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   [10,669] In the Matter of Topa Thrift and Loan Association, Los Angeles, California, Docket No. FDIC-92-326b (11-12-92).

   Thrift to cease and desist from such unsafe or unsound practices as operating with inadequate management; operating with inadequate capital; operating with an excessive level of poor quality assets; operating without adequate reserve for loan losses; following hazardous lending and lax collection practices; operating with inadequate provisions for liquidity and funds management; operating without proper internal routine and controls; operating in such a manner as to produce low earnings; and operating in violation of applicable laws or regulations. (Editor's Note: This order was terminated by order of the FDIC dated 11-1-96. See ¶16,127.)

   [.1] Management—Qualifications—Review
   [.2] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.3] Assets—Adversely Classified—Eliminate/Reduce
{{1-31-93 p.C-2839}}
   [.4]Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.5]Lending and Collection Policy—Minimum Requirements
   [.6]Loan Loss Reserve—Establish/Maintain
   [.7]Profit Plan—Minimum Requirements
   [.8]Assets—Internal Classification System Required
   [.9]Violations of Law—Eliminate/Correct
   [.10]Liquidity and Funds Management—Policy Required
   [.11]Dividends—Restricted
   [.12]Corporate Contribution—Written Policy
   [.13]Compensation—Directors and Officers—Restrictions
   [.14]Shareholders—Disclosure—Cease and Desist Order

In the Matter of

TOPA THRIFT AND LOAN
ASSOCIATION

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

FDIC-92-326b

   Topa Thrift and Loan Association, Los Angeles, California ("Thrift"), 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 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 November 5, 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 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 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 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;
   (c) operating with a large volume of poor quality loans;
   (d) operating with an inadequate loan valuation reserve;
   (e) following deficient lending and lax collection practices;
   (f) operating with inadequate provisions for liquidity and funds management;
   (g) operating with inadequate routine and controls policies;
   (h) operating in such a manner as to produce low earnings; and
   (i) operating in violation of section III of Appendix A to Part 325 of the FDIC Rules and Regulations, 12 C.F.R. Appendix A to Part 325, as more fully described on page 6-a of the Report of Examination as of April 27, 1992.
   IT IS FURTHER ORDERED that the Thrift take affirmative action as follows:

   [.1] 1. The Thrift 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. Management {{1-31-93 p.C-2840}}
will include a chief executive officer with proven ability in managing a Thrift of comparable size, and experience in upgrading a low quality loan portfolio, improving earnings, and other matters needing particular attention. Management will 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's board of directors to implement the provisions of this ORDER.
   (b) The qualifications of management shall be assessed on its ability to, among other things:

       (i) comply with the requirements of this ORDER;
       (ii) operate the Thrift in a safe and sound manner;
       (iii) comply with applicable laws and regulations; and
       (iv) restore all aspects of the Thrift 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 shall notify the Regional Director of the FDIC's San Francisco Regional Office ("Regional Director") and the Commissioner of Corporations for the State of California ("Commissioner") in writing when it proposes to add any individual to the Thrift'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 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) No later than December 31, 1992 the Thrift shall increase Tier 1 capital by no less than $4,400,000 or such additional amount as is necessary to achieve and maintain Tier 1 capital so as to equal or exceed 5.7 percent of the Thrift's total assets.
   (b) By December 31, 1992, the Thrift shall develop, adopt and implement a capital plan covering the period of November 1992 through and including December 1994. The plan shall address both internal and external sources of capital augmentation, including capital infusions and retention of earnings. The plan shall include specific quarterly target ratios for Tier 1 capital. The plan shall further include provisions requiring capital infusions to the Thrift in the event that the 1993 quarterly target ratios are not achieved by the Thrift; and that such infusions shall be in the amount necessary to meet that quarterly target ratio. The plan shall also include provisions which provide guidance and control to assure that the Thrift meets the minimum risk-based capital requirements as described in FDIC Statement of Policy on Risk-Based Capital contained in Appendix A to Part 325 of the FDIC Rules and Regulations, 12 C.F.R. Part 325 of the FDIC Rules and Regulations, 12 C.F.R. Part 325, Appendix A. The plan shall be in a form and manner acceptable to the Regional Director and Commissioner as determined at subsequent examinations.
   (c) No later than December 31, 1993, the Thrift shall have Tier 1 capital in such an amount as to equal or exceed eight (8.0) percent of the Thrift's total assets. Thereafter, during the life of this ORDER, the Thrift shall maintain Tier 1 capital in such an amount as to equal or exceed eight (8.0) percent of the Thrift's total assets.
   (d) 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 Commissioner as determined at subsequent examinations and/or visitations.
   (e) 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
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    the board of directors, shareholders, and/or parent holding company; or
       (iv) the collection of all or part of assets classified "Loss" without loss or liability to the Thrift. Reductions of such assets through the proceeds of other loans does not constitute collection for purposes of this Paragraph. Collection of loans and leases classified "Loss" shall be recorded on the Thrift's books in accordance with the Instructions for the Preparation of Reports of Condition and Income; or
       (v) the collection in cash of assets previously charged off; or
       (vi) any other means acceptable to the Regional Director and the Commissioner; or
       (vii) 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's loan loss reserves if such deduction results in inadequate reserves pursuant to Paragraph 6 of this ORDER.
   (e) 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 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's securities (including a distribution limited only to the Thrift's existing shareholders, if required by Federal or State securities laws), the Thrift shall prepare offering materials fully describing the securities being offered, including an accurate description of the financial condition of the Thrift and the circumstances giving rise to the offering, and any other material disclosures necessary to comply with the Federal and State 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, 550 - 17th Street, Washington, D.C. 20429, for review. Any changes requested to be made in the plan or materials by the FDIC shall be made prior to their dissemination. If the increase in Tier 1 capital is provided by the sale of noncumulative perpetual preferred stock, then all terms and conditions of the issue, including but not limited to those terms and conditions relative to interest rate and convertibility factor, shall be presented to the Regional Director and the Commissioner for prior approval.
   (f) In complying with the provisions of Paragraph 2 of this ORDER, the Thrift shall provide to any subscriber and/or purchaser of the Thrift'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 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's securities who received or was tendered the information contained in the Thrift's original offering materials.
   (g) For the purposes of this ORDER, the terms "Tier 1 capital" and "total assets" shall have the meanings ascribed to them in Part 325 of the FDIC Rules and Regulations, 12 C.F.R. §§ 325.2(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 shall eliminate from its books, by charge-off or collection, all assets classified "Loss" and one-half of the assets classified "Doubtful" as of April 27, 1992, that have not been previously collected or charged off. Elimination of these assets through proceeds of other loans made by the Thrift, wherein recovery may not be recognized pursuant to FASB 66 and the FDIC Instructions for the preparation of Reports of Condition and Income, is not considered collection for the purpose of this paragraph.
   (b) Within 60 days after the effective date of this ORDER, the Thrift shall adopt a written plan acceptable to the Regional
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Director and the Commissioner to reduce the remaining assets classified "Doubtful" and "Substandard" as of April 27, 1992. At a minimum the plan shall establish the following targets for reduction of classified assets:

