(This order was terminated by order of the FDIC dated 9-15-03; see ¶16,352.)
A consent 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—Maintain Tier 1 Capital
[.3] Assets—Adversely Classified Assets—Reduction Required
{{11-30-03 p.C-5430}}
[.4] Loan Policy—Preparation or Revision of Policy Required
[.5] Loans—Extensions of Credit—To Borrowers with Existing Adversely
Classified Credits
[.6] Loan Portfolio—Diversification Required
[.7] Loan Loss Reserve—Establishment of or Increase Required
[.8] Violations of Law—Correction of Violations Required
[.9] Budget Plan—Preparation Required
[.10] Strategic Plan—Preparation of Required
[.11] Audit—Required
[.12] Dividends—Dividends Restricted
[.13] Brokered Deposits—Restricted
In the Matter of
ASIANA BANK
SUNNYVALE, CALIFORNIA
(Insured State Nonmember Bank)
CONSENT ORDER
FDIC-02-071B
Asiana Bank, Sunnyvale, 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 A CONSENT ORDER ("CONSENT AGREEMENT") with
counsel for the Federal Deposit Insurance Corporation ("FDIC"),
dated May 2, 2002, 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 a CONSENT ORDER ("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:
CONSENT ORDER
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 law
and/or regulation:
(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 and/or poorly
documented loans;
(d) operating with an inadequate allowance for loan and lease losses;
(e) following hazardous lending and lax collection practices;
(f) operating with inadequate provisions for liquidity and funds
management;
(g) operating with inadequate routine and controls policies;
(h) operating in such a manner as to produce operating losses; and
(i) operating in violation of section 309.6(a) of the FDIC's Rules and
Regulations, 12 C.F.R. §309.6(a), as more fully described on pages
19 and 20 of the Report of Examination as of November 13, 2001; section
323.4 of the FDIC's Rules and Regulations, 12 C.F.R. §323.4, as
more fully described on page 18 of the Report of Examination as of
November 13, 2001; section 359 of the FDIC's Rules and Regulations, 12
C.F.R. §359, as more fully described on page 20 of the Report of
Examination as of November 13, 2001; and section 364 of the FDIC's
Rules and Regulations, 12 C.F.R. §364, as more fully described on
page 21 of the Report of Examination as of November 13, 2001.
IT IS FURTHER ORDERED, that the Bank, its institution-affiliated
parties, and
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its successors and assigns, take affirmative action as
follows:
[.1]1. 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 shall 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 shall also include a
chief credit officer with significant appropriate policy, lending,
collection, and loan supervision experience and experience in upgrading
a low quality loan portfolio. Management shall also have a chief
financial officer with significant and appropriate experience in
planning, budgeting, and operating a financial institution in a
profitable manner. 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, sensitivity to market risk 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, 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.
(e) The Bank's board of directors shall include at least two outside
directors who possess prior and significant experience in supervising
the affairs and operations of a financial institution.
(f) The Bank shall provide the Regional Director and Commissioner with
30 days prior notice of any proposed changes to senior management not
previously covered by Subparagraph 1(c) and 1(d). Such notice shall be
accompanied by a written plan of succession, which is in a form and
manner acceptable to the Regional Director.
(g) Within 30 days from the effective date of this ORDER, the board of
directors shall participate in the affairs of the Bank, assuming full
responsibility for the approval of sound policies and objectives,
compliance with the Banks articles of incorporation and bylaws, and
supervision of all of the Bank's activities and operations, consistent
with the role and expertise commonly expected for directors of the
Bank's comparable size. This participation shall include meetings to
be held no less frequently than monthly at which, at a minimum, the
following areas shall be reviewed and approved; any staffing changes;
reports of income and expenses; new, overdue, renewal, insider,
charged-off, and recovered loans; investment activity; operating
policies; and individual committee actions. The board minutes shall
document these reviews and approvals, including the names of any
dissenting directors.
(h) Within 90 days of the effective date of this ORDER, the Bank is
required to conduct a management and staffing study. This study shall
review the current organizational structure of the Bank including
position descriptions, and make recommendations regarding staffing
relative to the strategic plan and objectives of the Bank. A copy of
such study shall be provided to the Regional Director and Commissioner.
[.2]2. (a) During the life of this ORDER, the Bank shall have and maintain
Tier 1 leverage capital in such an amount as to equal
{{7-31-02 p.C-5432}}
or exceed ten
(10.0) percent of the Bank's total assets.
