Collection

   [.7] Loans—Extensions of Credit—To Borrowers with Existing Adversely Classified Credit

   [.8] Loan Review and Grading System—Establishment of Required

   [.9] Loan Policy—Preparation or Revision of Policy Required

   [.10] Loans—Real Estate—Review Required

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

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

   [.13] Dividends—Dividends Restricted

   [.14] Shareholders—Disclosure of Cease and Desist Order Required

   [.15] Progress Report—Written 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;


{{1-31-04 p.C-5922}}

       (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


{{1-31-04 p.C-5926}}

       (iii) Any other method acceptable to the FDIC.

   (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 "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 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


{{1-31-04 p.C-5927}}

       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 "2003–2004 Strategic Performance Plan" approved by the Bank's Board of Directors on January 21, 2003. The Bank's implementation of the "2003–2004 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
{{1-31-04 p.C-5928}}

   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
{{1-31-04 p.C-5929}}

   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
{{1-31-04 p.C-5930}}

   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 10–12 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

ED&O Home | Search Form | Text Search | ED&O Help

Last Updated 2/7/2004 legal@fdic.gov