-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VRkqbZwnCe3YoZpRfnqxm9lGNtB7+Yuiyw9m8BProMYc8YZOhTpU31GHRVbDvCAn QHYjXrn5P/Zm7TwFak/2fg== /in/edgar/work/0001017062-00-002079/0001017062-00-002079.txt : 20001003 0001017062-00-002079.hdr.sgml : 20001003 ACCESSION NUMBER: 0001017062-00-002079 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000925 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000929 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIFE FINANCIAL CORP CENTRAL INDEX KEY: 0001028918 STANDARD INDUSTRIAL CLASSIFICATION: [6035 ] IRS NUMBER: 330743196 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-22193 FILM NUMBER: 732750 BUSINESS ADDRESS: STREET 1: 10540 N MAGNOLIA ACE STREET 2: UNIT B CITY: RIVERSIDE STATE: CA ZIP: 92503 BUSINESS PHONE: 9096374000 MAIL ADDRESS: STREET 1: 1598 EAST HIGHLAND AVENUE CITY: SAN BERNADINO STATE: CA ZIP: 92404 8-K 1 0001.txt DATE OF REPORT: SEPTEMBER 25, 2000 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of Earliest Event Reported): September 25, 2000 LIFE FINANCIAL CORPORATION (Exact Name of Registrant as Specified in Charter) 0-22193 (Commission File No.) DELAWARE 33-0743195 (State or Other Jurisdiction (IRS Employer of Incorporation) Identification No.) 10540 Magnolia Avenue, Suite B, Riverside CA 92503-1814 (Address of Principal Executive Offices) (Zip Code) (909) 637-4000 (Registrant's Telephone Number, Including Area Code) Not applicable (Former Name or Former Address, If Changed Since Last Report) ITEM 5. OTHER EVENTS On September 25, 2000, we consented to the issuance of an Order to Cease and Desist (the "Order") by the Office of Thrift Supervision (the "OTS"). The Order requires us, among other things, to contribute $5.2 million to the capital of Life Bank, our principal subsidiary ("Life Bank"), not later than December 31, 2000, subject to extension by the OTS. We are also required to observe certain requirements regarding transactions with affiliates, books and records, tax sharing arrangements with Life Bank and the maintenance of a separate corporate existence from Life Bank. Also, on September 25, 2000, Life Bank entered into a Supervisory Agreement with the OTS. The Supervisory Agreement requires Life Bank, among other things, to achieve a core capital of at least 6% and a total risk-based capital of at least 11% by March 31, 2001. In calculating these ratios, Life Bank must risk weight all sub-prime loans it holds at double the regularly prescribed risk weighting. The Supervisory Agreement also requires that Life Bank add at least two new independent members to its Board of Directors, not pay dividends without OTS approval and revise many of its policies and procedures, including those pertaining to internal asset review, allowances for loan and lease losses, interest rate risk management, mortgage banking operations, liquidity, separate corporate existence, loans to one borrower and oversight by the Board of Directors. We and Life Bank are required to furnish quarterly reports to the OTS detailing our compliance, or failure to comply, with the Order and the Supervisory Agreement. We have retained Keefe, Bruyette & Woods as our financial advisor in connection with the Order and the Supervisory Agreement. The OTS has also approved the election of Steven R. Gardner as the President and Chief Executive Officer, and Roy L. Painter as the Chief Financial Officer, of Life Financial and Life Bank. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (c) Exhibits. 99.1 Stipulation and Consent to Issuance of Order to Cease and Desist executed by Life Financial Corporation on September 25, 2000. 99.2 Order to Cease and Desist issued by the OTS on September 25, 2000. 99.3 Supervisory Agreement dated as September 25, 2000, by and between Life Bank and the Office of Thrift Supervision. 99.4 Press Release issued September 26, 2000. SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LIFE FINANCIAL CORPORATION Dated: September 29, 2000 By: /s/ Steven R. Gardner ------------------------------------- Steven R. Gardner President and Chief Executive Officer EX-99.1 2 0002.txt ISSUANCE OF ORDER TO CEASE AND DESIST EXHIBIT 99.1 UNITED STATES OF AMERICA Before the OFFICE OF THRIFT SUPERVISION - ------------------------------ In the Matter of: OTS Order No.: Life Financial Corporation, Date: OTS Docket No. H-2834 - ------------------------------ STIPULATION AND CONSENT TO ISSUANCE OF -------------------------------------- ORDER TO CEASE AND DESIST ------------------------- WHEREAS, the Office of Thrift Supervision (OTS), based upon information derived from the exercise of its regulatory responsibilities, is of the opinion that grounds exist to initiate an administrative cease and desist proceeding against Life Financial Corporation (Life Financial), OTS Docket No. H-2834, pursuant to Section 8 of the Federal Deposit Insurance Act (FDIA), 12 U.S.C. (S) 1818(b)(1)./1/ WHEREAS, Life Financial desires to cooperate with the OTS and to avoid the time and expense of such administrative proceeding and, therefore, hereby stipulates and agrees to the following terms: 1. Jurisdiction. ------------ a) Life Financial owns one hundred percent (100%) of the outstanding common stock of Life Bank, F.S.B., Riverside, California, (the Institution), an insured savings association, and is a savings and loan holding company as that term is defined at 12 U.S.C. (S) 1467a(a)(1)(D). - ---------------------------- /1/ All references to the United States Code (USC) are as amended. 1 b) Pursuant to 12 U.S.C. (S) 1818(b)(9), the "appropriate Federal banking agency" may initiate cease-and-desist proceedings against a savings and loan holding company in the same manner and to the same extent as savings associations for regulatory violations and unsafe or unsound acts or practices. c) Pursuant to 12 U.S.C. (S) 1813(q), the Director of the OTS is the "appropriate Federal banking agency" with authority to initiate cease-and- desist proceedings against savings and loan holding companies. Accordingly, Life Financial is subject to the jurisdiction of the OTS to initiate and maintain such administrative proceedings pursuant to 12 U.S.C. (S) 1818(b). 