Each depositor insured to at least $250,000 per insured bank



Home > Regulation & Examinations > Bank Examinations > FDIC Enforcement Decisions and Orders




FDIC Enforcement Decisions and Orders

ED&O Home | Search Form | Text Search | ED&O Help


{{3-31-94 p.C-2906}}
[10,684] In the Matter of Landmark Bank, La Habra, California, Docket No. FDIC-92-353b (12-15-92).

   Bank to cease and desist from such unsafe or unsound practices as failing to provide adequate supervision over the Bank's affairs; operating with inadequate capital; operating with an excessive level of poor quality assets; operating without adequate reserve for loan losses; operating with deficient lending practices; operating without proper internal routine and controls; engaging in practices which produce inadequate earnings; operating in violation of applicable laws or regulations. (This order was terminated by order of the FDIC dated 1-3-94; see ¶15,781.)

   [.1] Board of Directors—Responsibilities Specified
   [.2] Management—Qualifications—Review
   [.3] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.4] Assets—Adversely Classified—Eliminate/Reduce
   [.5] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.6] Lending and Collection Policy—Minimum Requirements
   [.7] Loan Loss Reserve—Establish/Maintain
   [.8] Bank Operations—Overhead Expenses—Control
   [.9] Interest Rates—Risk Exposure—Reduction Required
   [.10] Investment Policy—Revision—Minimum Requirements
   [.11] Assets—Average Assets—Limit on Increase
   [.12] Violations of Law—Eliminate/Correct
   [.13] Bank Operations—Internal Routine and Controls—Written Policy Required
   [.14] Dividends—Restricted
   [.15] Shareholders—Disclosure—Cease and Desist Order

In the Matter of

LANDMARK BANK
LA HABRA, CALIFORNIA
(Insured State Nonmember Bank)
ORDER
TO
CEASE AND DESIST

FDIC-92-353b

   Landmark Bank, La Habra, California ("Bank"), 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 Bank 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 Cor- {{2-28-93 p.C-2907}}poration ("FDIC"), dated December 7, 1992, 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.
   The FDIC considered the matter and determined that it had reason to believe that the Bank 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 Bank, and any institution-affiliated party as such term is defined in section 3(u) of the Act, 12 U.S.C. § 1813(u), cease and desist from the following unsafe or unsound banking practices and violations:
   (a) operating with inadequate supervision by the board of directors;
   (b) operating with inadequate management supervision;
   (c) operating with inadequate equity capital and reserves in relation to the volume and quality of assets held by the Bank;
   (d) operating with a large volume of poor quality loans;
   (e) operating with an inadequate loan valuation reserve;
   (f) operating with deficient lending practices;
   (g) operating with inadequate internal routine and controls policies;
   (h) operating in such a manner as to produce weak earnings; and
   (i) operating in apparent violation of section 22(h) of the Federal Reserve Act, as amended, 12 U.S.C. § 375b, as more fully described on page 6-b of the Report of Examination a of April 27, 1992; and section 215.4(e) of Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. §§ 215.4(e) made applicable to state nonmember institutions by section 18(j)(2) of the Act, 12 U.S.C. § 1828(j)(2), as more fully described on page 6-b of the Report of Examination as of April 27, 1992.
   IT IS FURTHER ORDERED that the Bank take affirmative action as follows:

   [.1] 1. As of the effective date of this ORDER, the board of directors shall have increased its participation in the affairs of the Bank from the level reported in the Report of Examination as of April 27, 1992, assuming full responsibility for the formulation of sound policies and objectives, and monitoring of compliance with established policies, and the supervision of all of the Bank's activities.
   This participation shall include meetings to be held no less frequently than monthly, as which, at a minimum, the following areas are reviewed and approved: reports of income and expenses; new and renewal loans over twenty-five thousand ($25,000) dollars; all overdue, insider, charged-off, and recovered loans, investment activity; implementation of and compliance with operating policies; and individual committee actions. Board minutes shall document these reviews and approvals, including the names of any dissenting directors.

   [.2] 2. The Bank shall have and retain qualified management.
   (a) Each member of management shall have qualifications and experience commensurate with his or her duties and responsibilities at the Bank. Management should include a chief executive officer with proven ability in managing a Bank of comparable size, and experience in upgrading a low quality loan portfolio, improving earnings, and other matters needing particular attention. Management should also include a senior lending officer with significant appropriate lending, collection, and loan supervision experience and experience in upgrading a low quality loan portfolio. Each member of management shall be provided appropriate written authority from the Bank'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 Bank in a safe and sound manner;
       (iii) comply with applicable laws and regulations; and
       (iv) restore all aspects of the Bank to a safe and sound condition, including {{2-28-93 p.C-2908}}asset quality, capital adequacy, earnings, and management effectiveness.
   (c) During the life of this ORDER, the Bank shall notify the Regional Director of the FDIC's San Francisco Regional Office ("Regional Director") and the Superintendent of Bank for the State of California ("Superintendent") in writing when it proposes to add any individual to the Bank's board of directors or employ any individual as a senior executive officer. The notification must be received at least 30 days before such addition or employment is intended to become effective and should include a description of the background and experience of the individual or individuals to be added or employed.
   (d) The Bank may not add any individual to its board of directors or employ any individual as a senior executive officer if the Regional Director issues a notice of disapproval pursuant to section 32 of the Act, 12 U.S.C. § 1831i.

