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   [10,213] In the Matter of Utah Financial Services d.b.a. Utah Financial Thrift, Salt Lake City, Utah, Docket No. FDIC-91-28b (4-5-91).

   Thrift to cease and desist from operating with inadequate management; operating with inadequate capital; operating with a large volume of poor quality loans; operating with an inadequate loan valuation reserve; following hazardous lending and lax collection practices; operating with inadequate provisions for {{6-30-91 p.C-959}}liquidity and funds management; engaging in practices which produce long term operating losses; and engaging in violations of applicable laws and regulations.

   [.1] Management—Qualifications—Review
   [.2] Capital—Increase/Maintain—Methods
   [.3] Assets—Adversely Classified—Reduce/Eliminate
   [.4] Loans—Extensions of Credit—Existing Borrowers—Limits
   [.5] Loan Policy—Written Revision—Minimum Requirements—Review
   [.6] Loan Loss Reserve—Establish/Maintain
   [.7] Profit Plan—Written Plan Required
   [.8] Violations—Eliminate/Correct
   [.9] Liquidity and Funds Management—Written Policy Required
   [.10] Brokered Deposits—Reduction Required
   [.11] Reports of Condition and Income—Amendment Required
   [.12] Dividends—Restricted
   [.13] Strategic Plan—Preparation Required
   [.14] Compliance—Progress Reports—Frequency

In the Matter of

UTAH FINANCIAL SERVICES d.b.a. UTAH FINANCIAL THRIFT
SALT LAKE CITY, UTAH
(Insured State Nonmember Thrift)
ORDER TO CEASE AND DESIST

   The Federal Deposit Insurance Corporation ("FDIC"), on January 31, 1991, issued to Utah Financial Services d.b.a. Utah Financial Thrift, Salt Lake City, Utah, ("Thrift") a NOTICE OF CHARGES AND OF HEARING ("NOTICE"), pursuant to section 8(b)(1) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1818(b)(1). The NOTICE charges the Thrift with having engaged in unsafe or unsound banking practices and a violation of law or regulation.
   The insured institution and counsel for the FDIC thereafter executed a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT"), dated March 29, 1991, whereby, solely for the purpose of this proceeding and without admitting or denying the allegations in the NOTICE, the Thrift 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 Thrift had engaged in unsafe or unsound banking practices. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

ORDER TO CEASE AND DESIST

   IT IS HEREBY ORDERED that the Thrift, and any institution-affiliated party as such term is defined in section 3(u) of the Act, 12 U.S.C. 1813(u), cease and desist from the following unsafe or unsound banking practices and violations:

       (a) operating with inadequate management;
       (b) operating without appropriate policies to provide for adequate equity capital and reserves in relation to the volume and quality of assets held by the Thrift;
       (c) operating with a large volume of poor quality loans;
       (d) operating with an inadequate loan valuation reserve;
       (e) following hazardous lending and lax collection practices;
       (f) operating with inadequate provisions for liquidity and funds management;
       (g) operating in such a manner as to produce sustained significant long term operating losses; and
       (h) operating in violation of Utah Departmental Rule R343-001.
   IT IS FURTHER ORDERED that the Thrift take affirmative action as follows:

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   [.1] 1. The Thrift 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 Thrift. Management should include a chief executive officer with proven ability in managing a Thrift of comparable size, and experience in upgrading a low quality loan portfolio, improving earnings, and other matters needing particular attention. Management should also include or have access to and receive the advice of (by way of a consulting arrangement or otherwise) either a senior lending officer or experienced consultant with significant appropriate lending, collection, and loan supervision experience and experience upgrading a low quality loan portfolio. Each member of management shall be provided appropriate written authority from the Thrift's board of directors to implement the provisions of this ORDER.
       (b) The qualifications of management shall be assessed on its ability to:
         (i) cause the Thrift to comply with the requirements of this ORDER;
         (ii) operate the Thrift in a safe and sound manner;
         (iii) operate the Thrift in accordance with applicable laws and regulations; and
         (iv) restore all aspects of the Thrift to a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness, and liquidity.
       (c) During the life of this ORDER, the Thrift 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 Thrift'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.
       (d) The Thrift may not add any individual to its board of directors or employ any individual as a senior executive officer if the Regional Director issues a notice of disapproval pursuant to section 32 of the Act, 12 U.S.C. § 1831i.

