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[¶12,121] In the Matter of Western State
Bank, Duarte, California, Docket No.
03-200b (11-7-03).
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] Violations of LawCorrections of Violations Required
[.3] Funds Management and LiquidityPreparation or Revision of Funds Management Policy Required
[.4] Investments and Investment PolicyInvestment PolicyPreparation or Revision Required
[.5] Bank Secrecy ActCompliance
[.6] Suspicious Activity ReportImplement Policy
[.7] ShareholdersDisclosure of Cease and Desist Order Required
[.8] Progress ReportWritten Report Required
In the Matter of
WESTERN STATE BANK
DUARTE, CALIFORNIA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-03-200b
Western State Bank, Duarte, 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 November 5, 2003, 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:
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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 in violation of section 323.3 of the FDIC's Rules and
Regulations, 12 C.F.R. §323.3, as more fully described on page 45 of
the Report of Examination as of March 17, 2003; operating in violation
of section 323.4 of the FDIC's Rules and Regulations, 12 C.F.R.
§323.4, as more fully described on pages 45 through 46 of the Report
of Examination as of March 17, 2003; operating in violation of section
323.5 of the FDIC's Rules and Regulations, 12 C.F.R. §323.5, as
more fully described on pages 46 through 47 of the Report of
Examination as of March 17, 2003; operating in violation of 31 C.F.R.
§103.21(a)(2)(ii) as more fully described on page 47 of the Report
of Examination as of March 17, 2003, operating in violation of 31
C.F.R. §103.22(c)(2) as more fully described on pages 47 through 48
of the Report of Examination as of March 17, 2003; and operating in
contravention of Interagency guidelines and policy statements as more
fully described on pages 48 through 54 of the Report of Examination as
of March 17, 2003;
(d) operating with inadequate provisions for liquidity;
(e) operating with inadequate internal routine and controls policies;
and
(f) operating in such a manner as to produce operating losses.
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 including a
chief financial officer.
(a) The chief financial officer shall have proven ability and
experience in that role in the financial services industry in the
United States of America in an institution of comparable size;
(b) The chief financial officer shall have demonstrated ability in
areas including, but not limited to, accounting, regulatory reporting,
budgeting and planning, management of the investment function,
liquidity management, and interest rate risk management; and
(c) During the life of this ORDER, the Bank shall notify the Regional
Director of the FDIC's San Francisco Regional Office ("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.
[.2] 2. Within 90 days from the effective date of this ORDER, the Bank shall
eliminate and/or correct all violations of law and contraventions of
interagency guidelines and policy statements which are more fully set
out on pages 45 through 54 in the FDIC's Report of Examination as of
March 17, 2003. In addition, the Bank shall take all necessary steps to
ensure future compliance with all applicable laws, regulations and
applicable guidelines and policy statements.
[.3] 3. Within 60 days from the effective date of this ORDER, the bank shall
develop or revise, adopt, and implement a written liquidity and funds
management policy. 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. At a minimum such
corrective means shall include:
(a) Obtaining training on liquidity management for the Board of
Directors, sufficient to be able to understand and discuss the results
of the bank's liquidity monitoring reports;
(b) Documenting the Board's discussions of liquidity issues in meeting
minutes;
(c) Management will take action to ensure that the institution remains
within Board-approved liquidity parameters;
(d) Management will report all Liquidity Policy exceptions to the
Board, and the
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Board will review any exception(s) to policy parameters
and note whether it approves of the exception(s);
(e) Management will initiate analysis of projected sources and uses of
funds for near term time periods to facilitate funding with cost
efficient, less volatile funding sources;
(f) The Board will establish limits on the volume of deposits obtained
from out of its market area, through Internet posting or solicitation,
and other deposits obtained at rates higher than those prevailing in
its local marketplace;
(g) Management shall establish and implement a policy whereby all
deposit pricing decisions shall be documented in writing;
(h) Management shall develop and implement a liquidity contingency
plan; and
(i) The Board shall have a periodic independent review of the
bank's liquidity management process and compliance with policies and
procedures performed. Such review shall be in a form and manner
acceptable to the Regional Director as determined at subsequent
examinations and/or visitations. The first such reviews will occur
within 90 days of the effective date of this Order, and a copy of the
review will be provided to the Regional Director within 7 days of
receipt by the Board.
[.4] 4. Within 45 days of the effective date of this ORDER the Bank shall
revise the institution's Investment Policy to address the deficiencies
described in the March 17, 2003 Joint Report of Examination on page 41.
At a minimum, such policy shall address providing guidance on internal
controls, audit/independent review, and due diligence required on
brokers. 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.
[.5] 5. Within 60 days from
the effective date of this ORDER, the Bank shall implement the following
regarding Bank Secrecy Act compliance:
(a) The Board shall establish and implement systems and controls to
ensure that all required and appropriate Suspicious Activity Reports
are filed within the time frames specified in the Treasury
Department's financial recordkeeping regulations; and
(b) The Board shall establish and implement systems and controls to
ensure that all required and appropriate Currency Transaction Reports
are filed within the time frames specified in the Treasury
Department's financial recordkeeping regulations.
[.6] 6. Within 60 days from the effective date of this ORDER, the Bank shall
establish and implement policies and procedures to advise the Bank's
Board of Directors of significant Suspicious Activity Reports. At a
minimum, the Board of Directors shall be advised in detail of all
Suspicious Activity Reports involving employees, contractors, officers
and directors. The policies and procedures shall also include
guidelines to determine what Suspicious Activity Reports are
significant.
[.7] 7. 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.
[.8] 8. 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, Department of
Financial Institutions for the State of California 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.
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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 7th day of November, 2003.