Exhibit 10.3
 
UNITED STATES OF AMERICA
Before the
OFFICE OF THRIFT SUPERVISION
 

 

      In the Matter of   )  Order No.: WN-10-032    )      )    ALASKA PACIFIC
BANCSHARES, INC. )  Effective Date: September 28, 2010    )    Juneau, Alaska 
)    OTS Docket No. H3440  )         

 
 
ORDER TO CEASE AND DESIST
 
WHEREAS, Alaska Pacific Bancshares, Inc., Juneau, Alaska, OTS Docket No. H3440
(Holding Company), by and through its Board of Directors (Board), has executed a
Stipulation and Consent to the Issuance of an Order to Cease and Desist
(Stipulation); and
WHEREAS, the Holding Company, by executing the Stipulation, has consented and
agreed to the issuance of this Order to Cease and Desist (Order) by the Office
of Thrift Supervision (OTS) pursuant to 12 U.S.C. § 1818(b); and
WHEREAS, pursuant to delegated authority, the OTS Regional Director for the
Western Region (Regional Director) is authorized to issue Orders to Cease and
Desist where a savings and loan holding company has consented to the issuance of
an order.
 
NOW, THEREFORE, IT IS ORDERED that:
 
Cease and Desist.
 
1.     The Holding Company and its directors, officers, employees, and agents
shall cease and desist from any action (alone or with another or others) for or
toward causing, bringing about, participating in, counseling or the aiding and
abetting of unsafe or unsound practices that
 
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resulted in deteriorating asset quality, ineffective risk management practices,
inadequate internal controls, and inadequate oversight and supervision at its
wholly owned subsidiary, Alaska Pacific Bank, Juneau, Alaska, OTS Docket No.
04202 (Association).
 
Capital.
 
2.     By October 29, 2010, the Holding Company shall submit a consolidated
capital plan to preserve and enhance the capital of the Holding Company and the
Association (Capital Plan) that is acceptable to the Regional Director. At a
minimum, the Capital Plan shall:
 
(a)    consider the requirements and restrictions imposed by this Order and the
Order to
 
Cease and Desist issued by the OTS against the Association, dated September 28,
2010; and
 
(b)    detail how the Association shall meet and maintain a Tier 1 (Core)
Capital ratio equal to or greater than eight percent (8%) after the funding of
an adequate Allowance for Loan and Lease Losses (ALLL) and a Total Risk-Based
Capital ratio equal to or greater than twelve percent (12%), including a
specific description of the method(s) by which additional capital will be
raised, if necessary, and an identification of the sources of such capital.
 
3.     Upon receipt of written notification from the Regional Director that the
Capital Plan is acceptable, the Holding Company shall implement and comply with
the Capital Plan. Within five (5) days of the Board meeting at which it was
adopted, the Holding Company shall provide a copy of the Capital Plan to the
Regional Director.
 
Operations Plan.
 
4.     Within sixty (60) days, the Holding Company shall submit to the Regional
Director for review and comment an Operations Plan that addresses how Holding
Company will meet all financial obligations from the present through 2013,
including, but not limited to, payments in
 
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connection with capital raised through the Troubled Asset Relief Program,
without reliance on dividends from the Association. The Operations Plan shall
include, at a minimum, comprehensive pro forma cash flow projections detailing
all anticipated sources and uses of funds, including, but not limited to, any
scheduled payment obligations of Holding Company related to outstanding debt,
operating expenses, and equity issuances, and a timetable for the repayment or
redemption of the investment in Holding Company made through the Capital
Purchase Program.
5.  Upon written notification from the Regional Director that the Operations
Plan is acceptable, the Holding Company shall implement and adhere to the
Operations Plan. Within five (5) days of the Board meeting at which it was
adopted, the Holding Company shall provide a copy of the Operations Plan to the
Regional Director.
6.  Any request to modify the Operations Plan shall be submitted to Regional
Director for review and written non-objection at least thirty (30) days prior to
the proposed date to implement any such modification.
7.  On a quarterly basis, beginning with the quarter ending December 31, 2010,
the Board shall review a report detailing the adequacy of the Operations Plan
given the projected financial obligations of the Holding Company and actual
operating results, including a detailed description of any deviations from the
Operations Plan and a description of the corrective actions or measures that
have been implemented or are proposed to address each deviation (Variance
Analysis Report).
8.  Within forty-five (45) days after the end of each quarter, beginning with
the quarter ending December 31, 2010, the Holding Company shall provide the
Regional Director with a copy of each Variance Analysis Report, and the minutes
from the Board meeting containing the

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Board’s discussion of the Variance Analysis Report, including, if applicable,
any Board discussion of possible modifications to the Operations Plan.
Capital Distributions and Stock Repurchases.
 