   [.3] 3. (a) During the life of this ORDER, the Bank shall maintain Tier 1 capital in such an amount as to equal or exceed $14,000,000 and equal or exceed six and one-half (6.5) percent of the Bank's total assets.
   (b) The level of Tier 1 capital to be maintained during the life of this ORDER pursuant to Subparagraph 3(a) shall be in addition to a fully funded loan loss reserve, the adequacy of which shall be satisfactory to the Regional Director and Superintendent as determined at subsequent examinations and/or visitations.
   (c) Any increase in Tier 1 capital necessary to meet the requirements of Paragraph 3 of this ORDER may be accomplished by the following:

       (i) the sale of common stock; or
       (ii) the sale of noncumulative perpetual preferred stock; or
       (iii) the direct contribution of cash by the board of directors, shareholders, and/or parent holding company; or
       (iv) any other means acceptable to the Regional Director and the Superintendent; or
       (v) any combination of the above means.
Any increase in Tier 1 capital necessary to meet the requirements of Paragraph 3 of this ORDER may not be accomplished through a deduction from the Bank's loan loss reserves.
   (d) If all or part of the increase in Tier 1 capital required by Paragraph 3 of this ORDER is accomplished by the sale of new securities, the board of directors shall forthwith ake all necessary steps to adopt and implement a plan for the sale of such additional securities, including the voting of any shares owned or proxies held 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 the Federal securities laws. Prior to the implementation of the plan and, in any event, not less than fifteen (15) 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 and Disclosure Section, 550 - 17th Street, N.W., Washington, D.C. 20429, for review. Any changes requested to be made in the plan or materials by the FDIC shall be made prior to their dissemination. If the increase in Tier 1 capital is provided by the sale of noncumulative perpetual preferred stock, then all terms and conditions of the issue, including but not limited to those terms and conditions relative to interest rate and convertibility factor, shall be presented to the Regional Director and the Superintendent for prior approval.
   (e) In complying with the provisions of Paragraph 3 of this ORDER, the Bank shall provide to any subscriber and/or purchaser of the Bank's securities, a written notice of any planned or existing development or other changes which are materially different from the information reflected in any offering materials used in connection with the sale of Bank securities. The written notice required by this paragraph shall be furnished within ten (10) days from the date such material development or change was planned or occurred, whichever is earlier, and shall be furnished to every subscriber and/or purchaser of the Bank's securities who re- {{2-28-93 p.C-2909}}ceived or was tendered the information contained in the Bank's original offering materials.
   (f) For the purposes of this ORDER, the terms "Tier 1 capital" and "total assets" shall have the meanings ascribed to them in Part 325 of the FDIC Rules and Regulations, 12 C.F.R. §§ 325.2(m) and 325.2(n), as amended at 56 Fed. Reg. 10154, effective April 10, 1991.

   [.4] 4. (a) As of the effective date of this ORDER, the Bank shall have eliminated from its books, by charge-off, specifically allocated reserve, or collection, all assets classified "Loss" and one-half of the assets classified "Doubtful" as of April 27, 1992, that have not been previously collected or charged off. Elimination of these assets through proceeds of other loans made by the Bank is not considered collection for the purpose of this paragraph.
   (b) Within 180 days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of April 27, 1992 that have not previously been charged off to not more than $10,000,000.
   (c) Within 270 days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of April 27, 1992 that have not previously been charged off to not more than $8,500,000.
   (d) Within 360 days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of April 27, 1992 that have not previously been charged off to not more than $7,000,000.
   (e) The requirements of subparagraphs 4(a), 4(b), 4(c), and 4(d) of this ORDER are not to be construed as standards for future operations and, in addition to the foregoing, the Bank shall eventually reduce the total of all adversely classified assets. Reduction of these assets through proceeds of other loans made by the Bank is not considered collection for the purpose of this paragraph. As used in subparagraphs 4(b), 4(c), 4(d), and 4(e) 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.

   [.5] 5. Beginning with the effective date of this ORDER, the Bank shall not extend, directly or indirectly, any additional credit to, or for the benefit of, any borrower who has a loan or other extension of credit from the Bank that has been charged off or classified, in whole or in part, "Loss" or "Doubtful" and is uncollected. The requirements of this paragraph shall not prohibit the Bank from renewing (after collection in cash of interest due from the borrower) any credit already extended to any borrower.

