EXHIBIT 2
UNITED STATES OF AMERICA
BEFORE THE
OFFICE OF THRIFT SUPERVISION
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) OTS Order No.:
In the Matter of: )
) Dated:
LIFE BANK, )
RIVERSIDE, CALIFORNIA. )
(OTS No. 07946) )
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PROMPT CORRECTIVE ACTION DIRECTIVE
WHEREAS, Life Bank, Riverside, California (the Institution) is a
federal savings association that is regulated by the Office of Thrift
Supervision (OTS); and
WHEREAS, Section 38 of the Federal Deposit Insurance Act (FDIA) as
added by Section 131 of the Federal Deposit Insurance Corporation Improvement
Act of 1992(FDICIA), 12 U.S.C. Section 1831o and Part 565 of the OTS
regulations promulgated thereunder, 12 C.F.R. Part 565, require institutions
that are undercapitalized to file a capital restoration plan specifying the
steps the Institution will take to become at least adequately capitalized; and
WHEREAS, Section 38 of the FDIA, 12 U.S.C. Section 1831o, requires
the OTS to take prompt corrective action to resolve the problems of insured
savings associations at the least possible long-term loss to the deposit
insurance fund; and
WHEREAS, Section 565.7 of the OTS regulations, 12 C.F.R. Section
565.7, provides for the issuance by the OTS of directives to take prompt
corrective action to resolve the problems of insured depository institutions
and to restore their capital; and
WHEREAS, the Institution was notified on October 19, 2000 that the
Institution was undercapitalized for purposes of the prompt corrective action
provisions of Section 38 of the FDIA, 12 U.S.C. Section 1831o; and
WHEREAS, Section 5(t)(6)(B)(ii) of the Home Owners' Loan Act (HOLA),
12 U.S.C. Section 1464(t)(6)(B)(ii), requires any savings association not in
compliance with capital standards to comply with a capital directive issued
by the OTS; and
WHEREAS, the Institution has not submitted a capital restoration
plan that is acceptable under Section 38(e)(2)(C) of the FDIA, 12 U.S.C.
Section 1831o(e)(2)(C); and
WHEREAS, the Institution and the Board of Directors thereof, by
execution of the attached Stipulation and Consent (the Stipulation) to the
issuance of this Prompt Corrective Action Directive (the Directive), the terms
of which are incorporated herein by this reference, have stipulated and
consented to the issuance of this Directive; and
WHEREAS, the OTS issued a Notice of Intent to Issue this Directive on
February 16, 2001, has considered the response filed by the Institution, and has
determined to issue this Directive in order
to carry out the purposes of Section 38 to resolve the Institution's problems at
the least long-term loss to the deposit insurance fund;
NOW, THEREFORE, pursuant to Section 565.7(a)(1) of the OTS regulations,
12 C.F.R. Section 565.7(a)(1), the Institution and its Board of Directors are
directed to do the following, effective as of the date hereof:
PART I - IMPROVING CAPITAL
SECTION 1.1
REQUIRED SECURITIES ISSUANCE.
Pursuant to Section 38(f)(2)(A)(i) of the FDIA, 12 U.S.C. Section
1831o(f)(2)(A)(i), the Institution is directed to raise sufficient capital
through securities issuance to achieve the following capital levels by June
30, 2001: Total risk-based capital of 8.0 percent; Tier 1 risk-based capital
of 4.0 percent; and Leverage ratio of 4.0 percent.
SECTION 1.2
REQUIRED ACQUISITION OR MERGER.
As an alternative to Section 1.1, pursuant to Section
38(f)(2)(A)(iii) of the FDIA, 12 U.S.C. Section 1831o(f)(2)(A)(iii), the
Institution is directed to be recapitalized by merging or being acquired
prior to September 30, 2001, and shall submit a binding merger or acquisition
agreement to the OTS by June 30, 2001. The Institution's management and Board
of Directors shall take appropriate steps to accomplish such merger or
acquisition.
SECTION 1.3
EFFORTS TO OBTAIN CAPITAL.
a) On or after the date of this Directive, the Institution and its Board
of Directors shall at all times make diligent and good faith efforts to
seek capital in accordance with the provisions of this Directive.
b) For purposes of this Directive, diligent and good faith efforts to seek
capital by the Institution and its Board of Directors shall include, at
a minimum, taking all reasonably practicable steps to remove any
impediments to increasing capital.
c) The Institution shall inform the OTS in writing of (i) all efforts the
Institution has made to seek capital; and (ii) all expressions of
interest by prospective investors, acquirors, or merger candidates.
Such reports shall be submitted not later than the 15th and 30th day of
each month until otherwise notified by the OTS.