2. OTS Findings of Fact. -------------------- The OTS finds that Life Financial has engaged in activities and practices that are unsafe and unsound, and caused the Institution to engage in activities and practices that are unsafe and unsound, and in violation of regulations and regulatory guidance, as follows: a) The December 31, 1999 sale to the Institution of $5.2 million in residual assets to the Institution, the June 23, 1999 sale of $25.5 million in residual assets to the Institution, and the October 15, 1999 sale of $40.1 million in loans to the Institution, each exceeded ten percent of capital and surplus of the Institution, in violation of 12 C.F.R. 563.41 (S) (a)(1)(i). As a result of these transactions, Life Financial owed the Institution $1.3 million as of June 23, 1999 and $2.2 million as of October 15, 1999 (repaid on July 30, 1999 and November 26, 1999, respectively), which constituted unsecured advances by the Institution in violation of 12 C.F.R. (S) 563.41(c). b) In addition, the December 31, 1999 sale of $5.2 million in residual assets to the 2 Institution was not supported by empirical data that showed this transaction was on terms and under circumstances that were substantially the same, or at least as favorable to the Institution as those prevailing at the time for comparable transactions with or involving nonaffiliated companies, in violation of 12 C.F.R. (S) 563.42. Likewise, Life Financial and the Institution failed to provide sufficient support to ensure that bonds and mortgage servicing rights the Institution sold to Life Financial on June 23, 1999 and October 15, 1999 met the qualitative requirements of 12 C.F.R. (S) 563.42. Life Financial and the Institution failed to demonstrate that these transactions were on terms and under circumstances that were substantially the same, or at least as favorable to the Institution as those prevailing at the time for comparable transactions with or involving nonaffiliated companies. c) Life Financial had outstanding accounts payable to the Institution of $1.6 million and $98,000 for December 31, 1999 and March 31, 2000, respectively, which constitute unsecured advances by the Institution in violation of 12 C.F.R. (S) 563.41(c). d) Further, the June 23, 1999 and October 15, 1999 sales of $25.5 million and $40.1 million, respectively, in assets to the Institution, each exceeded twenty percent of the Institution's capital and surplus in violation of 12 C.F.R. (S) 563.41(a)(1)(ii). e) During the fourth quarter of 1998, 1999, and the first quarter of 2000, the Institution paid Life Financial approximately $4.3 million in fees for work performed by Life Capital Markets (LCM) division. Life Financial and the Institution failed to demonstrate that these transactions were on terms and under circumstances that were substantially the same, or at least as favorable to the Institution as those prevailing at the time for 3 comparable transactions with or involving nonaffiliated companies, in violation of 12 C.F.R. (S) 563.42. f) The Transactions With Affiliates Log maintained by Life Financial failed to properly identify all transactions with affiliates, and ensure compliance with applicable regulations by the Institution. The Transactions With Affiliates Log erroneously stated that several transactions between Life Financial and the Institution were not subject to the applicable regulations, and the Log was unclear with respect to outgoing and income cash flows. g) The Tax Sharing Agreement between Life Financial and the Institution fails to comply with applicable regulatory guidance in that it does not ensure that the tax payment by the Institution does not exceed the lesser of the Institution's tax liability or the combined tax liability of the consolidated entities to the taxing authorities. 3. Consent. ------- Without admitting or denying the findings contained herein, except as to the jurisdiction of the OTS over Life Financial, which is admitted, Life Financial hereby consents to the issuance by the OTS of the accompanying Order to Cease and Desist ("Order"). Life Financial further agrees to comply with all terms of the Order upon its issuance and stipulates that the Order complies with all requirements of law. 4. Finality. -------- The Order is issued pursuant to 12 U.S.C. (S) 1818(b). Upon its issuance by the Regional Director for the West Region, or his designee, it shall be a final order, effective and fully enforceable by the OTS under 12 U.S.C. (S) 1818(i). 4 5. Waivers. ------- a) Life Financial hereby waives any and all rights to a written Notice of Charges and administrative hearing provided by 12 U.S.C. (S) 1818(b), and further waives any right to seek judicial review of the Order, including any such right provided by 12 U.S.C. (S) 1818(h), or otherwise challenge the validity of the Order. b) Life Financial acknowledges and agrees that the consent to the entry of the Order is for the purpose of resolving this OTS enforcement matter only, arising out of the findings described herein, and does not resolve, affect, or preclude any other civil or criminal proceeding that may be or has been brought by the OTS or any other governmental entity. c) Life Financial hereby waives any and all claims against the OTS, including its employees and agents, and any other governmental entity for the award of fees, costs or expenses related to this OTS enforcement matter and for the Order, whether arising under common law, the Equal Access to Justice Act (5 U.S.C. (S) 504), or 28 U.S.C. (S) 2412. 6. Signature of Directors. ---------------------- Each director signing this Stipulation, without admitting or denying the findings contained herein, except as to the jurisdiction of the OTS over Life Financial, which is admitted, attests that he or she voted in favor of a resolution authorizing the execution of the Stipulation. 5 WHEREFORE, Life Financial, by a majority of its directors, executes this Stipulation and Consent to the Entry of an Order to Cease and Desist, intending to be legally bound thereby. LIFE FINANCIAL CORPORATION By a Majority of its Directors: Robert K. Riley 9/25/2000 - ------------------------ ----------------------- Director Date Milton E. Johnson 9/25/2000 - ------------------------ ----------------------- Director Date Ronald G. Skipper 9/25/2000 - ------------------------ ----------------------- Director Date John D. Goddard 9/25/2000 - ------------------------ ----------------------- Director Date Edgar C. Keller 9/25/2000 - ------------------------ ----------------------- Director Date 6 EX-99.2 3 0003.txt ORDER TO CEASE AND DESIST ISSUED BY THE OTS EXHIBIT 99.2 UNITED STATES OF AMERICA Before the OFFICE OF THRIFT SUPERVISION ________________________________ ) In the Matter of: ) OTS Order No.: ______________ ) Life Financial Corporation, ) Date: OTS Docket No. H-2834 ) ) ________________________________) ORDER TO CEASE AND DESIST ------------------------- WHEREAS, Life Financial Corporation ("Life Financial"), OTS Docket No. H- 2834, owns one hundred percent (100%) of the outstanding common stock of Life Bank, F.S.B., Riverside, California, ("the Institution"), an insured savings association; and WHEREAS, Life Financial is a savings and loan holding company as that term is defined at 12 U.S.C. (S) 1467a(a)(1)(D); and WHEREAS, Life Financial, by and through its Boards of Directors (the Board), has executed a Stipulation and Consent to the Issuance of an Order to Cease and Desist (Stipulation); and WHEREAS, Life Financial, in the Stipulation, has consented and agreed to the issuance of this Order to Cease and Desist (Order) pursuant to 12 U.S.C. (S) 1818(b); and WHEREAS, the Director of the Office of Thrift Supervision (OTS) has delegated to the Regional Directors of the OTS the authority to issue an Order to Cease and Desist on behalf of the OTS where entities subject to OTS jurisdiction have consented to the issuance of the Order. 