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   [10,977]In the Matter of First Trust Bank, Ontario, California, Docket No. FDIC-94-51b, 5-6-94.

   Bank to cease and desist from such unsafe or unsound practices as operating with inadequate capital and reserves; operating with an excessive level of poor quality assets; operating with inadequate loan valuation reserve; following inadequate lending and collection practices; operating in such a manner as to produce operating losses; and operating in violation of applicable laws or regulations. This order was terminated by order of the FDIC dated 4-10-95. See ¶15,991.

   [.1] Management—Qualifications—Review
   [.2] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.3] Assets—Adversely Classified—Eliminate/Reduce—Plan
   [.4] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.5] Loan Loss Reserve—Establish/Maintain
   [.6] Bank Operations—Overhead and Expenses—Plan
   [.7] Violations of Law—Eliminate/Correct
   [.8] Bank Subsidiary—Divestiture Plan Required
   [.9] Real Estate Activities—Compliance with State Law Required
   [.10] Dividends—Restricted
   [.11] Shareholders—Disclosure—Cease and Desist Order

In the Matter of

FIRST TRUST BANK
ONTARIO, CALIFORNIA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-94-51b

   First Trust Bank, Ontario, 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 May 3, 1994, 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, 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 and violations of law and/or regulation:
   (a) operating with inadequate equity capital and reserves in relation to the volume and quality of assets held by the Bank;
   (b) operating with a large volume of poor quality assets;
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   (c) operating with an inadequate loan valuation reserve;
   (d) following inadequate lending and collection practices;
   (e) operating in such a manner as to produce operating losses; and
   (f) operating in violation of section 323.3 of the FDIC's Rules and Regulations, 12 C.F.R. § 323.3, as more fully described on pages 6-a and 6-a-1 of the Report of Examination as of August 23, 1993; and section 323.4 of the FDIC's Rules and Regulations, 12 C.F.R. § 323.4, as more fully described on pages 6-a and 6-a-1 of the Report of Examination as of August 23, 1993.
   IT IS FURTHER ORDERED, that the Bank, its institution-affiliated parties, and its successors and assigns, take affirmative action as follows:

   [.1] 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 should include a chief executive officer with proven ability in managing a bank of comparable size and complexity, improving earnings, and other matters needing particular attention. Management should also include a senior lending officer with appropriate lending, collection, and loan supervision experience. Each member of management shall be provided appropriate written authority from the Bank'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 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 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, 1994, the Bank shall increase Tier 1 capital by no less than $13,000,000, and shall have Tier 1 capital in such an amount as to equal or exceed seven (7.0) percent of the Bank's total assets. Thereafter, during the life of this ORDER, the Bank shall maintain Tier 1 capital in such an amount as to equal or exceed seven (7.0) percent of the Bank's total assets.
   (b) Within 60 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 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 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 {{7-31-94 p.C-3650}}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 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.
   (e) If all or part of the increase in Tier 1 capital required by Paragraph 2 of this ORDER is 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 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 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, 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 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 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(t) and 325.2(v).

[.3] 3. (a) 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" and one-half of the assets classified "Doubtful" as of August 23, 1993, 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.

    (b) (i) Within 30 days after the effective date of this ORDER, the Bank shall submit a written plan to the Regional Director and Superintendent to reduce the remaining assets classified "Doubtful" and "Substandard" as of August 23, 1993. The plan shall address each asset so classified with a balance of $250,000 or greater and provide the name under which the asset is carried, the type of asset, actions to be taken in order to reduce the asset, and time frames for accomplishing the proposed actions.
       (ii) The Bank shall present the plan to the Regional Director for review and approval. Within 30 days after approval by the Regional Director, the plan, including any modifications or amendments requested by the Regional Director, shall be adopted by the board of directors of the Bank. The Bank shall thereafter immediately initiate measures detailed in the plan to the extent such measures have not previously been initiated.
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       (iii) The reduction of the level of classified assets as of August 23, 1993 may be accomplished by charge-off, collection, or sufficient improvement in the quality of the classified assets, as determined by the FDIC.
   (c) The requirements of subparagraphs 3(a) and 3(b) of this ORDER are not to be construed as standards for future operations and, in addition to the foregoing, the Bank shall eventually reduce the total of all adversely classified assets. Reduction of adversely classified loans through proceeds of other loans made by the Bank is not considered collection for the purpose of this paragraph.

