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   [11,791] In the Matter of Valley Bank, Moreno Valley, California, Docket No. 01-055b (4-27-01)

(This order was terminated by order of the FDIC dated 7-1-03; see ¶16,341.)

   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.

   [.1] Management—Qualifications Specified

   [.2] Capital—Increase Required

   [.3] Assets—Charge-off or Collection

   [.4] Loan Policy—Preparation or Revision of Policy Required

   [.5] Loan Loss Reserve—Establishment of or Increase Required

   [.6] Earnings Plan—Written Earnings Plan Required

   [.7] Violations of Law—Correction of Violations Required

   [.8] Dividends—Dividends Restricted

   [.9] Shareholders—Disclosure of Cease and Desist Order Required

In the Matter of
VALLEY BANK
MORENO VALLEY, CALIFORNIA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

FDIC-01-055b

   Valley Bank, Moreno Valley, 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 laws 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
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   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 23, 2001, 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 laws 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 laws 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, its 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 and unsound banking practices and violations of laws and/or regulations:

   (a) operating with inadequate management;

   (b) operating with inadequate equity capital and reserves in relation to the volume and quality of assets held by the Bank;

   (c) operating with a large volume of poor quality assets;

   (d) operating with an inadequate allowance for loan and lease losses;

   (e) following hazardous lending and lax collection practices;

   (f) operating in such a manner as to produce operating losses; and

   (g) operating in violation of 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 29 of the FDIC's Report of Examination of the Bank dated November 20, 2000.

   IT IS FURTHER ORDERED, that the Bank, its institution-affiliated parties, and its successors and assigns, take affirmative action as follows:

   [.1]1. During the life of this ORDER the Bank shall have and thereafter 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 shall include a chief executive officer with the ability to satisfactorily manage a financial institution and experience in upgrading low quality assets. Management shall also include a senior lending officer with an appropriate level of lending, collection, and loan supervision experience for the type and quality of the Bank's loans. 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 asset quality, capital adequacy, earnings, management effectiveness, and liquidity.

   (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 Commissioner of the Department of Financial Institutions for the State of California ("Commissioner") 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.

   [.2]2. (a) By January 15, 2002, the Bank shall increase Tier 1 capital by no less than
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   $2,000,000 and shall have Tier 1 capital in such an amount as to equal or exceed eight (8.0) percent of the Bank's total assets. Thereafter, during the life of this ORDER, the Bank shall maintain Tier 1 capital in such an amount as to equal or exceed eight (8.0) 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 2(a) shall be in addition to a fully funded allowance for loan and lease losses, the adequacy of which shall be satisfactory to the Regional Director and Commissioner as determined at subsequent examinations and/or visitations.

   (c) Any increase in Tier 1 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 noncumulative perpetual preferred stock; or

       (iii) the direct contribution of cash by the board of directors and/or shareholders of the Bank; or

       (iv) any other means acceptable to the Regional Director and the Commissioner; or

       (v) any combination of the above means.

   Any increase in Tier 1 capital necessary to meet the requirements of Paragraph 2 of this ORDER may not be accomplished through a deduction from the Bank's allowance for loan and lease losses.

   (d) If all or part of the increase in Tier 1 capital required by Paragraph 2 of this ORDER is accomplished by the sale of new securities, the board of directors shall forthwith take 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 Commissioner for prior approval.

   (e) In complying with the provisions of Paragraph 2 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 received 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(t) and 325.2(v).

   [.3]3. (a) Within 10 days from the effective date of this ORDER, the Bank shall eliminate from its books, by charge-off or collection, all assets classified "Loss" and one-half of the assets classified "Doubtful" as of November 20, 2000, 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) By June 30, 2001, the Bank shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of November 20, 2000 that have not previously been charged-off to not more than $4,250,000.
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   (c) By September 30, 2001, the Bank shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of November 20, 2000 that have not previously been charged-off to not more than $3,800,000.

   (d) By December 31, 2001, the Bank shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of November 20, 2000 that have not previously been charged-off to not more than $3,600,000.

   (e) By March 31, 2002, the Bank shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of November 20, 2000 that have not previously been charged-off to not more than $2,500,000.

   (f) 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 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 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 and/or the Department of Financial Institutions.

   [.4]4. Within 30 days from the effective date of this ORDER, the Bank shall revise and adopt a written lending and collection policy to address each of the criticisms contained within the November 20, 2000 Report of Examination. Thereafter, during the life of this ORDER, the Bank shall fully implement such policy to provide effective guidance and control over the Bank's lending function. In addition, the Bank shall obtain adequate and current documentation for all loans in the Bank's loan portfolio. Such policy and its implementation shall be in a form and manner acceptable to the Regional Director and the Commissioner as determined at subsequent examinations and/or visitations.

   [.5]5. (a) During the life of this ORDER, the Bank shall maintain an adequate allowance for loan and lease losses. %(b) Additionally, during the life of this ORDER, the Board of Directors shall fully implement its policy for determining the adequacy of the allowance for loan and lease losses. For the purpose of this determination, the adequacy of the allowance shall be determined after the charge-off of all loans or other items classified "Loss". The policy shall provide for a review of the allowance at least once each calendar quarter. Said review shall be completed at least ten (10) days prior to the end of each quarter, in order that the findings of the Board of Directors with respect to the loan and lease loss allowance may be properly reported in the quarterly Reports of Condition and Income. The review should focus on the results of the Bank's internal loan review, loan and lease loss experience, trends of delinquent and non-accrual loans, an estimate of potential loss exposure of significant credits, concentrations of credit, and present and prospective economic conditions. A deficiency in the allowance shall be remedied in the calendar quarter it is discovered, prior to submitting the Report of Condition, by a charge to current operating earnings. The minutes of the Board of Directors meeting at which such review is undertaken shall indicate the results of the review. Upon completion of the review, the Bank shall increase and maintain its allowance for loan and lease losses consistent with the allowance for loan and lease loss policy established. Such policy and its implementation shall be satisfactory to the Regional Director and the Commissioner as determined at subsequent examinations and/or visitations.

   [.6]6. Within 60 days from the effective date of this ORDER, the Bank shall revise, adopt and implement a written earnings plan. This plan shall be forwarded to the Regional Director and to the Commissioner for review and comment and shall address, at a minimum, the following:

   (a) goals and strategies for improving and sustaining the earnings of the Bank, including:

       (i) an identification of the major areas in, and means by which, the board of directors will seek to improve the Bank's operating performance;

       (ii) realistic and comprehensive budgets;

       (iii) a budget review process to monitor the income and expenses of the Bank to
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       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.

   (b) coordination of the Bank's loan, investment, and operating policies, and budget and profit planning, with the funds management policy.

   [.7]7. By June 1, 2001, the Bank shall eliminate and/or correct all violations of laws which are more fully set out on page 29 of the Report of Examination of the Bank dated November 20, 2000. In addition, the Bank shall take all necessary steps to ensure future compliance with all applicable laws and regulations.

   [.8]8. The Bank shall not pay cash dividends without the prior written consent of the Regional Director and the Commissioner.

   [.9]9. 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.

   10. 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 Bank shall furnish written progress reports to the Regional Director and the Commissioner 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 Commissioner have released the Bank in writing from making further reports.

   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 27th day of April, 2001.

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Last Updated 10/2/2003 legal@fdic.gov