(This order was terminated by order of the FDIC dated 7-16-03; see ¶16,343.)
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] Strategic Plan—Preparation of Required
[.2] Management—Report Required
[.3] Capital—Maintain Tier 1 Capital
[.4] Profit Plan—Preparation of Plan Required
[.5] Ethics—Ethics Program Required
[.6] Assets—Charge-off or Collection
[.7] Loan Policy—Preparation or Revision of Policy Required
[.8] Investments and Investment Policy—Excessive Volume of Investments in
Banks and Banking Organizations—Reduction Required
[.9] Violations of Law—Correction of Violations Required
[.10] Bank Operations—Internal Routine and Control Procedures—Written Plan
Required
[.11] Bank Holding Company—Fees Paid to Bank Holding Companies, Limitations
Imposed On
[.12] Loans—Special Mention
[.13] Dividends—Dividends Restricted
[.14] Compensation—Directors—Review Required
[.15] Bank Holding Company—Disclosure of Cease and Desist Order Required
[.16] Board of Directors—Committee to Review Compliance with Cease and
Desist Order Required
In the Matter of
vBANK, A SAVINGS BANK
PHILADELPHIA, PENNSYLVANIA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-01-080b
vBank, A Savings Bank, Philadelphia, 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 July 10, 2001, 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 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.
§1813(u)), and its successors and assigns cease and desist from the
following unsafe or unsound banking practices and violations:
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(a) operating with inadequate capital in relation to the kind and
quality of assets held by the Insured Institution;
(b) operating with a large volume of poor quality investments;
(c) operating with an excessive volume of investments in banks and
banking organizations;
(d) operating with excessive reliance on volatile funding;
(e) operating with inadequate internal routine and controls policies;
(f) operating in such a manner as to produce unsatisfactory earnings;
(g) operating in violation of section 23A of the Federal Reserve Act,
12 U.S.C. §371c, made applicable to state nonmember banks by section
18(j)(1) of the Act, 12 U.S.C. §1828(j)(1); and Part 359 of the FDIC
Rules and Regulations; 12 C.F.R. §359;
(h) operating with management whose policies and practices are
detrimental to the Inured Institution and jeopardize the safety of its
deposits; and
(i) operating with a board of directors which has failed to provide
adequate supervision over and direction to the active management of the
Insured Institution.
IT IS FURTHER ORDERED that the Insured Institution, its
institution-affiliated parties, and its successors and assigns, take
affirmative action as follows:
[.1]1. Within 60 days from the date of this ORDER, the board of directors
shall adopt a Strategic Plan covering at least three years that is
revised and approved at least annually by the board of directors. Each
annual Strategic Plan shall be submitted to the Regional Director for
approval. At a minimum, the Strategic Plan shall establish objectives
for asset growth, asset mix, earnings performance, capital adequacy,
funding growth, funding mix, non-core funding dependence, and interest
rate risk exposure; as well as address management's assumptions and
strategies for achieving these objectives. The Strategic Plan shall
specifically address any new banking initiatives and identify
management's expectations, projections, and goals for the same.
[.2]2. (a) Within 60 days from the date of this ORDER, the board of
directors shall review and make a written report ("Management
Report") on the Insured Institution's management needs in order to
restore the Insured Institution to a sound condition. The Management
Report shall incorporate an analysis of the Insured Institution's
management and staffing requirements and shall, at a minimum:
(i) Identify both the number and type of positions needed to
properly supervise the Insured Institution, giving appropriate
consideration to the Insured Institution's asset mix, customer base
and strategic plan;
(ii) Provide a clear and concise description of the general duties and
responsibilities for officers and their support staff;
(iii) Identify the skills, experience and pay required for each
position;
(iv) Provide an evaluation of the Insured Institution's senior
management and lending officials, indicating whether Insured
Institution officials possess the necessary experience and
qualifications required to adequately perform present and anticipated
duties;
(v) Establish a plan to recruit, hire and/or replace personnel based on
their ability and experience;
(vi) Establish a plan providing for periodic evaluation of each
individual's job performance; and
(vii) Provide periodic review of Insured Institution's management and
updating of policies and procedures.
(b) The board of directors shall obtain the services of an outside
consultant(s) acceptable to the FDIC, knowledgeable in the areas of
bank operations and personnel evaluation to assist the board of
directors in reviewing the Insured Institution's management needs and
preparing the Management Report. The acceptability of the consultant(s)
shall be based on the consultant's ability to advise the Insured
Institution in each of the areas identified in Paragraph 2(a). A copy
of the contract should be submitted to the Regional Director for
approval before the Insured Institution engages the consultant. The
contract or engagement letter should at a minimum include:
(i) A description of the work to be performed;
(ii) Consultant's responsibilities;
(iii) The qualifications of the employees who are to perform the work;
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(iv) The time frame for completing the work;
(v) Any restrictions on the use of the findings; and
(vi) A provision for FDIC access to workpapers;
(c) Within 90 days of the effective date of this ORDER, the board
of directors, with the assistance of the outside consultant(s), 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 directors and the time frames for each
action.