   [.2] 2. (a) During the life of this ORDER, the Thrift shall maintain adjusted primary capital in such an amount as to equal or exceed eight (8.0) percent of the Thrift's adjusted Part 325 total assets. Primary capital and Part 325 total assets utilized shall be calculated in accordance with prevailing instructions for the preparation of Reports of Condition. The computation of adjusted primary capital and the ratio of adjusted primary capital to adjusted Part 325 total assets shall be determined by using the procedures outlined in the "Analysis of Capital" schedule in the FDIC Report of Examination.
   (b) Any increase in primary capital necessary to meet the requirements of Paragraph 2 of this ORDER may be accomplished by the following:
       (i) the sale of common stock; or
       (ii) the sale of perpetual preferred stock; or
       (iii) the direct contribution of cash by the board of directors, shareholders, and/ or parent holding company; or
       (iv) the collection of assets previously charged off; or
       (v) the reduction of the "Loss" assets specified in Paragraph 3 of this ORDER without loss or liability to the Thrift; or
       (vi) any other means reasonably acceptable to the Regional Director; or
       (vii) any combination of the above means.
   (c) If all or part of the increase in primary capital required by Paragraph 2 of this ORDER is to be accomplished by the sale of new securities, 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 Thrift's securities (other than a distribution limited only to any of the Thrift's existing four shareholders), the Thrift shall prepare offering materials fully describing the securities being offered, including an accurate description of the financial condition of the Thrift and the circumstances giving rise to the offering, and {{6-30-91 p.C-961}}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 Section, Washington, D.C. 20429, for review. Any changes reasonably requested to be made in the plan or materials by the FDIC shall be made prior to their dissemination. If the increase in primary capital is provided by the sale of 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 immediate review and prior approval which shall not unreasonably be withheld.
   (d) In complying with the provisions of Paragraph 2 of this ORDER, the Thrift shall provide to any potential subscriber and/or potential purchaser of the Thrift's securities written notice of any planned or existing development or other changes that occur prior to purchase which are materially different from the information reflected in any offering materials used in connection with the sale of Thrift securities. The written notice 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 potential subscriber and/ or potential purchaser of the Thrift's securities who received or was tendered the information contained in the Thrift's original offering materials.
   (e) For the purposes of this ORDER, the terms "primary 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(h) and 325.2(k).

   [.3] 3. (a) Within 10 days from the effective date of this ORDER, the Thrift shall eliminate from its books, by charge-off or collection, all assets classified "Loss" as of July 31, 1990, that have not been previously collected or charged off. Elimination of these assets through proceeds of other loans made by the Thrift is not considered collection for the purpose of this paragraph.
   (b) Within 120 days from the effective date of this ORDER, the Thrift shall have reduced the assets classified "Substandard" as of July 31, 1990 that have not previously been reduced to not more than $200,000.
   (c) Within 180 days from the effective date of this ORDER, the Thrift shall have reduced the assets classified "Substandard" as of July 31, 1990 that have not previously been reduced to not more than $150,000.
   (d) The requirements of subparagraphs 3(a), 3(b), and 3(c) of this ORDER are not to be construed as standards for future operations and, in addition to the foregoing, the Thrift shall eventually reduce the percentage of all adversely classified assets. Reduction of these assets through proceeds of other loans made by the Thrift is not considered collection for the purpose of this paragraph. As used in subparagraphs 3(b), 3(c), and 3(d) 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.

   [.4] 4. During the life of this ORDER, the Thrift shall not voluntarily extend, directly or indirectly, any additional credit to, or for the benefit of, any borrower who has a loan or other extension of credit from the Thrift that has been charged off or classified, in whole or in part, "Loss" or "Substandard" and is uncollected. The requirements of this paragraph shall not prohibit the Thrift from renewing (after collection in cash of interest due from the borrower) any credit already extended to any borrower.

   [.5] 5. (a) Within 60 days from the effective date of this ORDER, the Thrift shall revise, adopt, and commence implementation of written lending and collection policies to provide effective guidance and control over the Thrift's lending function, which policies shall include specific guidelines for placing loans on a non-accrual basis. In addition, the Thrift shall make all reasonable attempts to obtain adequate and current documentation for all loans in {{6-30-91 p.C-962}}the Thrift's loan portfolio. Such policies and their implementation shall be in a form and manner reasonably acceptable to the Regional Director as determined at subsequent examinations and/or visitations.
   (b) The initial revisions to the Thrift'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 on certain loans discontinued and previously accrued interest is, to the extent not already reduced as required by this ORDER, reversed on such 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 Thrift;
       (iii) provisions which require complete loan 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 for secured loans where the general credit standing of the borrower is not sufficient to justify the making of an unsecured loan.
       (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 Thrift'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 the issuance of standby letters of credit unless the letters of credit are fully secured by readily marketable collateral and/or are supported by current and complete financial information;
       (x) provisions that require the lending staff to have the expertise necessary to properly supervise construction loans and that adequate procedures are in place to monitor any construction involved before funds are disbursed on such loans;
       (xi) provisions which prohibit concentrations of credit in excess of 25 percent of the Thrift's total equity capital and reserves to any borrower and that borrower's related interests;
       (xii) provisions which require the preparation of a loan "watch list" which shall include relevant information on all loans in excess of $10,000 per loan which are classified "Substandard" as of July 31, 1990 or by the FDIC or State in subsequent Reports of Examination and all other loans in excess of $10,000 per loan which warrant individual review and consideration by the board of directors as determined by the loan committee or active management. The loan "watch list" shall be presented to the board of directors for review at least monthly with such review noted in the minutes; and
       (xiii) procedures whereby officer compliance with the revised loans 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 by telephone or otherwise and the vote of each is noted.

