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. (This order was terminated by order of the FDIC dated 8-20-04; see ¶16,391.)
[.1] Capital—Maintain Tier 1 Capital
[.2] Dividends—Dividends Restricted
[.3] Assets—Charge-off or Collection
[.4] Loan Loss Reserve—Establishment of or Increase Required
[.5] Loans—Extensions of Credit—To Borrowers with Existing Adversely
Classified Credits
[.6] Loan Policy—Preparation or Revision of Policy Required
[.7] Technical Exceptions—Correction of Technical Exceptions Required
[.8] Asset Liability Management—Improve Balance Between Investments and
Funding Sources
[.9] Loans—Concentration of Credit—Reduction Required
[.10] Budget Plan—Preparation Required
[.11] Board of Directors—Committee to Review Compliance with Cease and
Desist Order Required
[.12] Shareholders—Disclosure of Cease and Desist Order Required
In the Matter of
FIRST ENTERPRISE BANK
OKLAHOMA CITY, OKLAHOMA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-02-053b
OSBD-02-C&D-2
The First Enterprise Bank, Oklahoma City, Oklahoma
("Bank"), through its board of directors, having been advised of
its right to the issuance and service of 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
{{10-31-04 p.C-5570}}
under section 8(b) of the Federal Deposit Insurance Act ("Act"), 12
U.S.C. §1818(b) and section 204(B) of the Oklahoma Banking Code (the
"Code"), Okla. Stat. tit. 6, §204(B), and the provisions of
the Oklahoma Administrative Procedures Act (Okla. Stat. tit. 75,
§250 et seq.), 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") and a representative of the
Oklahoma State Banking Department (the "State") dated August 29,
2002 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 and the State.
The FDIC and the State considered the matter and determined that
they had reason to believe that the Bank had engaged in unsafe or
unsound banking practices. The FDIC and the State, therefore, accepted
the CONSENT AGREEMENT and issued the following.
ORDER TO CEASE AND DESIST
IT IS ORDERED, that the Bank and institution-affiliated parties of
the Bank cease and desist from the following unsafe or unsound banking
practices:
(a) Operating the Bank with an inadequate level of capital
protection for the kind and quality of assets held by the Bank;
(b) Operating the Bank with an excessive level of adversely classified
assets;
(c) Refinancing credits to borrowers in weak financial positions
without improving collateral margins or establishing structured
repayment programs;
(d) Renewing or extending the due dates of loans without collection in
cash of interest due or obtaining adequate additional collateral to
secure credit advanced for the purpose of paying interest;
(e) Engaging in lax collection practices;
(f) Renewing or extending credit without adequate and appropriate
supporting documentation;
(g) Operating the Bank with a heavy reliance on short-term potentially
volatile deposits as a source for funding longer-term investments;
(h) Operating the Bank without adequate liquidity or proper regard for
funds management;
(i) Creating concentrations of credit as more fully set forth on page
37 of the Report of Examination of the Bank as of September 30, 2001;
and,
(j) Operating the Bank with inadequate earnings to fund growth, support
dividend payments and augment capital.
IT IS FURTHER ORDERED, that the Bank shall take affirmative action as
follows:
[.1]1. (a) Within 90 days after the effective date of this ORDER, the Bank
shall submit a written plan to the Regional Director and the Banking
Commissioner to achieve by no later than June 30, 2003, and to maintain
thereafter, Tier 1 capital equal to or greater than 8 percent of the
Bank's adjusted average total assets after establishing an adequate
allowance for loan and lease losses as required herein ("Plan").
After the Regional Director and Commissioner respond to the Plan, the
Bank's board of directors shall adopt the Plan including any
modification or amendments not inconsistent with the terms of this
Order requested by the Regional Director and the Commissioner. To the
extent measures detailed in the Plan have not previously been initiated
to effect compliance with the Plan, thereafter the Bank shall
immediately initiate such measures.
(b) Should the Bank's Tier 1 capital ratio fall below 8 percent at any
time after June 30, 2003, and while this ORDER is in effect, the Bank
shall notify the Regional Director and the Commissioner within 30 days.