       (i) No later than March 31, 1993, the Thrift shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of April 27, 1992 that have not previously been charged off to not more than two hundred and fifty (250.0) percent of Total Equity Capital and Reserves ("TECR").
       (ii) No later than July 31, 1993, the Thrift shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of April 27, 1992 that have not previously been charged off to not more than two hundred (200.0) percent of TECR.
       (iii) No later than November 30, 1993, the Thrift shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of April 27, 1992 that have not previously been charged off to not more than one hundred and fifty (150.0) percent of TECR.
       (iv) No later than March 31, 1994, the Thrift shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of April 27, 1992 that have not previously been charged off to not more than one hundred (100.0) percent of TECR.
   (c) The requirements of subparagraphs 3(a) and 3(b) of this ORDER are not to be construed as standards for future operations and, in addition to the foregoing, the Thrift shall eventually reduce the total of all adversely classified assets. Reduction of these assets through proceeds of other loans made by the Thrift, other than to qualified third party borrowers where the approval of the Regional Director and the Commissioner for treatment as a reduction has been obtained, is not considered collection for the purpose of this paragraph. As used in subparagraph 3(b) 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. (a) Beginning with the effective date of this ORDER, the Thrift 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 Thrift 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 Thrift from renewing (after collection in cash of interest due from the borrower) or extending the maturity of any credit already extended to any borrower.
   (b) Paragraph 4(a) shall not apply to the advance of funds by the Thrift for the sole purpose of maintaining or protecting the Thrift's real estate collateral or position in such collateral for real estate-secured extensions of credit if, prior to extending such additional credit pursuant to this paragraph, such additional credit shall be approved by a majority of the board of directors of the Thrift who shall certify, in writing:
       (i) why the failure of the Thrift to extend such credit would be detrimental to the best interests of the Thrift;
       (ii) that the Thrift's position would be improved thereby; and
       (iii) how the Thrift's position would be improved.
Such additional advance pursuant to this paragraph shall be submitted to the Regional Director and the Commissioner for prior approval.
   (c) Additionally, during the life of this ORDER, the Thrift 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 Thrift that has been classified, in whole or part, "Substandard" and is uncollected.
   (d) Paragraph 4(c) shall not apply if the Thrift's failure to extend further credit to a particular borrower would be detrimental to the best interests of the Thrift. 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 {{1-31-93 p.C-2843}}
board of directors, or a designated committee thereof, who shall certify, in writing:
       (i) why the failure of the Thrift to extend such credit would be detrimental to the best interests of the Thrift;
       (ii) that the Thrift's position would be improved thereby; and
       (iii) how the Thrift's position would be improved. The signed certification shall be made a part of the minutes of the board of directors or designated committee, and a copy of the signed certification shall be retained in the borrower's credit file.

