(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.