The Bank will also present to the Regional Director and the
Commissioner a plan to increase the Tier 1 capital of the Bank or to
take other measures to bring the ratio to 8 percent ("Supplemental
Plan"). After the Regional Director and Commissioner respond to the
Supplemental Plan, the board of directors of the Bank shall adopt the
Supplemental Plan, including any modifications or amendments requested
by the Regional Director and Commissioner.
Thereafter, to the extent such measures have not previously been
initiated, the Bank shall immediately initiate measures detailed in the
Supplemental Plan, to increase its Tier 1 capital by an amount
sufficient to bring the ratio to 8 percent within 30 days after the
Regional Director and Commissioner respond to the Supplemental Plan.
Such increase in Tier 1 capital
{{10-31-02 p.C-5571}}
and any increase in Tier 1 capital
necessary to meet the ratio required by this ORDER may be accomplished
by:
(i) The sale of securities in the form of common stock; or
(ii) The direct contribution of cash subsequent to September 30, 2001,
by the directors and/or shareholders of the Bank or by the Bank's
holding company; or
(iii) Receipt of an income tax refund or the capitalization subsequent
to September 30, 2001 of a bona fide tax refund certified as being
accurate by a certified public accounting firm; or
(iv) Any other method approved by the Regional Director and the
Commissioner.
(c) If all or part of the increase in Tier 1 capital required by
this ORDER is to be 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 soliciting proxies and
the voting of any shares or proxies owned 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 financial condition
of the Bank and the circumstances giving rise to the offering, and any
other material disclosures necessary to comply with 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 and Securities
Operation Unit, Washington, D.C. 20429, and the State for review. Any
changes requested to be made in the plan or the materials by the FDIC
shall be made prior to their dissemination. If the increase in Tier 1
capital is to be provided by the sale of noncumulative perpetual
preferred stock, then all terms and conditions of the issue shall be
presented to the Regional Director and the State for prior approval.
(d) In complying with the provisions of this ORDER and until such time
as any such public offering is terminated, 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 change which is
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 after the date such material development or change was planned
or occurred, whichever is earlier, and shall be furnished to every
purchaser and/or subscriber who received or was tendered the
information contained in the Bank's original offering materials.
(e) Until such time as the Bank achieves compliance with the Plan, the
Bank shall by September 30, 2002, achieve and thereafter maintain Tier
one capital equal to or greater than 7 percent of the Bank's adjusted
average total assets after establishing an adequate allowance for loan
and lease losses as required herein. Thereafter, should the Bank's
Tier 1 capital ratio fall below 7 percent as of the date of any
examination or as reported on any Consolidated Report of Condition and
Income, the Bank shall follow the procedures outlined in Section 1,
subparts (b) through (d) above to promptly achieve and maintain Tier 1
capital equal to or greater than 7 percent.
(f) In addition to the requirements of subparagraphs (a) and (e), the
Bank shall comply with the FDIC's Statement of Policy on Risk-Based
Capital found in Appendix A to Part 325 of the FDIC Rules and
Regulations, 12 C.F.R. Part 325, App. A.
(g) For the purposes of this ORDER, all terms relating to Tier 1
capital shall be calculated according to the methodology set forth in
the report of examination.
[.2]2. While this ORDER is in effect, the Bank shall neither declare nor
pay, directly or indirectly, any cash dividend to shareholders without
the prior written consent of the Regional Director and the
Commissioner, which consent shall not be unreasonably withheld.
[.3]3. (a) Within 30 days after the effective date of this ORDER, the Bank
shall, to the extent that it has not previously done so, eliminate from
its books, by charge-off or collection, all assets or portions of
assets classified Loss by the FDIC as a result of its examination of
the Bank as of September 30, 2001. Reduction of these assets through
proceeds of loans made by the Bank shall
{{10-31-02 p.C-5572}}
not be considered "collection" for the purpose of this paragraph.
(b) Within 60 days after the effective date of this ORDER, the Bank
shall submit a written plan to the Regional Director and the
Commissioner to reduce the remaining assets classified Substandard as
of September 30, 2001. The plan shall address each asset and related
borrowers so classified with a balance of $300,000 or greater and
provide the following:
(i) The name under which the asset is carried on the books of the
Bank;
(ii) Type of asset;
(iii) Actions to be taken in order to reduce the classified asset; and
(iv) Timeframes for accomplishing the proposed actions.
