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[5196] In the Matter of Wilshire Center Bank, National Association, Los Angeles, California, Docket No. FDIC-91-230a (4-6-93).

   FDIC accepts an ALJ's recommendation and terminates bank's insured status, finding that it is an unsafe and unsound condition to continue operation. It cited {{6-30-93 p.A-2243}}capital inadequacy, poor asset quality, management deficiencies, and failure to comply with a cease and desist order as posing too great a risk to the insurance fund.

   [.1] Termination of Insurance — Inadequate Capital
   Bank is in a fundamentally unsound condition when it has negative capital ratios and operating losses in the millions of dollars.

   [.2] Termination of Insurance — Poor Quality Assets
   Consistently declining total assets, with nearly 30 percent of them classified, place bank in an unsafe or unsound condition.

   [.3] Termination of Insurance — Management Deficiencies
   Where management has a high turnover rate and demonstrated inability to reverse bank's downward trends, there is little prospect of bank's returning to a safe and sound condition.

In the Matter of


WILSHIRE CENTER BANK,
NATIONAL ASSOCIATION

LOS ANGELES, CALIFORNIA
(Insured National Bank)
Decision and Order
Terminating Federal
Deposit Insurance

FDIC-91-230a

INTRODUCTION

   This case is before the Board of Directors ("Board") of the Federal Deposit Insurance Corporation ("FDIC") upon the recommendation of Administrative Law Judge Arthur L. Shipe ("ALJ") to terminate the insured status of Wilshire Center Bank, National Association, Los Angeles, California ("Bank" or "Respondent"). Following a hearing and submission of Briefs and Reply Briefs, the ALJ issued a thorough, well-reasoned decision recommending termination of Respondent's insurance. Upon the review of the record as a whole, the Board adopts the ALJ's Recommended Decision, Findings of Fact, and Conclusions of Law ("Recommended Decision") and issues an order to terminate the insured status of the Bank.

PROCEDURAL HISTORY

   This case was initiated by the Board's issuance of a Notice of Intention to Terminate Insured Status, Findings, and Order Setting Hearing ("Notice") on January 6, 1992. The Notice charged the Respondent with engaging in unsafe or unsound practices in the conduct of its business and being in an unsafe or unsound condition to continue operations as an insured depository institution by: (1) operating with inadequate capital; (2) operating with an excessive volume of poor quality assets; (3) violating a cease-and-desist order issued by the Office of the Comptroller of the Currency ("OCC"); and (4) operating with management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits. Respondent filed its Answer to the Notice on January 29, 1992.
   A hearing was held at Pasadena, California, on July 20–21, 1992. The ALJ's Recommended Decision was forwarded to the Board on January 6, 1993.1 No exceptions to the Recommended Decision were filed by the FDIC or Respondent.

BACKGROUND

   The Respondent is a nationally chartered, federally insured banking association. R.D. at 2; Joint Stip. No. 2; Tr. at 369. The current chairperson of the Bank is Rosa Lee Leong. Tr. at 370. The Bank serves a predominantly minority community, and approximately forty percent of its customers are either Korean or Chinese. Tr. at 370.


1 Citations to the record shall be as follows:
ALJ's Recommended Decision, "R.D. at ____."
Hearing Transcript, "Tr. at ____."
Joint Stipulations, "Joint Stip. No. ____."
Exhibits, "Pet. Ex. No. ____" or "Resp. Ex. No. ____."
Briefs, "Pet. Br. at ____" or "Resp. Br. at ____."
{{6-30-93 p.A-2244}}    On May 31, 1989, the OCC2 conducted an examination of the Bank. R.D. at 2. The examination found that the Bank was operating with: (1) insufficient capital; (2) internal control and operational deficiencies; (3) unacceptably high levels of classified assets; and (4) inadequate management. R.D. at 3. As a result of this examination, the OCC instituted formal enforcement proceedings pursuant to section 8(b) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. §1818(b), and on September 25, 1989, a Consent Order was entered into between the Bank and the OCC. R.D. at 3; Joint Stip. No. 11; Pet. Ex. No. 5.
   The Consent Order, in part, required the Bank to take "immediate and continuing action with respect to the various cited deficiencies, including the problems associated with managerial turnover, inadequate lending and collection practices, and lax internal control." R.D. at 3; Pet. Ex. No. 5. Perhaps the most significant requirement of the Consent Order was the capital maintenance requirement, which required the Bank to achieve and maintain a level of equity capital at least equal to five percent (5%) of the Bank's total assets. R.D. at 3; Pet. Ex. No. 5; Joint Stip. No. 12.
   Since the issuance of the Consent Order, the FDIC has conducted three separate examinations of the Bank.
   On February 28, 1991, the FDIC and the OCC conducted a concurrent examination of the Bank and determined that the Bank was operating with unsafe or unsound practices and had violated the Consent Order.3 Pet. Ex. No. 1; Joint Stip. No. 7. The Report of Examination assigned the Bank a composite CAMEL 5 rating. Tr. at 64. Such a rating is reserved for those institutions with extremely high immediate or near probability of failure. R.D. at 5; Joint Stip. No. 10; Tr. at 64.
   The FDIC conducted another examination of the Bank as of August 31, 1991, which indicated continued deterioration of the Bank's condition and again resulted in a composite CAMEL rating of 5.4 Pet. Ex. No. 2; Tr. at 64; Joint Stip. Nos. 8 and 10.
   As a result of these two examinations and pursuant to section 8(a) of the FDI Act, the FDIC issued a Notification to Primary Regulator of Findings ("Notification") on September 10, 1991. Joint Stip. No. 13. The Notification set forth the FDIC's conclusions that the Bank was operating in an unsafe or unsound condition, was engaging in unsafe or unsound practices, and was in violation of the Consent Order. Joint Stip. No. 14. Further, the Notification required that the Bank increase its Part 325 Tier 1 capital by five million dollars within thirty days. Pet. Ex. No. 47; Tr. at 186.
   On September 30, 1991, the Bank was infused with $500,000 in equity capital contributed by the chairperson of the Bank, Rosa Lee Leong. Since there appeared to be no further infusion of equity capital forthcoming the Board initiated the instant proceeding. Pet. Ex. No. 48; Tr. at 184.
   On March 23, 1992, the FDIC conducted yet another examination of the Bank. Joint Stip. No. 9. During this examination the Bank showed no serious signs of improvement and continued to be in an unsafe or unsound condition and in violation of the Consent Order.5 Pet. Ex. No. 3; Tr. at 192. The Report of Examination assigned the Bank a composite CAMEL 5 rating. Joint Stip. No. 10; Tr. at 64.
   One month after the March 1992, examination, the Bank's chairperson injected $1.2
2 The OCC is the Bank's primary regulator.

3 During this examination the ratio of Tier 1 capital to total Part 325 assets was a negative 2.40 percent and, when adjusted for classified assets, the Adjusted Tier 1 ratio was a negative 5.80 percent. R.D. at 4; Pet. Ex. No. 1; Tr. at 48. The Bank's total assets were in excess of $32 million, of which 18.74 percent were adversely classified, as were over 30 percent of the Bank's outstanding loans. R.D. at 5; Pet. Ex. No. 1; Tr. at 31, 32, and 37. Over 26 percent of the Bank's loans were determined to be overdue. The Bank's net income was a negative $257,000, and while the loan loss reserve was slightly in excess of $1 million, the Bank's classified loans were in excess of $1.8 million. R.D. at 5. The Bank's liquidity ratio was inadequate and the Bank was not complying with the Consent Order, more particularly, the capital maintenance requirement. R.D. at 5; Pet. Ex. No. 1; Tr. at 59–63.

