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{{9-30-99 p.C-4396}}
   [11,436] In the Matter of Royal Thrift and Loan Company, Los Angeles, California, FDIC Docket No. 97-59b (8-15-97)

   A cease-and desist order was issued, based on findings by the FDIC that it had reason to believe that respondent had engaged in unsafe and unsound banking practices. (This order was terminated by order of the FDIC dated 7-9-99; see ¶16,231.)

{{10-31-97 p.C-4397}}
   [.1] Management—Qualifications—Retain Qualified Individuals
   [.2] Capital—Tier 1 Capital—Increase/Maintain
   [.3] Assets—Adversely Classified—Eliminate
   [.4] Loan Policy—Adequacy Standards—Establish
   [.5] Expenses—Plan to Control—Develop
   [.6] Compliance—Guidelines—Develop
   [.7] Insider Transaction Policy—Develop/Adopt
   [.8] FDIC Insurance Fund—Withdrawal—Status Reports
   [.9] Cease-and-Desist Order—Compliance Reports Required

In the Matter of

ROYAL THRIFT AND LOAN
COMPANY

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

FDIC-97-59b

   Royal 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 August 11, 1997, 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 violation of laws 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 Insured Institution, its institution-affiliated parties, as that term is defined in Section 3(u) of the Act, 12 U.S.C. § 1818(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 allowance for loan and lease losses;
   (e) following hazardous lending and lax collection practices;
   (f) operating in such a manner as to produce operating losses;
   (g) operating in such a manner as to produce low earnings;
   and
   (h) operating in violation of the following laws and/or regulations:

       (i) Section 23 B of the Federal Reserve Act, 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 8.16 of the Report of Examination as of November 1, 1996;
       (ii) Sections 215.8 of Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. § 215.8, made applicable to state nonmember institutions by Section 18(j)(2) of the Act, 12 {{10-31-97 p.C-4398}}U.S.C. § 1828(j)(2), as more fully described on Page 8.16 of the Report of Examination as of November 1, 1996;
       (iii) Part 206 (Regulation F) of the Federal Reserve Board's Rules and Regulations, 12 C.F.R. § 206, made applicable to all depository institutions insured by the Federal Deposit Insurance Corporation by Section 206.1(b) of the Federal Reserve Board's Rules and Regulations, 12 C.F.R. § 206.1(b), as more fully described on Page 8.19 of the Report of Examination as of November 1, 1996;
       (iv) Section 364.101 of the FDIC's Rules and Regulations, 12 C.F.R. § 364.101 as more fully described on Pages 8.17 and 8.18 of the Report of Examination as of November 1, 1996;
       (v) Section 365.2(d) of the FDIC's Rules and Regulations, 12 C.F.R. § 365.2(d), as more fully described on Page 8.18 of the Report of Examination as of November 1, 1996;
       (vi) Section 18343 of the California Financial Code, Cal. Fin. Code § 18343 (West 1997), as more fully described on Page 8.19 of the Report of Examination as of November 1, 1996;
       and
       (vii) Section 1141 of the California Code of Regulations, Cal. Code Regs. tit. 10 § 1141 (1997), as more fully described on Page 8.19 of the Report of Examination as of November 1, 1996.
   IT IS FURTHER ORDERED that the Insured Institution, its institution-affiliated parties, and its successors and assigns, and pursuant to any effort by the Insured Institution to self-liquidate and voluntarily withdraw from the FDIC insurance fund, 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 shall include the following individuals:

       (i) a chief executive officer with proven ability in managing an Insured Institution of comparable size, and experience in upgrading a low quality loan portfolio, improving earnings, and other matters needing particular attention;
       (ii) a chief financial officer with appropriate experience in investments, liquidity and funds management;
       (iii) a senior lending officer with significant appropriate lending, collection, and loan supervision experience in upgrading a low quality loan portfolio; or
       (iv) to the extent that the Insured Institution undertakes any effort to selfliquidate and voluntarily withdraw from the FDIC insurance fund, an individual who is qualified to supervise the liquidation of the Insured Institution's loan portfolio and to direct the financial operations of the Insured Institution until the liquidation is complete.
   (b) 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.
   (c) 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;
       (iv) restore all aspects of the Insured Institution to a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness, and liquidity consistent with Subparagraph 1(c)(v); and
       (v) supervise and implement any effort by the Insured Institution to selfliquidate and voluntarily withdraw from the FDIC insurance fund.
   (d) To facilitate having and retaining qualified management, the Insured Institution shall, within 30 days of the issuance of this ORDER and at the end of each thirty (30) day period thereafter, submit a status report to the Regional Director of the FDIC's San Francisco Regional Office ("Regional Director") which discusses the steps taken by the Insured Institution to comply with Subparagraph 1(a) of this ORDER. The status report may be discontinued when the Regional Director has determined that the report is no longer necessary and has released the Insured Institution from making a further report.
   (e) During the life of this ORDER, the Insured Institution shall notify the Regional Director and the Commissioner of {{10-31-97 P.C-4399}}the Department of Financial Institutions 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 the background and experience of the individual or individuals to be added or employed.
   (f) 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. (a) Within 180 days from the effective date of this ORDER, the Insured Institution shall have Tier 1 capital in such an amount as to equal or exceed seven and one-half (7.5) percent of the Insured Institution's total assets. Thereafter, during the life of this ORDER, the Insured Institution shall maintain Tier 1 capital in such an amount as to equal or exceed seven and one-half (7.5) percent of the Insured Institution's total assets.
   (b) Within 60 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 2(a) shall be in addition to a fully funded allowance for loan and lease losses, 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 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, shareholders, and/or parent holding company; or
       (iv) the deduction from allowance for loan and lease losses during the period the Insured Institution is continuously undertaking to self-liquidate and voluntarily withdraw from the FDIC insurance fund and is not operating as an ongoing concern; provided, however, that the Insured Institution continues to maintain an adequate allowance for loan and lease losses pursuant to Paragraph 4 of this ORDER; or
       (v) any other means acceptable to the Regional Director and the Commissioner; or
       (vi) any combination of the above means.
   (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 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 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 {{10-31-97 p.C-4400}}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).

