{{1-31-04 p.C-5918}}
[¶12,122] In the Matter of United Heritage Bank, Edison, New Jersey, Docket No.
03-166b (11-14-03).
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
[.2] Board of Directors—Directors' Plan—Establishment of Plan Required
[.3] Board of Directors—Educational Program—Required
[.4] Management—Management Report Required
[.5] Board of Directors—Board of Governance Policy Required
[.6] Board of Directors—Relocation Plan Required
[.7] Violations of Law—Corrections of Violations Required
[.8] Audit—Internal Audit—Minimum Procedures Specified
[.9] Technical Exceptions—Correction of Technical Exceptions Required
[.10] Asset/Liability Management—Preparation or Revision of Asset/Liability
Management Policy Required
[.11] Dividends—Dividends Restricted
[.12] Audit—External Audit, Minimum Procedures Specified
[.13] Shareholders—Disclosure of Cease and Desist Order Required
[.14] Board of Directors—Committee to Review Compliance with Cease and Desist Order Required
[.15] Progress Report—Written Report Required
In the Matter of
UNITED HERITAGE BANK
EDISON, NEW JERSEY
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-03-166b
United Heritage Bank, Edison, New Jersey ("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
November 14, 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 directors,
officers, employees,
{{1-31-04 p.C-5919}}
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 of law
and/or regulations:
(a) Operating with a board of directors that has failed to adhere
to sound principles of Board Governance, as set forth in Financial
Institution Letter 123-97 ("FIL-123-97") (December 8, 1997), and
that has failed to provide adequate supervision over and direction to
the operating management of the Insured Institution;
(b) Operating the Insured Institution with inadequate management and
staffing;
(c) Engaging in violations of applicable Federal and State laws and/or
regulations, as more fully set forth at pages 37 through 41 of the
joint Report of Examination of the Insured Institution by the FDIC and
the New Jersey Department of Banking and Insurance ("Department")
as of December 31, 2002 (the "Joint Report of Examination");
(d) Operating in violation of section 39 of the FDI Act, 12 U.S.C.
§1831p-1; and
(e) Operating in such a manner as to produce operating losses.
IT IS FURTHER ORDERED that the Insured Institution, its
institution-affiliated parties, 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. The qualifications of management shall be
assessed on its ability to:
(i) comply with the requirements of this ORDER;
(ii) operate the Insured Institution in a safe and sound manner;
(iii) comply with all applicable laws and regulations;
(iv) restore all aspects of the Insured Institution to a safe and sound
condition, with respect to management effectiveness and earnings; and
(v) properly manage the day to day affairs of the Insured Institution
with the appropriate level of authority granted by the Board.
(b) During the life of this ORDER, the Insured Institution shall
promptly notify the Regional Director and the Commissioner in writing
of any resignations and/or terminations of any members of its Board
and/or any of its officers.
(c) 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 and the Commissioner in
writing at least 30 days prior to any individual assuming a new
position as a senior executive officer or any additions to its Board.
(d) To facilitate having and retaining qualified management, the Board
of the Insured Institution shall, within 60 days from the effective
date of this ORDER, recruit and hire and/or retain a Senior Loan
Officer, Chief Operations Officer, Commercial Loan Officer and Branch
Manager/Retail Administrator as required by the Board's December 21,
2001 Organizational Review and Risk Management Assessment
("Assessment").
[.2] 2. (a) Within 60 days from the effective date of this ORDER, the board
of directors shall develop a Directors' Plan, which shall include, at
a minimum:
(i) an evaluation of each member of the board of directors,
including the Chairman of the Board, to determine whether those
individuals have the ability, experience, independence, and other
qualifications which are necessary to perform the duties of the Board,
including providing effective oversight of and guidance to management
and staff to ensure adherence to the Board's policies and to maintain
the Insured Institution in a safe and sound condition;
(ii) an evaluation of each member of any committee of the board,
including such committee's chairperson, to determine whether those
individuals have the ability, experience, independence and expertise or
other qualifications necessary to fulfill his or her obligations on
such committee; and
(iii) a written plan of action to enhance the effectiveness of the
Board by adding new members to the Board with the necessary ability,
experience, independence and other qualifications commensurate with the
size and complexity of the Insured
{{1-31-04 p.C-5920}}
Institution. The new directors shall
not include persons who are either related by blood or marriage to, or
have a business or professional relationship with existing directors,
their attorneys or consultants. Additionally, the new directors shall
not own or control directly or indirectly more than 5 percent of the
voting stock of the Insured Institution. The new directors shall not be
officers nor full-time employees of the Insured Institution.
(b) Within 30 days after development of the Directors' Plan, the
Insured Institution shall add new directors to the Board in accordance
with paragraph 2(a)(iii).