4 During this examination the ratio of Tier 1 capital to Part 325 assets was a negative 2.85 percent and the Adjusted Tier 1 ratio was a negative 1.75 percent. R.D. at 5; Pet. Ex. No. 2; Tr. at 48. The Bank's total asset base had decreased since the February 28, 1991, examination by almost $9 million. R.D. at 5; Pet. Ex. No. 2; Tr. at 31. 13.77 percent of the Bank's remaining assets was adversely classified, as was 19.89 percent of its outstanding loans, of which 14.56 percent was overdue. R.D. at 5; Pet. Ex. No. 2; Tr. at 32 and 37. The Bank's earnings were a negative $1.9 million and the loan loss reserve was unacceptably low. R.D. at 5; Pet. Ex. No. 2.

5 During this examination the Bank's total assets were $17,282,000. Tr. at 31. Of the Bank's total assets, 22.02 percent was adversely classified. Tr. at 32. 28.69 percent of the Bank's total loans was adversely classified. Tr. at 37.
{{6-30-93 p.A-2245}}million in additional equity capital into the Bank. R.D. at 8; Tr. at 192; Resp. Ex. No. 47.
   On May 8, 1992, a special meeting of the Bank's board of directors was called by the OCC. R.D. at 7; Tr. at 193. The OCC, FDIC, and Respondent met in San Francisco to discuss recapitalization of the Bank. R.D. at 7; Tr. at 193. The OCC advised the Bank's board of directors of a capital call in the amount of three million dollars and the FDIC continued their demand for more capital in the amount of five million dollars. R.D. at 7–8; Pet. Ex. No. 47; Tr. at 194. Neither of the required capital levels has been achieved. R.D. at 8; Tr. at 188 and 194.

DISCUSSION

   There are basically four issues in dispute in this case. First, the Respondent denies that it is operating with inadequate capital. Second, the Respondent denies that it is operating with an excessive volume of poor quality assets. Third, the Respondent claims that it is in full compliance with the Consent Order and is within the FDIC's guidelines for a safe and sound institution. Fourth, the Respondent denies that the policies and practices of bank management are detrimental to the Bank and jeopardize the safety of its deposits. The Respondent claims that the only relevant issue in this proceeding is the question of the Bank's capital and that the other issues "are a real sidelight." Resp. Br. at 15. Moreover, the Bank asserts that there has been significant improvement in its financial condition and, therefore, the Board should exercise its discretion and not terminate its insurance.
   The ALJ made a thorough analysis of the evidence, which the Board briefly summarizes the highlights. R.D. at 8–17.

   [.1] Turning to the issues of capital adequacy, the ALJ correctly analyzed the evidence regarding the capital position of the Bank following the three FDIC Examinations.6 "Tier 1 Capital levels have fallen from negative $597,000 at the February 1991, Examination, to negative $671,000 in August, and then despite a $500,000 injection, the level fell even further to negative $754,000 at the March 1992, Exam." R.D. at 8. Similarly, the ALJ analyzed the Bank's capital ratios which consistently and systematically declined when compared to the Bank's Part 325 Total Assets. "The ratios have fallen progressively from a negative 2.40 percent, to a negative 2.85 percent, to a negative 3.65 percent." R.D. at 8; Tr. at 48; Pet. Br. at 13.
   One month following the March 1992, examination, the Bank's chairperson injected $1.2 million in additional equity capital into the Bank. Following this injection of funds, the FDIC conducted a brief examination during which it determined that the Bank's Tier 1 capital ratio equaled a positive 3.2 percent. R.D. at 9; Pet. Br. at 5; Tr. at 66 and 227. The ALJ considered this injection of capital "somewhat reassuring," although he concluded that the evidence presented at the hearing established that the "improvement in the capital ratio was more attributable to a further decline in assets and not to any improvement in the actual amount of Tier 1 capital." R.D. at 9; at 66–67.
   Respondent offered evidence that potential investors were committed to inject an additional $800,000 in capital one week after the hearing with an additional $1.2 million to be injected within one month of the hearing. R.D. at 9; Tr. at 385. These capital injections apparently never transpired. R.D. at 9; Tr. at 381; Resp. Br. at 8.
   The ALJ precisely noted that in determining whether an institution is in an unsafe or unsound condition, "special and particular emphasis must be placed on the institution's capitalization." R.D. at 11. Part 325 of Title 12 of the Code of Federal Regulations governs minimum capital maintenance guidelines for insured institutions. The FDIC Rules and Regulations state that any fundamentally sound institution other than a composite CAMEL 1 rated institution must have a ratio of Tier 1 capital to Part 325 total assets of not less than four percent. 12 C.F.R. §325.3(b)(2), 12 C.F.R. §325.3(a). For institutions which are not fundamentally sound or are in weak financial condition, the FDIC is justified in imposing a higher leverage capital requirement.
   For example, 12 C.F.R. §325.3(a), provides:


6 All three of the examinations "showed a continual and alarming deterioration" of the Bank's condition, a continued violation of the Consent Order and that the Bank was operating in an unsafe or unsound condition. R.D. at 4; Tr. at 195.
{{6-30-93 p.A-2246}}
    The capital standards in this part are the minimum acceptable for banks whose overall financial condition is fundamentally sound, which are well-managed and which have no material or significant financial weaknesses. Thus the FDIC is not precluded from requiring an institution to maintain a higher capital level based on the institution's particular risk profile. Where the FDIC determines that the financial history or condition, or managerial resources and/or the future earnings prospects of a bank are not adequate, or where a bank has sizable off-balance sheet or funding risks, excessive interest rate risk exposure, or significant volume of assets classified substandard, doubtful, or loss, or otherwise criticized, the FDIC may determine that the minimum amount of capital for that bank is greater than the minimum standards stated in this section.
   The Respondent does not fit within the definition of a fundamentally sound institution in light of its negative capital ratios and operating losses in the millions. R.D. at 13. Even after the Bank's injection of $1.2 million of additional capital equity, the Bank's Tier 1 capital remains short of the minimum four percent capital requirement of Part 325.7
   Section 325.4(c) provides that any insured institution with a ratio of Tier 1 capital to Part 325 total assets less than two percent is deemed to be operating in an unsafe and unsound condition within the meaning of section 8(a) of the FDI Act. The February and August 1991, and March 1993, examinations plainly showed the Bank's Tier 1 capital ratios fell far below this requirement. R.D. at 13; Pet. Ex. Nos. 1, 2, 3.

