In the Matter of
AMERICAN PREMIER BANK ARCADIA, CALIFORNIA (Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
American Premier Bank, Arcadia, 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 Corporation ("FDIC"), dated February 23, 2005, 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
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 law
(a) operating with management whose policies and practices are
detrimental to the Bank and jeopardize the safety of its deposits;
(b) operating with a board of directors which has failed to provide
adequate supervision over and direction to the active management of the
(c) operating with inadequate capital in relation to the kind and
quality of assets held by the Bank;
(d) operating with an inadequate loan valuation reserve;
(e) engaging in unsatisfactory lending and collection practices;
(f) operating in such a manner as to produce operating losses;
(g) operating in violation of law and in contravention of agency policy
as more fully described on pages 24 through 26 of the FDIC's Report of
Examination as of June 30, 2004.
(h) operating with inadequate internal routine and controls policies;
(i) operating with inadequate capital as required by the March 7, 2002
Order for deposit insurance.
IT IS FURTHER ORDERED, that the Bank, its institution-affiliated
parties, and its successors and assigns, take affirmative action as
[.1] 1. The Bank shall have and retain qualified management.
(a) The Bank shall retain a qualified chief executive officer that
is acceptable to the Regional Director of the San Francisco Region of
the FDIC ("Regional Director"). The chief executive officer shall
have the proven experience, ability, and other qualifications required
to manage a bank of comparable size and complexity, to ensure the safe
and sound day to day operation of the bank, and ensure compliance with
(b)Each member of management shall have qualifications and experience
commensurate with his or her duties and responsibilities and be
qualified to restore the bank to a safe and sound condition. Each
member of management shall be provided appropriate written authority
from the Bank's board of directors to implement the provisions of this
(c) The qualifications of management shall be assessed on its ability
(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, liquidity, and sensitivity to market risk.
(d) During the life of this ORDER, the Bank shall notify the
Regional Director 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.
(e) During the life of this ORDER, the Bank shall notify the Regional
Director in writing, of any resignation and/or termination of any
member of its Board of directors and/or any senior executive officer
within 15 days of the event.
(f) To ensure both ongoing compliance with this ORDER and to facilitate
having and retaining qualified management, the board of directors of
the Bank shall, within 60 days from the effective date of this ORDER,
undertake an independent, in-depth analysis and review of the Bank's
managerial and staffing needs and make a written report ("Management
Report") on the Bank's management requirements. The Management
Report shall incorporate an analysis of the Bank's management and
staffing requirements, and shall, at a minimum;
(i) describe both the number and types of positions needed to
properly manage the Bank;
(ii) clearly and concisely describe the qualifications and experience
needed for each position;
(iii) evaluate each Bank officer indicating whether these officials
possess the ability, experience, and other qualification required to
perform present and anticipated duties, including adherence to the
Bank's established policies and practices, and maintenance of the Bank
in a safe and sound condition. Such evaluation shall specifically
address compensation paid to each executive officer;
(iv) establish a plan to recruit, hire, or replace personnel with
requisite ability and experience;
(v) establish a plan for providing for periodic evaluation of each
individual's job performance; and
(vi) provide for periodic review of the Bank's management.
The Bank shall formulate a plan to implement the recommendations
of the study. The plan shall be acceptable to the Regional Director
as determined at subsequent examinations.
(g) Within 60 days from the effective date of this ORDER, the Bank
shall develop, adopt, and implement a written ethics policy and
procedure acceptable to the Regional Director as determined at
[.2] 2. (a) Within 60 days from the effective date of this ORDER, the board
of directors shall increase its participation in the
affairs of the Bank, assuming full responsibility for the approval of
sound policies and objectives 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. 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: reports of income and expenses; new, overdue, renewal,
insider, charged-off, and recovered loans; investment activity;
operating policies; individual committee actions; and key operating
ratios, including capital ratios. Board minutes shall document these
reviews and approvals, including the names of any dissenting
(b) Within 60 days of the date of this ORDER, the Bank shall
increase its board of directors by the addition of no less than one
independent director, and within one hundred and twenty (120) days of
the date of this ORDER no less than one additional independent
director, each of which directors shall have prior banking experience
either as an officer or director.