SECTION 1.4
REPORTS OF COMPLIANCE.
a) No later than twenty-five (25) days following the end of each month,
management of the Institution shall prepare, and the Board of Directors
of the Institution shall review, a written report concerning the
Institution's compliance with the requirements of this Directive during
the prior month. The report and review shall include verification of
the
Institution's prompt corrective action capital category and
confirmation that the Institution is in compliance with all
restrictions that apply automatically to an institution in that
category, and with the other restrictions contained in this Directive.
This review shall be documented in the minutes of the meeting of the
Board of Directors. All documentation considered by the Board of
Directors in performing its review shall be explicitly referenced in
the minutes of the meeting at which the review was undertaken.
b) The Institution shall, no later than thirty (30) days following the end
of each month, submit the following documents to the OTS in a format
acceptable to the OTS:
1) Confirmation of the Institution's compliance with this
Directive, or a description of any instances of noncompliance
with any of the Institution's obligations under this
Directive, and the specific measures undertaken to cure such
noncompliance; and
2) If requested, copies of the minutes of the Institution's Board
of Directors supporting actions taken to comply with this
Section of the Directive.
SECTION 1.5
ADEQUATE PROGRESS.
If the OTS, in its sole discretion, determines that the Institution is
failing to make adequate progress towards achieving the requirements set forth
in this Directive, the OTS may take such further supervisory, enforcement, or
resolution action as it deems appropriate.
PART II - OPERATING RESTRICTIONS
SECTION 2.1
COMPLIANCE WITH MANDATORY RESTRICTIONS.
The Institution shall comply with all of the mandatory prompt
corrective action provisions contained in Section 38 of the FDIA, 12 U.S.C.
Section 1831o, which automatically apply to the Institution based upon the
Institution's prompt corrective action capital category at any given time.
These provisions are set forth at 12 U.S.C. Sections 1831o(d)(1) (capital
distributions restriction), (d)(2) (management fees restriction), (e)(3)
(asset growth restriction), (e)(4) (restrictions on acquisitions, branching,
and new lines of business), (f)(4) (senior executive officers' compensation
restriction), (h)(2) (prohibition on payment of subordinated debt), and (i)
(restrictions on activities). However, if the Institution should improve from
a lower to a higher PCA capital category, it should continue to comply with
the previously applicable mandatory sanctions of the lower
category, until such time as approval to cease compliance with the lower
category sanctions is requested of and received from the OTS.
SECTION 2.2
SISTER BANK/THRIFT EXEMPTION UNAVAILABLE.
Pursuant to Section 38(f)(2)(B)(i) of the FDIA, 12 U.S.C. Section
1831o(f)(2)(B)(i), the Institution shall comply with Section 23A of the
Federal Reserve Act (FRA) (12 U.S.C. Section 371c) in any transaction with
any depository institution affiliates, as if the exemptions at Section 23A of
the FRA (12 U.S.C. Seciton 371c)(d)(1)) did not apply.
SECTION 2.3
RESTRICTIONS ON INTEREST RATES.
Pursuant to Section 38(f)(2)(C) of the FDIA, 12 U.S.C. Section
1831o(f)(2)(C), the Institution shall restrict the rates the Institution pays
on deposits to the prevailing rates of interest on deposits of comparable
amounts and maturities in the region where the Institution is located.
Nothing herein shall be construed as requiring a reduction of interest rates
paid on outstanding time deposits prior to their renewal.
SECTION 2.4
RESTRICTIONS ON MATERIAL TRANSACTIONS.
Pursuant to Section 38(f)(5) of the FDIA, 12 U.S.C. Section
1831o(f)(5), based upon a determination by the OTS that the imposition of
certain restrictions described in Section 38(i) of the FDIA, 12 U.S.C.
Section 1831o(i), is necessary to carry out the purposes of
Section 38 of the FDIA, the Institution is hereby prohibited from entering into
any material transaction other than in the usual course of business, including
any investment, expansion, acquisition, sale of assets, or other similar action
with respect to which the Institution is required to provide notice to the OTS,
without the prior written consent of the OTS.
SECTION 2.5
RESTRICTIONS ON EXTENDING CREDIT.
Pursuant to Section 38(f)(5) of the FDIA, 12 U.S.C. Section
1831o(f)(5), based upon a determination by the OTS that the imposition of
certain restrictions described in Section 38(i) of the FDIA, 12 U.S.C.
Section 1831o(i), is necessary to carry out the purposes of Section 38 of the
FDIA, the Institution is hereby prohibited from extending credit on a highly
leveraged transaction.
SECTION 2.6
RESTRICTIONS ON CHANGING ACCOUNTING METHODS.
