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Home > Regulation & Examinations > Bank Examinations > FDIC Enforcement Decisions and Orders |
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FDIC Enforcement Decisions and Orders {{7-31-04 p.C-5256}} 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] Board of Directors—Responsibilities of Directors Specified
[.3] Capital—Maintain Tier 1 Capital
[.4] Loan Loss Reserve—Establishment of or Increase Required
[.5] Business Plan—Preparation Required
[.6] Violations of Law—Correction of Violations Required
[.7] Funds Management and Liquidity—Preparation or Revision of Funds
Management Policy Required
[.8] Reports of Condition and Income—Amendment Required
[.9] Dividends—Dividends Restricted
[.10] Insurance—Maintain Adequate Fidelity Insurance Protection
[.11] Bank Operations—Internal Routine and Control Procedures—Written Plan
Required
[.12] Check Fraud Scheme—Prompt Reimbursement Required
[.13] Shareholders—Disclosure of Cease and Desist Order Required
In the Matter of
The Federal Deposit Insurance Corporation ("FDIC"), on
June 22, 2001 issued to First International Bank, Chula Vista,
California ("Bank"), a NOTICE OF CHARGES AND OF HEARING
("NOTICE") pursuant to section 8(b)(1) of the Federal Deposit
Insurance Act ("Act"), 12 U.S.C. & 1818(b)(1). The NOTICE charges
the Bank with having engaged in unsafe or unsound banking practices.
The Bank and counsel for the FDIC thereafter executed a STIPULATION AND
CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST
("CONSENT AGREEMENT") with counsel for the ("FDIC"), dated
October 19, 2001, whereby solely for the purpose of this proceeding and
without admitting or denying the allegations in the NOTICE, 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. The FDIC, therefore, accepted the CONSENT AGREEMENT and
issued the following:
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:
(a) operating with inadequate management;
(b) operating with inadequate equity capital and reserves;
(c) operating with an inadequate check fraud collection reserve;
(d) operating with inadequate provisions for liquidity and funds
management;
(e) operating with inadequate internal routine and controls policies;
(f) operating in such a manner as to produce operating losses; and
(g) operating in such a manner as to produce inaccurate Consolidated
Reports of Condition and Income.
IT IS FURTHER ORDERED, that the Bank, its institution-affiliated
parties, and its successors and assigns, take affirmative action as
follows:
[.1]1. (a) Within 90 days from the effective date of this ORDER, the Bank
shall employ a Senior Lending Officer ("SLO"), and a Chief
Financial Officer ("CFO"). Thereafter, during the life of this
ORDER, the Bank shall have and retain qualified management. Each member
of management shall have qualifications and experience commensurate
with his or her duties and responsibilities at the Bank. The CEO shall
have proven ability in managing a Bank of comparable size, and
experience in improving earnings, and other matters requiring
particular attention. The SLO shall have the ability to manage the
lending function in a Bank of comparable size, and other matters
requiring particular attention. The CFO shall have the ability to
manage the financial aspects of a Bank of comparable size, and other
matters requiring particular attention. 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) Within 90 days from the effective date of this Order, the Bank
shall increase the number of Board members by the addition of three (3)
individuals who are not in any way related to, associated or affiliated
with shareholder Roque D La Fuente II, his family members, family
trusts, entities controlled by him, or entities controlled by his
family members or family trusts. Two of the three individuals may not
be employees or officers of the Bank.
(c) Management's qualifications shall be assessed on each person's
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.
(d) 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 Financial
Institutions for the State of California ("Commissioner") in
writing when it proposes to add any individual to or replace any member
of the Bank's board of directors; employ any individual as CEO, SLO,
or CFO; or change the responsibilities of any senior executive officer,
so that the person would assume the responsibilities of a CEO, SLO, or
CFO. The notification must be received at least 30 days before such
addition, replacement, employment, or change in responsibilities is
intended to become effective and should include a description of the
background and experience of the individual or individuals involved.
(e) The Bank may not add any individual to or replace a member of its
board of directors, employ a CEO, SLO, CFO or change the
responsibilities of any senior executive officer to act in the capacity
of CEO, SLO, CFO; without the prior written consent of the Regional
Director. Consent will be based upon a demonstration that the proposed
individual possesses the necessary qualifications to competently and
independently execute the duties of the proposed position, and consent
will not be unreasonably withheld.
[.2]2. The Board of Directors shall maintain a high level of participation
in the affairs of the Bank and regular attendance at Board meetings.
The Board shall assume full responsibility for the approval of sound
policies and objectives for the Bank, and for the supervision of all of
the Bank's activities, consistent with the role and expertise commonly
expected for directors of banks of comparable size. The Board's
participation shall include attendance at regular Board meetings to be
held at least once a month. The Board at a minimum shall discuss,
review, and approve at each meeting the following: reports of income
and expenses; new, overdue, renewal, insider, charged-off, and
recovered loans; investment activity; operating policies; and
individual committee actions. Board and Committee minutes shall be kept
for each meeting, regular or special, which accurately reflect the
deliberations, discussions, review and approval of these items along
with any other business discussed by the Board or Committee. Minutes
shall also reflect the names of all directors agreeing or dissenting to
any reviews, approvals or other actions taken by the Board.
[.3]3. (a) By February 28, 2002, the Bank shall have and thereafter
maintain Tier 1 capital in such an amount as to equal or exceed the
greater of seven and one half (7.5) percent of the Bank's total assets
or five million dollars ($5,000,000).
