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   [11,977] In the Matter of Southland Business Bank, Irwindale, California, Docket No. 02-156b (10-21-02).

(This order was terminated by order of the FDIC dated 7-23-03; see ¶16,345.)

   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 practices.

   [.1] Management—Qualifications Specified

   [.2] Board of Directors—Increase Participation in Bank Affairs Required

   [.3] Capital—Maintain Tier 1 Capital

   [.4] Loan Loss Reserve—Establishment of or Increase Required

   [.5] Assets—Adversely Classified Assets—Reduction Required

   [.6] Loan Policy—Preparation or Revision of Policy Required

   [.7] Strategic Plan—Preparation of Required

   [.8] Profit Plan—Preparation of Plan Required

   [.9] Violations of Law—Correction of Violations Required

   [.10] Funds Management and Liquidity—Preparation or Revision of Funds Management Policy Required

   [.11] Bank Operations—Internal Routine and Control Procedures—Written Plan Required

   [.12] Dividends—Dividends Restricted

   [.13] Brokered Deposits—Restricted

   [.14] Interest Rates—Documentation of Required

   [.15] Shareholders—Disclosure of Cease and Desist Order Required
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In the Matter of
SOUTHLAND BUSINESS BANK
IRWINDALE, CALIFORNIA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

FDIC-02-156B

   Southland Business Bank, Irwindale, 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 October 17, 2002, 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 management;

   (b) operating with a board of directors which has failed to provide adequate supervision over and direction to the active management of the Bank;

   (c) engaging in unsatisfactory lending and collection practices;

   (d) operating with inadequate capital in relation to the kind and quality of assets held by the Bank;

   (e) operating with a large volume of poor quality loans relative to its new bank status;

   (f) operating with inadequate provisions for liquidity;

   (g) operating with inadequate internal routine and controls policies; and

   (h) operating in such a manner as to produce operating losses.

   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 shall include a chief executive officer with proven ability in managing a bank of comparable size, improving earnings, and other matters needing particular attention. Management shall also include a senior lending officer and chief financial officer. The senior lending officer shall have significant appropriate lending, collection, and loan supervision experience, and experience in upgrading a low quality loan portfolio. The chief financial officer shall have proven ability to manage the financial aspects of a bank of comparable size, and other matters requiring particular attention. 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") in writing when
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   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.

   [.2]2. Within 30 days from the effective date of this ORDER, the board of directors shall increase its participation in the affairs of the Bank, assuming full responsibility for the approval of sound policies and objectives and for the supervision of all of the Bank's activities, consistent with the role and expertise commonly expected for directors of Banks of comparable size. This participation shall include meetings to be held no less frequently than monthly at which, at a minimum, the following areas shall be 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 review and approvals, including the names of any dissenting directors.

   [.3]3. (a) Within 180 days from the effective date of this ORDER, the Bank shall have Tier 1 capital in such an amount as to equal or exceed ten (10.0) 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 ten (10.0) percent of the Bank's total assets.

   (b) Within 30 days from the effective date of this ORDER, the Bank shall have and maintain a total risk based capital ratio, as defined in Part 325.2(y) of the FDIC's Rules and Regulations, 12 C.F.R. 325.2(y), of at least ten (10.0) percent.

   (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 allowance for loan and lease losses, the adequacy of which shall be satisfactory to the Regional Director 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 and/or shareholders of the Bank; or

       (iv) any other means acceptable to the Regional Director; 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 Bank's allowance for loan and lease losses.

   (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 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, Accounting and Securities Section, 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 for prior approval.

   (f) In complying with the provisions of Paragraph 3 of this ORDER, the Bank shall provide to any subscriber and/or purchaser of the Bank's securities, a written
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   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).

   [.4]4. Within 30 days from the effective date of this ORDER, the Bank shall establish and thereafter maintain an adequate allowance for loan and lease losses.

   Additionally, within 60 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 allowance for loan and lease 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 allowance at least once each calendar quarter. Said review should be completed within fifteen (15) days of the end of each quarter, in order that the findings of the board of directors with respect to the loan and lease loss allowance 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 allowance 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 allowance for loan and lease losses consistent with the allowance for loan and lease loss policy established. Such policy and its implementation shall be satisfactory to the Regional Director as determined at subsequent examinations and/or visitations.

   [.5]5. (a) Within 90 days from the effective date of this ORDER, the Bank shall reduce the adversely classified assets identified in the Report of Examination dated May 06, 2002, to not more than $400,000.

   (b) Within 180 days from the effective date of this ORDER, the Bank shall reduce the adversely classified assets identified in the Report of Examination dated May 06, 2002, to not more than $300,000.

   (c) Within 90 days from the effective date of this ORDER, the Bank shall reduce the Special Mention assets identified in the Report of Examination dated May 06, 2002, to not more than $700,000.

