ex10-2.htm


    


    FEDERAL
DEPOSIT INSURANCE CORPORATION

    


    WASHINGTON,
D.C.

    


    CALIFORNIA
DEPARTMENT OF FINANCIAL INSTITUTIONS

    


    SAN
FRANCISCO, CALIFORNIA

    


    
      	 
      	 
      	 
      	 
      
	 
      	
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              IN
      THE MATTER OF

            	
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              ORDER
      TO

            
	
              IMPERIAL
      CAPITAL BANK

            	
              )

            	 
      	
              CEASE
      AND DESIST

            
	
              LA
      JOLLA, CALIFORNIA

            	
              )

            	 
      	 
      
	 
      	
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              Docket
      FDIC-08-392b

            
	
              (INSURED
      STATE NONMEMBER BANK)

            	
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              )

            	 
      	 
      


    

    


    


    Imperial Capital Bank, La Jolla,
California ("Bank"), having been advised of its right to a NOTICE OF CHARGES AND
OF HEARING detailing the unsafe or unsound banking practices 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 Section 1912 of the California Financial Code, 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"), and with counsel for the California Department
of Financial Institutions (“CDFI”), dated February 12, 2009, whereby solely for
the purpose of this proceeding and without admitting or denying the alleged
charges of unsafe or unsound banking practices, the Bank consented to the
issuance of an ORDER TO CEASE AND DESIST ("ORDER") by the FDIC and the
CDFI.

     

    
      
        
        

      

      
        
        

        
        

      

      
        
        

      

    

     

    
-2-

     

    The FDIC and the CDFI considered the
matter and determined that they had reason to believe that the Bank had engaged
in unsafe or unsound banking practices.  The FDIC and the CDFI,
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, as more fully set forth
in the Joint FDIC and CDFI Report of Examination (“Joint ROE”) dated October 29,
2008:

    (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)           operating
with a large volume of poor quality loans;

    (f)           operating
in such a manner as to produce low earnings; and

    (g)           operating
with inadequate provisions for liquidity.

    IT IS FURTHER ORDERED, that the Bank,
its institution-affiliated parties, and its successors and assigns, take
affirmative action as follows:

    
      
        
        

      

      
        
        

        
        

      

      
        
        

      

    


    -3-

    1.           The
Bank shall have and retain qualified management.

    (a)           Each
member of management shall have qualifications and experience commensurate with
his or her duties and responsibilities at the Bank.  Management shall
include a chief executive officer with proven ability in managing a bank of
comparable size, and experience in upgrading a low quality loan portfolio,
improving earnings, and other matters needing particular
attention.  Management shall also include a senior lending officer
with significant appropriate lending, collection, and loan supervision
experience and experience in upgrading a low quality loan
portfolio.  Each member of management shall be provided appropriate
written authority from the Bank's Board to implement the provisions of this
ORDER.

    (b)           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 CDFI
Commissioner ("Commissioner") in writing when it proposes to add any individual
to the Bank's Board 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.           (a)           Within
30 days from the effective date of this ORDER, the Bank’s Board 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

    
      
        
        

      

      
        
        

        
        

      

      
        
        

      

    


    -4-

    expenses;
new, overdue, renewal, insider, charged-off, and recovered loans; investment
activity; operating policies; and individual committee actions.  The
Bank’s Board minutes shall document these reviews and approvals, including the
names of any dissenting directors.

    3.           (a)           Within
180 days from the effective date of this ORDER, the Bank shall increase the
Bank’s Tier 1 Leverage Capital ratio above nine percent and the Bank’s Total
Risk-Based Capital ratio above thirteen percent.  These ratios shall
be maintained above these levels throughout the life of this ORDER.

    (b)           Within
60 days from the effective date of this ORDER, the Bank shall develop and adopt
a plan to meet and thereafter maintain the minimum risk-based capital
requirements as described in the FDIC’s Statement of Policy on Risk-Based
Capital contained in Appendix A to Part 325 of the FDIC’s Rules and Regulations,
12 C.F.R. Part 325, Appendix A.  The Plan shall be in a form and
manner acceptable to the Regional Director and the Commissioner as determined at
subsequent examinations.

    (c)           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, the adequacy of which shall be satisfactory to the Regional
Director and the Commissioner as determined at subsequent examinations and/or
visitations.

