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FDIC Enforcement Decisions and Orders

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{{7-31-92 p.C-2256}}
   [10,532] In the Matter of New West Thrift and Loan Company, Novato, California, Docket No. FDIC-92-136b (5-11-92).

   Bank to cease and desist from such unsafe or unsound practices as operating with inadequate management; operating with inadequate capital; operating with inadequate capital; operating with excessive volumes of adversely classified assets; operating without adequate reserve for loan losses; following hazardous lending and lax collection practices; operating with inadequate provisions for liquidity and funds management; and operating in such a manner as to produce low earnings.

   [.1] Management—Qualifications—Review
   [.2] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.3] Assets—Adversely Classified—Eliminate/Reduce
   [.4] Lending and Collection Policy—Minimum Requirements
   [.5] Loans—Real Estate Development—Reduction Required
   [.6] Loan Loss Reserve—Establish/Maintain
   [.7] Violations of Law—Eliminate/Correct
   [.8] Liquidity and Funds Management—Policy Required
   [.9] Shareholders—Disclosure—Cease and Desist Order
   [.10] Compliance Reports—Frequency

In the Matter of

NEW WEST THRIFT AND LOAN COMPANY
NOVATO, CALIFORNIA
(Insured State Nonmember Thrift and Loan)
ORDER TO CEASE AND DESIST
FDIC-92-136b

   New West Thrift and Loan Company, Novato, California ("Thrift and Loan"), having been advised of its right to a Notice of Charges and of Hearing detailing the unsafe or unsound banking practices and violations of law and/or regulations alleged to have been committed by the Thrift and Loan and of its right to a hearing on the alleged charges under section 8(b)(1) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1818(b) (1), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") with counsel for the Federal Deposit Insurance Corporation ("FDIC"), dated May 6, 1992, whereby solely for the purpose of this proceeding and without admitting or denying the alleged charges of unsafe or unsound banking practices and violations of law and/or regulations, the Thrift and Loan 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 Thrift and Loan had engaged in unsafe or unsound banking practices and had committed violations of law and/or regulations. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

ORDER TO CEASE AND DESIST

   IT IS HEREBY ORDERED that the Thrift and Loan, and any institution-affiliated party as such term is defined in section 3(u) of the Act, 12 U.S.C. § 1813(u), cease and desist from the following unsafe or unsound banking practices and violations:
   (a) operating with inadequate management;
   (b) operating with inadequate equity capital and reserves in relation to the volume and quality of assets held by the Thrift and Loan; {{7-31-92 p.C-2257}}
   (c) operating with a large volume of poor quality loans;
   (d) operating with an inadequate loan valuation reserve;
   (e) following hazardous lending and lax collection practices;
   (f) operating with inadequate provisions for liquidity and funds management; and
   (h) operating in such a manner as to produce low earnings.
   IT IS FURTHER ORDERED that the Thrift and Loan take affirmative action as follows:

   [.1] 1. The Thrift and Loan 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 Thrift and Loan. Management should include a chief executive officer with proven ability in managing a Thrift and Loan of comparable size, and experience in upgrading a low quality loan portfolio, improving earnings, and other matters needing particular attention. Management should also include a senior lending officer with significant appropriate lending, collection, and loan supervision experience and experience in upgrading a low quality loan portfolio. Each member of management shall be provided appropriate written authority from the Thrift and Loan's board of directors to implement the provisions of this ORDER.
   (b) The qualifications of management shall be assessed on its ability to:

