Federal Deposit
Insurance Corporation

{{10-31-93 p.C-318}}
   [¶10,065] In the Matter of United Valley Bank, Farmersville, California, Docket No. FDIC-90-60b (4-16-90).

   Bank to cease and desist from practices such as operating with hazardous lending and lax collection policies, inadequate equity capital and reserves, with a large volume of poor quality loans, with an inadequate valuation reserve and with inadequate liquidity and funds management, inadequate routine and controls policies and in such a manner as to produce operating losses; and violating applicable federal and state laws. (This order was terminated by order of the FDIC dated 8-16-93; see ¶ 15, 715.)

   [.1] Management—Qualifications—Compliance
   [.2] Primary Capital—Increase—Methods
   [.3] Assets—Adversely Classified—Reduce
   [.4] Loans—Extension of Credit—Curtail
   [.5] Loans—Borrowers Outside Trade Area—Eliminate
   [.6] Loan Policy—Minimum Requirements—Review
   [.7] Loan Loss Reserve—Adequacy—Review
   [.8] Profit Plan—Minimum Requirements—Review
   [.9] Violations of Law—Eliminate/Correct
{{4-1-90 p.C-319}}
   [.10] Asset/Liability Management—Minimum Requirement—Review
   [.11] Bank Operation—Internal Routine and Controls—Review
   [.12] Reports on Financial Condition—Amendment—Filing
   [.13] Shareholders—Dividends—Approval
   [.14] Shareholders—Disclosure—Cease and Desist Order
   [.15] Real Estate Activities—State Law—Review
   [.16] Compliance—Progress Reports—Frequency

In the Matter of

UNITED VALLEY BANK
FARMERSVILLE, CALIFORNIA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

   United Valley Bank, Farmersville, California ("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 April 4, 1990, 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 un-safe 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, successors, assigns, and other persons participating in the conduct of affairs of the Insured Institution, cease and desist from the following unsafe or unsound banking practices and violations:
   (a) operating with hazardous lending and lax collection practices;
   (b) operating with inadequate equity capital and reserves;
   (c) operating with a large volume of poor quality loans;
   (d) operating with an inadequate loan valuation reserve;
   (e) operating with inadequate provisions for liquidity and funds management;
   (f) operating with inadequate routine and controls policies;
   (g) operating in such a manner as to produce operating losses;
   (h) operating in violation of section 23A of the Federal Reserve Act, 12 U.S.C. §371c, made applicable to state nonmember insured institutions by section 18(j)(1) of the Act, 12 U.S.C. §1828(j)(1);
   (i) operating in violation of section 22(h) of the Federal Reserve Act, as amended, 12 U.S.C. §375b and sections 215.4(a), 215.4(b), and 215.4(d) of Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. §§215.4(a), 215.4(b), and 215.4(d), made applicable to state nonmember institutions by section 18(j)(2) of the Act, 12 U.S.C. 1828(j)(2);
   (j) operating in violation of sections 325.3(b) and 325.4(c) of the FDIC Rules and Regulations, 12 C.F.R. §§325.3(b) and 325.4(c); and
   (k) operating in violation of section 3359(b) of the California Financial Code, Cal. Fin. Code §3359(b) (West 1989).
   IT IS FURTHER ORDERED that the Insured Institution take affirmative action as follows:

   [.1] 1. By June 15, 1990, the Insured Institution shall have and thereafter retain qualified management.
{{4-1-90 p.C-319}}
   [.10] Asset/Liability Management—Minimum Requirement—Review
   [.11] Bank Operation—Internal Routine and Controls—Review
   [.12] Reports on Financial Condition—Amendment—Filing
   [.13] Shareholders—Dividends—Approval
   [.14] Shareholders—Disclosure—Cease and Desist Order
   [.15] Real Estate Activities—State Law—Review
   [.16] Compliance—Progress Reports—Frequency