1 NOW, THEREFORE, IT IS ORDERED that: A. CAPITAL INFUSION ---------------- 1. By no later than December 31, 2000, Life Financial shall contribute to the Institution capital in the amount of $5.2 million, which represents reimbursement to the Institution of the amount the Institution paid to Life Financial for its residual assets; provided, however, that in the event the OTS determines that Life Financial is making satisfactory progress towards such capital raising efforts, then Life Financial shall not be deemed to be in violation of this Order. The tax refunds, if any, due the Institution shall not be counted in this required infusion. Life Financial shall provide satisfactory evidence of such infusion to the OTS within five (5) days after the infusion is complete. B. TRANSACTIONS-WITH-AFFILIATES ---------------------------- 1. Life Financial shall not enter into any transaction, or otherwise engage in any action, which would cause, directly or indirectly, the Institution to violate or be in violation of 12 C.F.R. (S)(S) 563.41 and 563.42. 2. Life Financial shall provide the OTS with at least 30 days prior written notice of any transaction that would constitute a "covered transaction" from the perspective of Life Bank. The term "covered transaction" shall have the meaning as set forth at 12 C.F.R. (S) 563.41(b)(7). 3. Life Financial shall provide the OTS with at least 30 days prior written notice of any transaction, or series of transactions, between Life Bank and any third party where: (a) Life Financial, or any affiliate, holder of 5.0 percent of the company's stock, officer, or director of Life Financial, has a financial interest in the third party; (b) Life Financial, or any affiliate, shareholder, officer, or director of Life Financial, participates in the 2 transaction; or (c) any of the proceeds of the transaction are used for the benefit of, or transferred to, directly or indirectly, Life Financial, or any affiliate, holder of 5.0 percent of the company's stock, officer, or director of Life Financial For purposes of this paragraph, the term "affiliate" as it relates to Life Financial shall have the meaning as set forth at 12 C.F.R. (S) 563.41(b)(1) with "Life Financial" substituted for "savings association." 4. Upon written notice of objection by OTS during the notice period set forth in paragraphs (B) 1-3, above, Life Financial shall not enter into the transactions identified in the notice. 5. The Board shall take all necessary measures to cause the procedures governing the Transactions With Affiliates Log to be revised to ensure compliance with all applicable laws, regulations or regulatory guidance. Beginning July 31, 2000, and monthly thereafter, the Board shall submit the Transactions With Affiliates Log to the Assistant Regional Director for review. C. BOOKS AND RECORDS ----------------- 1. In accordance with 12 C.F.R. (S) 563.170(c), Life Financial shall at all times maintain adequate books and records to enable management, outside auditors, and examiners to adequately and timely review Life Financial's operations and activities. This requirement, at a minimum, includes maintenance of accurate and reliable minutes of meetings, certified by the secretary, or assistant secretary, of the corporation. 2. The Board shall meet at least monthly. The Board shall prepare in advance and shall follow a detailed written agenda at each meeting, which shall include consideration of actions of any committees. A chronological file of all written agendas shall be maintained. Notwithstanding, the foregoing, the Board shall not be precluded from 3 considering matters other than those contained on the agenda. Detailed written minutes of all Board meetings shall be timely maintained and recorded. Within 10 days following each meeting of the Board, Life Financial shall submit the official certified minutes of that meeting to the Assistant Regional Director. D. TAX SHARING ----------- 1. Life Financial shall not cause the Institution to upstream any tax payment (nor accept any such payment) that exceeds the lesser of the Institution's tax liability or the combined tax liability of the consolidated entities to the taxing authorities. 2. Within 60 days from the Effective Date, Life Financial shall approve and submit to the ARD for review and non-objection a revised Tax Sharing Agreement. The revised Tax Sharing Agreement shall be in compliance with all regulatory guidance and shall govern the relationship between the Institution and Life Financial. The revised Tax Sharing Agreement shall require complete documentation of any calculation utilized by the Institution or Life Financial to upstream funds for the payment of any tax liability. 3. Within 15 days of receipt of the ARD's objection, if any, to any aspect of the revised Tax Sharing Agreement, Life Financial shall submit a revised agreement to the ARD addressing any such objections or comments of the ARD. 4 Once the revised Tax Sharing Agreement is submitted pursuant to this Order and all objections from the ARD, if any, have been satisfactorily resolved, Life Financial may not amend, suspend, or revoke the agreement without the prior written non-objection from the ARD. 4 5. Within 15 days of receiving notice of the ARD's non-objection to the revised Tax Sharing Agreement, Life Financial shall implement the agreement and ensure that all signatories adhere to it. 6. Within 60 days following the end of each calendar quarter, Life Financial shall approve and submit a report to the ARD detailing its progress in implementing the revised Tax Sharing Agreement. E. FINANCIAL STATEMENTS -------------------- 1. Within 60 days from the Effective Date, Life Financial shall prepare and submit to the Assistant Regional Director a comprehensive, report on Life Financial's condition on a pro forma unconsolidated basis (Financial Statement) for the immediately preceding four quarters. 2. Thereafter, Life Financial shall monthly submit a Financial Statement to the Assistant Regional Director. F. SEPARATE CORPORATE EXISTENCE ---------------------------- 1. Within 60 of the Effective Date, Life Financial shall approve and submit to the ARD for review and non-objection revised policies and procedures governing separate corporate existence (the Separate Corporate Existence Policy) that address the concerns identified in the Institution's Report of Examination dated April 3, 2000. At a minimum, the Separate Corporate Existence Policy should ensure that the Institution is being operated with an adequate degree of separation such that the Institution is insulated from operations of the holding company, and demonstrate to the public the separate corporate existence of the Institution and its holding company. 