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{{12-31-94 p.C-3867}}
   [11,101] In The Matter of Los Angeles Thrift and Loan, Los Angeles, California, Docket No. FDIC-94-185b (12-12-94).

   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 with inadequate allowance for loan and lease losses; following hazardous lending and lax collection practices; operating without proper internal routine and controls; 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 10-27-95. See ¶16,049.)

   [.1] Management—Qualifications—Review
   [.2] Board of Directors—Duties Specified
   [.3] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.4] Assets—Adversely Classified—Eliminate/Reduce
   [.5] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.6] Lending and Collection Policy—Minimum Requirements
   [.7] Allowance for Loan and Lease Losses—Establish/Maintain
   [.8] Bank Operations—Overhead and Expenses—Plan
   [.9] Violations of Law—Eliminate/Correct
   [.10] Bank Operations—Internal Routine and Controls—Written Policy Required
   [.11] Reports of Condition and Income—Amendment Required
   [.12] Bank Parent Company—Transactions With—Written Policy
   [.13] Dividends—Restricted
   [.14] Shareholders—Disclosure—Cease and Desist Order

In The Matter of

LOS ANGELES THRIFT AND LOAN
LOS ANGELES, CALIFORNIA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-94-185b

   Los Angeles Thrift and Loan, Los Angeles, California ("Insured Institution"), having been advised of its right to a Notice of Charges and of hearing detailing the unsafe or unsound banking practices and violation of laws and/or regulations alleged to have been committed by the Insured Institution 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 November 30, 1994, 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 laws and/or regulations, the Insured Institution 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 Insured Institution had engaged in unsafe or unsound banking practices and had committed violations of laws and/or regulations. The FDIC, therefore, accepted the {{12-31-94 p.C-3868}} CONSENT AGREEMENT and issued the following:

ORDER TO CEASE AND DESIST

   IT IS HEREBY ORDERED, that the Insured Institution, 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 violation of laws and/or regulations:
   (a) operating with inadequate management;
   (b) operating with inadequate equity capital and reserves in relation to the volume and quality of assets held by the Insured Institution;
   (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 internal routine and controls policies;
   (g) operating in such a manner as to produce low earnings; and
   (h) operating in violation of sections 23A and 23B of the Federal Reserve Act, 12 U.S.C. § 371c and 12 U.S.C. § 371c-1, made applicable to state nonmember insured institutions by section 18(j)(1) of the Act, 12 U.S.C. § 1828(j)(1), as more fully described on page 6-a-1 and page 6-a-6 of the Report of Examination as of February 7, 1994; sections 215.4(e) and 215.8 of Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. §§ 215.4(e) and 215.8, made applicable to state nonmember institutions by section 18(j)(2) of the Act, 12 U.S.C. § 1828(j)(2), as more fully described on pages 6-a and 6-a-6 of the Report of Examination as of February 7, 1994; Part 323 of the FDIC Rules and Regulations, 12 C.F.R. § 323, as more fully described on page 6-a-2 of the Report of Examination as of February 7, 1994; sections 1141 and 1146 of Title 10 of the California State Regulations, as more fully described on pages 6-a-2 and 6-a-3 of the Report of Examination as of February 7, 1994; and sections 18436 and 18455 of the California Financial Code, as more fully described on pages 6-a-4 and 6-a-5 of the Report of Examination as of February 7, 1994.
   IT IS FURTHER ORDERED, that the Insured Institution, its institution-affiliated parties, and its successors and assigns, take affirmative action as follows:

   [.1] 1. The Insured Institution 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 Insured Institution. Management should include a chief executive officer with proven ability in managing a Insured Institution 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 in upgrading a low quality loan portfolio as well as a chief financial officer with significant and appropriate experience overseeing all bookkeeping and accounting functions and improving the Insured Institution's internal routines and controls. Each member of management shall be provided appropriate written authority from the Insured Institution'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 Insured Institution in a safe and sound manner;
         (iii) comply with applicable laws and regulations; and
         (iv) restore all aspects of the Insured Institution to a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness, internal routines and controls, and liquidity.
       (c) During the life of this ORDER, the Insured Institution shall notify the Regional Director of the FDIC's San Francisco Regional Office ("Regional Director") and the Commissioner of Corporations for the State of California ("Commissioner") in writing when it proposes to add any individual to the Insured Institution'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 {{2-28-95 p.C-3869}}the background and experience of the individual or individuals to be added or employed.
       (d) The Insured Institution 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. As of the effective date of this ORDER, the board of directors shall increase its participation in the affairs of the Insured Institution, assuming full responsibility for the approval of sound policies and objectives and for the supervision of all of the Insured Institution's activities, consistent with the role and expertise commonly expected for directors of insured institutions of comparable size. This participation shall include meetings to be held no less frequently than monthly, at which, at a minimum, the following areas are reviewed and approved: reports of income and expenses: new, overdue, renewal, insider, charged-off, and recovered loans; investment activity; operating policies; and individual committee actions. Board minutes shall document these reviews and approvals, including the names of any dissenting directors.