   [.5] 5. Within 60 days from the effective date of this ORDER, the Thrift shall revise, adopt, and implement a written lending and collection policy to provide effective guidance and control over the Thrift's lending function, which policy shall include, at a minimum, revisions to address all items of criticism contained within the April 27, 1992 Report of Examination as well as specific guidelines to enhance internal asset review effectiveness, strengthen underwriting criteria, enhance appraisal standards, improve loan monitoring and follow-up, and for placing loans on a nonaccrual basis. In addition, the Thrift shall obtain adequate and current documentation for all loans in the Thrift's loan portfolio at inception, renewal or extension. 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.

[.6] 6. (a) During the life of this ORDER, the Thrift shall maintain an adequate reserve for loan losses.
   (b) Additionally, during the life of this ORDER, the Board of Directors shall fully implement its 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 shall be completed at least ten (10) days prior to the filing date for each Report of Condition and Income, 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'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, minimum reserves required by State laws and regulations, 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 Thrift shall increase and maintain its loan less reserve consistent with the loan loss reserve policy established. Such policy and its implementation shall be satisfactory to the Regional Director and the Commissioner as determined at subsequent examinations and/or visitations.

   [.7] 7. Within 60 days from the effective date of this ORDER, the Thrift shall formulate and implement a written earnings or profit plan. This plan shall be forwarded to the Regional Director an to the Commissioner for review and comment and shall address, at a minimum, the following:
   (a) goals and strategies for improving and sustaining the earnings of the Thrift, including:

       (i) an identification of the major areas in, and means by which, the board of directors will seek to improve the Thrift's operating performance;
       (ii) realistic and comprehensive budgets;
       (iii) a budget review process to monitor the income and expenses of the Thrift to compare actual figures with budgetary projections; and
       (iv) a description of the operating assumptions that form the basis for, and adequately support, major projected income and expense components.
   (b) coordination of the Thrift's loan, investment, and operating policies, and budget and profit planning, with the funds management policy.

   [.8] 8. Within 60 days from the effective date of this ORDER, the Thrift shall revise, adopt and implement an internal asset re- {{1-31-93 p.C-2844}}view and classification system. This system shall be structured such that it functions independently of loan line staff. Such system shall be in a form and manner acceptable to the Regional Director and the Commissioner.

   [.9] 9. Within 60 days from the effective date of this ORDER, the Thrift shall eliminate and/or correct all violations of section III of Appendix A to Part 325 of the FDIC Rules and Regulations, 12 C.F.R. Appendix A to Part 325, which are more fully set out on page 6-a of the Report of Examination of the Thrift as of April 27, 1992. For the purposes of determining correction of the violations scheduled relative to capital standards embodied in Part 325 of the FDIC's Rules and Regulations, the Thrift's compliance with the provisions outlined in paragraph 2 of this ORDER will constitute correction of the stated violations. In addition, the Thrift 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 Thrift 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.

   [.11] 11. During the life of this ORDER, the Thrift shall not pay cash dividends without the prior written consent of the board of directors of the Thrift, the Regional Director and the Commissioner.

   [.12] 12. Within 30 days from the effective date of this ORDER, the Thrift shall revise, adopt, and implement a written corporate contribution policy. The policy shall prohibit the Thrift from making total corporate contributions per annum in excess of $10,000 unless Tier 1 Capital is in such an amount to equal or exceed eight (8.0) percent of the Thrift's total assets and shall be in a form and manner acceptable to the Regional Director and Commissioner.

   [.13] 13. During 1992, the Thrift shall not compensate any Thrift senior executive officer or director in an amount exceeding one hundred five (105) percent of the annual compensation for that senior executive officer or director approved by the board of directors and in effect as of the effective date of this ORDER. During subsequent years, while this ORDER is in effect, the Thrift shall not compensate any Thrift senior executive officer or director in an amount exceeding one hundred five (105) percent of the annual compensation of that senior executive officer or director for the previous year without the prior written approval of the Regional Director, and the Commissioner. For the purpose of this paragraph, "compensate" and "compensation" refers to any and all salaries, bonuses, fees, and other benefits of every kind and nature whatsoever, whether paid directly or indirectly.

   [.14] 14. Following the effective date of this ORDER, the Thrift shall send to its shareholders or otherwise furnish a description of this ORDER in conjunction with the Thrift's next shareholder communication and also in conjunction with its notice or proxy statement preceding the Thrift's next shareholder meeting. The description shall fully describe the ORDER in all material respects. The description and any accompanying communication, statement, or notice shall be sent to the FDIC, Registration and Disclosure Section, Washington, D.C. 20429, at least fifteen (15) days prior to dissemination to shareholders. Any changes requested to be made by the FDIC shall be make prior to dissemination of the description, communication, notice, or statement.
   15. 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 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's Report of Condition and the Thrift'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 in writing from making further reports.
   The provisions of this ORDER shall be binding upon the Thrift, its directors, officers, employees, agents, successors, assigns, and other persons participating in the conduct of the affairs of the Thrift.
   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 {{5-31-94 p.C-2845}}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 12th day of November, 1992.
   Pursuant to delegated authority.

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