(d) Within 90 days of the effective date of this ORDER, the board of
directors shall prepare a written report ("Written Report") which
shall (1) contain a recitation identifying the recommendations made by
the outside consultant(s) which have been incorporated in the
Management Report and Plan, (2) a recitation identifying the
recommendations made by the outside consultant(s) which were not
incorporated in the Management Report and Plan and the reasons for not
including such recommendations, and (3) a copy of any report(s)
prepared by the outside consultant(s).
(e) 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 comment, and after consideration of such
comment, the board of directors shall approve the Management Report and
Plan of Implementation which approval shall be recorded in the minutes
of the meeting of the board of directors. It shall remain the
responsibility of the board to fully implement the Plan within the
specified time frames. In the event the Plan, or any portion thereof,
is not implemented, the board shall immediately advise the Regional
Director, in writing, of specific reasons for deviating from the Plan.
[.3]3. Effective December 31, 2001, the Insured Institution shall 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(w), 325.2(u)
and 325.2(k).
[.4]4. (a) Within 60 days from the effective date of this ORDER, and within
the first 30 days of each calendar year thereafter, the board of
directors shall develop a written profit plan consisting of goals and
strategies for improving the earnings of the Insured Institution for
each calendar year. The written profit plan shall include, at a
minimum:
(i) Identification of the major areas in, and means by which the
directors 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. Not more than 30 days after the receipt of any comment from
the Regional Director, the board of directors shall approve the written
profit plan which approval shall be recorded in the minutes of the
board of directors. Thereafter, the Insured Institution, its directors,
officers, and employees shall follow the written profit plan and/or any
subsequent modification.
[.5]5. Within 60 days from the effective date of this ORDER, the Insured
Institution shall develop, adopt and implement a written ethics policy
and procedure with regard to the ethical conduct and other standards of
conduct and responsibilities for its directors, officers, employees,
agents and other persons participating in the conduct of the affairs of
the Insured Institution. ("Ethics Program".) At a minimum the
Ethics Program shall address the following:
(a) Ethical and other conduct and responsibilities of individuals
in the acceptance of gifts, entertainment, favors and loans; in the
case of the use of official information; employment of relatives; use
of Insured Institution property; travel expenses; and indebtedness
{{9-30-01 p.C-5173}}
to the Insured Institution or any other financial institution.
(b) The financial interests and obligations of individuals that appear
to conflict with that individual's duties and responsibilities such
as:
(i) Participating in any manner in any transaction or loan in
which the individual, his spouse, child, partner, or organization is
involved; or in which the individual serves as an officer, director,
trustee, partner, or employee, or has a financial interest;
(ii) Purchasing of Insured Institution property;
(iii) Providing goods or services to the Insured Institution; and
(iv) Outside employment and other activities.
(c) A periodic written method of reporting each individual's
compliance with the Ethics Program to an Ethics Counselor and/or
committee who shall review compliance with the Ethics Program and
report his findings to the board of directors.
[.6]6. (a) Within 10 days from the effective date of this ORDER, the
Insured Institution shall eliminate from its books, by charge-off or
collection, all assets classified "Loss" as of December 31, 2000,
that have not been previously collected or charged-off. Reduction of
these assets through proceeds of other loans made by the Insured
Institution is not considered collection for the purpose of this
paragraph.
(b) Within 10 days from the effective date of this ORDER, the
Insured Institution shall establish and thereafter maintain an adequate
reserve for contingent liabilities and charge to the reserve all
contingent liabilities classified "Loss" as of December 31, 2000.
(c) By December 31, 2001, the Insured Institution shall have reduced
Securities and Other Real Estate Owned classified "Doubtful" and
"Substandard" as of December 31, 2000, to not more than 125% of
Tier 1 capital.
(d) By March 31, 2002, the Insured Institution shall have reduced
Securities and Other Real Estate Owned classified "Doubtful" and
"Substandard" as of December 31, 2000, to not more than 100% of
Tier 1 capital.
(e) By June 30, 2002, the Insured Institution shall have reduced
Securities and Other Real Estate Owned classified "Doubtful" and
"Substandard" as of December 31, 2000 to not more than 75% of
Tier 1 capital.
(f) By September 30, 2002, the Insured Institution shall have reduced
Securities and Other Real Estate Owned classified "Doubtful" and
"Substandard" as of December 31, 2000 to not more than 50% of
Tier 1 capital.
(g) The requirements of Paragraphs 6(a), 6(b), 6(c), 6(d), 6(e) and
6(f) are not to be construed as standards for future operations and, in
addition to the foregoing, the Insured Institution shall eventually
reduce the total of all adversely classified assets to not more than
25% of Tier 1 capital. As used in Paragraphs 6(b), 6(c), 6(d), 6(e),
6(f) and 6(g) the word "reduce" means (i) to collect, (ii) to
charge-off, or (iii) to sufficiently improve the quality of assets
adversely classified to warrant removing any adverse classification, as
determined by the FDIC.
