Each depositor insured to at least $250,000 per insured bank



Home > Regulation & Examinations > Bank Examinations > FDIC Enforcement Decisions and Orders




FDIC Enforcement Decisions and Orders

ED&O Home | Search Form | Text Search | ED&O Help


{{5-31-94 p.C-914}}

   [10,206] In the Matter of Century Thrift and Loan Association, Los Angeles, California, Docket No. FDIC-90-120b (3-28-91).

   Bank to cease and desist from operating with an excessive volume of adversely classified assets; operating with inadequate equity capital and reserves; engaging in hazardous lending and lax collection practices; operating with inadequate provisions for liquidity and funds management; operating with inadequate routine and controls policies; and operating in such a manner as to produce operating losses or low earnings. (This order was terminated by order of the FDIC dated 3-17-94; see ¶ 15,828.)

   [.1] Management—Qualifications—Review
   [.2] Board of Directors—Election—Independent Directors
   [.3] Capital—Primary Capital—Increase/Maintain—Methods
   [.4] Assets—Adversely Classified—Reduce/Eliminate—Schedule
   [.5] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.6] Loan Policy—Written Revision—Minimum Requirements—Review
   [.7] Loan Loss Reserve—Adequacy—Maintain—Review
   [.8] Bank Operations—Overhead Expenses—Control
   [.9] Violations of Law—Eliminate/Correct
   [.10] Asset/Liability Management Policy—Written Revision Required
   [.11] Bank Operations—Internal Routine and Controls—Written Plan Required
   [.12] Bank Operations—Legal Expenses—Review Required
   [.13] Bank Insider Transactions—Written Policy Required—Review
   [.14] Dividends—Restricted
   [.15] Shareholders—Disclosure—Cease and Desist Order
   [.16] Compliance—Progress Reports—Frequency

In the Matter of

CENTURY THRIFT AND
LOAN ASSOCIATION

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

   The Federal Deposit Insurance Corporation ("FDIC"), on July 13, 1990 issued to Century Thrift & Loan, Los Angeles, California ("Insured Institution") a Notice of Charges and of Hearing ("Notice") pursuant to section 8(b)(1) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1818(b)(1). The Notice alleges that the Insured Institution had engaged in certain unsafe or unsound banking practices and violations of law and/or regulations.
   The Insured Institution and counsel for the FDIC thereafter executed a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT"), dated March 22, 1991, whereby solely for the purpose of this proceeding and without admitting or denying the allegations in the Notice, 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 violations of law and/or regula- {{5-31-91 p.C-915}}tions. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

ORDER TO CEASE AND DESIST

   IT IS HEREBY ORDERED that the Insured Institution, and all "institution-affiliated parties," as that term is defined in Section 3(u) of the Federal Deposit Insurance Act, 12 U.S.C. § 1813(u), cease and desist from the following unsafe or unsound banking practices and violations:

       (a) operating with adversely classified assets as a percentage of equity capital and reserves equal to 91%;
       (b) operating with equity capital and reserves equal to $2,360,000 while total adversely classified assets equaled $2,179,000;
       (c) following hazardous lending and lax collection practices;
       (d) operating with inadequate provisions for liquidity and funds management;
       (e) operating with inadequate routine and controls policies; and
       (f) operating in such a manner as to produce current low earnings and past operations losses.
   IT IS FURTHER ORDERED that the Insured Institution take affirmative action as follows:

   [.1] 1. During the life of this ORDER, 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 should include a chief executive officer with proven ability in managing an insured institution of comparable size and experience in upgrading a low quality loan portfolio and a senior lending officer with an appropriate level of lending, collection, and loan supervision experience for the type and quality of the Insured Institution's loans. 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.
   (b) The qualifications of management shall be assessed at examinations and visitations conducted after the effective date of this ORDER 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; and
       (iv) restore all aspects of the insured Institution to a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness, and liquidity.
   (c) During the life of this ORDER, the Insured Institution shall notify the Regional Director of the FDIC's San Francisco Regional Office ("Regional Director") and the Commissioner of the Department of Corporations, 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.
   (d) 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 120 days from the effective date of this ORDER, the board of directors of the Insured Institution shall add additional members so that: (i) a majority of the board members are not related to any current director by blood or marriage; and (ii) the board of directors is composed of at least five (5) members.
   (b) Any additional directors shall have the previously demonstrated skill and experience to contribute independent judgment to group deliberation.
   (c) The name and a statement of qualifications of any new board member shall be submitted to the Regional Director for review and approval within 30 days prior to the service of the individual as a director.