5 2. Within 15 days of receipt of the ARD's objection, if any, to any aspect of the Separate Corporate Existence Policy, Life Financial shall submit a revised policy to the ARD addressing any such objections or comments of the ARD. 3. Once the Separate Corporate Existence Policy is submitted pursuant to this Order and all objections from the ARD, if any, have been satisfactorily resolved, Life Financial may not amend, suspend, or revoke the policy without the prior written non-objection from the ARD. 4. Within 15 days of receiving notice of the ARD's non-objection to the Separate Corporate Existence Policy, Life Financial shall implement the agreement and ensure that all signatories adhere to it. 5. Within 60 days following the end of each calendar quarter, Life Financial shall approve and submit a report to the ARD detailing its progress in implementing the Separate Corporate Existence Policy. G. COMPLIANCE WITH ORDER --------------------- 1. The Board and the officers of Life Financial shall take immediate action to cause Life Financial to comply with the terms of this Order and shall take all actions necessary or appropriate thereafter to cause Life Financial to continue to comply with this Order. 2. The Board, on a quarterly basis, shall adopt a Board resolution (the Compliance Resolution) formally resolving that, following a diligent inquiry of relevant information (including reports of management), to the best of its knowledge and belief, during the immediately preceding quarter, Life Financial complied with each provision of this Order, except as otherwise stated. The Compliance Resolution shall: (a) specify in detail 6 how, if at all, full compliance was not found to exist; and (b) identify all notices of exemption issued by the OTS that were outstanding as of the date of its adoption. 3. The minutes of the meetings of the Board shall set forth the following information with respect to the adoption of the Compliance Resolution: (1) the identity of each director voting in favor its adoption; and (2) the identity of each director voting in opposition to its adoption or abstaining from voting thereon, setting forth each such director's reasons for opposing or abstaining. 4. By November 30, 2000 (for calendar quarter ending September 30, 2000), and within 60 days following the end of each calendar quarter thereafter, Life Financial shall provide to the Assistant Regional Director a certified true copy of the Compliance Resolution adopted at the respective Board meeting. The Board, by virtue of Life Financial's submission of a certified true copy of each such Compliance Resolution to the OTS, shall be deemed to have certified to the accuracy of the statements set forth in each Compliance Resolution, provided however, that in the event that one or more directors do not agree with the representations set forth in the Compliance Resolution, such disagreement shall be noted in the minutes of Life Financial. 5. The Board shall promptly respond to any request from the OTS for documents that the OTS reasonably requests to demonstrate compliance with this Order. H. STIPULATION ----------- 1. The Stipulation is incorporated by reference into this Order. I. DEFINITIONS ----------- 1. All technical words or terms used in this Order, and the Stipulation, for which meanings are not specified or otherwise provided by the provisions of this Order shall, insofar as 7 applicable, have meanings as defined in Chapter V of Title 12 of the Code of Federal Regulations, the Home Owners' Loan Act ("HOLA"), FDIA, or OTS publications. Any such technical words or terms used in this Order and the Stipulation and undefined in the Code of Federal Regulations, HOLA, FDIA, or OTS publications shall have meanings that are in accordance with the best custom and usage in the savings and loan industry. J. SUCCESSOR STATUTES, REGULATIONS, GUIDANCE, AMENDMENTS ----------------------------------------------------- 1. Any references in this Order and Stipulation to provisions of statutes, regulations, OTS publications, and OTS regulatory guidance shall be deemed to include references to all amendments to such provisions as have been made as of the date of this Order and references to successor provisions as they become applicable. K. NOTICES ------- 1. Except as otherwise provided herein, any request, demand, authorization, direction, notice, consent, waiver or other document provided or permitted by the Order to be made upon, given or furnished to, delivered to, or filed with the OTS or Life Financial shall be in writing and mailed, first class or overnight courier, or by facsimile transmission, or physically delivered, and addressed as follows: OTS: OTS-West Region Life Financial Corp. Attn: Michael Buting, ARD Attn: Chief Executive Officer 1551 N. Tustin Ave., Suite 1050 10540 Magnolia Avenue, Suite B Santa Ana, CA 92705-8635 Riverside, CA 92505-1814 Notices hereunder shall be effective upon receipt, if by mail, overnight delivery service, or facsimile, and upon delivery, if by physical delivery. If there is a dispute about the date on which a written notice has been received by a party to this Order, then, in the event such notice was sent by the U.S. mail, there shall be a presumption that the notice 8 was received two (2) business days after the date of the postmark on the envelope in which the notice was enclosed. L. DURATION, TERMINATION OR SUSPENSION OF ORDER -------------------------------------------- 1. This Order shall: (a) become effective upon its execution by the OTS, acting through its authorized representative whose signature appears below; and (b) remain in effect until terminated, modified, or suspended in writing by the OTS, acting through its Director or Regional Director (including any authorized designee thereof). 2. The Regional Director of the OTS, in his or her sole discretion, may, by written notice, suspend, modify, or terminate any or all provisions of this Order. M. TIME LIMITS ----------- 1. Time limitations for compliance with the terms of this Order run from the Effective Date, unless otherwise noted. N. EFFECT OF HEADINGS ------------------ 1. The section headings herein are for convenience only and shall not affect the construction hereof. O. SEPARABILITY CLAUSE ------------------- 1. In case any provision of this Order 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 Regional Director, in his or her sole discretion, determines otherwise. 