[.7]7. 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. Evidence of the
review and establishment of procedures to ensure compliance with the
loan policy 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.
[.8]8. While the ORDER is in effect the Insured Institution shall not
invest in corporate bonds issued by banking organizations or trust
preferred securities issued by banking organizations or grant loans to
banking organizations unless the balance of all such obligations is not
more than 100% of Tier 1 capital.
(a) By December 31, 2001, the Insured Institution shall have
reduced its trust preferred securities issued by banking organizations
plus bonds issued by banking organizations to not more than 225% of
Tier 1 capital.
(b) By March 31, 2002, the Insured Institution shall have reduced its
trust preferred securities issued by banking organizations plus bonds
issued by banking organizations to not more than 200% of Tier 1
capital.
(c) By June 30, 2002, the Insured Institution shall have reduced its
trust preferred
{{9-30-01 p.C-5174}}
securities issued by banking organizations plus bonds
issued by banking organizations to not more than 175% of Tier 1
capital.
(d) By September 30, 2002, the Insured Institution shall have
reduced its trust preferred securities issued by banking organizations
plus bonds issued by banking organizations to not more than 150% of
Tier 1 capital.
(e) By December 30, 2002, the Insured Institution shall have reduced
its trust preferred securities issued by banking organizations plus
bonds issued by banking organizations to not more than 125% of Tier 1
capital.
[.9]9. Within 60 days from the effective date of this ORDER, the Insured
Institution shall eliminate and/or correct all violations of law which
are set out on pages 34 and 35 of the Report of Examination of the
Insured Institution as of December 31, 2000. In addition, the Insured
Institution shall henceforth comply with all applicable laws and
regulations.
[.10]10. Within 60 days from the effective date of this ORDER, the Insured
Institution shall adopt and implement a written policy for the
operation of the Insured Institution in such a manner as to provide
internal routine and controls consistent with safe and sound Insured
Institution practices. The policy shall include formal internal review
procedures for all electronic banking activities. Such procedures shall
establish a process by which management identifies, measures, monitors
and controls risks associated with electronic banking activities, and a
means by which management identifies, measures and monitors the
effectiveness of such activities against the expectations, projections,
and goals identified in the Insured Institution's Strategic Plan. Such
policy and its implementation shall be satisfactory to the Regional
Director as determined at subsequent examinations and/or visitations.
[.11]11. Within 60 days from the effective date of this ORDER, the
Bank shall develop, adopt, and implement a written policy satisfactory
to the Regional Director, which policy shall govern the relationship
between the Bank and its holding company, and shall limit the payment
of any management, consulting, or other fees or funds of any nature,
directly or indirectly, to or for the benefit of the Bank's holding
company to only those fees or funds paid in connection with services
performed by the Bank's holding company on behalf of or for the
benefit of the Bank.
[.12]12. Within 90 days of the effective date of this ORDER, the Insured
Institution shall sufficiently reduce or otherwise improve assets
subject to Special Mention as of December 31, 2000, to warrant removal
from the Special Mention category.
[.13]13. While this ORDER is in effect, the Insured Institution shall not
declare or pay any cash dividends on its capital stock without the
prior written approval of the Regional Director.
[.14]14. Within 90 days from the effective date of this ORDER, and
thereafter on an annual basis, the Insured Institution shall review the
total compensation (both current and deferred) being paid to Insured
Institution directors to determine whether the compensation received by
each such person is reasonable in relation to the services provided to
the Insured Institution. The minutes of the board meeting at which such
review is undertaken shall indicate the results of the review and the
basis for determination of the reasonableness of the compensation. For
the purpose of this paragraph, "compensation" refers to any and
all salaries, bonuses, and other benefits of every kind and nature
whatsoever, whether paid directly or indirectly.
[.15]15. Within 15 days of the effective date of this ORDER, the Insured
Institution shall provide the board of directors of its holding company
with a copy of this ORDER.
[.16]16. The Insured Institution's board of directors shall appoint a
committee composed of at least three members, two-thirds of which have
never been involved in the daily operations of the Insured Institution
("Compliance Committee"), 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 directors a written report of its findings, detailing the form,
content, and manner of any action taken to secure 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 directors.
17. On the fifteenth day of the second month following the
effective date of this ORDER, and within 30 days after the end of each
quarter thereafter, the Insured Institution
{{9-30-03 p.C-5175}}
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 Insured Institution in writing from making further
reports.
The provisions of this ORDER shall be binding upon the Insured
Institution, its directors, officers, employees, agents, successors,
assigns, and other institution-affiliated parties of the Insured
Institution.
The effective date of this ORDER shall be ten (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: July 13, 2001