(b) Within 90 days from the effective date of this ORDER, the Bank
shall develop and adopt a plan to meet the minimum risk-based capital
requirements as described in the FDIC Statement of Policy on Risk-Based
Capital contained in Appendix A to Part 325 of the FDIC Rules and
Regulations, 12 C.F.R. Part 325, Appendix A. The Plan shall be in a
form and manner acceptable to the Regional Director and Commissioner as
determined at subsequent examinations.
(c) The level of Tier 1 leverage 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.
(d) 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,
shareholders, and/or parent holding company; 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.
(e) 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, 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.
(f) 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.
(g) 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 120 days from the effective date of this ORDER, the Bank
shall have reduced the assets classified "Substandard" as of
November 13, 2001 that have not previously been charged off to not more
than $1,000,000 and shall have reduced the assets classified
"Special Mention" as of November 13, 2001, that have not
previously been charged off to not more than $3,000,000.
{{7-31-02 p.C-5433}}
(b) Within 240 days from the effective date of this ORDER, the Bank
shall have reduced the assets classified "Substandard" as of
November 13, 2001 that have not previously been charged off to not more
than $800,000, and shall have reduced the assets classified "Special
Mention" as of November 13, 2001, that have not previously been
charged off to not more than $2,000,000.
(c) The requirements of subparagraphs 3(a) and 3(b) 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(a), 3(b), and
3(c) 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.
[.4]4. (a) Within 90 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, which policies shall include specific guidelines for
placing loans on a non-accrual basis. In addition, the Bank shall
obtain adequate and current documentation for all loans in the Bank's
loan portfolio. Such policies and their implementation shall be in a
form and manner acceptable to the Regional Director and the
Commissioner as determined at subsequent examinations and/or
visitations.
(b) The initial revisions to the Bank's loan policy and practices,
required by this paragraph, at a minimum, shall include the following:
(i) revisions which ensure that the loan policy is specific to
the Bank;
(ii) provisions which require complete loans 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 specify the circumstances and conditions under
which real estate appraisals must be conducted by an independent third
party;
(iv) provisions that directors ensure that the lending staff has the
expertise and training necessary to properly analyze and supervise
loans and credits;
(v) provisions which prohibit concentrations of credit in excess of 25
percent of the Bank's total equity capital and reserves to any
borrower and that borrower's related interests;
(vi) provisions which require the establishment of a loan grading
system and loan review process that are acceptable to the Regional
Director and Commissioner;
(vii) provisions which require the preparation of a loan
"watch list" which shall include relevant information on all
loans in excess of $25,000 which are classified "Substandard"
dated November 13, 2001 or by the FDIC or California Department of
Financial Institutions in subsequent Reports of Examination and all
other loans in excess of $100,000 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
(viii) 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.
[.5]5. (a) 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" and is uncollected. Subparagraph 5(a) of this
ORDER shall not prohibit the Bank from renewing or extending the
maturity of any credit in accordance with the Financial Accounting
Standards Board Statement Number 15 ("FASB 15").
(b) Beginning with the effective date of this ORDER the Bank shall not
extend, directly
{{7-31-02 p.C-5434}}
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 classified, in whole or part,
"Substandard" without the prior approval of a majority of the
board of directors or the loan committee of the Bank. Subparagraph 5(b)
of this ORDER shall not prohibit the Bank from renewing or extending
the maturity of any credit in accordance with FASB 15, providing that
such renewal or extension shall be made only with the prior approval of
a majority of the board of directors or the loan committee of the Bank.
(c) In connection with subparagraphs 5(a) and 5(b) of this ORDER, the
Bank shall not:
(i) continue the accrual of interest on any loan which is
delinquent in principal or interest payments ninety (90) days or more
unless the asset is both well secured and in the process of collection;
or
(ii) engage in any practice or device, which essentially avoids
recognition of overdue loans and/or artificially inflates the income of
the Bank. For any loans restructured in accordance with FASB 15,
consideration should be given to the reasonableness of the modified
terms of the loan, since loans should not be restructured in an attempt
to conceal credit losses or delay their recognition.
(d) For the purpose of subparagraph 5(c) of this ORDER, debt is
"well secured" if it is secured by:
(i) collateral in the form of liens on or pledges of real or
realizable value sufficient to discharge the debt (including accrued
interest) in full; or
(ii) the guaranty of a financially responsible party.