       (i) comply with the requirements of this ORDER;
       (ii) operate the Thrift and Loan in a safe and sound manner;
       (iii) comply with applicable laws and regulations; and
       (iv) restore all aspects of the Thrift and Loan to a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness, and liquidity.
   (c) During the life of this ORDER, the Thrift and Loan shall notify the Regional Director of the FDIC's San Francisco Regional Office ("Regional Director") and the Honorable Thomas S. Fayles, Commissioner of Corporations ("Commissioner") in writing when it proposed to add any individual to the Thrift and Loan'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 Thrift and Loan 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) During the life of this ORDER, the Thrift and Loan shall maintain Tier 1 capital in such an amount as to equal or exceed ten (10.00) percent of the Thrift and Loan's total assets.
   (b) The level of Tier 1 capital to be maintained during the life of this ORDER pursuant to Subparagraph 2(a) shall be in addition to a fully funded loan loss reserve, the adequacy of which shall be satisfactory to the Regional Director and the Commissioner as determined at subsequent examinations and/or visitations.
   (c) Any increase in Tier 1 capital necessary to meet the requirements of Paragraph 2 of this ORDER may be accomplished by the following:

       (i) the sale of common stock; or
       (ii) the sale of noncumulative perpetual preferred stock; or
       (iii) the direct contribution of cash by the board of directors, shareholders, and/or parent holding company; or
       (iv) any other means acceptable to the Regional Director and the Commissioner; or
       (v) any combination of the above means.
Any increase in Tier 1 capital necessary to meet the requirements of Paragraph 2 of this ORDER may not be accomplished through a deduction from the Thrift and Loan's loan loss reserves.
   (d) If all or part of the increase in Tier 1 capital required by Paragraph 2 of this ORDER is accomplished by the sale of new securities, the board of directors shall forthwith take all necessary steps to adopt and implement a plan for the sale of such additional securities, including the voting {{7-31-92 p.C-2258}}of any shares owned or proxies held or controlled by them in favor of the plan. Should the implementation of the plan involve a public distribution of the Thrift and Loan's securities (including a distribution limited only to the Thrift and Loan's existing shareholders), the Thrift and Loan shall prepare offering materials fully describing the securities being offered, including an accurate description of the financial condition of the Thrift and Loan and the circumstances giving rise to the offering, and any other material disclosures necessary to comply with the Federal securities laws. Prior to the implementation of the plan and, in any event, not less than fifteen (15) days prior to the dissemination of such materials, the plan and any materials used in the sale of the securities shall be submitted to the FDIC, Registration and Disclosure Section, Washington, D.C. 24029, for review. Any changes requested to be made in the plan or materials by the FDIC shall be made prior to their dissemination. If the increase in Tier 1 capital is provided by the sale of noncumulative perpetual preferred stock, then all terms and conditions of the issue, including but not limited to those terms and conditions relative to interest rate and convertibility factor, shall be presented to the Regional Director and the Commissioner for prior approval.
   (e) In complying with the provisions of Paragraph 2 of this ORDER, the Thrift and Loan shall provide to any subscriber and/or purchaser of the Thrift and Loan's securities, a written notice of any planned or existing development or other changes which are materially different from the information reflected in any offering materials used in connection with the sale of Thrift and Loan 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 Thrift and Loan's securities who received or was tendered the information contained in the Thrift and Loan's original offering materials.
   (f) For the purposes of this ORDER, the terms "Tier 1 capital" and "total assets" shall have the meanings ascribed to them in Part 325 of the FDIC Rules and Regulations, 12 C.F.R. §§ 325.2(m) and 325.2(n), as amended at 56 Fed. Reg. 10154, effective April 10, 1991.

   [.3] 3. (a) Within 10 days from the effective date of this ORDER, the Thrift and Loan shall eliminate from its books, by charge-off or collection, all assets classified "Loss" as of November 25, 1991, that have not been previously collected or charged off. Elimination of these assets through proceeds of other loans made by the Thrift and Loan is not considered collection for the purpose of this paragraph.
   (b) On or before August 15, 1992, the Thrift and Loan shall have reduced the assets classified "Substandard" as of November 25, 1991 that have not previously been charged off to not more than $1,500,000.
   (c) On or before October 15, 1992, the Thrift and Loan shall have reduced the assets classified "Substandard" as of November 25, 1991 that have not previously been charged off to not more than $1,000,000.
   (d) The requirements of subparagraphs 3(a), 3(b), and 3(c) of this ORDER are not to be construed as standards for future operations and, in addition to the foregoing, the Thrift and Loan shall eventually reduce the total of all adversely classified assets. Reduction of these assets through proceeds of other loans made by the Thrift and Loan is not considered collection for the purpose of this paragraph. As used in subparagraphs 3(b), 3(c), and 3(d) the word "reduce" means:

    (i) to collect;
    (ii) to charge-off; or
    (iii) to sufficiently improve the quality of assets adversely classified to warrant removing any adverse classification, as determined by the FDIC.
   [.4] 4. Within 60 days from the effective date of this ORDER, the Thrift and Loan shall revise, adopt, and implement written lending and collection policy to provide effective guidance and control over the Thrift and Loan's lending function, which policy shall include specific guidelines for placing loans on a nonaccrual basis. In addition, the Thrift and Loan shall obtain adequate and current documentation for all loans in the Thrift and Loan's loan portfolio. Such policy and its implementation shall be in a form and manner acceptable to the Regional Director and the Commissioner as determined
{{4-30-95 p.C-2259}}at subsequent examinations and/or visitations.

   [.5] 5. Within 60 days from the effective date of this ORDER, the Thrift and Loan shall develop a written plan, approved by its board of directors and acceptable to the Regional Director and the Commissioner for systematically reducing the amount of loans or other extensions of credit advanced, directly or indirectly, to or for the purpose of speculative real estate development as more specifically listed on page 2-b in the Report of Examination as of November 25, 1991.

   [.6] 6. Within 30 days from the effective date of this ORDER, the board of directors shall review the adequacy of the reserve for loan losses and establish a 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 ten (10) 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 Thrift and Loan's internal loan review, loan loss experience, trends of delinquent and non-accrual loans, an estimate of potential loss exposure of significant credits, concentrations of credit, and present and prospective economic conditions. A deficiency in the reserve shall be remedied in the calendar quarter it is discovered, prior to submitting the Report of Condition, but 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.

   [.7] 7. Within 90 days from the effective date of this ORDER, the Thrift and Loan shall eliminated and/or correct all violations of law which are more fully set out on pages 6-a-1 and 6-a-2 of the Report of Examination. In addition, the Thrift and Loan shall take all necessary steps to ensure future compliance with all applicable laws and regulations.

   [.8] 8. Within 60 days from the effective date of this ORDER, the Thrift and Loan shall develop or revise, adopt, and implement a written liquidity and funds management policy. Such policy and its implementation shall be in a form and manner acceptable to the Regional Director and the Commissioner as determined at subsequent examinations and/or visitations.

   [.9] 9. Following the effective date of this ORDER, the Thrift and Loan shall send to its shareholders or otherwise furnish a description of this ORDER in conjunction with, the Thrift and Loan's next shareholder communication and also in conjunction with its notice or proxy statement preceding the Thrift and Loan's next shareholder meeting. The description shall fully describe the ORDER in all material respects.

   [.10] 10. 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 Thrift and Loan shall furnish written progress reports to the Regional Director and the Commissioner detailing the form and manner of any actions taken to secure compliance with this ORDER and the results thereof. Such reports shall include a copy of the Thrift and Loan's Report of Condition and the Thrift and Loan'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 Thrift and Loan in writing from making further reports.
   The provisions of this ORDER shall be binding upon the Thrift and Loan, and any institution-affiliated party as such term is defined in section 3(u) of the Act, 12 U.S.C. § 1813(u), to include, its directors, officers, employees, agents, successors, assigns, and other persons participating in the conduct of the affairs of the Thrift and Loan.
   This ORDER shall become effective ten (10) days from the date of its issuance.
   The provisions of this ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provisions of this ORDER shall have been modified, terminated, suspended, or set aside by the FDIC.
   Dated at San Francisco, California, this 14th day of May, 1992.
   Pursuant to delegated authority.

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