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FDIC Enforcement Decisions and Orders

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{{5-31-94 p.C-3112}}
   [10,743] In the Matter of Westside Bank of Southern California, Los Angeles, California, Docket No. FDIC-93-51b (3-11-93).

   Bank to cease and desist from such unsafe or unsound practices as operating with inadequate capital; operating with an excessive level of poor quality assets; 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 3-23-94; see ¶ 15,837.)

   [.1] Management—Qualifications—Review
   [.2] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.3] Assets—Adversely Classified—Eliminate/Reduce
   [.4] Loan Loss Reserve—Establish/Maintain
   [.5] Bank Operations—Overhead—Control
   [.6] Violations of Law—Eliminate/Correct
   [.7] Asset/Liability Management—Written Policy—Minimum Requirements
   [.8] Real Estate Investments—Divestiture Required
   [.9] Shareholders—Disclosure—Cease and Desist Order
   [.10] Real Estate Activities—Compliance with State Law

{{5-31-93 p.C-3113}}
In the Matter of

WESTSIDE BANK OF SOUTHERN
CALIFORNIA

LOS ANGELES, CALIFORNIA
(Insured State Nonmember Bank)
ORDER
TO
CEASE AND DESIST

FDIC-93-51b

   Westside Bank of Southern California, Los Angeles, 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 March 4, 1993, 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:

ORDER TO CEASE AND DESIST

   IT IS HEREBY ORDERED that the Bank, 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 equity capital and reserves in relation to the volume and quality of assets held by the Bank;
   (b) operating with an excessive volume of poor quality assets;
   (c) operating with inadequate provisions for liquidity and funds management;
   (d) operating in such a manner as to produce low earnings; and
   (e) operating in violation of Section 1221(A) of the California Financial Code.
   IT IS FURTHER ORDERED that the Bank take affirmative action as follows:

       [.1] 1. During the life of this ORDER the Bank shall maintain qualified management.
       (a) Each member of management shall have qualifications and experience commensurate with his or her duties and responsibilities at the Bank. Management should include a chief executive officer with proven ability in managing a financial institution and experience in upgrading low quality assets. Management should also include a senior lending officer with an appropriate level of lending, collection, and loan supervision experience for the type and quality of the Bank's loans. Each member of management shall be provided appropriate written authority from the Bank's board of directors to implement he 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 Bank in a safe and sound manner;
         (iii) comply with applicable laws and regulations; and
         (iv) restore all aspects of the Bank to a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness, and liquidity.
       (c) 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 Superintendent of Banks for the State of California ("Superintendent") 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.
       (d) The Bank may not add any individual to its board of directors or employ any individual as a senior executive officer if {{5-31-93 p.C-3114}}the Regional Director issues a notice of disapproval pursuant to section 32 of the Act, 12 U.S.C. § 1831i.

   [.2] 2. (a) By September 30, 1993, the Bank shall increase adjusted Tier 1 capital by no less than $1,500,000 above the adjusted Tier 1 capital of $3,962,000 as set forth on page 3 of the FDIC Report of Examination of the Bank as of June 1, 1992, and shall achieve adjusted Tier 1 capital of six (6.0) percent of the Bank's adjusted total assets. Thereafter, during the life of this ORDER, the Bank shall maintain adjusted Tier 1 capital in such an amount as to equal or exceed six (6.0) percent of the Bank's total assets.
   (b) Within 90 days from the effective date of this ORDER, the Bank shall develop and adopt a plan to meet the minimum risk-based capital requirements as described in the FDIC Statement of Policy on Risk-Based Capital contained in Appendix A to Part 325 of the FDIC 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 as determined at subsequent examinations.
   (c) The level of adjusted Tier 1 capital to be maintained during the life of this ORDER pursuant to Subparagraph 2(a) shall be in addition to a fully funded loan loss reserve, the adequacy of which shall be satisfactory to the Regional Director and Superintendent as determined at subsequent examinations and/or visitations.
   (d) Any increase in adjusted Tier 1 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 noncumulative perpetual preferred stock; or
       (iii) the direct contribution of cash by the board of directors and/or shareholders of the Bank; or
       (iv) any other means acceptable to the Regional Director and the Superintendent; or
       (v) any combination of the above means.
Any increase in adjusted Tier 1 capital necessary to meet the requirements of Paragraph 2 of this ORDER may not be accomplished through a deduction from the Bank's loan loss reserves without the prior written consent of the Regional Director and Superintendent.
   (e) If all or part of the increase in adjusted Tier 1 capital required by Paragraph 2 of this ORDER is accomplished b 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 Bank's securities (including a distribution limited only to the Bank's existing shareholders), the Bank shall prepare offering materials fully describing the securities being offered, including an accurate description of the financial condition of the Bank and the circumstances giving rise to the offering, and 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, 550 - 17th Street, N.W., Washington, D.C. 20429, for review. Any changes requested to be made in the plan or materials by the FDIC shall be made prior to their dissemination. If the increase in adjusted Tier 1 capital is provided by the sale of noncumulative perpetual 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 and the Superintendent for prior approval.
   (f) In complying with the provisions of Paragraph 2 of this ORDER, during the pendency of any public offering, the Bank shall provide to any subscriber and/or purchaser of the Bank's securities, a written notice of any planned or existing development or other changes which are materially different from the information reflected in any offering materials used in connection with the sale of Bank securities. The written notice required by this paragraph shall be furnished in compliance with applicable securities laws and as soon as practicable after the date such material development or change was {{5-31-93 p.C-3115}}planned or occurred, whichever is earlier, and shall be furnished to every subscriber and/or purchaser of the Bank's securities who received or was tendered the information contained in the Bank's original offering materials.
   (g) 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 Rules and Regulations, 12 C.F.R. §§ 325.2(m) and 325.2(n). The terms "adjusted Tier 1 capital" and "adjusted total assets" are as calculated on page 3 of the FDIC Report of Examination of the Bank as of June 1, 1992.