In the Matter of

UNITED VALLEY BANK
FARMERSVILLE, CALIFORNIA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

   United Valley Bank, Farmersville, California ("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 April 4, 1990, 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, successors, assigns, and other persons participating in the conduct of affairs of the Insured Institution, cease and desist from the following unsafe or unsound banking practices and violations:
   (a) operating with hazardous lending and lax collection practices;
   (b) operating with inadequate equity capital and reserves;
   (c) operating with a large volume of poor quality loans;
   (d) operating with an inadequate loan valuation reserve;
   (e) operating with inadequate provisions for liquidity and funds management;
   (f) operating with inadequate routine and controls policies;
   (g) operating in such a manner as to produce operating losses;
   (h) operating in violation of section 23A of the Federal Reserve Act, 12 U.S.C. §371c, made applicable to state nonmember insured institutions by section 18(j)(1) of the Act, 12 U.S.C. §1828(j)(1);
   (i) operating in violation of section 22(h) of the Federal Reserve Act, as amended, 12 U.S.C. §375b and sections 215.4(a), 215.4(b), and 215.4(d) of Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. §§215.4(a), 215.4(b), and 215.4(d), made applicable to state nonmember institutions by section 18(j)(2) of the Act, 12 U.S.C. 1828(j)(2);
   (j) operating in violation of sections 325.3(b) and 325.4(c) of the FDIC Rules and Regulations, 12 C.F.R. §§325.3(b) and 325.4(c); and
   (k) operating in violation of section 3359(b) of the California Financial Code, Cal. Fin. Code §3359(b) (West 1989).
   IT IS FURTHER ORDERED that the Insured Institution take affirmative action as follows:

   [.1] 1. By June 15, 1990, the Insured Institution shall have and thereafter retain qualified management.
{{4-1-90 p.C-320}}
   (a) Each member of management shall have qualifications and experience commensurate with his or her duties and responsibilities at the Insured Institution. Management should include a chief executive officer with proven ability in managing an insured institution of comparable size and experience in upgrading a low quality loan portfolio and a senior lending officer with an appropriate level of lending, collection, and loan supervision experience for the type and quality of the Insured Institution's loans. Each member of management shall be provided appropriate written authority from the Insured Institution's board of directors to implement the provisions of this ORDER.
   (b) 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 applicable laws and regulations; and
   (iv) restore all aspects of the Insured Institution to a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness, and liquidity.

   [.2] 2. (a) By June 15, 1990, the Insured Institution shall have increased its adjusted primary capital by such an amount so that its adjusted primary capital equals or exceeds seven and one-half (7.5) percent of the Insured Institution's adjusted Part 325 total assets. Thereafter, during the life of this ORDER, the Insured Institution shall maintain adjusted primary capital in such an amount as to equal or exceed seven and one-half (7.5) percent of the Insured Institution's adjusted Part 325 total assets. Primary capital and Part 325 total assets shall be calculated in accordance with prevailing instructions for the preparation of Reports of Condition. The computation of adjusted primary capital and the ratio of adjusted primary capital to adjusted Part 325 total assets shall be determined by using the procedures outlined in the "Analysis of Capital and Reserves" schedule in the FDIC Report of Examination.
   (b) Any increase in primary capital necessary to meet the requirements of Paragraph 2 of this ORDER may be accomplished by the following:

   (i) the sale of common stock; or
   (ii) the sale of perpetual preferred stock; or
   (iii) the direct contribution of cash by the board of directors, shareholders, and/or parent-bank holding company; or
   (iv) the collection of assets previously charged off; or
   (v) the reduction of the "Loss" and "Doubtful" assets specified in Paragraph 3 of this ORDER without loss or liability to the Insured Institution; or
   (vi) any other means acceptable to the Regional Director and the Superintendent; or
   (vii) any combination of the above means.

   [.3] 3. (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" and one-half of the assets classified "Doubtful" as of October 31, 1989, that have not been previously collected or charged off. Elimination of these assets through proceeds of other loans made by the Insured Institution is not considered collection for the purpose of this paragraph.
   (b) By July 31, 1990, the Insured Institution shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of October 31, 1989 that have not previously been charged off to not more than $4,500,000.
   (c) By November 30, 1990, the Insured Institution shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of October 31, 1989 that have not previously been charged off to not more than $3,000,000.
   (d) By March 31, 1991, the Insured Institution shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of October 31, 1989 that have not previously been charged off to not more than $2,500,000.
   (e) By July 31, 1991, the Insured Institution shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of October 31, 1989 that have not previously been charged off to not more than $2,000,000.
   (f) By November 30, 1991, the Insured Institution shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of October 31, 1989 that have not previously been charged off to not more than $1,200,000.
   (g) The requirements of subparagraphs 3(a), 3(b), 3(c), 3(d), and 3(e) of this ORDER 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. Reduction of these assets through proceeds of other loans made by the Insured Institution is not considered collection for the purpose of this paragraph. As used in subparagraphs 3(b), 3(c), 3(d), 3(e), and 3(f) 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.