The plan shall be formulated to facilitate quarterly reductions in
the volume of the adversely classified assets reflected in the
September 30, 2001 Report of Examination, so that by June 30, 2003, the
level of such volume of adversely classified assets shall not exceed
100 percent of Tier 1 capital plus the allowance for loan and lease
losses.
(c) Within 30 days after the Regional Director and Commissioner
respond to the plan, the Bank shall resubmit the plan, if necessary, to
include any modifications or amendments requested by the Regional
Director and Commissioner. Within 30 days after receiving written
notice from the Regional Director and the Commissioner that the plan is
acceptable, the Bank's board of directors shall adopt it. The Bank
shall then immediately initiate measures detailed in the plan to the
extent such measures have not been initiated.
(d) For purposes of the plan, the reduction of the level of adversely
classified assets as of September 30, 2001, to a specified percentage
of Tier 1 capital plus the allowance for loan and lease losses may be
accomplished by:
(i) Charge-off;
(ii) Collection;
(iii) Sufficient improvement in the quality of adversely classified
assets so as to warrant removing any adverse classification, as
determined by the FDIC or the State; or
(iv) Increase of Tier 1 capital.
(e) While this ORDER is in effect, the Bank shall eliminate from
its books, by charge-off or collection, all assets or portions of
assets classified Loss as determined at any future examination
conducted by the FDIC or the State.
[.4]4. (a) While this ORDER is in effect, the Bank shall maintain an
adequate allowance for loan and lease losses. Such allowance shall be
funded by charges to current operating income. Prior to the end of each
calendar quarter, the Bank's board of directors shall review the
adequacy of the Bank's allowance for loan and lease losses. Such
reviews shall include, at a minimum, the results of the Bank's
internal loan review, loan loss experience, trends of delinquent and
non-accrual loans, an estimate of potential loss exposure on
significant credits, concentrations of credit, and present and
prospective economic conditions. The minutes of the Bank's board of
directors' meetings at which such reviews are undertaken shall include
complete details of the reviews and the resulting recommended increases
in the allowance for loan and lease losses.
(b) Within 30 days after the effective date of this ORDER, the Bank
shall review Consolidated Reports of Condition and Income filed with
the FDIC on or after December 31, 2001, and amend said reports if
necessary to properly reflect the financial condition of the Bank as of
the date of each such report. In particular, such reports shall contain
an adequate allowance for loan and lease losses. Reports filed after
the effective date of this ORDER shall also accurately reflect the
financial condition of the Bank as of the reporting date.
[.5]5. (a) While this ORDER is in effect, the Bank shall not extend,
directly or indirectly, any additional credit to or for the benefit of
any borrower who has an extension of credit with the Bank that has been
classified Loss, either in whole or in part, and is uncollected, or to
any borrower who is already obligated in any manner to the Bank on any
extension of credit, including any portion thereof, that has been
charged off the books of the Bank and remains uncollected. The
requirements of this paragraph shall not prohibit the Bank from
renewing credit already extended to a borrower after full collection,
in cash, of interest due from the borrower.
(b) While this ORDER is in effect, the Bank shall not extend, directly
or indirectly, any additional credit to or for the benefit of any
borrower whose extension of credit is classified Doubtful and/or
Substandard,
{{11-30-02 p.C-5573}}
either in whole or in part, and is uncollected, unless:
(i) All accrued and unpaid interest has been collected in full;
(ii) The Bank's board of directors has signed a detailed written
statement giving reasons why failure to extend such credit would be
detrimental to the best interests of the Bank; and
(iii) The statement has been placed in the appropriate loan file and
included in the minutes of the applicable Bank's board of directors'
meeting.
[.6]6. Within 30 days after the effective date of this ORDER, the Bank
shall revise, adopt, and implement written lending and collection
policies and procedures to provide effective guidance and control over
the Bank's lending function. Such policies and their implementation
shall be in a form and manner acceptable to the Regional Director and
the Commissioner, as determined at subsequent examinations, and shall
include, at a minimum, the following:
(a) Standards for extending credit to Bank directors, officers,
shareholders and their related interests which take into account
applicable Federal and State laws governing such extensions of credit;
(b) A provision that deviations from the written lending policies and
procedures require prior approval of the Bank's board of directors or
a designated committee thereof;
(c) A requirement that extensions of credit shall not be
refinanced, reworked or renewed unless current financial information
and documentation have been obtained;
(d) Standards setting forth appropriate limitations on concentrations
of credit;
(e) A requirement that all loans shall have written repayment
understandings;
(f) Standards under which unsecured loans may be granted;
(g) Guidelines under which loans are renewed or have their due dates
extended:
(i) Without full collection of interest thereon;
(ii) By acceptance of separate notes in payment of interest;
(iii) By capitalization of interest to the balance of the note;
(h) A provision specifically outlining the collection procedures
to be taken by the Bank when borrowers fail to make timely payments;
(i) A provision outlining the documentation required on all secured
loans; and
(j) Guidelines addressing minimum standards for real estate
evaluations.