9 P. NO VIOLATIONS OF LAW, RULE, REGULATION OR POLICY ------------------------------------------------ STATEMENT AUTHORIZED; OTS NOT RESTRICTED ---------------------------------------- 1. Nothing in this Order shall be construed as: (a) allowing Life Financial or the Institution to violate any law, rule, regulation, or policy statement to which it is subject; or (b) restricting or estopping the OTS from taking any action(s) that it deems appropriate in fulfilling the responsibilities placed upon it by law. Q. SUCCESSORS IN INTEREST/BENEFIT ------------------------------ 1. The terms and provisions of this Order shall be binding upon and inure to the benefit of, the parties hereto and their successors in interest. Nothing in this Order, express or implied, shall give to any person or entity, other than the parties hereto, and the Federal Deposit Insurance Corporation, and their successors hereunder, any benefit or any legal or equitable right, remedy or claim under this Order. SO ORDERED this the ___ day of September 2000 (Effective Date). OFFICE OF THRIFT SUPERVISION By: _______________________________ Charles A. Deardorff Regional Director, West Region 10 EX-99.3 4 0004.txt SUPERVISORY AGREEMENT EXHIBIT 99.3 SUPERVISORY AGREEMENT This Supervisory Agreement (Agreement) is made this 25th of September 2000, ---- and shall become effective upon its execution by the Office of Thrift Supervision (OTS), through its authorized representative whose name appears below (the date of such execution is the Effective Date), by and between Life Bank, FSB (the Institution), a federally chartered stock association, having its principal office located at 10540 Magnolia Avenue, Suite B, Riverside, California 92505, and the OTS, an office within the U.S. Department of the Treasury, having its principal offices located at 1700 G Street, N.W., Washington, D.C. 20552, acting through its West Regional Director, or his designee (Regional Director). WHEREAS, the Institution is: (1) a "savings association" within the meaning of Section 3 of the Federal Deposit Insurance Act (FDIA), 12 U.S.C.A. (S) 1813(b), and Section 2 of the Home Owners' Loan Act, 12 U.S.C.A. (S) 1462(4) and, (2) an "insured depository institution," as that term is defined in Section 3(c) of the FDIA, as amended by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub. L. No. 101-73, 103 Stat. 183 (FIRREA), 12 U.S.C.A. (S) 1813(c); WHEREAS, the OTS is the primary federal regulator of the Institution; and WHEREAS, based on the findings of the current regular examination, the OTS is of the opinion that the Institution has engaged in acts and practices that (a) are considered by the OTS to be unsafe and unsound and inconsistent with prudent operations, and (b) have resulted in violations of certain laws or regulations to which the Institution is subject, thereby providing grounds for the initiation of administrative enforcement proceedings against the Institution; and 1 WHEREAS, the OTS is of the opinion that grounds exist for the initiation of administrative enforcement proceedings against the Institution, but is willing to forbear at this time from the initiation of such proceedings as long as the Institution is in compliance with the provisions of this Agreement and all applicable laws, regulations, and regulatory guidance; and WHEREAS, the Institution, acting through its duly elected Board of Directors (Board), wishes to cooperate with the OTS and to evidence its intent to (i) comply with all applicable laws, regulations, and guidance, (ii) engage in safe and sound practices, and (iii) avoid the initiation of administrative enforcement proceedings. NOW, THEREFORE, in consideration of the foregoing, the mutual undertakings set forth herein, the parties agree as follows: I. 1. CORRECTIVE PROVISIONS --------------------- A. POLICIES AND PROCEDURES ----------------------- 1. Internal Asset Review. Within 45 days of the Effective Date, the Board --------------------- shall approve and submit to the Assistant Regional Director (ARD) for review and non-objection revised policies and procedures governing Internal Asset Review (the IAR Policy) that address the concerns identified in the Report of Examination dated April 3, 2000. At a minimum, the IAR Policy shall (a) provide guidance to management on timely identification and classification of troubled, collateral dependent loans under Regulatory Bulletin 32; and (b) provide for adequate internal controls to ensure that management timely reviews and classifies assets under the IAR Policy, and at all times complies with the IAR Policy. To ensure the independence of the IAR function, the IAR Policy shall require the loan underwriting, servicing, and purchasing functions to be segregated from 2 the credit review function, except for common oversight of all functions by members of senior management. 2. Allowances for Loan and Lease Losses. Within 45 days of the Effective Date, ------------------------------------ the Board shall approve and submit to the ARD for review and non-objection revised policies and procedures governing allowance for loan and lease losses (the ALLL Policy) that address the concerns identified in the Report of Examination dated April 3, 2000. At a minimum, the ALLL Policy shall require management to set the ALLL after considering: (a) the historical losses within each loan portfolio; (b) classification and delinquency trends; (c) credit risk characteristics (e.g., loan to value ratio, borrowers' credit history, etc.); (d) economic trends; and (e) regulatory guidance. The ALLL Policy shall provide for adequate internal controls to ensure that management and the Institution comply with the policy at all times. 3. Interest Rate Risk. Within 45 days of the Effective Date, the Board shall ------------------ approve and submit to the ARD for review and non-objection revised policies and procedures governing the management of interest rate risk (the IRR Policy) that address the concerns identified in the Report of Examination dated April 3, 2000. At a minimum, the IRR Policy should detail the analysis to be used to supplement the OTS model until an internal modeling process is fully implemented. The IRR Policy shall require management to measure, monitor, and model the Institution's net interest income (NII) and net portfolio value (NPV). Management shall utilize its expertise and resources to determine the expected impact of proposed transactions on the Institution's capital levels, NII, and NPV prior to entering into any such transaction. 3 4. Mortgage Banking Operations. Within 45 days of the Effective Date, the --------------------------- Board shall approve and submit to the ARD for review and non-objection revised policies and procedures governing mortgage-banking operations (the Mortgage Banking Policy) that address the concerns identified in the Report of Examination dated April 3, 2000. At a minimum, the Mortgage Banking Policy shall include a strategic plan for Mortgage Banking and include guidance for (i) calculating quarterly lower of cost or market (LOCOM) adjustments, (ii) tracking, reviewing and reporting of loan repurchases, and shall address management-board reports. 