   [.2] Next the ALJ analyzed the evidence concerning the Bank's assets and notices a "consistent and dramatic decline in total assets from each successive examination." R.D. at 9. At the February 28, 1991, examination, the Bank had total assets in excess of $32 million. R.D. at 9; Pet. Ex. at 5; Tr. at 31. Approximately 18 months later at the hearing in this proceeding, the Bank's assets amounted to only $15 million. R.D. at 9; Pet. Ex. at 5; Tr. at 31. In addition to the shrinkage of assets, the examiners found a substantial volume of poor quality assets. As of the March 1992, examination, nearly one quarter of the Bank's assets were classified as substandard, doubtful, or loss. R.D. at 10; Pet. Ex. No. 3; Tr. at 32–34; Pet. Br. at 6. Moreover, the "Bank's most important earning asset, its outstanding loans, are equally, if not more troubled." R.D. at 10; Pet. Ex. Nos. 1,2,3; Tr. at 35, 37, and 39. During this most recent examination, the FDIC determined that more than 25 percent of the Bank's outstanding loans are overdue, while nearly 30 percent are adversely classified. R.D. at 10; Pet. Ex. No. 3; Tr. at 32.
   The Bank appealed the OCC's classification and challenged the FDIC's adverse classification of two assets. The value of these contested assets is $500,000. The ALJ correctly concluded that even if the classifications are reversed, the $500,000 addition to the Bank's Tier 1 capital "still leaves the Bank badly undercapitalized and unsafe and unsound." R.D. at 15. Moreover, the Bank's disagreement with, and appeal of, the classifications does not frustrate the detailed analysis implemented by the FDIC examiners in their determination that the assets should be classified as loss. In Sunshine State Bank v. FDIC, 783 F.2d 1580 (11th Cir. 1986), the court held that deference must be given to the opinion of these unique experts unless there is no rational basis for the examiner's conclusions. The Bank did not provide sufficient evidence to refute the opinions of the expert examiners.
   The Bank's earnings are similarly troubled. The February 1991, examination revealed a net operating loss of $257,000 for the first two months of the year, by the August 1991, examination the losses had increased to $1,900,000 and by year end, the losses exceeded $2 million. R.D. at 10; Pet. Ex. Nos. 1,2,3; Tr. at 55–56. The Bank's earnings history reveals losses of approximately $2 million a year for the past three years. The Bank's earning problems are ex-


7 The Bank contends that after this injection of capital that it was in compliance with the minimum capital standards and that at the time of the hearing it had over six percent in equity capital. Resp. Br. at 4; Tr. at 242 and 243. The Bank's General Ledger for the periods of June 30, 1992, and July 17, 1992, was produced at the hearing in support of the Bank's claim that its equity or primary capital was in excess of the five percent equity capital that the Consent Order required. Resp. Br. at 6; Resp. Ex. Nos. 2, 3. The FDIC examiners had calculated the Bank's Tier 1 capital to amount to only 3.2 percent. Tr. at 65–66. In any event, the Bank had fallen short (by $3.3 million) of the FDIC's requirement that it increase its Tier 1 capital to $5 million. R.D. at 14, Pet. Ex. No. 47, Tr. at 186. The FDIC examiners concluded that without the infusion of at least $3.3 million, the institution's condition is and will remain unsafe and unsound. Tr. at 193, 197–198.
{{6-30-93 p.A-2247}}aggerated by the fact that the Bank's major source of income, its net interest income, was found to be insufficient to cover its overhead expenses. Pet. Ex. Nos. 1,2,3; Tr. at 57–58. For example, the March 1992 examination showed the Bank's net interest income at just over $100,000 while its overhead was $269,000. Pet. Ex. No. 3; Tr. at 58.
   The ALJ found the Bank's liquidity to be inadequate given the Bank's operating losses, capital inadequacy and volatile deposit base. R.D. at 11; Tr. at 59–60.

   [.3] Turning finally to the issue of management, the Bank contends that any problems it faces with respect to management are all problems that can be attributed to prior management and that" [u]nder the current management team no new problems were highlighted." Resp. Br. at 14, Tr. at 143–144.
   The Bank's arguments are unconvincing. The testimony of the examiners highlighted the current management's inability to improve the Bank's operating losses and their inability to control the amount of asset losses or to generate new growth for the Bank. Pet Br. at 11; Tr. at 54. Moreover, current management has introduced weak workout solutions for problem assets. Tr. at 190–191. The ALJ noted the excessive turnover of management at all levels. The Bank has had nine chief executive officers in as many years, "none of whom have demonstrated the ability to effect improvement in the overall condition of the Bank or to achieve compliance with the Consent Order." R.D. at 16.
   The FDIC is empowered under section 8(a) of the FDI Act to terminate deposit insurance of an insured depository institution upon finding that "an insured depository institution or its directors or trustees have engaged or are engaging in unsafe or unsound practices in conducting the business of such depository institution; or is in an unsafe or unsound condition to continue operation as an insured institution; or an insured depository institution or the directors or trustees of the insured institution have violated any applicable law, regulation, order, condition imposed in writing...." 12 U.S.C. §1818(a). In this proceeding, it is the Respondent's capital inadequacy, high volume of adversely classified assets, inability to comply with the Consent Order, inadequate management, and lack of prospects for an immediate infusion of new capital that require termination of Federal deposit insurance.
   The ALJ correctly noted that each examination of the Bank resulted in findings of "a continual and alarming deterioration of the institution's capital position, asset quality, and management capabilities, as well as a general inability on the part of the bank management to achieve compliance with the provisions of the outstanding OCC Consent Order." R.D. at 4. Despite the arguments raised by Respondent and in light of the substantial inadequacy and deterioration of the Bank's capital, assets and earnings, continuing violation of the Consent Order, the Bank's failure or inability to improve its condition, the Bank presents too great a risk to the insurance fund to continue its insured status.

CONCLUSION

   As discussed above, the Board finds that Respondent, by operating with inadequate capital, internal control and operational deficiencies, an excessive volume of poor quality assets and inadequate management, has engaged in unsafe or unsound practices in conducting the business of the institution. By virtue of these practices, Respondent is in an unsafe and unsound condition to continue operations as an insured institution. Furthermore, Respondent has violated the OCC's Consent Order. To permit the Bank to continue as an insured institution unduly jeopardizes the risk to the deposit insurance fund. The Board adopts the Findings of Fact and Conclusions of Law made by the ALJ and enters an order terminating the insured status of the Bank.

ORDER TERMINATING FEDERAL
DEPOSIT INSURANCE

   Pursuant to 12 U.S.C. §1818(a), IT IS HEREBY ORDERED, that the insured status of Wilshire Center Bank, National Association, Los Angeles, California, is terminated effective as of the close of business thirty days from the date of this Order.
   IT IS FURTHER ORDERED, that, pursuant to 12 C.F.R. §308.123, the Bank, not later than thirty days from the date of this Order, shall give notice to its depositors of the termination of its status as an insured depository institution. Such notice shall be {{6-30-93 p.A-2248}}mailed to each depositor at the depositor's last address of record as shown upon the books of the Bank. The Bank shall furnish the FDIC with a copy of the notice mailed, together with an affidavit executed by the person who mailed the same. The affidavit shall state that said notice has been mailed to each depositor of the Bank at the depositor's last address of record as shown upon the books of the Bank and the date thereof. Such notice shall meet the requirements of section 308.123 of the FDIC Rules of Practice and Procedures, 12 C.F.R. §308.123, as follows:

NOTICE

____, 1993
   1. The status of Wilshire Center Bank, National Association, Los Angeles, California, as an insured depository institution under the provisions of the Federal Deposit Insurance Act, will terminate as of the close of business on the ____ day of ____, 1993.
   2. Any deposits made by you after that date, either new deposits or additions to existing deposits, will not be insured by the Federal Deposit Insurance Corporation.
   3. Insured deposits in Wilshire Centre Bank, National Association, on the ____ day of ____, 1993, will continue to be insured, as provided by the Federal Deposit Insurance Act, for two (2) years after the close of business on the ____ day of ____, 1993. Provided, however, that any withdrawals after the close of business on the ____ day of ____, 1993, will reduce the insurance coverage by the amount of such withdrawals.