[.3] 3. (a) Within 120 days of the date of this ORDER, the Bank shall
increase its Tier 1 capital to an amount not less than
$10,300,000. Hereafter, the Bank shall cause additional increases in
its Tier 1 capital as necessary to maintain a Tier 1 capital to assets
ratio of not less than eight (8.0) percent during the Bank's first
three years of operation.
(b) During the life of this ORDER, the Bank shall have and maintain
Tier 1 capital in such an amount as to equal or exceed eight (8.0)
percent of the Bank's total assets.
(c) The level of Tier 1 capital to be maintained during the life of
this ORDER pursuant to Subparagraph 3(b) 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 as determined at
subsequent examinations and/or visitations.
(d) 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 combination of the above means; or
(v) any other means acceptable to the Regional Director.
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.
(e) 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
of the Bank, 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 Unit, 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 for prior approval.
(f) 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 disclosure 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 disclosure 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(v)
(h) A list of subscribers or holding company shareholders shall be
submitted to the Regional Director to obtain the FDIC's non-objection
of those subscribers or shareholders not otherwise approved in
connection with the formation of the Bank, prior to the increase in
[.4] 4. Within 30 days from the effective date of this ORDER, the Bank shall
increase its allowance for loan and lease losses by $700,000 and
thereafter maintain an adequate allowance for loan and lease losses.
Additionally, within 30 days from the effective date of this
ORDER, the board of directors shall develop or revise, adopt and
implement a comprehensive policy for determining the adequacy of the
allowance for loan and lease losses. For the purpose of this
determination, the adequacy of the reserve 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 reviews should 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 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 as
determined at subsequent examinations and/or visitations.
[.5] 5. (a) Within 60 days from the effective date of this ORDER, the Bank
shall eliminate from its books, by charge-off or collection, one-half
of the assets classified "Doubtful" in the FDIC's Report of
Examination as of June 30, 2004 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
(b) The requirements of subparagraph 5(a) 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 this subparagraph the word "reduce"
(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.
(c) Within 60 days from the effective date of this ORDER, the Bank
shall adopt and implement a written plan for the reduction and
collection of each adversely classified loan listed for Special
Mention. The plan shall be acceptable to the Regional Director as
determined at subsequent examinations.
[.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, 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 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) provisions, consistent with FDIC instructions for the
preparation of Reports of Condition and Income, under which the accrual
of interest income is discontinued and previously accrued interest is
reversed on delinquent loans;
(ii) provisions which prohibit the capitalization of interest or loans
related expense unless the board of directors supports in writing and
records in the minutes of the corresponding board of directors meeting
why an exception thereto is in the best interests of the Bank;
(iii) 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;
(iv) provisions which incorporate limitations on the amount that can be
loaned in relation to established collateral values;
(v) provisions which specify the circumstances and conditions under
which real estate appraisals must be conducted by an independent third
(vi) provisions which establish standards for unsecured credit;
(vii) provisions which establish officer lending limits;
(viii) provisions that require extensions of credit to any of the
Bank's executive officers, directors, or principal shareholders, or to
any related interest of such persons, to be approved in advance by a
majority of the entire board of directors in accordance with section
215.4(b) of Regulation O of the Board of Governors of the Federal
Reserve System, 12 C.F.R. §215.4(b);
(ix) 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;
(x) provisions which establish an accurate internal loan grading system
that ensures the ongoing, timely, grading of credits;
(xi) provisions which establish a frequency of independent external
loan reviews of no less than every six months;
(xii) provisions which address all criticisms/recommendations on pages
13 through 16 of the FDIC's Report of Examination as of June 30, 2004;
(xiii) 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.
[.7] 7. Within 60 days of the effective date of this ORDER, the Bank shall
develop and submit to the Regional Director a written three-year
strategic plan. The plan should 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 must contain supported and documented
assumptions. At a minimum, the following items must be addressed in the
(a) development of a marketing strategy to generate earning assets
which addresses quality, liquidity, and diversification considerations.
(b) provisions for increasing supervision by management and the board
in their oversight of the bank.