5. Liquidity. Within 45 days of the Effective Date, the Board shall approve --------- and submit to the ARD for review and non-objection revised policies and procedures governing liquidity (the Liquidity Policy) that address the concerns identified in the Report of Examination dated April 3, 2000. At a minimum, the Liquidity Policy should address minimum liquidity level targets and include plans to replace maturing brokered certificates of deposit and to increase core deposits. 6. Separate Corporate Existence. Within 45 days of the Effective Date, the ---------------------------- Board shall approve and submit to the ARD for review and non-objection revised policies and procedures governing separate corporate existence (the Separate Corporate Existence Policy) that address the concerns identified in the Report of Examination dated April 3, 2000. At a minimum, the Separate Corporate Existence Policy should ensure that the Institution is being operated with an adequate degree of separation such that the Institution is insulated from operations of the holding company. 7. Loans to One Borrower. Within 45 days of the Effective Date, the Board --------------------- shall approve and submit to the ARD for review and non-objection revised policies and procedures 4 ensuring that the Institution complies with the loans-to-one-borrower (LTOB) regulations (12 C.F.R. (S) 545.93 and 12 C.F.R. Part 32) (the LTOB Policy). At a minimum, the LTOB Policy should require proper aggregation and combination of loans to borrowers engaged in a common enterprise, or where one person is receiving a direct benefit from a loan or extension of credit (see 12 C.F.R. (S) 32.5). The LTOB Policy should ensure that proper internal controls are in place to ensure that the Institution complies with all relevant LTOB regulations. 8. Board Oversight. Within 45 days of the Effective Date, the Board shall --------------- approve and submit to the ARD for review and non-objection policies and procedures governing Board of Director oversight of the affairs of management and operation of the Institution (Board Oversight Policy) and that addresses the concerns identified in the Report of Examination dated April 3, 2000. At a minimum, the Board Oversight Policy shall address the responsibilities outlined in Section 310 of the Thrift Activities Handbook, and require that the Institution's regulatory reporting and financial record keeping functions be staffed with experienced, qualified personnel with sufficient resources to ensure timely and accurate record keeping and reporting. B. MANAGEMENT PLAN --------------- 1. Within 45 days of the Effective Date, the Board shall approve and submit to the ARD a written analysis and assessment of the Institution's management needs (Management Plan), which include, at a minimum, (a) identify both the type and number of officer positions needed to manage and supervise properly the affairs of the Institution; (b) identify and establish the Institution committees needed to provide guidance and oversight to active management; (c) evaluate each Institution officer and staff member to 5 determine whether these individuals possess the ability, experience, and other qualifications necessary to perform present and anticipated duties, including adherence to the Institution's established policies and procedures, and maintenance of the Institution in a safe and sound condition; and (d) establish a plan to recruit and hire any additional or replacement personnel with the requisite ability, experience, or other qualifications, which the Board determines are necessary to fill officer or staff positions consistent with the Board's analysis, evaluation and assessment as provided above. Particular attention should be provided to Treasury and Accounting, Regulatory Compliance, and Internal Auditing. C. IMPLEMENTATION AND ADHERENCE TO POLICIES ---------------------------------------- 1. Within 15 days of receipt of the ARD's notice of objection, if any, to any aspect of the foregoing Policies, the Institution shall submit a revised Policy to the ARD addressing any such objections or comments of the ARD. 2. Once the Policy is submitted pursuant to this Agreement and all objections from the ARD, if any, have been satisfactorily resolved, the Institution may not amend, suspend, or revoke the Policy without the prior written non- objection from the ARD. 3. Within 15 days of receiving notice of the ARD's non-objection to the Policy, the Institution shall implement the Policy and ensure that all directors, officers, employees and agents adhere to it. 4. Within 45 days following the end of each calendar quarter, the Board shall approve and submit a report to the ARD detailing its progress in implementing each of the foregoing Policies. 6 D. IMPROVEMENTS TO THE BOARD ------------------------- 1. The Board of Directors of the Institution shall be expanded by an additional two (at a minimum) members with specific financial institution industry experience, and who are independent with respect to the Institution. For purposes of this Agreement, an individual who is "independent with respect to the Institution" means any individual (a) who is not an officer of the Institution or its affiliates and who does not own, directly or indirectly, more than 5% of the outstanding shares of the holding company, (b) who is not related by blood, marriage, or common financial interest to an officer or director of the Institution, or to any individual owning, directly or indirectly, more than 5% of the holding company's outstanding shares, and (c) who is not indebted to the Institution, directly or indirectly (including the indebtedness of any entity in which the individual has a financial interest). 2. The Board shall meet at least monthly. The Board shall prepare in advance and shall follow a detailed written agenda at each meeting, which shall include consideration of actions of any committees. A chronological file of all written agendas shall be maintained. Notwithstanding the foregoing, the Board shall not be precluded from considering matters other than those contained in the agenda. Detailed written minutes of all Board meetings and Board Committee meetings shall be maintained and recorded on a timely basis. E. TRANSACTIONS WITH AFFILIATES ---------------------------- 1. The Institution shall provide the ARD with at least 30 days prior written notice of any transaction that would constitute a covered transaction within the meaning of 12 C.F.R. 7 (S)(S) 563.41(b)(7) and 563.42(a)(2). Upon written notice of objection by the ARD during the notice period, the Institution shall not enter into any of said transactions. 2. The Institution shall comply with all statutory and regulatory requirements pertaining to transactions with affiliates, as set forth in all applicable law, regulations, and regulatory guidance. See, e.g., 12 C.F.R. (S)(S) 563.41 and 563.42, Sections 23A and 23B of the Federal Reserve Act, 12 U.S.C. (S)(S) 371c and 371c-1, and Section 11 of the Home Owners' Loan Act, 12 U.S.C. (S) 1468(a). 