    [.3] 3. (a) During the life of this ORDER, the Insured Institution shall have and maintain Tier 1 leverage capital in such an amount as to equal or exceed seven and a half (7.5) percent of the Insured Institution's total assets. In the event that the Insured Institution fails to have and maintain the required amount of Tier 1 leverage capital at any time during the life of this ORDER, the Insured Institution shall, no later than 30 days from the date of such occurrence, submit to the Regional Director a capital restoration plan. At a minimum, the plan shall include a provision which requires that the proposed restoration of Tier 1 leverage capital be completed within 90 days from the date the plan is filed with the Regional Director. Such plan and its implementation shall be in a form and manner acceptable to the Regional Director.
       (b) Within 120 days from the effective date of this ORDER, the Insured Institution 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 3(a) shall be in addition to a fully funded loan loss reserve, the adequacy of which shall be satisfactory to the Regional Director and Commissioner as determined at subsequent examinations and/or visitations.
       (d) Any increase in Tier 1 capital necessary to meet the requirements of Paragraph 3 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, shareholders, and/or parent holding company; or
         (iv) any other means acceptable to the Regional Director and the Commissioner; or
         (v) any combination of the above means.
    Any increase in Tier 1 capital necessary to meet the requirements of Paragraph 3 of this ORDER may not be accomplished through a deduction from the Insured Institution's loan loss reserves.
       (e) If all or part of the increase in Tier 1 capital required by Paragraph 3 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 Insured Institution's securities (including a distribution limited only to the Insured Institution's existing shareholders), the Insured Institution shall prepare offering materials fully describing the securities being offered, including an accurate description of the financial condition of the Insured Institution and the circumstances giving rise to the offering, and any other material disclosures necessary to comply with the Fed- {{2-28-95 p.C-3870}} eral 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 Commissioner for prior approval.
       (f) In complying with the provisions of Paragraph 2 of this ORDER, the Insured Institution shall provide to any subscriber and/or purchaser of the Insured Institution'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 Insured Institution 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 Insured Institution's securities who received or was tendered the information contained in the Insured Institution'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).

    [.4] 4. (a) Within 10 days from the effective date of this ORDER, the Insured Institution shall eliminate from its books, by charge-off or collection, all assets classified "Loss" and 50 percent of those assets classified "Doubtful" as of February 7, 1994, that have not been previously collected or charged-off. Elimination of these assets through proceeds of other loans made by the Insured Institution is not considered collection for the purpose of this paragraph.
       (b) Additionally, while this ORDER remains in effect, the Insured Institution shall, within 30 days of the receipt of any official Report of Examination of the Insured Institution from the FDIC or the California Department of Corporations, eliminate from its books, by collection, charge-off, or other proper entries, the remaining balance of any assets classified "Loss" and 50 percent of those classified "Doubtful" unless otherwise approved in writing by the Regional Director and the Special Administrator.
       (c) Within 120 days from the effective date of this ORDER, the Insured Institution shall have reduced the assets classified "Substandard" as of February 7, 1994 and those assets classified "Doubtful" that have not previously been charged off to not more than $2,500,000.
       (d) Within 180 days from the effective date of this ORDER, the Insured Institution shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of February 7, 1994 that have not previously been charged off to not more than $2,000,000.
       (e) Within 270 days from the effective date of this ORDER, the Insured Institution shall have reduced the assets classified "Substandard" as of February 7, 1994 and those assets classified "Doubtful" that have not previously been charged off to not more than $1,500,000.
       (f) The requirements of subparagraphs 4(a), 4(b), 4(c), 4(d), and 4(e) of this ORDER are not to be construed as standards for future operations and, in addition to the foregoing, the Insured Institution shall eventually reduce the total of all adversely classified assets. Reduction of these assets through proceeds of other loans made by the Insured Institution is not considered collection for the purpose of this paragraph. As used in subparagraphs 4(b), 4(c), 4(d), 4(e), and 4(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.

   [.5] 5. Beginning with the effective date of this ORDER, the Insured Institution shall not extend, directly or indirectly, any addi {{2-28-95 p.C-3871}}tional credit to, or for the benefit of, any borrower who has a loan or other extension of credit from the Insured Institution that has been charged off or classified, in whole or in part, "Loss" or "Doubtful" and is uncollected. The requirements of this paragraph shall not prohibit the Insured Institution from renewing (after collection in cash of interest due from the borrower) any credit already extended to any borrower.