   [.3] 3. (a) During the life of this OR- {{5-31-91 p.C-916}}DER, the Insured Institution shall maintain adjusted primary capital in such an amount as to equal or exceed seven and one-half percent (7.5) of the Insured Institution's adjusted Part 325 total assets. Primary capital and Part 325 total assets utilized shall be calculated in accordance with prevailing instructions for the preparation of Reports of Condition. The computation of adjusted primary capital and the ratio of adjusted primary capital to adjusted Part 325 total assets shall be determined by using the procedures outlined in the "Analysis of Capital" schedule in the FDIC Report of Examination.
   (b) Any increase in primary 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 direct contribution of cash by the board of directors, shareholders, and/ or parent holding company; or
       (iii) the collection of assets previously charged off; or
       (iv) the reduction of the "Loss" and "Doubtful" assets specified in Paragraph 4 of this ORDER without loss or liability to the Insured Institution; or
       (v) any other means acceptable to the Regional Director and the Commissioner; or
       (vi) any combination of the above means.
   (c) If all or part of the increase in primary 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 owed 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 Unit, 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.
   (d) On complying with the provisions of Paragraph 3 of this ORDER, the Insured Institution shall provide to any subscriber and/or purchaser of the Insured Institution's securities 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.
   (e) For purposes of this ORDER, the terms "primary 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(h) and 325.2(k).

   [.4] 4. (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 January 23, 1990, 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 120 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 January 23, 1990 that have not previously been charged off to not more than $1,300,000.
   (c) Within 240 days from the effective date of this ORDER, the Insured Institu- {{5-31-91 p.C-917}}tion shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of January 23, 1990 that have not previously been charged off to not more than $1,000,000.
   (d) 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 January 23, 1990 that have not previously been charged off to not more than $800,000.
   (e) The requirements of subparagraphs 4(a), 4(b), 4(c) and 4(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 4(b), 4(c), 4(d) and 4(e) the word "reduce" means:

       (i) to collect;
       (ii) to charge-off; or
       (iii) to sufficiently improve the quality of assets adversely classified to warrant removing any adverse classification, as determined by the FDIC.

   [.5] 5. (a) Beginning with the effective date of this ORDER, the Insured Institution shall not extend, directly or indirectly, any additional credit to, or for the benefit of, any borrower who has a loan or other extension of credit from the Insured Institution that has been charged off or classified, in whole or in part, "Loss" or "Doubtful" and is uncollected. The requirements of this paragraph shall not prohibit the Insured Institution from renewing (after collection in cash of interest due from the borrower) any credit already extended to any borrower.
   (b) Additionally, during the life of this ORDER, the Insured Institution shall not extend, directly or indirectly, any additional credit to, or for the benefit of, any borrower who has a loan or other extension of credit from the Insured Institution that has been classified, in whole or part, "Substandard" and is uncollected.
   (c) Paragraph 5(b) shall not apply if the Insured Institution's failure to extend further credit to a particular borrower would be detrimental to the best interests of the Insured Institution. Prior to the extending of any additional credit pursuant to this paragraph, either in the form of a renewal, extension, or further advance of funds, such additional credit shall be approved by a majority of the board of directors who shall certify in writing:
       (i) why the failure of the Insured Institution to extend such credit would be detrimental to the best interests of the Insured Institution;
       (ii) that the Insured Institution's position would be improved thereby; and
       (iii) how the Insured Institution's position would be improved.

