Federal Deposit
Insurance Corporation

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   [¶11,108] In The Matter of Bank of Granada Hills, Granada Hills, California, Docket No. FDIC-94-168b (12-15-94).

   Bank to cease and desist from such unsafe or unsound practices as operating with inadequate management; operating with inadequate equity capital and reserves; operating with an excessive level of poor quality assets; operating without adequate reserve for loan losses; following unsatisfactory lending and collection practices; 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 8-11-99; see ¶16,238.)

   [.1] Management—Qualifications—Review
   [.2] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.3] Assets—Adversely Classified—Eliminate/Reduce
   [.4] Loans—Extensions of Credit—Existing Borrowers—Curtail
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   [.5] Lending and Collection Policy—Minimum Requirements
   [.6] Loan Loss Reserve—Establish/Maintain
   [.7] Budget and Earnings Plan—Preparation Required
   [.8] Violations of Law—Eliminate/Correct
   [.9] Reports of Condition and Income—Amendment Required
   [.10] Dividends—Restricted
   [.11] Brokered Deposits—Acceptance Prohibited
   [.12] Shareholders—Disclosure—Cease and Desist Order
   [.13] Real Estate Activities—Compliance with State Law Required
In The Matter of

BANK OF GRANADA HILLS
GRANADA HILLS, CALIFORNIA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-94-168b
   Bank of Granada Hills, Granada Hills, California ("Bank"), having been advised of its right to a Notice of Charges and of Hearing detailing the unsafe or unsound banking practices and violation of a regulation 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 Legal Counsel for the Federal Deposit Insurance Corporation ("FDIC"), dated December 8, 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 the regulation, 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 a violation of a regulation. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

   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 violation of a regulation:
   (a) operating with inadequate management;
   (b) operating with limited equity capital and reserves in relation to the volume and quality of assets held by the Bank;
   (c) operating with a large volume of poor quality loans;
   (d) operating with an inadequate loan valuation reserve;
   (e) following unsatisfactory lending and unsatisfactory collection practices;
   (f) operating in such a manner as to produce low earnings and operating with inadequate budget and profit plans; and
   (g) operating in violation of Part 323 of the FDIC Rules and Regulations as more fully described on Page 8.10 of the Report of Examination as of July 5, 1994.
   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 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 {{2-28-95 p.C-3888}}quality loan portfolio. 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, earnings, and management effectiveness, and maintain capital adequacy 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 Bank 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) During the life of this ORDER, the Bank shall have Tier 1 capital in such an amount as to equal or exceed seven and one-quarter (7.25%) percent of the Bank's total assets.
   (b) From the effective date of this ORDER, the Bank shall continue 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.
   (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 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 material 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 {{2-28-95 p.C-3889}}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 law and as soon as practicable after 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" as of July 5, 1994, 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) Within 60 days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of July 5, 1994 that have not previously been charged off to not more than $5,100,000.
   (c) Within 240 days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of July 5, 1994 that have not previously been charged off to not more than $4,250,000.
   (d) Within 360 days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of July 5, 1994 that have not previously been charged off to not more than $3,000,000.
   (e) The requirements of Subparagraphs 3(a), 3(b), 3(c), and 3(d) 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 these assets through proceeds of other loans made by the Bank is not considered collection for the purpose of this Paragraph. As used in Subparagraphs 3(b), 3(c), 3(d), and 3(e) 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. Within 60 days from the effective date of this ORDER, the Bank shall revise, adopt, and implement written lending and collections policies to provide effective guidance and control over the Bank's lending function, and to correct deficiencies in loan administration enumerated in the examination report. Revisions shall specifically address noted deficiencies in credit administration, real estate appraisal review, risk identification practices, and shall provide for effective reporting to the Board of Directors of exceptions made to approved policies. Revisions shall also require complete loan documentation, realistic repayment terms and cur- {{2-28-95 p.C-3890}}rent credit information adequate to support the outstanding indebtedness of the borrower. Such documentation shall include current financial information, profit and loss statements and/or copies of tax returns, and cash flow projections. Such policies and their implementation 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. Within 30 days from the effective date of this ORDER, the Bank shall establish and thereafter maintain an adequate reserve for loan losses.
   Additionally, within 30 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 not later than twenty (20) days after 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 Bank's internal loan review, loan loss experience, trends of delinquent and non-accrual 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 Bank 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 and Superintendent as determined at subsequent examinations and/or visitations.

[.7] 7. (a) Within 60 days from the effective date of this ORDER, the Bank shall formulate and fully implement a written plan and a comprehensive budget for all categories of income and expense. The plan and budget required by this Paragraph shall include formal goals and strategies, consistent with sound banking practices, to improve the Bank's net interest margin, increase interest income, and improve and sustain earnings of the Bank. The plan shall include a description of the operating assumptions that form the basis for, and adequately support, major projected income and expense components. Thereafter, the Bank shall formulate such a plan and budget by November 30 of each subsequent year.
   (b) The plan and budget required by Subparagraph 7(a) of this ORDER, shall be in a form and manner acceptable to the Regional Director and Superintendent as determined at subsequent examinations and/or visitations.
   (c) Following the end of each calendar quarter, the Board of Directors shall evaluate the Bank's actual performance in relation to the plan and budget required by Subparagraph 7(a) of this ORDER and shall record the results of the evaluation, and any actions taken by the Bank, in the minutes of the Board of Directors meeting at which such evaluation is undertaken.

   [.9] 9. From the effective date of this ORDER, the Bank shall file with the FDIC amended Consolidated Reports of Condition and Income which shall accurately reflect the financial condition of the Bank as of June 30, 1994 to correct inaccuracies reflected on page 8.9 of the Report of Examination of the Bank as of July 5, 1994. Thereafter, during the life of this ORDER, the Bank shall file with the FDIC Consolidated Reports of Condition and Income which accurately reflect the financial condition of the Bank as of the end of the period for which the Reports are filed, including any adjustment in the Bank's books made necessary or appropriate as a consequence of any final California State Banking Department or FDIC examination report that has been received by the Bank during that reporting period.

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

   [.11] 11. Upon the effective date of this ORDER, the Bank shall not accept any brokered deposits.

   [.12] 12. 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.

   [.13] 13. 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 even 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.
   14. Within 30 days of the end of the first quarter following the effective date of this ORDER, the 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.
   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 15th day of December, 1994.
   Pursuant to delegated authority.