   [.6] 6. Within 10 days from the effective date of this ORDER, the Thrift shall establish and thereafter maintain an adequate reserve for loan losses. Such reserve shall be established by charges to current operating income, collection of assets previously charged off or a combination of the two. In complying with the provisions of this paragraph, the board of directors shall review the adequacy of the Thrift's reserve for loan {{7-31-93 p.C-963}}losses prior to the end of each quarter. The minutes of the board of directors meeting at which such review is undertaken shall indicate the results of the review, the amount of any increase in the reserve, and the basis for determination of the amount of the reserve provided.

   [.7] 7. Within 60 days from the effective date of this ORDER, the Thrift shall formulate and commence implementation of a written plan to return the Thrift to long term profitability. 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 Thrift, including:
         (i) an identification of the major areas in, and means by which, the Thrift's operating performance can be improved;
         (ii) establishing and monitoring realistic and comprehensive budgets;
         (iii) a budget review process to monitor the income and expenses of the Thrift 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 Thrift's loan, investment, and operating policies, and budget and profit planning, with the funds management policy.

   [.8] 8. Within 60 days from the effective date of this ORDER, the Thrift shall eliminate and/or correct the violation of law which is more fully set out on page 6-a of the Report of Examination of the Thrift as of July 31, 1990. In addition, the Thrift shall take steps to ensure future compliance with all applicable laws and regulations.

   [.9] 9. Within 60 days from the effective date of this ORDER, the Thrift shall develop or revise, adopt, and commence implementation of a written liquidity and funds management policy. Such policy and its implementation shall be in a form and manner reasonably acceptable to the Regional Director as determined at subsequent examinations and/or visitations.

   [.10] 10. Upon the effective date of this ORDER, the Thrift shall not increase the amount of brokered deposits above the amount outstanding on that date. Within ten (10) days of the effective date of this ORDER, the Thrift shall submit to the Regional Director 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 shall have the right to reject the Thrift's plan, which right shall not be unreasonably exercised. On the tenth day of each month, the Thrift shall provide a written progress report to the Regional Director detailing the level, source, and use of brokered deposits with specific reference to progress under the Thrift's plan. For purposes of this ORDER, brokered deposits are defined 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.

   [.11] 11. Within 10 days after eliminating from its books any asset in compliance with Paragraph 3 of this ORDER, the Thrift shall file with the FDIC amended Consolidated Reports of Condition and Income which shall accurately reflect the financial condition of the Thrift beginning with December 31, 1989. Thereafter, during the life of this ORDER, the Thrift shall file with the FDIC Consolidated Reports of Condition and Income which accurately reflect the financial condition of the Thrift as of the end of the period for which the Reports are filed, including any adjustment in the Thrift's books deemed necessary or appropriate subsequent any FDIC examination of the Thrift during that reporting period.

   [.12] 12. During the life of this ORDER, the Thrift shall not pay cash dividends in any amount except as follows:

       (a) such declarations and payments are made in accordance with applicable State and Federal laws and regulations;
       (b) that after payment of such dividends, the ratio of adjusted primary capital to total assets of the Thrift will be not less than eight (8.0) percent;
       (c) that such declaration and payment of dividends shall be approved in advance by the board of directors; and
       (d) that such declaration and payment
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    of dividends shall be approved in advance, in writing, by the Regional Director, which approval shall not be unreasonably withheld or delayed.

   [.13] 13. Within 60 days of the effective date of this ORDER, the Thrift shall develop and submit to the Regional Director 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 December 31, 1991, December 31, 1992, and December 31, 1993. 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 as determined at subsequent examinations and/or visitations.

   [.14] 14. 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 Thrift shall furnish written progress reports to the Regional Director and the Commissioner of Financial Institutions for the State of Utah 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 Thrift's Report of Condition and the Thrift'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 Thrift in writing from making further reports.
   The provisions of this ORDER shall be binding upon the Thrift, its directors, officers, employees, agents, successors, assigns, and any other institution-affiliated party.
   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 5th day of April, 1991.

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