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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
[.2] Termination of Insurance Poor Quality Assets
[.3] Termination of Insurance Management Deficiencies
In the Matter of
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.
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.
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] 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.
[.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 3234; 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.
[.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 143144.
____, 1993
Wilshire Center Bank, National
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.
/s/ Hoyle L. Robinson
In the Matter of
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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.
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.
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.
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.
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
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.
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.
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.
/s/ Arthur L. Shipe
{{9-30-93 p.A-2257}}
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.
Wilshire Center Bank, N.A.
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.
/s/ Robert F. Feldman |
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Last Updated 6/6/2003 | legal@fdic.gov |