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FDIC Enforcement Decisions and Orders
A cease and desist order was issued, based on findings by the FDIC that it had reason to believe that Respondent was engaged in unsafe and unsound practices.
[.1] ManagementQualifications Specified
[.2] Board of DirectorsIncreased Participation in Bank Affairs Required
[.3] CapitalTier 1 Capital Increase/Maintain
[.4] Loan Loss ReserveEstablishment of or Increase in Required
[.6] Loan PolicyPreparation or Revision of Policy Required
[.7] Strategic PlanPreparation of Required
[.8] Profit PlanPreparation of Plan Required
[.9] Violations of LawCorrections of Violations Required
[.10] Funds Management and LiquidityPreparation or Revision of Funds Management Policy Required
[.11] Bank OperationsInternal Review and Control ProceduresEstablish
[.12] DividendsDividends Restricted
[.13] AuditProgram Required
[.14] Bank OperationsOperating Deficiencies, Correction Required
[.15] Market RiskPlan to Monitor Risk Required
[.16] ShareholdersDisclosure of Cease and Desist Order Required
[.17] Progress ReportWritten Report Required
In the Matter of
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 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 law and/or regulation:
(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 Bank;
(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; and
(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 follows:
[.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 this ORDER.
(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 ORDER.
(c) 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, 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 subsequent examinations.
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 directors.
(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) and 325.2(x).
(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 capital.
[.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 this paragraph.
(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" 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.
(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 party;
(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; and
(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 plan;
(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 performance;
(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 components.
(b) coordination of the Bank's loan, investment, and operating policies, and budget and profit planning, with the funds management policy.
(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 visitations.
[.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 auditing standards.
(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 regulatory examinations.
(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 examinations.
[.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 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 8th day of March, 2004.
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