[.7]7. Within 90 days after the effective date of this ORDER, the Bank
shall eliminate and/or correct to the best of its ability and using
reasonable efforts all technical exceptions with regard to loan
documentation existing in the Bank as of September 30, 2001, as more
fully set out on pages 34 and 35 of the September 30, 2001 Report of
Examination.
[.8]8. Within 90 days after the effective date of this ORDER, the Bank
shall submit a written plan to the Regional Director and the
Commissioner for their review to reduce the dependence upon short-term
funding sources to fund longer-term assets and to reduce the volume of
loans in relation to deposits. The plan shall include, at a minimum,
the following:
(a) Quarterly goals; and
(b) The logic to support the quarterly goals.
[.9]9. Within 60 days after the effective date of this ORDER, the Bank
shall submit a plan to the Regional Director and the Commissioner to
reduce the concentrations of credit as reported on pages 37 of the
Report of Examination dated September 30, 2001.
[.10]10. Within 60 days after the effective date of this ORDER, the Bank's
board of directors shall develop a projected budget for the Bank
encompassing at least twelve consecutive quarters and submit a copy of
the budget to the Regional Director and the Commissioner for their
review and comment. The Bank's board of directors shall periodically
review all general ledger items to determine methods for expense
reduction and/or income enhancement. The Bank's board of directors'
consideration of these areas shall be recorded in the official minutes
of the Bank's board of directors meetings.
[.11]11. Within 30 days after the effective date of this ORDER, the Bank's
board of directors shall establish or assign to an existing
subcommittee of the board of directors which shall be charged with the
responsibility of ensuring that the Bank complies with the provisions
of this ORDER. The subcommittee shall report monthly to the entire
board of directors of the Bank and a copy of
{{11-30-02 p.C-5574}}
the report and any discussion related to the report or the ORDER shall be included in the
minutes of the Bank's board of directors' meeting. Nothing contained
herein shall diminish the responsibility of the entire board of
directors of the Bank to ensure compliance with the provisions of this
ORDER.
[.12]12. After the effective date of this ORDER, but no later than December
1, 2002, the Bank shall send to its shareholders or otherwise furnish a
description of this ORDER or in conjunction with its notice or proxy
statement preceding the Bank's next shareholder meeting if this occurs
before December 1, 2002. The description shall fully describe the ORDER
in all material respects. The description and any accompanying
communication, statement, or notice shall be sent to the FDIC,
Registration, Disclosure and Securities Operations Unit, Washington,
D.C. 20429 and the Commissioner of the Oklahoma State Banking
Department, 4545 N. Lincoln Blvd., Suite 164, Oklahoma City, Oklahoma
73105 for review at least 20 days prior to dissemination to
shareholders. Any changes requested by the FDIC or the State shall be
made prior to dissemination of the description, communication, notice,
or statement.
13. Within 30 days after the end of the first calendar quarter
following the effective date of this ORDER, and within 30 days after
the end of each successive calendar quarter, the Bank shall furnish
written progress reports to the Regional Director and the Oklahoma Bank
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 and the Commissioner have
released the Bank in writing from making additional reports.
The effective date of this ORDER shall be 10 days after the date of its
joint issuance. This ORDER shall be binding upon the Bank and all
institution-affiliated parties of the Bank. The provisions of this
ORDER shall remain effective and enforceable except to the extent that,
and until such time as, any provision of this ORDER shall have been
modified, terminated, suspended, or set aside by the FDIC and the
Commissioner, pursuant to authority delegated to the Regional Director
and the authority of the Commissioner under the Oklahoma Banking Code.
Dated this 29th day of August, 2002.