3. Within 60 days of the Effective Date, the Institution shall review and analyze of all existing agreements with affiliates and other activities falling within the proscriptions of the transactions with affiliates regulations to confirm that the agreements and activities comply with all applicable laws, regulations, and regulatory guidance and that the Institution has formal written agreements with respect to all transactions with affiliates. The Institution shall summarize in writing its findings from that review and analysis. The review and analysis shall be recorded in the minutes of the Board. Further, within 60 days of the Effective Date, the Institution shall confirm in writing to the ARD that its files contain current and adequate documentation and analysis to support compliance with Section E of this Agreement and all applicable law, regulations, and regulatory guidance. F. CAPITAL ------- 1. No later than March 31, 2001, the Institution shall achieve and thereafter maintain core capital of not less than 6.0 percent, as measured at the end of each calendar quarter and total risk-based capital of not less than 11.0 percent of modified total risk-weighted assets (as defined herein), as measured at the end of each calendar quarter. Modified total risk-weighted assets is defined as the sum of risk-weighted assets prescribed in 12 C.F.R. Part 8 567, except that all subprime loans and all high loan-to-value (LTV) loans in excess of the limit prescribed in Thrift Bulletin 72a, shall require double the risk-weighting set forth in 12 C.F.R. Part 567. For the sole purpose of this Agreement, subprime loans shall be defined as any loan to a borrower with a credit score of 619 and below, or a credit grade of B+ or below. This capital requirement may be achieved through the infusion by the Institution's holding company of cash, marketable securities, or other non- cash capital contribution that is approved in advance by the OTS. 2. If the Institution's capital falls below the levels required hereunder as a result of any OTS determination that adversely affects the Institution's financial condition (other than a determination generally applicable to the thrift industry), the Institution shall have 45 days from the date of such determination to infuse sufficient capital to meet the capital level required hereunder. The Institution shall provide satisfactory evidence of such infusion to the ARD within five (5) days after the infusion is complete. 3. Within 45 days following the end of each calendar quarter, the Board shall certify in writing to the ARD that the quarterly supplemental capital calculations supplied to the OTS are true and correct. 4. Upon the Effective Date of this Agreement, the Institution shall no longer be required to calculate and submit the special average quarterly capital calculation as established in the Report of Examination dated April 29, 1996. 9 G. DIVIDENDS --------- 1. Without the prior written approval of the ARD, the Institution shall not pay or commit to pay a dividend to any class of stock or make any capital distribution as that term is defined at 12 C.F.R. (S) 563.141. This restriction shall not prevent the Institution from paying interest on deposit accounts according to their terms. II. MISCELLANEOUS ------------- A. DIRECTOR RESPONSIBILITY ----------------------- 1. Notwithstanding the requirements herein that the Institution submit various matters to the Assistant Regional Director for purpose of review, such regulatory oversight does not derogate or supplant each individual director's continuing fiduciary duty. The Board shall have the ultimate responsibility for overseeing the safe and sound operation of the Institution at all times, including compliance with any and all directives of the OTS. B. COMPLIANCE WITH AGREEMENT ------------------------- 1. The Board, and senior management of the Institution, shall cause the Institution to comply with the terms of this Agreement and shall take all actions necessary or appropriate thereafter to cause the Institution to continue to carry out the provisions of this Agreement. 2. The Board, on a quarterly basis, shall adopt a Board Resolution ("the Compliance Resolution") formally resolving that, following a diligent review of relevant information (including reports of management and consultants, if any), to the best of its knowledge and belief, during the immediately preceding calendar quarter, the Institution has complied with each provision of this Agreement, except as otherwise stated. The Compliance Resolution shall specify in detail how, if at all, full compliance was found 10 not to exist. The Compliance Resolution is in addition to, and not in lieu of, any other requirements of this Agreement for reporting compliance with certain provisions hereof. 3. The minutes of the meeting of the Board shall set forth the following information with respect to the adoption of each Compliance Resolution: (i) the identity of each director voting in favor of its adoption; and (ii) the identity of each director voting in opposition to its adoption or abstaining from voting thereon, setting forth each director's reasoning for such opposition or abstention. 4. Within 60 days of the end of each calendar quarter, beginning with the end of the first calendar quarter following the Effective Date, the Institution shall provide to the ARD a certified true copy of the Compliance Resolution. The Board, by virtue of the Institution's submission of a certified copy of each such Compliance Resolution to the ARD, shall be deemed to have certified to the accuracy of the statements set forth in the Compliance Resolution, except as provided below. In the event that one or more directors does not agree with the representations set forth in a Compliance Resolution, such disagreement shall be noted in the minutes of the Institution. C. DEFINITIONS ----------- 1. All technical words or terms used in this Agreement, for which meanings are not defined or otherwise provided, shall insofar as applicable, have the meaning set forth in Chapter V of Title 12 of the Code of Federal Regulations (CFR). Any such technical words or terms used herein and undefined in said CFR shall have the meanings that accord with the best custom and usage in the thrift industry. 