   (d) Within 180 days from the effective date of this ORDER, the Bank shall reduce the Special Mention assets identified in the Report of Examination dated May 06, 2002, to not more than $500,000.

   (e) The requirements of subparagraphs 5(a), 5(b), 5(c), and 5(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 and Special Mention 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 paragraph 5 the word "reduce" means:

       (i) to collect;

       (ii) to charge-off; or

       (iii) to sufficiently improve the quality of adversely classified or Special Mention assets to warrant removing any adverse classification or Special Mention designation, as determined by the FDIC.

   [.6]6. (a) Within 30 days from the effective date of this ORDER, the Bank shall revise, adopt, and implement written lending and collection policies to provide effective guidance and control over the Bank's lending function, which policies shall include specific guidelines for placing loans on a non-accrual basis. In addition, the Bank shall take all reasonable steps to obtain adequate and current documentation for all loans in the Bank's loan portfolio. Such policies and their implementation shall be in a
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   form and manner acceptable to the Regional Director as determined at subsequent examinations and/or visitations.

   (b) The board of directors shall adopt procedures whereby officer compliance with the revised lending and collection policies are monitored and responsibility for exceptions thereto assigned. The procedures adopted shall be reflected in minutes of a board of directors meeting at which a quorum of all members are present and the vote of each is noted.

   [.7]7. Within 60 days of the effective date of this ORDER, the Bank shall develop and submit to the Regional Director a written three-year strategic plan. Such plan shall include specific goals for the dollar volume of total loans, total investment securities, and total deposits as of December 31, 2002, December 31, 2003, and December 31, 2004. For each time frame, the plan will also specify the anticipated average maturity and average yield on loans and securities; the average maturity and average cost of deposits; the level of earning assets as a percentage of total assets; and the ratio of net interest income to average earning assets. The plan shall be in a form and manner acceptable to the Regional Director as determined at subsequent examinations and/or visitations.

   [.8]8. Within 60 days from the effective date of this ORDER, the bank shall formulate and implement a written profit plan. This plan shall be forwarded to the Regional Director for review and comment and shall address, at a minimum, the following:

   (a) goals and strategies for improving and sustaining the earnings of the Bank, including:

       (i) an identification of the major areas in, and means by which, the board of directors will seek to improve the Bank's operating performance:

       (ii) realistic and comprehensive budgets;

       (iii) a budget review process to monitor the income and expenses of the Bank to compare actual figures with budgetary projections; and

       (iv) a description of the operating assumptions that form the basis for, and adequately support, major projected income and expense components.

   (b) coordination of the Bank's loan, investment, and operating policies, and budget and profit planning, with the funds management policy.

   [.9]9. Within 30 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of law and contraventions of policy which are more fully set out on pages 24 through 30 of the Report of Examination of the Bank dated May 6, 2002. In addition, the Bank shall take all necessary steps to ensure future compliance with all applicable laws and regulations.

   [.10]10. Within 30 days from the effective date of this ORDER, the Bank shall develop or revise, adopt, and implement a written liquidity and funds management policy. Such policy and its implementation shall be in a form and manner acceptable to the Regional Director as determined at subsequent examinations and/or visitations.

   [.11]11. Within 30 days from the effective date of this ORDER, the Bank shall adopt and implement a policy for the operation of the Bank in such a manner as to provide adequate internal routine and control policies consistent with safe and sound banking practices. Such policy and its implementation shall be satisfactory to the Regional Director as determined at subsequent examinations and/or visitations.

   [.12]12. The Bank shall not pay cash dividends without the prior written consent of the Regional Director.

   [.13]13. Upon the effective date of this Order, the Bank shall not increase the level of brokered deposits above the amount outstanding on that date without the prior written approval of the Regional Director. For purposes of this Order, the term "brokered deposits" shall have the same meaning as defined in Part 337.6 of the FDIC Rules and Regulations, 12 C.F.R. 337.6, and includes deposits obtained by offering rates of interest which are significantly higher than the prevailing rates of interest offered by other depository institutions in the Bank's normal market area.

   [.14]14. During the life of this ORDER, the Bank shall have and retain adequate documentation to support the rate of interest offered on all deposit accounts. This documentation shall include prevailing rate surveys of market competitors in the Bank's normal market area. Surveys should be updated at least weekly, or whenever the Bank makes a change
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   in the rate of interest offered on deposit accounts, whichever occurs more frequently.

   [.15]15. 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, Accounting and Securities Section, 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.

   16. Within 50 days of the end of the first quarter following the effective date of this ORDER, and within fifty (50) days of the end of each quarter thereafter, the Bank shall furnish written progress reports to the Regional Director 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 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.

   Pursuant to delegated authority.

   Dated at San Francisco, California, this 21st day of October, 2002.

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