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   [11,142] In the Matter of Topa Thrift and Loan Association, Los Angeles, California, Docket No. FDIC-95-018b (3-2-95).

   Bank 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 with inadequate allowance for loan and lease losses; following hazardous lending and lax collection practices; operating with inadequate provisions for liquidity and funds management; operating without proper internal routine and controls; 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 ¶16,128.)

   [.1] Management—Qualifications—Review
   [.2] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.3] Assets—Adversely Classified—Eliminate/Reduce
   [.4] Allowance for Loan and Lease Losses—Establish/Maintain
   [.5] Violations of Law—Eliminate/Correct
   [.6] Loan Portfolio—Review and Grading System Required
   [.7] Liquidity and Funds Management—Policy Required

In the Matter of

TOPA THRIFT AND LOAN
ASSOCIATION

LOS ANGELES,CALIFORNIA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-95-18b

   Topa Thrift and Loan Association, Los Angeles, California ("Insured Institution"), having been advised of its right to a Notice of Charges and of Hearing detailing the unsafe or unsound banking practices and violation of laws and/or regulations alleged to have been committed by the Insured Institution 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 February 28, 1995, whereby solely for the purpose of this proceeding and {{1-31-97 p.C-3958}}without admitting or denying the alleged charges of unsafe or unsound banking practices and violation of laws and/or regulations, 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 violation of laws 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 Insured Institution, its institution-affiliated parties, as that term is defined in section 3(u) of the Act, 12 U.S.C. § 1813(u), and its successors and assigns cease and desist from the following unsafe and unsound banking practices and violation of laws and/or regulations:
   (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 Insured Institution;
   (c) operating with a large volume of poor quality loans;
   (d) operating with an inadequate allowance for loan and lease losses;
   (e) following hazardous lending and lax collection practices;
   (f) operating with inadequate provisions for liquidity and funds management;
   (g) operating with inadequate routine and controls policies; and
   (h) operating in violation of section 32 of the Act, 12 U.S.C. § 1831i, as more fully described on page 8.13 of the Report of Examination as of June 30, 1994; Part 323 of the FDIC's Rules and Regulations, 12 C.F.R. Part 323, as more fully described on page 8.12 of the Report of Examination as of June 30, 1994; and Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325, as more fully described on page 8.13 of the Report of Examination as of June 30, 1994.
   IT IS FURTHER ORDERED, that the Insured Institution, its institution-affiliated parties, and its successors and assigns, take affirmative action as follows:

   [.1] 1. 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 full time chief executive officer who has proven ability in managing a Insured Institution 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 chief financial officer or controller who has proven experience in financial management of an Insured Institution of comparable size, and experience in calculating and maintaining an adequate allowance for loan and lease losses, managing a liquidity policy and supervising the preparation of financial reports including the quarterly Reports of Income and Condition. 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 Insured Institution'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 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 Corporations for the 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
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    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) By June 30, 1995, the Insured Institution shall increase Tier 1 capital by no less than $9,000,000 (which sum includes $1,000,000 which has already been injected). By August 15, 1995, the Insured Institution shall increase Tier 1 capital by no less than an additional $2,000,000, and shall have Tier 1 capital in such an amount as to equal or exceed eight (8.0) percent of the Insured Institution's total assets. Thereafter, during the life of this ORDER, the Insured Institution shall maintain Tier 1 capital in such an amount as to equal or exceed eight (8.0) percent of the Insured Institution's total assets.
       (b) Within 60 days from the effective date of this ORDER, the Insured Institution shall develop and adopt a plan to meet the minimum risk-based capital requirements as described in the 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, Appendix A. The Plan shall be in a form and manner acceptable to the Regional Director as determined at subsequent examinations.
       (c) 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 allowance for loan and lease losses, the adequacy of which shall be satisfactory to the Regional Director and Commissioner as determined at subsequent examinations and/or visitations.
       (d) 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 or 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 Insured Institution's allowance for loan and lease losses.
       (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 or 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 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 Section, 550 - 17th Street, N.W., 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 Insured Institution shall provide to any subscriber
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    and/or purchaser of the Insured Institution'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 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.
       (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(t) and 325.2(v).

    [.3] 3. (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 50 percent of those assets classified "Doubtful" as of June 30, 1994, that have not been previously collected or charged-off. Elimination of these assets through proceeds of other loans made by the Insured Institution, other than to qualified third party borrowers, is not considered collection for the purpose of this paragraph.
       (b) Additionally, while this ORDER remains in effect, the Insured Institution shall, within 30 days of the receipt of any official Report of Examination of the Insured Institution from the FDIC or the Department of Corporations, eliminate from its books, by collection, charge-off, or other proper entries, the remaining balance of any assets classified "Loss" and 50 percent of those classified "Doubtful" in the Report of Examination unless otherwise approved in writing by the Regional Director and the Commissioner.
       (c) Within 180 days from the effective date of this ORDER, the Insured Institution shall have reduced the assets classified "Substandard" as of June 30, 1994 and those assets classified "Doubtful" that have not previously been charged off to not more than $62,250,000.
       (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 June 30, 1994 that have not previously been charged off to not more than $50,000,000.
       (e) The requirements of subparagraphs 3(a), 3(b), 3(c), and 3(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, other than to qualified third party borrowers, is not considered collection for the purpose of this paragraph. As used in subparagraphs 3(b), 3(c), 3(d), and 3(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.

   [.4] 4. Within 10 days from the effective date of this ORDER, the Insured Institution shall establish and thereafter maintain an adequate allowance for loan and lease losses. Such allowance shall be established by charges to current operating income, together with collection of assets previously charged off. In complying with the provisions of this paragraph, the board of directors shall review the adequacy of the Insured Institution's allowance for loan and lease losses prior to the end of each quarter. The minutes of the board of directors meeting at which such review is undertaken shall indicate the results of the review, the amount of any increase in the allowance, and the basis for determination of the amount of the allowance provided.

   [.5] 5. Within 60 days from the effective date of this ORDER, the Insured Institution shall eliminate and/or correct all violation of laws which are more fully set out on pages 8.12 - 8.13 of the Report of Examination of the Insured Institution as of June 30, 1994. For purposes of determining correction of the violations relative to capital standards of Part 325 of the FDIC's Rules and Regulations, the Insured Institution's compliance with the provisions outlined in paragraph 2 of this ORDER will constitute correction of the stated violations. In addition, the Insured Institution shall take all necessary steps to

{{5-31-95 p.C-3961}}ensure future compliance with all applicable laws and regulations.

   [.6] 6. Within 30 days from the effective date of this ORDER, the Insured Institution shall revise, adopt, and implement an internal asset review and classification system. The system shall be structured so that it functions independently of loan line staff. Such system shall be in a form and manner acceptable to the Regional Director and Commissioner as determined at subsequent examinations and/or visitations. Such policy must remain in effect unless the Insured Institution obtains permission from the Regional Director and the Commissioner to implement a new policy which is in a form and manner acceptable to the Regional Director and Commissioner.

   [.7] 7. Within 30 days from the effective date of this ORDER, the Insured Institution shall develop or revise, adopt, and implement a written liquidity and funds management policy which provides at least an eight (8.0) percent liquidity ratio. 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. Such policy must remain in effect unless the Insured Institution obtains permission from the Regional Director and the Commissioner to implement a new policy which is in a form and manner acceptable to the Regional Director and the Commissioner.

   8. 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 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 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.
   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 2nd day of March, 1995.
   Pursuant to delegated authority.

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