   (i) why the failure of the Insured Institution to extend such credit would be detrimental to the best interests of the Insured Institution;
   (ii) that the Insured Institution's position would be improved thereby; and
   (iii) how the Insured Institution's position would be improved.

   [.5] 5. Within 180 days from the effective date of this ORDER (unless an alternative timetable or proposal is submitted by the Insured Institution and approved by the Regional Director and the Superintendent within 60 days), the Insured Institution shall eliminate loans to borrowers outside its designated trade area.

   [.6] 6. (a) Within 60 days from the effective date of this ORDER, the Insured Institution shall revise, adopt, and implement written lending and collection policies to provide effective guidance and control over the Insured Institution's lending function, which policies shall include specific guidelines for placing loans on a non-accrual basis. In addition as to all loans secured by real estate appraised by Robin Keene, the Insured Institution shall obtain new independent appraisals of the collateral properties.

   (b) The Insured Institution's written lending and collection policies and their implementation shall be in a form and manner acceptable to the Regional Director and the Superintendent as determined at subsequent examinations and/or visitations. The initial revisions to the Insured Institution's loan policy and practices, required by this paragraph, at a minimum, shall include the following:

   (i) provisions which prohibit the capitalization of interest on loans related expense unless the board of directors supports in writing and records in the minutes of the corresponding board of directors meeting why an exception thereto is in the best interests of the Insured Institution;
   (ii) provisions which require complete loan documentation, realistic repayment terms and current credit information adequate to support the outstanding indebtedness of the borrower. Such documentation shall include current financial information, profit and loss statements or copies of tax returns and cash flow projections;
   (iii) provisions which incorporate limitations on the amount that can be loaned in relation to established collateral values, and repayment capacity of borrowers;
   (iv) provisions which specify the circumstances and conditions under which real estate appraisals must be conducted by an independent third party including: guidelines for obtaining and reviewing appraisals, the establishment of criteria for selecting appraisers, and the maintenance of a listing of approved appraisers;
   (v) provisions that require extensions of credit to any of the Insured Institution's executive officers, directors, or principal shareholders, or to any related interest of such persons, to be approved in advance by a majority of the entire board of directors in accordance with section 215.4(b) of Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. §215.4(b);

   (vi) provisions that directors first determine that the lending staff has the expertise necessary to properly supervise construction loans and that adequate procedures are in place to monitor any construction involved before funds are disbursed;
   (vii) provisions which prohibit concentrations of credit in excess of 25 percent of the Insured Institution's total equity capital and reserves to any borrower and that borrower's related interests;
   (viii) provisions which require the preparation of a loan "watch list" which shall include relevant information on all loans in excess of $20,000 which are classified "Substandard" or "Doubtful" as of October 31, 1989 or by the FDIC or the California State Banking Department in subsequent Reports of Examination and all other loans in excess of $20,000 which warrant individual review and consideration by the board of directors as determined by the loan committee or active management. The loan "watch list" shall be presented to the board of directors for review at least monthly with such review noted in the minutes; and
   (ix) the board of directors shall adopt procedures whereby officer compliance with the revised loan policy is monitored and responsibility for exceptions thereto assigned. The procedures adopted shall be reflected in minutes of a board of directors meeting at which all members are present and the vote of each is noted.

   [.8] 8. Within 60 days from the effective date of this ORDER, the Insured Institution shall formulate and implement a written profit plan. This plan shall be forwarded to the Regional Director and to the Superintendent for review and comment and shall address, at a minimum, the following:
   (a) goals and strategies for improving and sustaining the earnings of the Insured Institution, including:

   (i) an identification of the major areas in, and means by which, the board of 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; and
   (iv) a description of the operating assumptions that form the basis for, and adequately support, major projected income and expense components.