    [.6] 6. (a) Within 120 days from the effective date or this ORDER, the Insured Institution shall revise, adopt, and implement written lending and collection policies to correct deficiencies enumerated and discussed on pages 1-a, 1-a-3, 1-a-4, and 6-1 through 6–7 of the Report of Examination as of February 7, 1994. Further, the Insured Institution shall revise, adopt, and implement written lending and collection policies to provide effective guidance and control over the Insured Institution's lending function, which policies shall include specific guidelines for placing loans on a non-accrual basis. In addition, the Insured Institution shall obtain adequate and current documentation for all loans in the Insured Institution's loan portfolio. Such policies and their implementation shall be in a form and manner acceptable to the Regional Director.
       (b) The initial revisions to the Insured Institution'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 is reversed on delinquent loans;
         (ii) provisions which prohibit the capitalization of interest or loan 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 Insured Institution;
         (iii) provisions which require complete loan documentation, realistic repayment terms, specific and realistic repayment sources, 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;
         (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 Insured Institution'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 Insured Institution'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 $50,000 which are classified "Substandard" and "Doubtful" as of February 7, 1994 or by the FDIC or California Department of Corporations in subsequent Reports of Examination and all other loans in excess of $50,000 which warrant individual re- {{2-28-95 p.C-3872}}view 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.

   [.7] 7. Within 120 days from the effective date of this ORDER, the Insured Institution shall correct all deficiencies discussed on pages 1-a, 1-a-4, and 4-a of the Report of Examination, as of February 7, 1994, regarding the allowance for loan and lease losses, and shall establish and thereafter maintain an adequate reserve for loan losses.
   Additionally, within 120 days from the effective date of this ORDER, the board of directors shall develop or revise, adopt and implement 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 Insured Institution's internal loan review and internal loan risk rating system, loan loss experience, trends of delinquent and nonaccrual loans, an estimate of potential loss exposure of significant credits, concentrations 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. Upon completion of the review, the Insured Institution shall increase and maintain its loss reserve consistent with the loan loss reserve policy established. Such policy and its implementation shall be satisfactory to the Regional Director.

   [.8] 8. Within 120 days from the effective date of this ORDER, the Insured Institution shall develop and adopt a plan to control overhead and other expenses and restore the Insured Institution's profitability including appropriately revised budgets incorporation realistic assumptions. The plan shall be in a form and manner acceptable to the Regional Director.

   [.9] 9. Within 120 days from the effective date of this ORDER, the Insured Institution shall eliminate and/or correct to the extent legally possible all violations of laws and regulations which are more fully set out on pages 6-a through 6-a-6 of the Report of Examination of the Insured Institution as of February 7, 1994. In addition, the Insured Institution shall take all necessary steps to ensure future compliance with all applicable laws and regulations.

   [.10] 10. Within 120 days from the effective date of this ORDER, the Insured Institution shall adopt and implement a policy for the operation of the Insured Institution in such a manner as to provide adequate internal routine and control policies consistent with safe and sound banking practices and which at a minimum specifically addresses the deficiencies set forth on pages 1-a-1, 1-a-5, 1-a-6, and 6-b through 6-b-6 of the Report of Examination, as of February 7, 1994. Such policy and its implementation shall be in a form and manner satisfactory to the Regional Director.

   [.11] 11. During the life of this ORDER, the Insured Institution shall file with the FDIC Consolidated Reports of Condition and Income which accurately reflect the financial condition of the Insured Institution as of the end of the period for which the Reports are filed, including any adjustment in the Insured Institution's books made necessary or appropriate as a consequence of any California Department of Corporations or FDIC examination of the Insured Institution during that reporting period.

   [.12] 12. Within 120 days from the effective date of this ORDER, the Insured Institution shall develop, adopt, and implement a written policy satisfactory to the Regional Director, which policy shall govern the relationship between the Insured Institution and its parent company, and shall limit the payment of any management, consulting, or other {{5-31-96 p.C-3873}}fees or funds of any nature, directly or indirectly, to or for the benefit of the Insured Institution's parent company to only those fees or funds paid in connection with services performed by the Insured Institution's parent company on behalf of or for the benefit of the Insured Institution.

   [.13] 13. The Insured Institution shall not pay cash dividends without the prior written consent of the Regional Director.

   [.14] 14. Following the effective date of this ORDER, the Insured Institution shall send to its shareholders or otherwise furnish a description of this ORDER in conjunction with the Insured Institution's next shareholder communication and also in conjunction with its notice or proxy statement preceding the Insured Institution'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.
   15. Within 60 days of the end of the first quarter following the effective date of this ORDER, and within sixty (60) days of the end of each quarter thereafter, the Insured Institution shall furnish written progress reports to the Regional Director and the Special Administrator 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 Insured Institution's Report of Condition and the Insured Institution'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 Insured Institution 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 12th day of December, 1994.
   Pursuant to delegated authority.

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