   [.6] 6. (a) Within 60 days from the effective date of this ORDER, the Insured Institution shall submit to the Regional Director and the Commissioner for review a revised written lending and collection policy to provide effective guidance and control over the Insured Institution's lending function. Review and comment by the FDIC shall be forwarded to the Insured Institution within 30 days of receipt of such policy. The policy shall be adopted and its implementation acceptable to the Regional Director and the Commissioner as determined at subsequent examinations and/or visitations.
   (b) The initial revisions to the Insured Institution's loan policy and practices, required by this paragraph, at a minimum, shall include the following:
       (i) provisions, consistent with FDIC instructions for the preparation of Reports of Condition and Income, under which the accrual of interest income is discontinued and previously accrued interest is reversed on delinquent loans;
       (ii) provisions which require complete loan documentation, realistic repayment terms and current credit information adequate to support the outstanding indebtedness of the borrower. Such documentation, to the extent applicable to the particular type of credit involved, shall include current financial information, profit and loss statements or copies of tax returns and cash flow projections;
       (iii) provisions which specify the circumstances and conditions under which {{5-31-91 p.C-918}} real estate appraisals must be conducted by an independent third party;
       (iv) provisions that directors first determine that the lending staff has the expertise necessary to properly supervise construction loans and that adequate procedures are in place to monitor any construction involved before funds are disbursed;
       (v) provisions which require the establishment of a reasonably defined primary service area for the Insured Institution's lending activities;
       (vi) provisions which require the preparation of a loan "watch list" which shall include relevant information on all loans in excess of $50,000 which are classified "Substandard" and "Doubtful" as of January 23, 1990 or by the FDIC in subsequent Reports of Examination and all other loans in excess of $50,000 which warrant individual review and consideration by the board of directors as determined by the loan committee or active management. The loan "watch list" shall be presented to the board of directors for review at least monthly with such review noted in the minutes; and
       (vii) the board of directors shall adopt procedures whereby officer compliance with the revised loan policy is monitored and responsibility for exceptions thereto assigned. The procedures adopted shall be reflected in minutes of a board of directors meeting at which all members are present and the vote of each is noted.

   [.7] 7. (a) Within 30 days from the effective date of this ORDER, the Insured Institution shall establish and thereafter maintain an adequate reserve for loan losses.
   (b) Additionally, within 30 days from the effective date of this ORDER, the Insured Institution shall submit to the Regional Director for review a revised comprehensive policy for determining the adequacy of the reserve for loan losses. For the purpose of this determination, the adequacy of the reserve shall be determined after the charge-off of all loans or other items classified "Loss". The policy shall provide for a review of the reserve at least once each calendar quarter. Said review should be completed at least five (5) days prior to the end of each quarter, in order that the findings of the board of directors with respect to the loan loss reserve may be properly reported in the quarterly Reports of Condition and Income. The review should focus on the results of the Bank's internal loan review, loan loss experience, trends of delinquent and nonaccrual loans, an estimate of potential loss exposure of significant credits, concentrations of credit, and present and prospective economic conditions. A deficiency in the reserve shall be remedied in the calendar quarter it is discovered, prior to submitting the Report of Condition, by a charge to current operating earnings. The minutes of the board of directors meeting at which such review is undertaken shall indicate the results of the review. Upon completion of the review, the Bank shall increase and maintain its loan loss reserve consistent with the loan loss reserve policy established. Review and comment of said policy by the FDIC shall be forwarded to the Insured Institution within 30 days of receipt of such policy. The policy shall be adopted and its implementation 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 Insured Institution shall submit to the Regional Director and the Commissioner for review a plan to control overhead and other expenses and restore the Insured Institution's profitability. Review and comment by the FDIC shall be forwarded to the Insured Institution within 30 days of receipt of such plan.

   [.9] 9. Within 60 days of the effective date of this ORDER, the Insured Institution shall eliminate and/or correct all violations of law which are more fully set out on pages 6-a and 6-a-1 of the Report of Examination of the Insured Institution as of January 23, 1990. In addition, the Insured Institution shall take all necessary steps to ensure future compliance with all applicable laws and regulations.