11 D. SUCCESSOR STATUTES, REGULATIONS, GUIDANCE, AMENDMENTS ----------------------------------------------------- 1. Reference in this Agreement to provisions of statutes and regulations shall be deemed to include references to all amendments to such provisions as have been made as of the Effective Date and references to successor provisions as they become applicable. E. NOTICES ------- 1. Except as otherwise provided herein, any request, demand, authorization, direction, notice, consent, waiver, or other document provided for or permitted by the Agreement to be made upon, given or furnished to, delivered to or filed with the OTS or the Institution shall be in writing and delivered via first class mail, overnight courier, facsimile, or hand-delivered, and addressed as follows: OTS: OTS-West Region Institution: Life Bank, FSB Attn: Michael Buting, ARD Attn: Chief Executive Officer 1551 N. Tustin Ave., Suite 1050 10540 Magnolia Avenue, Suite B Santa Ana, CA 92705-8635 Riverside, CA 92505-1814 Any notice shall be deemed duly given when received by the addressee thereof. Any party to this Agreement may from time to time change its address for receiving Notices to the other party in the manner set forth above. F. DURATION, TERMINATION OR SUSPENSION OF AGREEMENT ------------------------------------------------ 1. This Agreement shall remain in effect until terminated, modified or suspended in writing by the OTS, acting through its Director or the Regional Director (including any authorized designee thereof). 2. The Regional Director, or his designee, in his or her sole discretion, may, by written notice, suspend or waive (temporarily or permanently) any or all provisions of this Agreement. 12 G. TIME LIMITS ----------- 1. Time limits for compliance with the terms of this Agreement run from the Effective Date, unless otherwise noted. H. EFFECT OF HEADINGS ------------------ 1. The section headings herein are for convenience only and shall not affect the construction of this Agreement. I. SEPARABILITY CLAUSE ------------------- 1. In any case in which any provision of this Agreement 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 shall not in any way be affected or impaired thereby, unless the Regional Director, or his designee, in his or her sole discretion determines otherwise. J. NO VIOLATIONS OF LAW, RULE, REGULATION OR POLICY STATEMENT AUTHORIZED --------------------------------------------------------------------- 1. Nothing contained herein shall be construed as (a) allowing or requiring the Institution to violate any law, rule, regulation, or policy statement to which it is subject, or (b) restricting or estopping the OTS from taking any action(s) it deems appropriate in fulfilling its lawful responsibilities. K. SUCCESSORS IN INTEREST/BENEFIT ------------------------------ 1. The terms and provisions of this Agreement shall be binding upon and inure to the benefit of, the parties hereto and their successors in interest. Nothing in this Agreement, express or implied, shall give to any person or entity, other than the parties hereto, the Federal 13 Deposit Insurance Corporation, and their successors, any benefit or any legal or equitable right, remedy or claim under this Agreement. L. SIGNATURE OF DIRECTORS ---------------------- 1. Each director signing this Agreement attests, by such act, that he or she voted in favor of the resolution, in the form attached to this Agreement, authorizing the execution of this Agreement by the Institution. M. ENFORCEABILITY OF AGREEMENT --------------------------- 1. The Institution represents and warrants that this Agreement has been duly authorized, executed and delivered, and constitutes, in accordance with its terms, a valid and binding obligation of the Institution. The Institution acknowledges that this Agreement is a "written agreement" entered into with the OTS within the meaning of Section 8 of the Federal Deposit Insurance Act, as amended, 12 U.S.C. (S) 1818. 14 IN WITNESS WHEREOF, the OTS, acting by and through the Regional Director, or his designee, and the Institution, in accordance with a duly adopted resolution of its Board (copy attached hereto), hereby executes this Agreement on this the 25th day of September, 2000 (the Effective Date). OFFICE OF THRIFT SUPERVISION LIFE BANK FSB By: By: /s/ Steven R. Gardner ------------------------------ ------------------------------ Michael W. Buting Chief Executive Officer Assistant Regional Director DIRECTORS OF THE INSTITUTION /s/ Robert K. Riley /s/ Ronald G. Skipper ------------------------------ ------------------------------ Director Director /s/ Milton E. Johnson /s/ John D. Goddard ------------------------------ ------------------------------ Director Director /s/ Edgar C. Keller ------------------------------ ------------------------------ Director Director ------------------------------ ------------------------------ Director Director 15 EX-99.4 5 0005.txt PRESS RELEASE ISSUED SEPTEMBER 26, 2000 EXHIBIT 99.4 Life Financial Corporation Receives Approval of New Executive Management from OTS Riverside, California, September 26, 2000 --- Life Financial Corporation (NASDAQ:LFCO) ("Life Financial"), parent company of Life Bank ("Life Bank"), announced that the Office of Thrift Supervision (the "OTS") has approved the election of Steven R. Gardner as the President and Chief Executive Officer, and Roy L. Painter as the Chief Financial Officer, of Life Financial and Life Bank. Additionally, it was announced that on September 25, 2000, Life Financial consented to the issuance of an Order to Cease and Desist (the "Order") by the OTS. The Order requires Life Financial, among other things, to contribute $5.2 million to the capital of Life Bank not later than December 1, 2000, subject to extension by the OTS. Life Financial is also required to observe certain requirements regarding transactions with affiliates, books and records, tax sharing arrangements with Life Bank and the maintenance of a separate corporate existence from Life Bank. Also, on September 25, 2000, Life Bank entered into a Supervisory Agreement with the OTS. The Supervisory Agreement requires Life Bank, among other things, to achieve a core capital of at least 6% and a total risk-based capital of at least 11% by March 31, 2001. In calculating these capital ratios, Life Bank must risk weight all sub-prime loans it holds at double the regularly prescribed risk weighting. The Supervisory Agreement also requires that Life Bank add at least two new independent members to its Board of Directors, not pay dividends without OTS approval and revise many of its policies and procedures, including those pertaining to internal asset review, allowances for loan and lease losses, interest rate risk management, mortgage banking operations, liquidity, separate corporate existence, loans to one borrower and oversight by the Board of Directors. Life Financial and Life Bank are required to furnish quarterly reports to the OTS detailing their compliance, or failure to comply, with the Order and the Supervisory Agreement. Life Financial has retained Keefe, Bruyette & Woods as its financial advisor in connection with the Order and the Supervisory Agreement. For more information, e-mail your request to irinfo@lifebank.net. Please ------------------- include your phone, facsimile and mailing address CONTACT: Life Financial Corporation, Riverside Steven Gardner, 909-637-4110 Or Roy Painter, 909-637-4095 Irinfo@lifebank.net -----END PRIVACY-ENHANCED MESSAGE-----