9.  Effective immediately, the Holding Company shall not declare, make, or pay
any dividends or other capital distributions, or repurchase or redeem any
capital stock without receiving the prior written non-objection of the Regional
Director. The Holding Company’s written request for such non-objection shall be
submitted to the Regional Director at least thirty (30) days prior to the
anticipated date of the proposed dividend payment, capital distribution or stock
redemption.
10.  Effective immediately, the Holding Company shall not take, directly or
indirectly, dividends or any other form of payment representing a reduction in
the Association’s capital from the Association without receiving the prior
written non-objection of the Regional Director. The Holding Company’s written
request for such non-objection shall be submitted to the Regional Director at
least thirty (30) days prior to the anticipated date of the proposed dividend
payment or capital distribution.
Thrift Oversight.
11.  Effective immediately, the Holding Company shall ensure the Association’s
compliance with applicable laws, rules and regulations and all terms and
conditions of the Order to Cease and Desist issued by the OTS against the
Association, dated September 28, 2010.
Debt Limitations/Restrictions.
12.  Effective immediately, the Holding Company shall not incur, issue, renew,
repurchase, or rollover any debt, increase any current lines of credit, or
guarantee the debt of any entity without receiving the prior written notice of
non-objection of the Regional Director. The Holding

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Company’s written request for such non-objection shall be submitted to the
Regional Director at least thirty (30) days prior to the anticipated date of any
such proposed action.
 
Payment Limitations/Restrictions.
13.  Effective immediately, the Holding Company shall make no payments
(including but not limited to principal, interest, or fees of any kind) on any
existing debt without receiving the prior written non-objection of the Regional
Director. The Holding Company’s written request for such non-objection shall be
submitted to the Regional Director at least thirty (30) days prior to the
anticipated date of any such proposed payment.
Directorate and Management Changes.
14.  Effective immediately, the Holding Company shall comply with the prior
notification requirements for changes in directors and Senior Executive
Officers1 as set forth in 12 C.F.R. Part 563, Subpart H.
Employment Contracts/Compensation Arrangements.
15.  Effective immediately, the Holding Company shall not enter into, renew,
extend, or revise any contractual arrangement relating to compensation or
benefits for any Senior Executive Officer or Director of the Holding Company,
unless it first provides the Regional Director with not less than thirty (30)
days prior written notice of the proposed transaction. The notice to the
Regional Director shall include a copy of the proposed employment contract or
compensation arrangement, or a detailed written description of the compensation
arrangement to be offered such Officer or Director, including all benefits and
perquisites. The Board shall ensure that any contract, agreement, or arrangement
submitted to the Regional Director fully complies with the requirements of 12
C.F.R. Part 359.
______________
1 The term “Senior Executive Officer” is defined at 12 C.F.R. § 563.555.

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Severance and Indemnification Payments.
16.  Effective immediately, the Holding Company shall not make any golden
parachute payment2 or prohibited indemnification payment3 unless, with respect
to each such payment, the Holding Company has complied with the requirements of
12 C.F.R. Part 359.
Effective Date, Incorporation of Stipulation.
17.  This Order is effective on the Effective Date as shown on the first page.
The Stipulation is made a part hereof and is incorporated herein by this
reference.
Duration.
18.  This Order shall remain in effect until terminated, modified, or suspended
by written notice of such action by the OTS, acting by and through its
authorized representatives.
Time Calculations.
19.  Calculation of time limitations for compliance with the terms of this Order
run from the Effective Date and shall be based on calendar days, unless
otherwise noted.
20.  The Regional Director, or an OTS authorized representative, may extend any
of the deadlines set forth in the provisions of this Order upon written request
by the Holding Company that includes reasons in support for any such extension.
Any OTS extension shall be made in writing.
Submissions and Notices.
21.  All submissions, including any reports, to the OTS that are required by or
contemplated by this Order shall be submitted within the specified timeframes.
22.  Except as otherwise provided herein, all submissions, requests,
communications, consents or other documents relating to this Order shall be in
writing and sent by first-class U.S.
 
______________
2 The term “golden parachute payment” is defined at 12 C.F.R. § 359.1(f).
3 The term “prohibited indemnification payment” is defined at 12 C.F.R. §
359.1(l).

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mail (or by reputable overnight carrier, electronic facsimile transmission or
hand delivery by messenger) addressed as follows:
 
(a)            
To the OTS:

Philip A. Gerbick, Regional Director
Attn: Dale R. Blackburn, Assistant Director
Office of Thrift Supervision, Western Region
101 Stewart Street, Suite 1010
Seattle, WA 98101-2419
Facsimile: (206) 829-2620
 
(b)            
To the Holding Company:  
William A. Corbus, Chairman
Alaska Pacific Bancshares, Inc. 
2094 Jordan Avenue
Juneau, AK 99801-8046

 
No Violations Authorized.
23.     Nothing in this Order or the Stipulation shall be construed as allowing
the Holding Company, its Board, officers, or employees to violate any law, rule,
or regulation.
IT IS SO ORDERED.
 
OFFICE OF THRIFT SUPERVISION
 
By: /s/Philip A. Gerbick                                             
                                                              
Philip A. Gerbick
Regional Director, Western Region
 
Date: See Effective Date on page 1
 
 
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