   [.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 more fully set out on pages 6-b, 6-b-1 and 6-b-2 of the Report of {{4-1-90 p.C-324}}Examination of the Insured Institution as of October 31, 1989. In addition, the Insured Institution shall take all necessary steps to ensure future compliance with all applicable laws and regulations.

   [.10] 10. (a) Within 60 days from the effective date of this ORDER, the board of directors shall revise, adopt, and implement a comprehensive asset/liability management policy. The policy shall establish standards consistent with generally accepted prudent banking operations by giving specific consideration to:

   (i) establishing a range for the Insured Institution's volatile liability dependency ratio, as computed by the FDIC in its Reports of Examination, and which ratio shall, within 180 days from the effective date of this ORDER, be reduced to not more than ten (10.0) percent; and within 360 days from the effective date of this ORDER, be reduced to not more than zero (0.0) percent. The requirements of this paragraph shall not be construed as standards for future operations, and the Bank's volatile liability dependency ratio shall be maintained at a level consistent with prudent banking practices;
   (ii) establishing a range for short-term investments to potentially volatile liabilities, as those terms are defined by the FDIC in its current edition of "A Users Guide for the Uniform Bank Performance Report";
   (iii) establishing acceptable ranges for the Insured Institution's rate sensitivity and gap ratios; and
   (iv) the establishing of an asset/liability committee, including a description of its responsibilities, how often it will meet, how it will obtain information and guidance from the board of directors, and how its activities will be reported to the board of directors.

   [.12] 12. Within 10 days after eliminating from its books any asset in compliance with Paragraph 3 of this ORDER, the Insured Institution shall file with the FDIC amended Consolidated Reports of Condition and Income which shall accurately reflect the financial condition of the Insured Institution as of December 31, 1989. Thereafter, during the life of this ORDER, the Insured Institution shall file with the FDIC Consolidated Reports of Condition and Income which accurately reflect the financial condition of the Insured Institution as of the end of the period for which the Reports are filed, including any adjustment in the Insured Institution's books made necessary or appropriate as a consequence of any examination of the Insured Institution during that reporting period.

   [.13] 13. The Insured Institution shall not pay cash dividends in any amount except as follows:
   (a) such declarations and payments are made in accordance with applicable State and Federal laws and regulations;
   (b) that after payment of such dividends, the ratio of adjusted primary capital to total assets of the Insured Institution will be not less than seven and one-half (7.5) percent;
   (c) that such declaration and payment of dividends shall be approved in advance by the board of directors; and
   (d) that such declaration and payment of dividends shall be approved in advance, in writing, by the Regional Director and the Superintendent.

   [.14] 14. Following the effective date of this ORDER, the Insured Institution shall send to its shareholders or otherwise furnish a description of this ORDER in conjunction with the Insured Institution's next shareholder communication and also 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 Unit. Washington, D.C. 20429, at least fifteen (15) days prior to dissemination to shareholders. Any changes requested to be made by the FDIC shall be made prior to dissemination of the {{4-1-90 p.C-325}}description, communication, notice, or statement.

   [.15] 15. During the life of this ORDER, the Insured Institution shall furnish to the Regional Director a copy of any application to the Superintendent filed pursuant to section 751.3 of the California Financial Code, Cal. Fin. Code §751.3 (West 1989) to engage in real estate activities. This copy of such application shall be furnished to the Regional Director on or before the date of its filing with the Superintendent. In no event shall the Insured Institution engage in real estate activities which are the subject of any such application filed pursuant to section 751.3 of the California Financial Code without the prior written consent of the Regional Director.

   [.16] 16. Within 30 days of the end of the first quarter following the effective date of this ORDER, and within thirty (30) days of the end of each quarter thereafter, the Insured Institution shall furnish written progress reports to the Regional Director and the Superintendent detailing the form and manner of any actions taken to secure compliance with this ORDER and the results thereof. Such reports shall include a copy of the Insured Institution's Report of Condition and the Insured Institution's Report of Income. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Regional Director and the Superintendent have 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 persons participating in the conduct of the affairs of the Insured Institution.
   This ORDER shall become effective 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 at San Francisco, California, this 16th day of April, 1990.