   [.10] 10. Within 60 days from the effective date of this ORDER, the Insured Institution shall submit to the Regional Director and the Commissioner for review a revised asset/liability management policy which establishes a range for the Insured Institution's volatile liability dependency ratio, as computed with deposits of more than $90,000 each; and which ratio shall, within 120 days from the effective date of this ORDER, be {{10-31-92 p.C-919}} reduced to not more than thirty (30.0) percent; within 240 days from the effective date of this ORDER, be reduced to not more than twenty-five (25.0) percent; within 360 days from the effective date of this ORDER, be reduced to not more than twenty (20.0) percent; and within 480 days from the effective date of this ORDER, be reduced to not more than fifteen (15.0) percent. The requirements of this paragraph shall not be construed as standards for future operations, and the Insured Institution's volatile liability dependency ratio shall be maintained at a level consistent with prudent banking practices. Review and comment by the FDIC shall be forwarded to the Insured Institution within 30 days of receipt of such policy. The policy shall be adopted and its implementation acceptable to the Regional Director and the Commissioner as determined at subsequent examinations and/or visitations.

   [.11] 11. Within 60 days from the effective date of this ORDER, the Insured Institution shall submit to the Regional Director and the Commissioner for review a revised policy for the operation of the Insured institution in such a manner as to provide adequate internal routine and control policies consistent with safe and sound banking practices. Review and comment by the FDIC shall be forwarded to the Insured Institution within 30 days of receipt of such policy. The policy shall be adopted and its implementation acceptable to the Regional Director and the Commissioner as determined at subsequent examinations and/or visitations.

   [.12] 12. While this ORDER is in effect, the Insured Institution shall not pay, nor agree to pay, any legal fees to any law firm without the following:

       (a) obtaining a written agreement which includes a clear description of the services to be rendered (which services shall not include those that can readily and skillfully be rendered by the Insured Institution's existing staff);
       (b) reviewing and retaining appropriate documentation needed for payment of services rendered, including, without limitation, the receipt of specific, detailed billings by the Insured Institution, and where the law firm is related in any manner to a director, employee or shareholder of the Insured Institution, a comparison of the cost of the actual services provided with a projection of the cost of services of comparable quality and expertise, if provided by unrelated parties; and
       (c) providing a copy of the written fee agreement to the Regional Director and to the Commissioner within thirty (30) days of its execution.

   [.13] 13. Within 60 days of the effective date of this ORDER, the Insured Institution shall submit to the Regional Director and the Commissioner for review a revised comprehensive policy which shall govern the relationship between the Insured Institution and its directors, officers, employees, holding company, principal shareholders and their related interests ("Insiders"). Such policy shall include, without limitation, provisions to eliminate all preferential treatment, of any nature, whatsoever, of all Insiders. Review and comment by the FDIC shall be forwarded to the Insured Institution within 30 days of receipt of such policy. The policy shall be adopted and its implementation acceptable to the Regional Director and the Commissioner as determined at subsequent examinations and/or visitations.

   [.14] 14. The Insured Institution shall not pay cash dividends in any amount except as follows:

       (a) such declarations and payments are made in accordance with applicable State and Federal laws and regulations;
       (b) after payment of such dividends, the ratio of adjusted primary capital to total assets of the Insured Institution will not be less than seven and one-half (7.5) percent;
       (c) that such declaration and payment of dividends shall be approved in advance by the board of directors; and
       (d) thirty (30) days prior to the payment of any such dividend, the Insured Institution has submitted to the Regional Director a resolution, adopted by the board of directors, verifying that (a), (b) and (c) above are true.

   [.15] 15. Following the effective date of this ORDER, the Insured Institution shall send to its shareholders or otherwise furnish a description of this ORDER in conjunction with the Insured Institution's next shareholder communication and also in conjunction with its notice or proxy statement preceding the Insured Institution's next shareholder meeting. The description shall fully describe the ORDER in all material re- {{10-31-92 p.C-920}}spects. The description and any accompanying communication, statement, or notice shall be sent to the FDIC, Registration and Disclosure Unit, 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] 16. 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, with a copy to 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 and the Insured Institution's Report of Income. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Regional Director and the Commissioner have released the Insured Institution in writing from making further reports.
   The provisions of this ORDER shall be binding upon the Insured Institution and all institution-affiliated parties.
   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 by the agreement of the parties hereto, or terminated, suspended, or set aside by the FDIC.
   Pursuant to delegated authority.
   Dated at San Francisco, California, this 28th day of March, 1991.

ED&O Home | Search Form | Text Search | ED&O Help

Last Updated 6/6/2003 legal@fdic.gov