(c) The addition of new directors may be accomplished, to the extent
permissible by state or the Insured Institution's by-laws, by means of
appointment or by election at a regular or special meeting of the
Insured Institution's shareholders.
(d) Within 30 days from the effective date of this Order, the Board of
the Insured Institution shall obtain the services of an outside
consultant(s) acceptable to the Regional Director and Commissioner, who
is knowledgeable in the area of bank management, to assist in preparing
the Directors' Plan and in aiding the Board in identifying prospective
qualified director candidates. In the event that recommendations made
by the consultant(s) are not included in the Directors' Plan, the
Board shall immediately advise the Regional Director and Commissioner,
in writing, of the specific reasons for which the recommendations were
excluded from the Directors' Plan.
[.3] 3. (a) Within 60 days of the appointment of new directors in accordance
with paragraph 2(b) and 2(c), the Insured Institution's Board shall
develop and adopt an educational program for each member of the Board.
The educational program shall include, at a minimum:
(i) specific training in the areas of lending, operations, and
compliance with laws, rules and regulations applicable to the Insured
Institution;
(ii) specific training in the duties and responsibilities of the board
in connection with the safe and sound operation of the Insured
Institution; and
(iii) a provision for ongoing periodic training.
(b) The educational program shall be submitted within 10 days of
its completion to the Regional Director and Commissioner for review.
The board shall document training activities and attendance in the
minutes of the next Board meeting following completion of the training.
[.4] 4. (a) One year following the implementation of the Assessment in
paragraph 1(d), the Board shall provide for a review of the Insured
Institution's management and operational staff. The review of
management and staff shall, at a minimum: 1) identify both the type and
number of officer and operational staff positions that are needed to
properly manage and supervise the affairs of the Insured Institution in
a safe and sound manner; 2) establish a plan to recruit, hire and/or
replace personnel based on ability and experience; and 3) provide for
an assessment of management's effectiveness in improving the Insured
Institution's financial condition, operating the Insured Institution
in a safe and sound manner, and implementing regulatory corrective
actions.
(b) The Board of the Insured Institution shall obtain the services of
an outside consultant, acceptable to the Regional Director and
Commissioner, who is knowledgeable in the area of bank management, to
assist the Board in its review of management, as required in paragraph
4(a). The findings of such review of management shall be set forth in
writing ("Review Findings") and shall contain the
recommendations made by the consultant. This consultant may be the same
consultant employed to assist in preparing the Directors' Plan
required by paragraph 2(d).
(c) Promptly after preparation of the Review Findings, a copy of the
Review Findings shall be submitted to the Regional Director and
Commissioner for review and comment. Within 30 days from receipt of any
comment, and after consideration of such comment, the Board of the
Insured Institution shall approve the Review Findings, which approval
shall be recorded in the minutes of the meeting of the Board. It shall
remain the responsibility of the Board to fully implement the Review
Findings within the specified time frames. In the event the Review
Findings, or any portion thereof, is not implemented, the Board shall
immediately advise the Regional Director and Commissioner, in writing,
of the specific reasons for deviating from the Review Findings.
(d) Should this ORDER be in effect in subsequent years, it shall remain
the responsibility of
{{1-31-04 p.C-5921}}
the Board to provide for additional annual
reviews of the Insured Institution's management.
[.5] 5. (a) Within 30 days from the effective date of this Order, the Board
shall develop a Board Governance Policy to ensure it maintains adequate
supervision over the affairs of the Insured Institution. The policy
shall address how the Board will: supervise management effectively,
maintain independence in its decision making, keep informed of insider
transactions and the activities and condition of their institution, and
ensure that the institution's day-to-day operations are in the hands
of the qualified management. The Board Governance Policy shall also
include a procedure for the Board to conduct an annual evaluation of
its effectiveness in overseeing the affairs of the Insured Institution.
(b) Immediately upon the effective date of this ORDER, the Board shall
hold Board and Committee meetings as prescribed in the Insured
Institution's by-laws. The Board shall also ensure that complete and
accurate minutes are timely recorded and maintained for director,
committee and special meetings. Such minutes shall accurately reflect
any reports of information or agenda items presented to the Board or
Board committee for review, as well as the discussions and action
taken, including, but not limited to, regulatory issues and/or
correspondence. The minutes shall also accurately reflect the names of
all directors present at any Board or committee meeting, and the vote
of each director on any action taken or proposed to be taken by the
Board. All minutes and accompanying documents of any Board and/or
committee meeting should be securely maintained at the Insured
Institution.
(c) Within 60 days from the effective date of this ORDER, the Board
shall have adopted a three-year Strategic Business Plan/Budget, which
includes at a minimum, objectives and specific strategies for serving
the identified targeted markets, in addition to strategies for managing
the various types of risk facing the Insured Institution, and a minimum
of three years of pro-forma quarterly financial statements, supported
by the underlying financial and economic assumptions.