Wilshire Center Bank, National
Association
Los Angeles, California

   There may be included in such notice, with the written approval, of the FDIC, any additional information or advice the Bank may deem desirable, provided that the information required by 12 C.F.R. §308.123 shall be set forth in a conspicuous manner on the first page of the notice.
   IT IS FURTHER ORDERED, that the Bank, not later than thirty days from the date of this Order, shall publish in no fewer than two issues of a local newspaper of general circulation in Los Angeles, California, the said notice, and shall furnish the FDIC with proof of publication of such notice in the form of a certification from the publisher and a tear sheet or clipping evidencing each such publication.
   IT IS FURTHER ORDERED, that if the Bank is closed for liquidation prior to the time of the opening for business thirty days from the date of this Order, the notices described above shall not be given to depositors.
   The Board retains full jurisdiction over these proceedings during the interim between the date hereof and the effective termination date, as fixed above, with full power and authority to amend, modify, alter, or rescind this Order Terminating Federal Deposit Insurance of the Bank. The provisions of this Order shall remain effective and enforceable except to the extent that, and until such other time as, any provision of the Order shall be modified, terminated, suspended, or set aside by the FDIC.
   By direction of the Board of Directors.
   Dated at Washington, D.C., this 6th day of April, 1993.

/s/ Hoyle L. Robinson
Executive Secretary

_________________________________________
RECOMMENDED DECISION

In the Matter of
Wilshire Center Bank, N.A.
Los Angeles, California
(Insured National Bank)
Arthur L. Shipe, Administrative Law
Judge:

   This action was instituted by the Board of Directors of the Federal Deposit Insurance Corporation on January 6, 1992, and arose from the issuance of a Notice of Intention to Terminate the Insured Status of the abovecaptioned financial institution, pursuant to Section 8(a)(2)(B) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(a)(2)(B).
   Pursuant to notice, the matter was heard in Pasadena, California, on July 20 and 21, 1992, wherein the FDIC and the respondent institution appeared through the above counsel.
   On the record as a whole, including my observation of the witnesses, briefs, and arguments presented, I recommend the following.

{{6-30-93 p.A-2249}}    I. Introduction

   Wilshire Center Bank, N.A. is a nationally chartered, federally insured banking association, whose principal place of business is located in Los Angeles, California. The institution was first chartered on August 15, 1983, and opened under the direction of its current chairperson, Director Rosa Lee Leong.
   Director Leong, an immigrant to this country from Peking, China, established the bank for the principal purpose of assisting immigrant and other minority customers. The bank's only branch is physically located in west Los Angeles, and serves a predominantly minority customer base, comprised largely of Asians.
   The institution first began experiencing regulatory difficulty in May of 1989. The institution's primary regulator, the Office of the Comptroller of the Currency, conducted an examination as of May 31, 1989, and thereafter cited the bank for several unsafe and unsound practices. Specifically, the Report of Supervisory Activity concluded, among other things, that the respondent institution was operating with insufficient capital, with internal control and operational deficiencies, with unacceptably high levels of classified assets, and with inadequate management.
   As a result of the examination findings, the OCC instituted a formal enforcement proceeding pursuant to Section 8(b) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(b), and on September 25, 1989, the institution's Board of Directors, as well as the Office of the Comptroller of the Currency, stipulated and consented to the entry of a formal Order to Cease and Desist.
   For the purposes relevant to this proceeding, the Consent Order required the institution to take immediate and continuing action with respect to the various cited deficiencies, including the problems associated with managerial turnover, inadequate lending and collection practices, and lax internal control.
   The most notable requirement of the Consent Order, however, was the capital maintenance requirement contained at Article XII, which provision required the bank to achieve and maintain equity capital at a level no less than five percent (5%) of the institution's total assets.
   Since issuance of the OCC Consent Order in September of 1989, the institution has undergone five full-scope examinations, conducted by examiners of both the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.
   The findings of each examination show a continual and alarming deterioration of the institution's capital position, asset quality, and management capabilities, as well as a general inability on the part of bank management to achieve compliance with the provisions of the outstanding OCC Consent Order.
   During the years 1989 and 1990, the examiners determined the institution to be critically under-capitalized, during which it suffered net operating losses approximately $5.8 million. As a result, regulatory concern about this institution became somewhat heightened.
   A joint examination was conducted as of February 28, 1991, the results of which disclosed a continuing serious deficiency in the bank's capital, assets, earnings, and liquidity. The ratio of Tier 1 Capital to total Part 325 Assets was computed to equal a negative 2.40 percent, and when adjusted for classified assets, the Adjusted Tier 1 Ratio equaled a negative 5.80 percent.1
   During this examination the institution was determined to hold total assets in excess of $32 million, of which 18.74 percent were adversely classified, as were over 30 percent of the bank's outstanding loans. Over 26 percent of the institution's outstanding loans were determined to be overdue.
   The bank's earnings showed similar deficiencies, and net income as of February 28, 1991 was a negative $257,000, while the loan loss reserve was slightly in excess of $1 million, an amount insufficient to absorb the bank's classified loans, which totaled in excess of $1.8 million.
   The institution's liquidity ratio was determined to be inadequate, and the institution did not and could not comply with the various provisions of the outstanding OCC Con-


1 The February 28, 1991 Examination Report computed these ratios based upon Primary Capital, the capital measurement standard then in effect. For purposes of comparison, the former measurements of capital were converted in this proceeding, to their current Tier 1 counterparts.
{{6-30-93 p.A-2250}}sent Order, including that provision requiring capital maintenance.
   As a result of this examination, the institution was assigned a composite CAMEL rating of 5, a number reserved only for those institutions with extremely high immediate or near term probability of failure.
   The bank was next examined as of August 31, 1991, and showed little signs of significant improvement. The ratio of Tier 1 Capital to part 325 Assets was a negative 2.85 percent, while the Adjusted Tier 1 Ratio remained negative, at 1.75 percent.
   In the six months since the previous examination, the institution's total asset base had decreased by almost $9 million. The examiner concluded that such significant shrinkage of assets, while having the temporary effect of enhancing capital and classification ratios, presented for the long run very unfavorable and detrimental features, as the institution's potential for future growth and prosperity is directly and proportionally impacted by this asset reduction.
   Of the assets remaining in the institution, 13.77 percent were adversely classified, as were 19.89 percent of the outstanding loans, of which 14.56 percent were overdue.
   Earnings were again negative, in the amount of $1.9 million, and the loan loss reserve was unacceptably low. The examination concluded that the bank's condition remained unsafe and unsound, with capital and other standards failing to comply with the outstanding OCC Consent Order. The institution was again assigned a composite rating of 5.
   Based upon the findings of these two examinations, and in accordance with the procedures set forth in Section 8(a) of the Federal Deposit Insurance Act, the FDIC issued on September 10, 1992, a Notification to the bank's primary regulator, the OCC. The Notice set forth the FDIC's conclusions that the bank was in an unsafe and unsound condition, was engaging in unsafe and unsound practices, and was in violation of the outstanding written Order. The Notification further required an increase in Tier 1 capital in the amount of $5,000,000, within thirty days.
   On September 30, 1991, the institution, through its holding company, was infused with $500,000 in equity capital, contributed by Director Leong. After there appeared no further infusion, the FDIC Board of Directors initiated the instant proceeding.
   On March 23, 1992, the FDIC once again conducted an examination of the bank, setting forth its findings in the FDIC Report of Examination as of March 23, 1992. The examination showed no significant improvement, and again resulted in the assignment of a composite CAMEL rating of 5.
   The examination process revealed that the bank continued to operate with unsafe or unsound practices, continued to be in an unsafe or unsound condition, and continued in violation of the OCC Consent Order.
   Accordingly, on May 8, 1992, a special meeting of the bank's Board of Directors was called by the Office of the Comptroller of the Currency. Representatives of the OCC, the FDIC, and respondent bank, met in San Francisco, California, to discuss the need for recapitalization of the institution. It was at this meeting that members of the OCC communicated to the directors a capital call in the amount of $3 million. Representatives of the FDIC continued their demand for more capital, and insisted upon the $5 million originally established in the Notification of September 10, 1991. Neither of the demanded levels have been achieved.

