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{{6-30-93 p.C-1525}}
   [10,347] In the Matter of St. George Thrift & Loan, St. George, Utah, Docket No. FDIC-91-299b (10-2-91).

   Bank to cease and desist from such unsafe or unsound practices as operating with inadequate management; operating with inadequate capital; operating with an excessive level of poor quality assets; operating without adequate reserve for loan losses; following hazardous lending and lax collection practices; operating with inadequate provisions for liquidity and funds management; operating in such a manner as to produce low earnings; and operating in violation of applicable laws or regulations. (This order was terminated by order of the FDIC dated 4-12-93; see ¶ 15,649.)

   [.1] Management—Qualifications—Review
   [.2] Capital—Core Capital—Increase
   [.3] Assets—Adversely Classified—Eliminate/Reduce
   [.4] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.5] Loan Policy—Written Revision—Minimum Requirements
   [.6] Loans—Concentrations of Credit—Reduction Plan
   [.7] Loan Loss Reserve—Establish/Maintain
   [.8] Profit Plan—Minimum Requirements
   [.9] Investment Policy—Revision—Minimum Requirements
   [.10] Liquidity and Funds Management—Written Policy Required
   [.11] Violations of Law—Eliminate/Correct
   [.12] Reports of Condition and Income—Amendment Required
   [.13] Dividends—Restricted
   [.14] Shareholders—Disclosure—Cease and Desist Order
   [.15] Compliance Reports—Frequency

In the Matter of

ST. GEORGE THRIFT & LOAN
ST. GEORGE, UTAH
(Insured State Chartered Thrift)
ORDER TO CEASE AND DESIST
FDIC-91-299b

   St. George Thrift & Loan, St. George, Utah ("Thrift"), having been advised of its
{{6-30-93 p.C-1526}}right to a Notice of Charges and of Hearing detailing the unsafe or unsound banking practices and violation of law alleged to have been committed by the Thrift 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 September 18, 1991, whereby solely for the purpose of this proceeding and without admitting or denying the alleged charges of unsafe or unsound banking practices and violation of law, 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 and had committed a violation of law. 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:
   (a) operating with inadequate management;
   (b) operating with inadequate 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 low earnings; and
   (h) operating in violation of Section 16-10-26 of the Utah Code.
   IT IS FURTHER ORDERED that the Thrift take affirmative action as follows:

   [.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 a senior lending officer 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) comply with the requirements of this ORDER;
       (ii) operate the Thrift in a safe and sound manner;
       (iii) comply 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 have core capital in such an amount as to equal or exceed seven (7.00) percent of the Thrift's total assets.
   (b) For the purposes of this ORDER,
{{12-31-91 p.C-1527}}the terms "core 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(m) and 325.2(n), as amended at 56 Fed. Reg. 10154, effective April 10, 1991.

[.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 April 15, 1991, 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 90 days from the effective date of this ORDER, the Thrift shall have reduced the assets classified "Substandard" as of April 15, 1991 that have not previously been charged off to not more than $175,000.
   (c) Within 180 days from the effective date of this ORDER, the Thrift shall have reduced the assets classified "Substandard" as of April 15, 1991 that have not previously been charged off to not more than $150,000.
   (d) Within 270 days from the effective date of this ORDER, the Thrift shall have reduced the assets classified "Substandard" as of April 15, 1991 that have not previously been charged off to not more than $125,000.
   (e) Within 360 days from the effective date of this ORDER, the Thrift shall have reduced the assets classified "Substandard" as of April 15, 1991 that have not previously been charged off to not more than $100,000.
   (f) The requirements of subparagraphs 3(a), 3(b), 3(c), 3(d), and 3(e) 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 total 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), 3(d), 3(e) and 3(f) 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. Beginning with the effective date of this ORDER, the Thrift shall not 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 implement 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 obtain adequate and current documentation for all loans in the Thrift'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 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 discontinued and previously accrued interest in reversed on delinquent loans;
       (ii) provisions which prohibit the capitalization of interest or loan related expenses 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
    {{12-31-91 p.C-1528}}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 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 directors first determine that the lending staff has the expertise necessary to properly supervise construction loans and that adequate procedures are in place to monitor any construction involved before funds are disbursed;
       (xi) provisions which prohibit concentrations of credit in excess of 25 percent of the Thrift's core capital 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 which are classified "Substandard" as of April 15, 1991 or by the FDIC or State in subsequent Reports of Examination and all other loans in excess of $1,000 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) 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.

[.6] 6. (a) Within 60 days from the effective date of this ORDER, the Thrift shall submit to the Regional Director an identification and analysis of all concentrations of credit inclusive of all mobile home loans identified in the April 15, 1991 FDIC Report of Examination. In addition, the Thrift shall submit a written plan for systematically reducing any concentration of credit to an amount not to exceed twenty-five (25) percent of the Thrift's equity capital and reserves. Such plan and its implementation shall be acceptable to the Regional Director as determined at subsequent examinations and/or visitations.
   (b) The Thrift shall also develop and formulate written policies and procedures to preclude future concentrations of credit as defined on page 2-b of the Report of Examination. Such policies and its implementation shall be in a form and manner acceptable to the Regional Director as determined at subsequent examinations and/ or visitations.

   [.7] 7. Within 30 days from the effective date of this ORDER, the board of directors shall review the adequacy of the reserve for loan losses and establish a comprehensive policy for determining the adequacy of the reserve for loan 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 reserve at least once each calendar quarter. Said review 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 loss reserve may be properly reported in the quarterly Reports of Condition and Income. The review should focus on the results of the Thrift's internal loan review, loan loss experience, trends of delinquent and non-accrual loans, an estimate of potential loss exposure of significant credits, con- {{11-30-93 p.C-1529}}centrations of credit, and present and prospective economic conditions. A deficiency in the reserve 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.

   [.8] 8. Within 60 days from the effective date of this ORDER, the Thrift shall formulate and implement a written profit plan. This plan shall be acceptable to the Regional Director as determined at subsequent examinations and/or visitations 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 board of directors will seek to improve the Thrift's operating performance;
         (ii) 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.

   [.9] 9. Within 60 days from the effective date of this ORDER, the Thrift shall adopt and implement a comprehensive written investment 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.

   [.10] 10. Within 60 days from the effective date of this ORDER, the Thrift 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.

   [.11] 11. 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 April 15, 1991. In addition, the Thrift shall take all necessary steps to ensure future compliance with all applicable laws and regulations.

   [.12] 12. 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 as of each calendar quarter beginning December 31, 1989 through March 31, 1991. 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 made necessary or appropriate as a consequence of any State or FDIC examination of the Thrift during that reported period.

   [.13] 13. 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 core capital to total assets of the Thrift will be not less than seven (7.00) percent; and
       (c) that such declaration and payment of dividends shall be approved in advance of the board of directors;
       (d) that such declaration and payment of dividends shall be approved, in advance, in writing, by the Regional Director, which approval shall not be unreasonably withheld.

   [.14] 14. Following the effective date of this ORDER, the Thrift shall send to its shareholders or otherwise furnish a description of this ORDER in conjunction with the Thrift's next shareholder communication and also in conjunction with its notice or proxy statement preceding the Thrift's next shareholder meeting. The description shall fully describe the ORDER in all material respects.

   [.15] 15. Within 30 days of the end of the first quarter following the effective date of
{{11-30-93 p.C-1530}}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 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 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 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.
   Dated at San Francisco, California, this 2nd day of October, 1991.
   Pursuant to delegated authority.

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