   [.3] (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 one-half of the assets classified "Doubtful" as of November 1, 1996, 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) 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 November 1, 1996 that have not previously been charged off to not more than $4,000,000.
   (c) Within 360 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 November 1, 1996 that have not previously been charged off to not more than $3,000,000.
   (d) Within 540 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 November 1, 1996 that have not previously been charged off to not more than $1,500,000. At or before the end of the 540 days, TZ Financial Company shall purchase any remaining assets of the Insured Institution that are classified "Substandard" and "Doubtful."
   (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 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 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.

   [.4] 4. Within 30 days from the effective date of this ORDER, the Board of Directors shall review the adequacy of the allowance for loan and lease losses and establish a comprehensive policy for determining the adequacy of the allowance for loan and lease losses. For the purpose of this determination, the adequacy of the allowance shall be determined after the charge-off of all loans or other items classified "Loss." The policy shall provide for a review of the allowance 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 allowance for loan and lease losses 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, loan and lease 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 allowance shall be remedied in the calendar quarter it is dis- {{10-31-97 p.C-4401}}covered, 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.

   [.5] 5. Within 60 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. The plan shall be in a form and manner acceptable to the Regional Director and the Commissioner as determined at subsequent examinations and/or visitations. However, the Insured Institution is not required to develop, adopt and implement such a plan to the extent that it engages in any effort to self-liquidate and voluntarily withdraw from the FDIC insurance fund where, in this event, it shall use its best efforts to maximize the value of its assets during the self-liquidation and thus minimize the impact on the Insured Institution's capital and earnings.

   [.6] 6. Within 60 days from the effective date of this ORDER, the Insured Institution shall eliminate and/or correct all violation of laws and regulations which are more fully set out on Pages 8.16–8.19 of the Report of Examination of the Insured Institution as of November 1, 1996. In addition, the Insured Institution shall take all necessary steps to ensure future compliance with all applicable laws, regulations, and Interagency Guidelines.

   [.7] 7. Within 60 days from the effective date of this ORDER, the Insured Institution shall develop, adopt, and implement an insider transaction policy at the Insured Institution. Specifically, the policy shall establish procedures for identifying, reviewing, and authorizing affiliate and insider related activities of institution-affiliated parties as that term is defined in Section 3(u) of the Act, 12 U.D.C. § 1813(u). Once implemented, the Insured Institution shall take all necessary steps to ensure future compliance with the policy at the Insured Institution with respect to all affiliate and insider related activities, including those associated with any effort by the Insured Institution to self-liquidate and voluntarily withdraw from the FDIC insurance fund.

   [.8] 8. Within 30 days of the issuance of this ORDER, and at the end of each thirty (30) day period thereafter, the Insured Institution shall furnish a written status report to the Regional Director and the Commissioner detailing the form and manner of any effort made by the Insured Institution to self-liquidate and voluntarily withdraw from the FDIC insurance fund. The status report shall, at a minimum, include a balance sheet and a detailed summary of the transactions involved in the Insured Institution's efforts. Each status report shall be recorded in the minutes of the Board of Directors of the Insured Institution. The status report may be discontinued when the Regional Director and the Commissioner have determined that the report is no longer necessary and have released the Insured Institution in writing from making a further report.

   [.9] 9. 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 Insured Institution shall furnish written progress reports to the Regional Director and the Commissioner 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, the Insured Institution's Report of Income, and a list and status of all pending litigation by and against the Insured Institution. Such reports shall be recorded in the minutes of the Board of Directors of the Insured Institution. 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.
   Pursuant to delegated authority.
   Dated at San Francisco, California, this 15th day of August, 1997.

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