   II. Discussion of Fact

   A. Capital

   The institution has been determined insolvent at each of its last three examinations. Tier 1 Capital levels have fallen from negative $597,000 at the February 1991 Examination, to negative $671,000 in August, and then despite a $500,000 injection, the level fell even further to negative $754,000 at the March 1992 Exam.
   Likewise the Examination Reports have shown a consistent and systematic decline in the institution's capital ratios, when compared to the institution's Part 325 Total Assets. The ratios have fallen progressively from a negative 2.40 percent, to a negative 2.85 percent, to a negative 3.65 percent.
   One month following the March examination, and some six months following the commencement of this proceeding, Director Leong injected additional equity capital into the bank, in the amount of $1.2 million. Following this injection, a brief visitation exam was conducted, wherein it was determined that the bank's Tier 1 capital ratio did in fact show dramatic improvement, and was calculated to equal a positive 3.2 percent.
   Although this fact does appear somewhat {{6-30-93 p.A-2251}}reassuring, the evidence adduced at the hearing established that the improvement in the capital ratio is more attributable to a further decline in assets, and not to any improvement in the actual amount of Tier 1 capital.
   Evidence was offered in this proceeding that potential investors had been arranged for the injection of $800,000 in additional capital, to be completed within one week following the Oral Hearing. An additional $1.2 million was alleged to have been arranged for injection one month later. On brief, however, it appears that neither of these prospects has materialized.

   B. Assets

   The bank has suffered a consistent and dramatic decline in total assets from each successive examination. Starting with the first, in February of 1991, the bank had total assets in excess of $32 million. At the time of the hearing, some 18 months later, the institution was less than half that size, with assets of only $1 million.
   In addition to this significant decrease in total assets, the examiners have found within this institution a substantial volume of poor quality assets. The most recent examination of March 23, 1992, classified nearly onequarter of the assets as either substandard, doubtful, or loss.
   To only further exacerbate the situation, the bank's most important earning asset, its outstanding loans, are equally, if not more troubled. The FDIC examiners concluded in the most recent examination that more than 25 percent of outstanding loans are currently overdue, while nearly 30 percent are adversely classified.

   C. Earnings

   The bank is simply unable to generate earnings. The February 1991 examination revealed a net operating loss of $257,000 for the first two months of the year. By the August examination the loss had increased to $1,900,000, and by year end, exceeded $2 million.
   The history of the bank's earnings unfortunately show that this institution loses approximately $2 million a year, as it has now for the last three years.

   D. Liquidity

   The bank's liquidity ratio, as calculated at each examination, was described as inadequate by the expert witness, particularly given the institution's operating losses, capital inadequacy, and volatile deposit base.

   Discussion of Law

   Section 8(a) of the Federal Deposit Insurance Act provides for the involuntary termination of federal deposit insurance, when on the basis of evidence presented at a hearing, it is determined that—

    (i) an insured depository institution or the directors or trustees of an insured depository institution have engaged or are engaging in unsafe or unsound practices in conducting the business of the depository institution; or
    (ii) an insured depository institution is in an unsafe or unsound condition to continue operations as an insured institution; or
    (iii) an insured depository institution or the directors or trustees of the institution have violated any applicable law, regulation, order, condition imposed in writing ...or written agreement entered into between the insured depository institution and the Corporation.
   In determining whether an institution is in unsafe or unsound condition, special and particular emphasis must be placed on the institution's capitalization. Traditionally capital serves to absorb fluctuations in operating income caused by loan losses, inflation, volatile interest rates, and other liabilities.
   Capital also serves to maintain confidence and reassurance in the banking system, and ultimately to protect depositors. Capital is a critical component in assessing an institution's safety and soundness.
   12 C.F.R. Part 325 governs capital maintenance of insured institutions. Section 325(b)(2) specifically provides that the minimum leverage capital requirement for all but the most highly rated institutions "shall consist of a ratio of Tier 1 capital to total assets of not less than 4 percent." The regulation further provides that a bank with less than the minimum requirement does not have adequate capital, has inadequate financial resources, and is deemed to be engaged in an unsafe or unsound practice. 12 C.F.R. §§325.3(c); 325.4(b).
   Moreover, for institutions which are not fundamentally sound, and which exhibit financial weakness, the FDIC is justified in {{6-30-93 p.A-2252}}imposing a higher leverage capital requirement, as set forth in 12 C.F.R. §325.3(a), which provides in pertinent part as follows:
    The capital standards in this part are the minimum acceptable for banks whose overall financial condition is fundamentally sound, which are well-managed and which have no material or significant financial weaknesses. Thus the FDIC is not precluded from requiring an institution to maintain a higher capital level based on the institution's particular risk profile. Where the FDIC determines that the financial history or condition, or managerial resources and/or the future earnings prospects of a bank are not adequate, or where a bank has sizable off-balance sheet or funding risks, excessive interest rate risk exposure, or a significant volume of assets classified substandard, doubtful, or loss, or otherwise criticized, the FDIC may determine that the minimum amount of capital for that bank is greater than the minimum standards stated in this section.
   From the above discussion it is quite clear that the minimum Tier 1 capital requirement of four percent, applies only to fundamentally sound, well managed institutions. The Wilshire Center Bank, N.A. simply is not, and cannot be said, to be fundamentally sound, given its negative capital ratios and operating losses in the millions.
   Even taking the most recent infusion of $1.2 million, the bank's Tier 1 capital still amounted to only 3.2 percent, still short of the minimum four percent capital requirement of Part 325.
   Furthermore, Section 325.4(c) provides that any insured institution with a ratio of Tier 1 capital to Part 325 total assets less than two percent is deemed to be operating in an unsafe or unsound condition within the meaning of Section 8(a) of the Act. 12 C.F.R. §325.4(c). The last three examinations of the Wilshire Center Bank N.A., clearly reveal Tier 1 Capital ratios that fall far short of this requirement.
   In this particular case, there are additional factors which directly affect the capital adequacy of the respondent bank. Because the institution's assets have decreased so significantly over the last several months, it has basically become structurally unprofitable, as the evidence now establishes that the bank's income sources are inadequate to cover its overhead. As a result of this structural unprofitability, the institution simply loses money before it even begins to make adjustments for asset losses. As established by the expert testimony:
       We're dealing with an institution which is very small in size and declining...which is a principal contributor to the fact that it is structurally unprofitable. It was not able to make any money before the asset losses at this size, so that in achieving a 4 percent Tier 1 ratio or achieving a 6 percent Tier 1 ratio on any given day is basically meaningless because one month or two months down the road there's going to be less capital from continued operating losses.

   Tr. Vol. 2 at 409.