       [.6] 6. (a) Within 60 days from the effective date of this ORDER, the Bank shall revise, adopt, and implement written lending and collection policies 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 Superintendent as determined at subsequent examinations and/or visitations.
       (b) Within 60 days from the effective date of this ORDER, the Bank shall adopt and implement an internal asset review program. The program shall, at a minimum, require the preparation of a loan "watch list" which shall include relevant information on all loans which are classified "Substandard" as of April 27, 1992 or by the FDIC or Superintendent in subsequent Reports of Examination and all other loans which warrant individual review and consideration by the board of directors as determined by the loan committee or management. The internal asset review program and its implementation shall be in a form and manner acceptable to the Regional Director and Superintendent as determined at subsequent examinations and/or visitations.

   [.7] 7. During the life of this ORDER, the Bank shall maintain an adequate reserve for loan losses. Such reserve shall be established by charges to current operating income, together with collection of assets previously charged off. In complying with the provisions of this paragraph, the board of directors shall review the adequacy of the Bank's reserve for loan losses prior to the {{2-28-93 p.C-2910}}end of each quarter. The minutes of the board of directors meeting at which such review is undertaken shall indicate the results of the review, the amount of any increase in the reserve, and the basis for determination of the amount of the reserve provided.

   [.8] 8. Within 90 days from the effective date of this ORDER, the Bank shall develop and adopt a plan to control overhead and other expenses and improve the Bank's profitability. The plan shall be in a form and manner acceptable to the Regional Director and the Superintendent as determined at subsequent examinations and/or visitations.

   [.9] 9. Within 60 days from the effective date of this ORDER, the Bank shall revise, adopt, and implement policies governing interest rate risk exposure to the Bank. The policy shall, at a minimum, establish a target ratio for rate sensitive assets to rate sensitive liabilities, and shall require the board of directors to periodically monitor the Bank's interest rate risk exposure. The written policy shall define the terms "rate sensitive assets" and "rate sensitive liabilities." Such policies shall be in a form and manner acceptable to the Regional Director and the Superintendent as determined at subsequent examinations and/or visitations.

   [.10] 10. As of the effective date of this ORDER, the Bank shall have developed, adopted, and implemented written investment policies to provide effective guidance and control over the Bank's investment function. Such policies shall be in a form and manner acceptable to the Regional Director and the Superintendent as determined at subsequent examinations and/or visitations.

   [.11] 11. During the life of this ORDER, the Bank shall not undertake any plan or engage in any activity which would result in an increase of its average assets by five (5.0) percent or more during any three month period without receiving the prior written approval of the Regional Director. The approval shall be requested at least thirty (30) days in advance of the period during which the Bank intends to exceed the five (5.0) percent growth restriction.

   [.12] 12. As of the effective date of this ORDER, the Bank shall have eliminated and/or corrected the apparent or alleged violations of law regarding section 215.4(e) of Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. § 215.4(e), which are more fully set out on page 6-b of the Report of Examination of the Bank as of April 27, 1992. In addition, the Bank shall take all reasonable steps to ensure future compliance with all applicable laws and regulations.

       [.13] 13. (a) Within 60 days from the effective date of this ORDER, the Bank shall adopt and implement a policy for the operation of the Bank in such a manner as to provide adequate internal routine and control policies consistent with safe and sound banking practices. Such policy shall, at a minimum, eliminate and/or correct all internal routine and control deficiencies as more fully set forth on pages 6-c and 6-c-1 of the Report of Examination of the Bank as of April 27, 1992 and shall guarantee that the Bank will take all necessary steps to ensure future compliance with all applicable laws and regulations. Such policy and its implementation shall be satisfactory to the Regional Director and the Superintendent as determined at subsequent examinations and/or visitations.
    (b) Within 90 days from the effective date of this ORDER, the Bank shall develop an internal audit program that establishes procedures to protect the integrity of the Bank's operational and accounting systems. The program shall be in a form and manner acceptable to the Regional Director and the Superintendent as determined at subsequent examinations and/or visitations.

   [.14] 14. The Bank shall not pay cash dividends without the prior written consent of the Regional Director.

   [.15] 15. Following the effective date of this ORDER, the Bank shall send to its shareholders or otherwise furnish a description of this ORDER in conjunction with the Bank's next shareholder communication and also in conjunction with its notice or proxy statement preceding the Bank'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, 550 - 17th Street, N.W., 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 description, communication, notice, or statement.
   16. Within 45 days of the end of the first quarter following the effective date of this {{2-28-93 p.C-2911}}ORDER, and within forty-five (45) days of the end of each quarter thereafter, the Bank 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 Bank's Report of Condition and the Bank'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 Bank in writing from making further reports.
   The provisions of this ORDER shall be binding upon the Bank, its directors, officers, employees, agents, successors, assigns, and other persons participating in the conduct of the affairs of the Bank.
   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.
   Dated at San Francisco, California, this 15th day of December, 1992.
   Pursuant to delegated authority.

ED&O Home | Search Form | Text Search | ED&O Help

Last Updated 6/6/2003 legal@fdic.gov