    (d)           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’s Rules and
Regulations, 12 C.F.R. §§ 325.2(v) and 325.2(x).

    
      
        
        

      

      
        
        

        
        

      

      
        
        

      

    


    -5-

    4.           Within
60 days from the effective date of this ORDER, the Bank shall develop, adopt,
and implement a comprehensive policy for determining the appropriateness of the
allowance of loan and lease losses.  The policy shall include
requirements for complying with the standards and guidelines in the 2001 Policy
Statement on the Allowance for Loan and Lease Loss Methodology and Documentation
for Banks and Savings and Loans dated July 2, 2001, and the Interagency Policy
Statement on the Allowance for Loan and Lease Losses dated December 13,
2006.

    5.           Within
60 days from the effective date of this ORDER, the Bank shall develop a written
plan, approved by its Board and acceptable to the Regional Director and the
Commissioner for systematically reducing the amount of loans or other extensions
of credit advanced, directly or indirectly, to or for the benefit of, any
borrowers in the “CRE” Concentrations.

    6.           Within
60 days of the effective date of this ORDER, the Bank shall develop and submit
to the Regional Director and the Commissioner a written three-year strategic
plan.  Such plan shall include specific goals for the dollar volume of
total loans, total investment securities, and total deposits as of January 1,
2009 through December 31, 2011.  For each time frame, the plan will
also 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 shall be in a form and
manner acceptable to the Regional Director and the Commissioner as determined at
subsequent examinations and/or visitations.

    
      
        
        

      

      
        
        

        
        

      

      
        
        

      

    

     

    -6-

    7.           Within
60 days from the effective date of this ORDER, the Bank shall formulate and
implement a written profit plan.  This plan shall be forwarded to the
Regional Director and the Commissioner 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 Bank’s Board 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.

     

    8.           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.  Such 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.

    9.           During
the life of this ORDER, the Bank shall not pay cash dividends without the prior
written consent of the Regional Director and the Commissioner.

    
      
        
        

      

      
        
        

        
        

      

      
        
        

      

    

     

    -7-

    10.           During
the life of this ORDER, the Bank shall not establish any new branches or other
offices of the Bank without the prior written consent of the Regional Director
and the Commissioner.

    11.           Within
30 days of the effective date of this ORDER, the Bank shall submit to the
Regional Director and the Commissioner a written plan for eliminating its
reliance on brokered deposits.  The plan should contain details as to
the current composition of brokered deposits by maturity and explain the means
by which such deposits will be paid or rolled over.  The Regional
Director and the Commissioner shall have the right to reject the Bank's
plan.  On the 10 and 25 days of each month, the Bank shall provide a
written progress report to the Regional Director and the Commissioner detailing
the level, source, and use of brokered deposits with specific reference to
progress under the Bank's plan.  For purposes of this ORDER, brokered
deposits are defined as described in section 337.6(a)(2) of the FDIC’s Rules and
Regulations to include any deposits funded by third party agents or nominees for
depositors, including deposits managed by a trustee or custodian when each
individual beneficial interest is entitled to or asserts a right to federal
deposit insurance.

    12.           Within
30 days of the end of the first quarter, following the effective date of this
ORDER, and within 30 days of the end of each quarter thereafter, the Bank shall
furnish written progress reports to the Regional Director and the Commissioner
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.

     

    
      
        
        

      

      
        
        

        
        

      

      
        
        

      

    

     

    -8-

    13.           Following
the effective date of this ORDER, the Bank shall send to its shareholder(s) 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 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.

    This ORDER will become effective upon
its issuance by the FDIC and the CDFI.  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 and the CDFI.

    Pursuant to delegated
authority.

    Dated at San Francisco, California,
this 17th day of February, 2009.

    


    
      	
              /s/ J. George Doerr, for

            	 
      	
              /s/ William S. Haraf

            	 
      
	
              Stan
      Ivie

            	 
      	
              William
      S. Haraf

            	 
      
	
              Regional
      Director

            	 
      	
              Commissioner

            	 
      
	
              Division
      of Supervision and Consumer Protection

            	 
      	
              California
      Department of Financial

            	 
      
	
              San
      Francisco Region

            	 
      	
              Institutions

            	 
      
	
              Federal
      Deposit Insurance Corporation