(i) Such written Strategic Business Plan/Budget developed
pursuant to paragraph 5(c) shall be submitted promptly to the Regional
Director and Commissioner for review and comments. Within 30 days after
the receipt of any comment from the Regional Director, the Board shall
approve the Strategic Business Plan/Budget, which approval shall be
recorded in the minutes of the meetings of the board.
(d) Within 60 days from the effective date of this ORDER, and
within the first 30 days of each calendar year thereafter, the Board
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:
(1) (i) identification of the major areas in, and means by, which
the board 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 and document reasons for any significant variances 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.
(2) (i) Such written profit plan developed pursuant to paragraph
5(d) and any subsequent modification thereto shall be submitted to the
Regional Director and the Commissioner for review and comment. No more
than 30 days after the receipt of any comment from the Regional
Director, the Board shall approve the written profit plan which
approval shall be recorded in the minutes of the Board. Thereafter, the
Insured Institution, its directors, officers, and employees shall
follow the written profit plan and/or any subsequent modification.
(ii) The copies of quarterly reports required under paragraph
5(d)(1(iii) shall be submitted to the Regional Director and the
Commissioner by the 30th day after the end of the calendar quarter
following the effective date of this Order, and by the 25th day after
the end of every calendar quarter, thereafter.
[.6] 6. (a) Immediately upon the effective date of this ORDER, the Board
shall have a plan of action to relocate the Insured Institution's
principal office. The Plan, at a minimum,
{{1-31-04 p.C-5922}}
shall include an identification of each contractor and/or vendor approved to construct
and/or prepare the new site; copies of any construction or other
agreements in connection with such relocation; procedures for Board
and/or Board committee oversight of such relocation plan and specific
timeframes for each stage of construction and/or relocation.
(b) The Board shall continue to submit to the Regional Director and
Commissioner, weekly status reports of the Board's progress in
relocating the principal office of the Insured Institution.
[.7] 7. Within 30 days from the effective date of this ORDER, the Insured
Institution shall eliminate and/or correct all violations of law and
regulations which are more fully set out on pages 37 through 41 of the
Joint Report of Examination. In addition, the Insured Institution shall
take all steps necessary to ensure future compliance with all
applicable Federal and State laws and regulations.
[.8] 8. Immediately upon the effective date of this ORDER, the Board shall
ensure that the internal audit schedule is fully adhered to in
accordance with the audit scope and frequency set forth in the
Board-approved Internal Audit Program.
[.9] 9. Immediately upon the effective date of this ORDER, the Insured
Institution shall initiate and implement a program to strengthen its
credit administration processes and correct the technical exceptions
detailed on pages 48 and 49 of the Joint Report of Examination.
[.10] 10. Within 30 days from the effective date of this ORDER, the Insured
Institution shall correct the Asset/Liability Management Policy
deficiencies as detailed on pages 33 and 34 of the Joint Report of
Examination.
[.11] 11. Immediately upon the effective date of this ORDER, the Insured
Institution shall not declare or pay either directly or indirectly any
dividends, whether in cash, stock, or otherwise, on any class of its
stock, without the prior written consent of the Regional Director. The
Board shall also notify the Commissioner prior to the declaration or
payment of dividends.
[.12] 12. During the life of this ORDER, the Insured Institution shall
continue to submit annual audited financial statements to the Regional
Director and Commissioner. Such statements shall be prepared by a
qualified, independent, external auditor and filed within 60 days after
each annual period end.
[.13] 13. Immediately upon the effective date of this ORDER, the Insured
Institution shall send a copy or a description of this ORDER to its
shareholders: (i) in conjunction with the Insured Institution's next
shareholder communication, and also (ii) in conjunction with its notice
or proxy statement preceding the Insured Institution'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 the FDIC,
Registration and Disclosure Section, Washington, D.C. 20429, and the
Commissioner for review at least 20 days prior to dissemination to
shareholders. Any changes requested to be made by the FDIC and/or the
Commissioner shall be made prior to dissemination of the description,
communication, notice or statement.
[.14] 14. Immediately upon the effective date of this ORDER, the Insured
Institution's Board shall appoint a Compliance Committee composed of
at least three directors 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 and Commissioner, 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 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.
[.15] 15. By the 30th day after the end of the calendar quarter following the
effective date of this ORDER, and by the 25th day after the end of
every calendar quarter thereafter, the Insured Institution shall
furnish written progress reports to the Regional Director and
Commissioner detailing the form, content, and manner of any actions
taken to secure compliance with this ORDER, and the results thereof.
16. The Insured Institution shall notify the Regional Director and
Commissioner immediately
{{1-31-04 p.C-5923}}
of any material adverse development affecting
its condition, performance or outlook.
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: November 14, 2003.
