(This order terminated by order of the FDIC dated
4-23-03; see ¶16,334.)
[.1] TransactionsRestricted
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In the Matter of
SOUTHERN PACIFIC BANK
TORRANCE, CALIFORNIA
(Insured State Nonmember Institution)
SUPERVISORY PROMPT CORRECTIVE ACTION DIRECTIVE
FDIC-03-012PCAS
WHEREAS, Southern Pacific Bank, Torrance, California
("Bank") is a "significantly undercapitalized" depository
institution as that term is defined in Section 38(b)(1) of the Federal
Deposit Insurance Act ("Act"), 12 U.S.C. §1831o(b)(1), and
Section 325.103 of the Federal Deposit Insurance Corporation
("FDIC") Rules and Regulations, 12 C.F.R. §325.103;
WHEREAS, the FDIC's Report of Examination of the Bank as of November
18, 2002, finds the Bank's capital levels to be at a 2.04% Tier 1
leverage ratio, a 2.29% Tier 1 risk-based capital ratio, and a 3.49%
total risk-based capital ratio, thus rendering the Bank
"significantly undercapitalized" for purposes of the prompt
corrective provisions of the Act;
WHEREAS, the FDIC ascertained on January 23, 2003 that the Bank engaged
in the following transaction:
1. On January 17, 2003, the Bank entered into a repurchase agreement
with ABS SOS Plus Partners, LTD ("ABS"). Pursuant to the terms of
the repurchase agreement, ABS agreed to purchase for a purchase price
of $100.0 million the Bank's Government National Mortgage
Association ("GNMA") securities with a book value of $115.4
million as of January 17, 2003. The agreement requires the Bank to
repurchase the GNMA securities at the original $100.0 million purchase
price at the end of a 30 day period and to pay a price differential
equating to an annual rate of 3.7%. This price differential at the end
of the 30 day period represents an estimated cost of $308,000. During
the 30 day period, Bank management has represented that it intends to
invest the funds in overnight Fed Funds which yield a rate of between
1.00 to 1.50% resulting in corresponding revenue of between $83,333
and $125,000. Management has represented that it entered into the
transaction in order to maintain the Bank's average assets at levels
commensurate with the previous month's average assets;
WHEREAS, based on the foregoing, the FDIC has determined that the
transaction is unsafe or unsound due to the fact that, at a minimum, it
has resulted in a reduction to the Bank's net interest margin and has
further reduced the Bank's capital ratios. If the Bank were to
continue to engage in such transactions they could further weaken the
condition of the Bank and/or otherwise prejudice the interests of the
Bank's depositors.
THEREFORE, the FDIC finds it necessary, in order to carry out the
purposes of Section 38 of the Act, to issue this SUPERVISORY PROMPT
CORRECTIVE ACTION DIRECTIVE without providing notice as set forth in
Section 308.201(a)(1) of the FDIC's Rules of Practice and Procedure,
12 C.F.R. §308.201(a)(1), and hereby issues the PROMPT CORRECTIVE
ACTION DIRECTIVE pursuant to Section 38 of the Act, 12 U.S.C. §1831o,
and Section 308.201(a)(2) of the FDIC's Rules of Practice and
Procedure, 12 C.F.R. §308.201(a)(2).
SUPERVISORY PROMPT CORRECTIVE ACTION DIRECTIVE
IT IS HEREBY DIRECTED that the Bank shall be prohibited from doing
the following without the FDIC's prior written approval:
[.1]1. Entering into any material transaction other than in the ordinary
course of business, including any investment, expansion, acquisition,
sale of assets, or other similar action with respect to which the Bank
is required to provide notice to the appropriate Federal banking
agency.
This SUPERVISORY PROMPT CORRECTIVE ACTION DIRECTIVE shall become
effective and enforceable immediately upon its receipt by the Bank.
This SUPERVISORY PROMPT CORRECTIVE ACTION DIRECTIVE shall be binding
upon the Bank, its directors, officers, employees, agents, successors,
assigns, and other institution-affiliated parties of the Bank.
The Bank may file a written appeal of this SUPERVISORY PROMPT
CORRECTIVE ACTION DIRECTIVE within fourteen (14) calendar days from the
date of the issuance of this Directive as provided in Section
308.201(a)(2) of the FDIC's Rules of Practice and Procedure, 12 C.F.R.
§308.201(a)(2).
The appeal shall be filed with Nancy E. Hall, Regional Director,
Federal Deposit Insurance Corporation, San Francisco
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Regional Office, 25 Ecker Street, Suite 2300, San Francisco, California 94105. Copies of
all papers filed in this proceeding shall be served upon the Office of
the Executive Secretary, Federal Deposit Insurance Corporation, 550
17th Street, N.W., Washington, D.C. 20429; Michael J. Zamorski,
Director, Division of Supervision and Consumer Protection, Federal
Deposit Insurance Corporation, 550 17th Street, N.W., Washington, D.C.
20429; A.T. Dill, III, Senior Counsel, Legal Division, Compliance and
Enforcement Section, Federal Deposit Insurance Corporation, 550 17th
Street, N.W., Washington, D.C. 20429; and upon Joseph J. Sano, Regional
Counsel (Supervision), Federal Deposit Insurance Corporation, 25 Ecker
Street, 14th Floor, San Francisco, California, 94105.
This SUPERVISORY PROMPT CORRECTIVE ACTION DIRECTIVE shall remain
effective and enforceable except to the extent that, and until such
time as, it shall be modified, terminated, suspended, or set aside by
the FDIC.
Pursuant to delegated authority.
Dated at San Francisco, California, this 24th day of January, 2003.