   In its current condition and asset size, the bank simply cannot stop the continuous loss of capital. Because of the institution's extremely high level of classified assets, the evidence overwhelmingly suggests that this bank must be prepared to absorb significant losses arising from its problem asset portfolio, which losses, without immediate recapitalization, this institution is simply unable to sustain.
   Without the immediate infusion of at least $3.3 million, the amount required by the FDIC Notification, it is concluded by both bank examiners testifying in this proceeding that the institution's condition is and will remain both unsafe and unsound.
   Turning now to the subject of asset quality, it is clear that the institution's classified assets are excessive in comparison to its negative capital. The maintenance of such an excessively high volume of adversely classified assets is inherently unsafe and unsound, particularly given the reserve capital account of this bank, which is unable to withstand any loss.
   The bank was attempted to dispute this contention, by arguing that the classification of certain assets has been appealed to the OCC, under a procedure by which the bank may seek review of certain classifications. In my opinion, this fact is not sufficient to overcome the otherwise substantial evidence which establishes the inadequacy of the bank's assets. First, the value of these contests assets is only $500,000. Thus, even if the bank succeeds in this appeal, the addition of $500,000 to the bank's Tier 1 capital still leaves the institution badly undercapitalized and unsafe and unsound. Second, the bank has simply presented insufficient evidence of objective factual ba- {{6-30-93 p.A-2253}}sis to set aside the classification established by the FDIC examiners, and to simply assert disagreement and to appeal the classification cannot be said to negate these detailed findings.
   Given the standard set forth in Sunshine State Bank v. FDIC, 783 F.2d 1580 (11th Cir. 1986), deference must be given the opinion of these unique experts, and the respondent has demonstrated insufficient evidence to refute these conclusions.
   Turning finally to the subject to management, it is painfully obvious that this institution has suffered excessive turnover at all management levels. This constant turnover and lack of continuity, directly impacts the institution and its ability to improve conditions.
   Since the bank opened some nine years ago, it has seen nine different chief executive officers, none of whom have demonstrated the ability to effect improvement in the overall condition of the bank, nor to achieve compliance with the OCC Consent Order. The expert testimony adduced at the hearing characterized the managerial practices of this institution as unsafe and unsound, and I must agree.
   Based upon the bank's wholly inadequate level of capital, which fails to meet even the minimum legal requirements, its excessive volume of classified assets, its inadequate loan loss reserve, its inadequate management, liquidity, and losses, the bank is in unsafe and unsound condition to continue operations as an insured depository institution, within the meaning of Section 8(a) of the Federal Deposit Insurance Act.
   Accordingly, I recommend that the deposit insurance of this institution be terminated, and enter the following Findings of Fact, Conclusions of Law, and Proposed Order.