Pursuant to Section 38(f)(5) of the FDIA, 12 U.S.C. Section
1831o(f)(5), based upon a determination by the OTS that the imposition of
certain restrictions described in Section 38(i) of the FDIA, 12 U.S.C.
Section 1831o(i), is necessary to carry out the purposes of Section 38 of the
FDIA, the Institution is hereby prohibited from making any material change in
accounting methods without the prior written consent of the OTS.
SECTION 2.7
RESTRICTIONS ON COVERED TRANSACTIONS.
Pursuant to Section 38(f)(5) of the FDIA, 12 U.S.C. Section
1831o(f)(5), based upon a determination by the OTS that the imposition of
certain restrictions described in Section 38(i) of the FDIA, 12 U.S.C.
Section 1831o(i), is necessary to carry out the purposes of Section 38 of the
FDIA, the Institution is hereby prohibited from entering into any covered
transaction as defined in 12 C.F.R. Section 563.41(b)(7) or 12 U.S.C. Section
371c(b).
PART III - GENERAL PROVISIONS
SECTION 3.1
DEFINITIONS.
All technical words or terms used in this Directive, for which meanings
are not specified or otherwise provided by the provisions of this Directive,
shall, insofar as applicable, have meanings as defined in Chapter V of Title 12
of the Code of Federal Regulations, HOLA, FDIA, or OTS memoranda. Any such
technical words or terms used in this Directive and undefined in said Code of
Federal Regulations, HOLA, FDIA, or OTS memoranda shall have meanings that are
in accordance with the best custom and usage in the savings and loan industry.
SECTION 3.2
SUCCESSOR STATUTES, REGULATIONS, GUIDANCE, AMENDMENTS.
Reference in this Directive to provisions of statutes and regulations
shall be deemed to include reference to all amendments to such provisions as
have been made as of the effective date hereof and references to successor
provisions as they become applicable.
SECTION 3.3
NOTICES.
Except as otherwise provided herein, any request, demand,
authorization, direction, notice, consent, waiver or other document provided or
permitted by the Directive to be made upon, given or furnished to, delivered to,
or filed with the OTS or the Institution shall be in writing and mailed, by
first class mail or overnight courier, sent by electronic transmission, or
physically delivered, and addressed as follows:
OTS Life Bank
Attn: Michael W. Buting Attn: Steven Gardner
1551 N. Tustin Ave., Ste 1050 10540 Magnolia Ave, Ste B
Santa Ana, CA 92705-8635 Riverside, CA 92505-1814
SECTION 3.4
DURATION, TERMINATION, OR SUSPENSION OF THE DIRECTIVE.
a) The terms and provisions of this Directive shall be binding upon the
Institution and its successors in interest.
b) The Directive shall remain in effect until terminated, modified, or
suspended in writing by the OTS.
c) The OTS, in its discretion, may, by written notice, suspend any or all
provisions of this Directive, except for Section 2.1.
SECTION 3.5
EFFECT OF HEADINGS.
The Part and Section headings herein are for convenience only and shall
not affect the construction hereof.
SECTION 3.6
SEPARABILITY CLAUSE.
In case any provision in this Directive is ruled to be invalid,
illegal, or unenforceable by the decision of any court of competent
jurisdiction, the validity, legality and enforceability of the remaining
provisions hereof shall not in any way be affected or impaired thereby unless
the OTS, in its discretion, determines otherwise.
SECTION 3.7
NO VIOLATIONS AUTHORIZED; CONSEQUENCES OF DIRECTIVE.
Nothing in this Directive, including, without limitation, any of the
timeframes for actions set forth in Part I, shall be construed as: (i) allowing
the Institution to violate any law, rule, regulation, or policy statement to
which it is subject; or (ii) restricting the OTS from taking such actions as are
appropriate in fulfilling the responsibilities placed upon it by law, including,
without limitation, actions pursuant to Section 38 of the FDIA, or
taking any other type of supervisory, enforcement, or resolution action that the
OTS determines to be appropriate.
SECTION 3.8
OTHER ENFORCEMENT DOCUMENTS.
The Supervisory Agreement dated September 25, 2000, shall remain in
full force and effect in accordance with its terms and the subsequent
termination of this Directive, if and when it occurs, shall have no impact upon
the Supervisory Agreement and its continued enforceability. This Section 3.8 is
for information and convenience only and shall not modify, amend, supersede, or
otherwise affect the construction, interpretation, or enforceability of the
Supervisory Agreement. Nothing contained in this Directive shall affect or limit
the OTS's ability to take enforcement action in connection with any violation of
the Supervisory Agreement.
IT IS SO ORDERED.
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CHARLES A. DEARDORFF
REGIONAL DIRECTOR
WEST REGION