(c) measurement criteria to monitor the bank's progress in
meeting the goals and objectives, including key performance ratios.
(d) product line development and market segments that the bank intends
to promote or develop.
The plan shall be in a form and manner acceptable to the Regional
Director as determined at subsequent examinations and/or visitations.
and implement a written profit plan. This plan shall be
forwarded to the Regional Director 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
(ii) realistic and comprehensive budgets;
(iii) a budget review process to monitor the income and expenses of the
Bank to 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
(b) coordination of the Bank's loan, investment, and operating
policies, and budget and profit planning, with the funds management
(c) goals and strategies to control overhead and other expenses and
restore the Bank to profitability. The board shall compare performance
to budgeted goals on a monthly basis, and shall analyze and note each
material variance from the budget. The board minutes shall document
such reviews in the minutes.
[.9] 9. Within 60 days from the effective date of this ORDER, the Bank shall
eliminate and/or correct all violations of law and contraventions of
policy which are more fully set out on pages 24 through 26 of the
FDIC's Report of Examination as of June 30, 2004. In addition, the
Bank shall take all necessary steps to ensure future compliance with
all applicable laws and regulations.
[.10] 10. Within (90) days, from the effective date of this ORDER, the Bank
shall develop or revise, adopt, and implement a written liquidity and
funds management policy. The policy must incorporate recommendations
included in the June 30, 2004 Report of Examination. Such policy and
its implementation shall be in a form and manner acceptable to the
Regional Director as determined at subsequent examinations and/or
[.11] 11. 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 routines and controls
consistent with safe and sound banking practices. The policy shall
provide for a system of internal routines and controls that ensures
compliance with the Bank Secrecy Act, including anti-money laundering
policies and procedures, policies and procedures to detect and report
the structuring of transactions, and Know Your Customer policies and
procedures. Such policy and its implementation shall be in a form and
manner acceptable to the Regional Director as determined at subsequent
examinations and/or visitations.
[.12] 12. During the life of this ORDER, the Bank shall not pay cash
dividends without the prior written consent of the Regional Director.
[.13] 13. Within 90 days from the effective date of this ORDER, the board
shall provide for an effective external and independent internal audit
program that includes, but is not limited to the following:
(a) Regular Audit Committee meetings of adequate frequency, but in
no event less than once each calendar quarter.
(b) Audit practices that are consistent with generally accepted
(c) Completion of an internal audit plan each calendar year that is
reviewed and approved by the audit committee of the Board.
(d) Provisions that ensure the adequacy of the scope and independence
of internal audits.
(e) Annual risk assessments to ensure that internal audits of critical
or high-risk areas are performed with reasonable frequency.
(f) Assignment of ratings or expression of opinion as to the adequacy,
effectiveness, and efficiency of the internal control environment of
each function reviewed in each internal audit report.
(g) Submission of formal written internal audit reports to the audit
committee of the Board.
(h) Provisions for management to respond to audit findings and
implementation of corrective actions.
(i) Provisions for an adequate formal tracking and monitoring system
for exceptions identified at internal audits or external audits and
(j) Provisions to ensure adequate audit coverage in all areas.
The audit program shall be implemented and maintained in a manner
that is acceptable to the Regional Director as determined at subsequent
[.14] 14. Within 60 days from the effective date of this ORDER, the
Board shall correct all deficiencies and address all recommendations
noted in pages 27 through 33 of the June 30, 2004 Report of Examination
regarding the Information Technology function.
[.15] 15. Within 60 days from the effective date of this ORDER, the Board
shall develop, revise, adopt and implement appropriate policies,
procedures, and practices to measure, monitor and control the bank's
sensitivity to market risk as described in the June 30, 2004 Report.
The policies shall include an interest rate risk measurement system
that meets the minimum regulatory requirements as described in the June
26, 1996, Joint Agency Policy Statement on Interest Rate Risk. The
policies, procedures, and practices shall be acceptable to the Regional
Director as determined as subsequent examinations or visitations.
[.16] 16. 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, Accounting and Securities Section, 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.
[.17] 17. 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 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 has released the Bank in writing
from making further reports.
This ORDER shall become effective ten (10) days from the date of
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 8th day of March, 2004.