Of the 42 years that Vernard W. Henley has been president and chief executive officer of Consolidated Bank and Trust Co. in Richmond, Va., the last one has by far been his worst.

The 97-year-old bank — the oldest African-American-owned bank in the nation — ended 1999 with a $645,000 net loss after charging off more than $1.2 million of loans. When state and federal examiners arrived this year, the $107 million-asset bank was still reeling from the dozen or so commercial loans that had gone bad after customers defaulted or filed for bankruptcy.

This month Consolidated was ordered by the Federal Reserve Bank of Richmond and Virginia’s Bureau of Financial Institutions to clean up its loan portfolio and “restore and maintain the financial soundness” of its seven branches. Such agreements are common in banks with large loan losses, said Jeff Lane, senior vice president of banking supervision and regulation at the Richmond Fed, but this is the first time that Consolidated has run afoul of regulators.

However, thanks to tighter controls, Consolidated had already turned its fiscal situation around; it earned $189,000 in the first half, up 45% from the year earlier.

“I am still a little bit shocked,” Mr. Henley said. “But we know what we need to do, and we are doing it.”

The bank must submit a variety of plans to the Federal Reserve detailing how it will amend its loan policies and procedures. It must also outline its proposed business activities for the rest of the year. It needs to eliminate from the books, by chargeoff or collection, all assets or portions of assets categorized as “loss” in the examination and submit a quarterly report on the status of all classified loans listed in the examination.

And Consolidated must find a new president and chief executive officer within about 130 days because Mr. Henley, 71, is planning to retire this winter.

“I’m pretty confident that they will be able to do this,” Mr. Lane said. “They have a very long history in Richmond.”

Though the recent troubles have not scared away Consolidated’s loyal customer base, Mr. Henley said, the bank’s reputation has been damaged. Most of the bad loans were made by a single lending officer, who has left the bank, he said.

The bank has put in controls that limit the lending authority of executives in certain posts, provide better oversight, and train loan officers in better accordance with lending policies.

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