(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 allowance for loan and lease losses, and a fully funded
check fraud collection reserve, 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 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 and/or
shareholders of the Bank except as noted below; 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 3 of this ORDER may not be accomplished through a
deduction from the Bank's allowance for loan and lease losses or the
check fraud collection reserve without the written permission of the
Regional Director. The Bank may not accept any infusion of capital that
would increase, at any time, the voting shares of shareholder Roque De
La Fuente II, his family members, family trusts, entities controlled
by him, or entities controlled by his family members, or family trusts.
(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 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 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 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).
[.4]4. (a) During the life of this ORDER, the Bank shall maintain an
adequate allowance for loan and lease losses and an adequate check
fraud collection reserve.
(b) Additionally, during the life of this ORDER, the Bank shall
fully implement its policies for determining the adequacy of the
allowance for loan and lease losses and the adequacy of the check fraud
collection reserve. The policies shall provide for a review of the
allowance and check fraud collection reserve 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
and check fraud collection reserve may be properly reported in the
quarterly Reports of Condition and Income. Any deficiencies in the the
allowance for loan & lease losses or check fraud collection reserve
shall be remedied in the calendar quarter they are discovered, prior to
submitting the Report of Condition and Income, 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 and/or the check fraud
collection reserve consistent with the established policies. Such
policy and its implementation shall be satisfactory to the Regional
Director and the Commissioner as determined at subsequent examinations
and/or visitations. Furthermore, the Bank shall not decrease the amount
of the allowance for loan and lease losses or the check fraud
collection reserve without the approval of the Regional Director and
the Commissioner.
[.5]5. Within 90 days of the effective date of this ORDER, the Bank shall
formulate and fully implement a written business plan. This plan shall
be updated no later than November 30 for each successive calendar year
the Bank is subject to this Order and, shall address, at a minimum, the
following:
(a) goals and strategies consistent with sound banking practices
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) an identification of the major areas in and means by which the
Board will seek to improve the Bank's net interest margin, increase
interest income, and reduce discretionary expenses;
(iii) a realistic and comprehensive budget for all categories of income
and expense;
(iv) a budget review process to monitor the income and expenses of the
Bank to compare actual figures with budgetary projections;
(v) a description of the operating assumptions that form the basis for,
and adequately support, major projected income and expense components;
(vi) projections for Small Business Administration ("SBA") loan
growth which are reasonable and supported by verifiable data;
(vii) an analysis of the impact of increased commissions payable to the
staff in the Bank's SBA loan department upon future earnings; and
(viii) a comprehensive process to control outside legal expenses,
including better monitoring of outside counsel from the retention phase
through actual completion of legal work;
(b) coordination of the Bank's loan, investment, and operating
policies, and budget and profit planning, with the funds management
policy;
(c) the need for additional capital, potential sources of capital, and
an action plan for obtaining additional capital; and
(d) methods for handling exposure to increasing contingent liabilities
including the check scheme fraud detailed on page one (1) of the FDIC
Report of Examination dated October 10, 2000.
The business plan, its implementation, and any revisions thereto,
shall be in a form and manner acceptable to the Regional Director and
the Commissioner as determined at subsequent examinations and/or
visitations.
[.6]6. During the life of this ORDER the Bank shall take all necessary
steps to ensure compliance with all applicable laws and regulations.
[.7]7. Within 90 days of the effective date of this ORDER, the Bank shall
revise, adopt, and implement a written liquidity and funds management
policy. Such policy shall include a strategy for reducing exposure to
interest rate risk, and shall address the concerns contained in the
FDIC Report of Examination dated October 10, 2000, at pages 6, 37 and
38. The 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.
[.8]8. During the life of this ORDER, the Bank shall file with the FDIC
Consolidated Reports of Condition and Income which accurately reflect
the financial condition of the Bank as of the end of the period for
which the Reports are filed, including any adjustment in the Bank's
books made necessary or appropriate as a consequence of any California
Department of Financial Institutions or FDIC examination of the Bank
during that reporting period.
[.9]9. The Bank shall not pay cash dividends without the prior written
consent of the Regional Director and the Commissioner.
[.10]10. The Bank shall maintain adequate fidelity insurance protection in
an amount acceptable to the Regional Director.
[.11]11. Within 90 days of the effective date of this ORDER, the Bank shall
formulate, adopt and implement a policy and procedures that adequately
address the Bank's internal routine and controls. Such policy shall
address, at a minimum, advances against uncollected funds, the proper
handling of returned items, specific management approval authorities,
audit coverage of these areas, requirements for documentation, and
requirements for reporting related matters to the Board. In addition
the Board shall review and monitor compliance with the policy on a
quarterly basis. The 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.
[.12]12. During the life of this ORDER the Bank shall promptly pay all
properly documented and substantiated claims for reimbursement (where
the Bank has no defense) presented to it arising from the check fraud
scheme detailed on page one (1) of the FDIC Report of Examination dated
October 10, 2000.
[.13]13. 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.
14. Within 45 days of the end of each quarter, beginning with quarter
end December 31, 2001, for the period this ORDER is in effect, the Bank
shall furnish written progress reports to the Regional Director and
Commissioner detailing the form and manner of any actions taken to
secure compliance with this ORDER and the results thereof. The reports
shall be in a form and manner acceptable to the Regional Director and
the Commissioner.
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 1st day of November, 2001,
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Last Updated 2/20/2005 | legal@fdic.gov |