Findings of Fact

   1. The Bank is, and was at all times pertinent hereto, an insured member national bank, existing and doing business under the laws of the United States, and having its principal place of business in Los Angeles, California.
   2. The Bank is subject to the provisions of Section 8(a) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(a), the Rules and Regulations of the FDIC, 12 C.F.R. Chapter III, and the National Bank Act, 12 U.S.C. §§1-216d.
   3. The Bank is, and was at all times pertinent hereto, an "insured depository institution" as that term is defined by section 3(c)(2) of the Federal Deposit Insurance Act, 12 U.S.C. §1813(c)(2).
   4. The FDIC has jurisdiction over the Bank and the subject matter of this proceeding.
   5. The Bank entered into a Consent Order with the Office of the Comptroller of the Currency ("OCC") on September 25, 1989, ("Consent Order") which Order currently remains in full force and effect.
   6. The Consent Order required, among other things, that the Bank maintain a level of equity capital at least equal to five percent (5%) of total assets.
   7. The Bank was examined concurrently by the FDIC and the OCC on February 28, 1991, and the FDIC issued a Report of Examination as of that date.
   8. The FDIC's February 28, 1991 Report of Examination assigned the bank a composite rating of 5, which rating is reserved for institutions with an extremely high immediate or near term probability of failure.
   9. As of February 28, 1991, the Bank's Part 325 total assets equaled $24,910,000.
   10. As of February 28, 1991, the Bank had a negative $597,000 in Tier 1 capital.
   11. As of February 28, 1991, the Bank's Tier 1 capital ratio was a negative 2.40 percent of the Bank's Part 325 total assets.
   12. As of February 28, 1991, the Bank's adjusted Part 325 total assets represented $24,118,000.
   13. As of February 28, 1991, the Bank's adjusted Tier 1 capital equaled a negative $1,399,000.
   14. As of February 28, 1991, the Bank's adjusted Tier 1 capital ratio equaled a negative 5.80%.
   15. As of February 28, 1991, the Bank's total assets amounted to $32,406,000.
   16. As of February 28, 1991, the Bank had a total of $6,073,000 in classified assets, including $3,194,000 in Substandard, $1,584,000 in Doubtful, and $1,295,000 in Loss.
   17. As of February 28, 1991, the Bank's adversely classified assets were 18.7% of total assets.
   18. As of February 18, 1991, the Bank's {{6-30-93 p.A-2254}}adversely classified assets, less allowance for loan losses, were a negative 845.73% of Tier 1 capital.
   19. As of February 28, 1991, the Bank's total loans represented $17,557,000, which amounted to 54% of the Bank's total assets.
   20. As of February 28, 1991, 30.64% of the Bank's loans were adversely classified, consisting of $1,209,000 in Loss, $1,205,000 in Doubtful and $2,958,000 in Substandard.
   21. As of February 28, 1991, the Bank had $4,698,000 in overdue loans which comprised 26.69% of total outstanding loans.
   22. The Bank's net income as of February 28, 1991 was a negative $257,000.
   23. The Bank's liquidity ratio as of February 28, 1991 equaled 46.30%.
   24. As of the February 28, 1992 Examination, the Bank was in violation of the capital as well as other provisions of the OCC Consent Order.
   25. The Bank was examined again by the FDIC and the OCC on August 31, 1991.
   26. The FDIC's August 31, 1991 Report of Examination again rated the Bank a composite 5.
   27. As of August 31, 1991, the Bank's Part 325 total assets equaled $23,516,000.
   28. As of August 31, 1991, the Bank had a negative $671,000 in Tier 1 capital.
   29. As of August 31, 1991, the Bank's Tier 1 capital was a negative 2.85% if the Bank's Part 325 total assets.
   30. As of August 31, 1991, the Bank's adjusted Part 325 total assets represented $23,260,000.
   31. As of August 31, 1991, the Bank's adjusted Tier 1 capital equaled a negative $407,000.
   32. As of August 31, 1991, the Bank's adjusted Tier 1 capital ratio equaled a negative 1.75%.
   33. As of August 31, 1991, the Bank's total assets amounted to $23,481,000.
   34. As of August 31, 1991, the Bank had a total of $3,234,000 in classified assets, including $1,996,000 in Substandard, $512,000 in Doubtful, and $726,000 in Loss.
   35. As of August 31, 1991, the Bank's adversely classified assets were 13.77% of total assets.
   36. As of August 31, 1991, the Bank's adversely classified assets, less allowance for loan losses, were a negative 349.18% of Tier 1 capital.
   37. As of August 31, 1991, the Bank's total loans represented $12,406,000 which amounted to 54% of the Bank's total assets.
   38. As of August 31, 1991, 19.89% of the Bank's loans were adversely classified, consisting of $264,000 in Loss, $512,000 in Doubtful and $1,691,000 in Substandard.
   39. As of August 31, 1991, the Bank has $1,806,000 in overdue loans.
   40. The Bank's net income as of August 31, 1991 was a negative $1,900,000.
   41. The Bank's liquidity ratio as of August 31, 1991 equaled 45.5%.
   42. The Bank was in continuing violation of the capital and other provisions of the Consent Order as of the August 31, 1991 examination.
   43. On September 10, 1991, the FDIC issued upon the OCC a Notification to Primary Regulator of Findings, setting forth the FDIC's findings that the Bank was in an unsafe or unsound condition, was engaging in unsafe or unsound practices, and was in violation of the OCC Consent Order.
   44. The Notification required that the Bank increase its Tier 1 capital by $5,000,000 within 30 days to avoid termination of its insured status.
   45. While the Bank did increase its Tier 1 capital by $500,000 in September of 1991, the Bank did not increase its Tier 1 capital as required by the Notification.
   46. Following the expiration of the 30day corrective period set forth in the Notification, the FDIC determined that the Bank had not been restored to a safe and sound condition.
   47. On January 6, 1992, the FDIC served upon the Bank a Notice of Intention to Terminate Insured Status, Findings, and Order Setting Hearing ("Notice") which Notice referenced the Notification.
   48. The Bank was examined again by the FDIC and the OCC on March 23, 1992.
   49. The FDIC issued a Report of Examination of the Bank as of March 23, 1992, setting forth statistical data as of February 28, 1992.
   50. As of February 28, 1992, the Bank's Part 325 total assets equaled $20,660,000.
   51. As of February 28, 1992, the Bank had a negative $754,000 in Tier 1 capital.
   52. As of February 28, 1992, the Bank's {{6-30-93 p.A-2255}}
Tier 1 capital was a negative 3.65% of the Bank's Part 325 total assets.
   53. As of February 28, 1992, the Bank's adjusted Part 325 total assets represented $20,580,000.
   54. As of February 28, 1992, the Bank's adjusted Tier 1 capital equaled a negative $883,000.
   55. As of February 28, 1992, the Bank's adjusted Tier 1 capital ratio equaled a negative 4.29%.
   56. As of February 28, 1992, the Bank's total assets amounted to $17,282,000.
   57. As of the March 23, 1992 examination, the Bank had a total of $3,806,000 in classified assets, including $2,603,000 in Substandard, $159,000 in Doubtful, and $1,044,000 in Loss.
   58. As of the March 23, 1992 examination, the Bank's adversely classified assets were 22.02% of total assets.
   59. As of the March 23, 1992 examination, the Bank's adversely classified assets less its allowance for loan losses were a negative 411.80% of Tier 1 capital.
   60. As of the March 23, 1992 examination, the Bank's adversely classified assets were 380% of its book capital and reserves.
   61. As of the March 23, 1992, the Bank's total loans represented $10,545,000, which amounted to 61% of the Bank's total assets.
   62. As of the March 23, 1992 examination, 28.69% of the Bank's loans were adversely classified, consisting of $721,000 in Loss, $159,000 in Doubtful and $2,145,000 in Substandard.
   63. As of the March 23, 1992 examination, the Bank had $2,705,000 in overdue loans.
   64. As of the March 23, 1992 examination, 25.60% of the Bank's total loans were overdue.
   65. The Bank's net income for the entire year of 1991 was a negative $2,042,000.
   66. The Bank's net income for the year of 1992 as of February 28, 1992 was a negative $122,000.
   67. If the Bank had properly reserved for the assets classified loss and doubtful at the March 23, 1992 examination, its net income as of February 28, 1992 for the year of 1992 would have been a negative $1,246,000.
   68. The Bank's operating losses amounted to $5,808,000 from the period January 1, 1989 to December 31, 1991.
   69. The Bank's net interest income for the entire year of 1991 was $730,000.
   70. The Bank's overhead for the entire year of 1991 was $2,284,000.
   71. The Bank's net interest income as of February 28, 1992 for the year 1992 was $100,000.
   72. The Bank's overhead as of February 28, 1992 for the year 1992 was $269,000.
   73. The Bank's loan loss reserve as of February 28, 1992 equaled $701,000.
   74. The Bank's liquidity ratio as of February 28, 1992 equaled 36.60%.
   75. The Bank's volatile liability dependency ratio equaled 47.9%.
   76. As of the March 23, 1992 examination the Bank's liquid assets, consisting of net cash and short term and marketable assets equaled $6,181,000.
   77. As of the March 23, 1992 examination the Bank's potentially volatile liabilities equaled $9,548,000.
   78. The Bank was in continuing violation of the capital, and other provisions, of the Consent Order as of the March 23, 1992 examination.
   79. The FDIC's March 23, 1992 Report of Examination rated the Bank a composite 5.
   80. The Bank has had nine chief executive officers since it opened in 1983.
   81. The Bank's management has not demonstrated sufficient ability to effect improvement with respect to the Bank's operating and asset losses, undercapitalization, and non-compliance with the OCC Consent Order.
   82. On or about June 16, 1992, the Bank obtained an additional $1,200,000 in Tier 1 capital.
   83. Including the $1,200,000 injection, and based on the Bank's Part 325 total assets as of March 23, 1992 examination, the Bank's Tier 1 capital ratio was 2%.
   84. On July 13, 1992, an FDIC examiner re-entered the Bank to verify its capital level as of July 10, 1992.
   85. On July 10, 1992, the Bank's Tier 1 capital was approximately $463,000, the Bank's Part 325 total assets equaled $15,114,000, and the Bank's Tier 1 capital ratio equaled 3.2%.
{{6-30-93 p.A-2256}}
   86. The increase in the Bank's Tier 1 capital ratio following the $1,200,000 injection from 2% to 3.2% was achieved in large part through a shrinkage in assets.
   87. Despite injections of at least $1,700,000 in Tier 1 capital since April of 1991, the Bank's Tier 1 capital was only $463,000 as of July 10, 1992.
   88. As of the date of the hearing, the Bank had injected only $1,700,000 of the $5,000,000 required by the Notification.
   89. As of June 25, 1992, in its progress report to the OCC on compliance with the OCC Consent Order, the Bank admits it is in violation of the Order and that it has filed to meet its capital requirement.
   90. Based on its current size, the Bank is structurally unprofitable and will continue to sustain losses.
   91. The remaining $3,300,000 required by the Notification is necessary to return the Bank to a safe and sound condition.