[.4] 4. (a) Beginning with the effective date of this ORDER, the Bank 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 Bank that has been charged off or classified, in whole or in part, "Loss" and is uncollected. Subparagraph 4(a) of this ORDER shall not prohibit the Bank from renewing or extending the maturity of any credit in accordance with the Financial Accounting Standards Board Statement Number 15 ("FASB 15").
   (b) Beginning with the effective date of this ORDER, the Bank 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 Bank that has been classified, in whole or part, "Substandard" or "Doubtful" without the prior written approval of a majority of the board of directors or the loan committee of the Bank. Subparagraph 4(b) of this ORDER shall not prohibit the Bank from renewing or extending the maturity of any credit in accordance with FASB 15, providing that such renewal or extension shall be made only with the prior written approval of a majority of the board of directors or the loan committee of the Bank.
   (c) In connection with subparagraph 4(a) and 4(b) of this ORDER, the Bank shall not:

       (i) continue the accrual of interest on any loan which is delinquent in principal or interest payments ninety (90) days or more unless the asset is both well secured and in the process of collection; or
       (ii) engage in any practice or device which essentially avoids recognition of overdue loans and/or artificially inflates the income of the Bank. For any loans restructured in accordance with FASB 15, consideration should be given to the reasonableness of the modified terms of the loan, since loans should not be restructured in an attempt to conceal credit losses or delay their recognition.
   (d) For the purpose of subparagraph 4(c) of this ORDER, debt is "well secured" if it is secured by:
       (i) collateral in the form of liens on or pledges of real or realizable value sufficient to discharge the debt (including accrued interest) in full; or
       (ii) the guaranty of a financially responsible party.
A debt is "in the process of collection" if collection of the debt is proceeding in due course either through legal action, including judgment enforcement procedures, or, in appropriate circumstances, through collection efforts not involving legal action which are reasonably expected to result in repayment of the debt or in its restoration to a current status.

   [.5] 5. 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.

   [.6] 6. Within 60 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.

   [.7] 7. Within 60 days from the effective date of this ORDER, the Bank shall elimi- {{7-31-94 p.C-3652}}nate and/or correct all violations of law which are more fully set out on pages 6-a and 6-a-1 of the Report of Examination of the Bank as of August 23, 1993. In addition, the Bank shall take all necessary steps to ensure future compliance with all applicable laws and regulations.

       [.8] 8. As of the effective date of this ORDER, the Bank shall have filed with the Regional Director a divestiture plan for elimination of the Bank's investment in its subsidiary, Western Desert Corporation, pursuant to the provisions of section 24 of the Act, 12 U.S.C. § 1831a, and Part 362 of the FDIC's Rules and Regulations, 12 C.F.R. Part 362. The plan shall provide for complete divestiture by June 30, 1995. The Regional Director shall review the divestiture plan as to form and acceptability. In addition, the Bank's implementation of the divestiture plan shall be satisfactory to the Regional Director.

   [.9] 9. 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 (West 1989), 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.

   [.10] 10. The Bank shall not pay cash dividends without the prior written consent of the Regional Director.

   [.11] 11. Following the effective date of this ORDER, the Bank shall send to its shareholders 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, Registration and Disclosure Section, 550 - 17th Street, N.W., Washington, D.C. 20429, at least fifteen (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.
   12. Within 30 days of the end of the first calendar quarter following the effective date of this ORDER, and within thirty (30) days of the end of each calendar 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.
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 6th day of May, 1994.
Pursuant to delegated authority.

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