A debt is "in the process of collection" if
collection of the debt is proceeding in due course either through legal
action, including judgment enforcement procedures, or, in appropriate
circumstances, through collection efforts not involving legal action
which are reasonably expected to result in repayment of the debt or in
its restoration to a current status.
[.6]6. Within 90 days from the effective date of this ORDER, the Bank shall
develop and implement a plan to ensure that the loan portfolio is
diversified and undue reliance on a limited number of large credits
reduced. In addition, the Bank shall address the criticisms
specifically set forth on page 8 of the Report of Examination dated
November 13, 2001. The plan shall be in a form and manner acceptable to
the Regional Director and Commissioner as determined at subsequent
examinations and/or visitations.
[.7]7. (a) During the life of this ORDER, the Bank shall maintain an
adequate allowance for loan and lease losses.
(b) Additionally, within 60 days from the date of this ORDER the Board
of Directors shall revise and fully implement its policy for
determining the adequacy of the allowance for loan and lease losses.
For the purpose of this determination, the methodology contained in the
policy shall be predicated on an objective and accurate evaluation of
the risk inherent in the Bank's loan portfolio. 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 reserve
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.
[.8]8. Within 60 days from the effective date of this ORDER, the Bank shall
eliminate and/or correct all violations of law which are more fully set
out on pages 18 through 22 of the Report of Examination of the Bank
dated November 13, 2001. In addition, the Bank shall take all necessary
steps to ensure future compliance with all applicable laws,
regulations, and policies.
[.9]9. (a) Within 90 days from the effective date of this ORDER, the Bank
shall
{{7-31-02 p.C-5435}}
formulate and fully implement a written plan and a comprehensive
budget for all categories of income and expense. The plan and budget
required by this paragraph shall include formal goals and strategies,
consistent with sound banking practices, to improve the Bank's net
interest margin, increase interest income, reduce discretionary
expenses, and improve and sustain earnings of the Bank. The plan shall
include a description of the operating assumptions that form the basis
for and adequately support, major projected income and expense
components. Thereafter, the Bank shall formulate such a plan and budget
by November 30 of each subsequent year.
(b) The plan and budget required by subparagraph 9(a) of this ORDER,
upon completion, shall be submitted to the Regional Director and
Commissioner for their review and opportunity for comment.
(c) Following the end of each calendar quarter, the board of directors
shall evaluate the Bank's actual performance in relation to the plan
and budget required by subparagraph 9(a) of this ORDER and shall record
the results of the evaluation, and any actions taken by the Bank, in
the minutes of the board of directors meeting at which such evaluation
is undertaken. This information shall in turn be submitted to the
Regional Director and Commissioner.
[.10]10. Within 90 days of the effective date of this ORDER, the Bank
shall develop and submit to the Regional Director a written three-year
strategic plan, taking into consideration adequate staffing, compliance
with this ORDER, proper internal routines and controls, and an adequate
audit function. Such plan shall include specific goals for the dollar
volume of total loans, total investment securities, and total deposits
projected on a quarterly basis through year-end 2004. In addition, such
plan shall address strategies for increasing the Bank's core deposit
base to reduce its dependence on volatile funding sources and improve
the Bank's net interest margin. For each time frame, the plan will
also specify the anticipated average maturity and average yield on
loans and securities; the average maturity and average cost of
deposits; the level of earning assets as a percentage of total assets;
and the ratio of net interest income to average earning assets. The
plan shall be in a form and manner acceptable to the Regional Director
as determined at subsequent examinations and/or visitations.
[.11]11. (a) 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 Commissioner as determined at subsequent
examinations and/or visitations.
(b) Within 90 days from the effective date of this ORDER, the Bank
shall conduct an internal audit. Such audit shall be conducted by an
outside independent auditor. The results of the audit shall be made
available to the Regional Director and the Commissioner for review and
comment.
[.12]12. The Bank shall not pay cash dividends without the prior
written consent of the Regional Director and the Commissioner.
[.13]13. Upon the effective date of this ORDER, the Bank shall not increase
the amount of brokered deposits above the amount outstanding on that
date. In addition, during the life of this ORDER, the Bank shall not
solicit, retain, or rollover brokered deposits.
14. On the tenth day of the third month following the effective date of
this ORDER, and on the tenth day of every third month 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 may be discontinued when the corrections required by this ORDER
have been accomplished and the Regional Director and the Commissioner
has 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 3rd day of May, 2002.