CONCLUSIONS OF LAW

   1. The Bank is, and was at all times pertinent hereto, an insured national bank, existing and doing business under the laws of the United States, and having its principal place of business in Los Angeles, California.
   2. The Bank is subject to the provisions of section 8(a) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(a), the Rules and Regulations of the FDIC, 12 C.F.R. Chapter III, and the National Bank Act, 12 U.S.C. §§1-216d.
   3. The Bank is, and was at all times pertinent hereto, an "insured depository institution" as that term is defined by section 3(c)(2) of the Act, 12 U.S.C. §1813(c)(2).
   4. The FDIC has jurisdiction over the Bank and the subject matter of this proceeding, pursuant to the Act, 12 U.S.C. §1811-1831t, and the FDIC Rules and Regulations, 12 C.F.R. Chapter III.
   5. At each FDIC examination on February 28, 1991, August 31, 1991 and March 23, 1992, the Bank's Tier 1 capital ratio was below 2% of its Part 325 total assets, such that the Bank was therefore automatically deemed to be in an unsafe or unsound condition pursuant to Section 8(a) of the Act.
   6. At all three examinations, the Bank's Tier 1 capital ratio was below the 4% minimum acceptable level established by FDIC regulations regarding capital maintenance for fundamentally sound, well-managed banks having no material or significant financial weaknesses within the meaning of 12 C.F.R. §325.3(b)(2).
   7. By virtue of its failure to meet even the 4% minimum regulatory capital guidelines for well managed banks, the Bank was automatically deemed to be engaged in an unsafe or unsound practice at all three examinations. 12 C.F.R. §325.4(b)(2).
   8. At all three examinations, by operating with an excessive volume of adversely classified assets, the Bank was engaging in an unsafe or unsound practice.
   9. At all three examinations, by operating with an inadequate level of capital protection in relation to the kind and quality of assets held by the Bank, the Bank was engaging in an unsafe or unsound practice.
   10. At all three examinations, by operating with an excessive volume of poor quality loans, the Bank was engaging in an unsafe and unsound practice.
   11. At all three examinations, by operating with inadequate management, the Bank was engaging in an unsafe or unsound practice.
   12. At all three examinations, by operating with inadequate liquidity, the Bank was engaging in an unsafe or unsound practice.
   13. At all three examinations and by its own admission, the Bank was operating in violation of the capital and other provisions of the OCC Consent Order.
   14. Violation of the OCC Consent Order is sufficient cause to terminate the Bank's status as an insured depository institution.
   15. As of July 10, 1992, the Bank failed to meet a 4% Tier 1 capital ratio, and was therefore automatically deemed to be engaging in an unsafe or unsound practice.
   16. At each examination and at the present time, the Bank is in unsafe or unsound condition within the meaning of section 8(a) of the Act, 12 U.S.C. §1818(a) and section 325.4(c) of the FDIC Rules and Regulations, 12 C.F.R. §325.4(c), to continue operating as an insured depository institution.
   17. The Bank's federal deposit insurance should be terminated pursuant to 12 U.S.C. §1818(a).
   So Ordered, this 20th day of November, 1992.

/s/ Arthur L. Shipe
Administrative Law Judge
Date: November 20, 1992

{{9-30-93 p.A-2257}}
In the Matter of
Wilshire Center Bank, N.A.
Los Angeles, California
(Insured National Bank)
ORDER
FDIC 91-230a

TERMINATING INSURED STATUS

   IT IS ORDERED, FIRST, that the insured status of the Wilshire Center Bank, N.A., Los Angeles, California ("Insured Institution") be, and the same hereby is, terminated effective as of the earlier of December 31, 1992 or the close of business fortyfive (45) days from the day of the Final Decision issued by the Board of Directors of the Federal Deposit Insurance Corporation ("FDIC") in enforcement proceeding FDIC-91-230a.
   IT IS FURTHER ORDERED, SECOND, that, before the earlier of December 1, 1992 or the close of business thirty (30) days from the date of the Final Decision of the FDIC's Board of Directors, the Insured Institution shall give notice to its depositors of the termination of its status as an insured institution (the "Depositor Notification"). The Depositor Notification shall be mailed to each depositor at the depositor's last address of record, as shown upon the Insured Institution's books. The Insured Institution shall furnish the FDIC with a copy of the Depositor Notification mailed and an affidavit executed by the person who mailed the same, which requirements. The Depositor Notification shall satisfy the requirements of section 308.123 of the FDIC's Rules of Practice and Procedures, 12 C.F.R. §308.123, by stating as follows:

NOTICE

(Date) ____

   1. The status of Wilshire Center Bank, N.A. Los Angeles, California, as an insured depository institution, under the provisions of the Federal Deposit Insurance Act, will terminate as of the close of business on the ____ day of ____, 1992.
   2. Any deposits made by you after that date, whether the same be new deposits or additions to existing deposits, will not be insured by the Federal Deposit Insurance Corporation.
   3. Insured deposits in Wilshire Center Bank, N.A., Los Angeles, California on the ____ day of ____, 1992 will continue to be insured, as provided by the Federal Deposit Insurance Act, for two (2) years after the close of business on the ____ day of ____, 1992. Provided, however, that any withdrawals after the close of business on the ____ day of ____, 1992, will reduce the insurance coverage by the amount of such withdrawals.

Wilshire Center Bank, N.A.
3699 Wilshire Boulevard
Los Angeles, California 90010

   With prior written approval of the Regional Director of the FDIC's San Francisco Regional Office, the Insured Institution may include in the Depositor Notification any additional information or advice it may desire to give its depositors, provided that such additional information is not inconsistent with this paragraph.
   THIRD, that before the earlier of December 1, 1992 or the close of business thirty (30) days from the date of the Final Decision of the FDIC's Board of Directors, the Insured Institution shall public the Depositor Notification in not less than two issues of a local newspaper of general circulation in Los Angeles County, California, and shall furnish the FDIC with proof of such publication in the form of a certification from the publisher and a tear sheet or clipping evidencing such publication.
   FOURTH, that, if the Insured Institution refuses or fails to give such notice as specified in paragraphs SECOND and THIRD of this ORDER TERMINATING INSURED STATUS ("ORDER"), the FDIC is authorized to notify the Insured Institution's depositors by:
   (a) Sending notice of the termination of the insured status of the Insured Institution to each of the Insured Institution's depositors at his or her last address of record as shown on the books of the Insured Institution; and/or
   (b) Publishing notice of the termination of the Insured Institution's insured status by use of a detailed statement of the facts of this matter in one or more local papers of general circulation Los Angeles County, California; and/or
   (c) Posting a copy of such notice in the lobby of the Insured Institution, local post office, and/or any other appropriate place of equal prominence; and/or {{9-30-93 p.A-2258}}
   (d) Seeking any judicial order as it may deem proper or necessary to require the Insured Institution to comply with the provisions herein.
   FIFTH, that, if the Insured Institution is closed for liquidation prior to the effective termination date, as fixed in paragraph FIRST, the notices prescribed in paragraphs SECOND, THIRD, and FOURTH shall not be given to depositors.
   SIXTH, that, after the date of termination of the Insured Institution's insured status, the Insured Institution shall not advertise or hold itself out as having insured deposits, unless, in the same connection, it shall also state, with equal prominence, that such additions to deposits and new deposits made after the date of termination of insured status are not insured. Further, the Insured Institution shall not use any of its checks, letterheads, promotional materials, signs, and the like which bear the words "Member of FDIC" or any like statements relating to membership in or supervision by the FDIC.
   SEVENTH, that the insured deposits of the Insured Institution on the date of termination shall continue to be insured by the FDIC according to the provisions of section 8(a) of the Act, 12 U.S.C. §1818(a). Furthermore, the Insured Institution shall continue to file statements and pay assessments thereon for the period the deposits are insured pursuant to the provision of section 7 of the Act, 12 U.S.C. §1817, and shall, in all other respects, be subject to the duties and obligations of an insured depository institution pursuant to section 8(a)(7) of the Act, 12 U.S.C. §1818(a)(7).
   EIGHTH, that the Executive Secretary, or his designee, shall send copies of this ORDER to the Insured Institution and the Primary Regulator, the Comptroller of the Currency.
   NINTH, that this ORDER is fully enforceable by the FDIC pursuant to the provisions of section 8(i) of the Act, 12 U.S.C. §1818(i).
   TENTH, that the Board of Directors of the FDIC retains full jurisdiction over these proceedings during the interim between the date hereof and the effective termination date, as fixed in paragraph FIRST, with full power and authority to amend, modify, alter or rescind this ORDER.
   By direction of the Board of Directors.
   Dated at Washington, D.C. this ____ day of ____, 1992.

/s/ Robert F. Feldman
Executive Secretary

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