   [.3] 3. Within 10 days from the effective date of this ORDER, the Bank shall eliminate from its books, by charge-off or collection, all assets classified "Loss" as of June 1, 1992, that have not been previously collected or charged off. Elimination of these assets through proceeds of other loans made by the Bank is not considered collection for the purpose of this paragraph.

   [.4] 4. Within 10 days from the effective date of this ORDER, the Bank shall establish and thereafter maintain an adequate reserve for loan losses. Such reserve shall be established by charges to current operating income, together with collection of assets previously charged off. In complying with the provisions of this paragraph, the board of directors shall review the adequacy of the Bank's reserve for loan 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.

   [.5] 5. Within 90 days from the effective date of this ORDER, the Bank shall develop and adopt a plan to control overhead and other expenses and restore the Bank's profitability. The plan shall be in a form and manner acceptable to the Regional Director and the Superintendent as determined at subsequent examinations and/or visitations.

   [.6] 6. By June 30, 1993, the Bank shall eliminate and/or correct the violations of law which are more fully set out on page 6-b of the Report of Examination of the Bank as of June 1, 1992. In addition, the Bank shall take all necessary steps to ensure future compliance with all applicable laws and regulations.

   [.7] 7. Within 60 days from the effective date of this Order, the Bank shall revise adopt and implement a comprehensive asset/ liability management policy. The policy shall establish standards consistent with generally accepted prudent banking operations by giving specific consideration to:

       (a) establishing a range for the Bank's liquidity ratio, as computed on page 5-b of the FDIC Report of Examination of the Bank as of June 1, 1992, and which ratio shall be not less than twenty (20.0) percent on or before June 30, 1993.
       (b) establishing a range for the Bank's volatile liability dependency ratio (defined to include deposits of $90,000 or greater), and which ratio shall be reduced to not more than forty-five (45.0) percent on or before June 30, 1993 and to not more than thirty (30.0) percent by December 31, 1993.
       (c) establishing acceptable ranges for the Bank's rate sensitivity and gap ratios; and
       (d) the establishing of an asset/liability committee, including a description of its responsibilities, how often it will meet, how it will obtain information and guidance from the board of directors, and how its activities will be reported to the board of directors.

       [.8] 8. (a) By June 30, 1993, the Bank shall fully divest its interest in real estate investments known as Centinela Lots No. 87, No. 89, and No. 91, as more fully described on pages 2-a-6 and 2-a-7 of the FDIC Report of Examination of the Bank as of June 1, 1992.
       (b) By September 30, 1993, the Bank shall fully divest its interest in real estate investments known as Chaparral/Palm Desert, as more fully described on pages 2-a-7 and 2-a-8 of the FDIC Report of Examination of the Bank as of June 1, 1992.
       (c) By December 31, 1993, the Bank shall fully divest its interest in real estate investments known as Janss Road, as more fully described on pages 2-a-8 and 2-a-9 of the FDIC Report of Examination of the Bank as of June 1, 1992.

   [.9] 9. Following the effective date of this ORDER, the Bank shall send to its share- {{5-31-93 p.C-3116}}holders 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.

   [.10] 10. During the life of this ORDER, the Bank shall furnish to the Regional Director a copy of any application to the Superintendent filed pursuant to section 751.3 of the California Financial Code, Cal. Fin. Code § 751.3, to engage in real estate activities. This copy of such application shall be furnished to the Regional Director on or before the date of its filing with the Superintendent. In no event shall the Bank engage in real estate activities which are the subject of any such application filed pursuant to section 751.3 of the California Financial Code without the prior written consent of the Regional Director.
   11. 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 Superintendent 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 Superintendent have released the Bank in writing from making further reports.
   The provisions of this ORDER shall be binding upon the Bank, its directors, officers, employees, agents, successors, assigns, and other persons participating in the conduct of the affairs of the Bank.
   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 11th day of March, 1993.
   Pursuant to delegated authority.

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