Federal Deposit
Insurance Corporation

{{10-31-92 p.C-2640}}
   [¶10,619] In the Matter of First Commercial Bank, Sacramento, California, Docket No. FDIC-92-268b (8-17-92).

   Bank to cease and desist from such unsafe or unsound practices as operating with inadequate capital and reserves; operating with an excessive level of poor {{1-31-97 p.C-2641}}quality assets; operating with inadequate allowance for loan and lease losses; following hazardous lending and lax collection practices; operating with inadequate liquidity and funds management; and operating in violation of applicable laws or regulations. (Editor's Note: This order was terminated by order of the FDIC dated 11-29-96. See ¶16,136.)

   [.1] Management—Qualifications—Review
   [.2] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.3] Assets—Adversely Classified—Eliminate/Reduce
   [.4] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.5] Lending and Collection Policy—Minimum Requirements
   [.6] Loans—Overdue—Accrual of Interest
   [.7] Loans—Concentrations of Credit—Real Estate—Reduce
   [.8] Loan Loss Reserve—Establish/Maintain
   [.9] Violations of Law—Eliminate/Correct
   [.10] Liquidity and Funds Management—Policy Required
   [.11] Reports of Condition and Income—Amendment Required
   [.12] Compensation—Bonuses—FDIC Review Required
   [.13] Dividends—Restricted
   [.14] Shareholders—Disclosure—Cease and Desist Order
   [.15] Real Estate Activities—Compliance with State Law Required
   [.16] Strategic Plan—Preparation Required
   [.17] Compliance Reports—Frequency

In the Matter of
FIRST COMMERCIAL BANK
SACRAMENTO, CALIFORNIA
(Insured State Nonmember Bank)
ORDER TO
CEASE AND DESIST
FDIC-92-268b
   First Commercial Bank, Sacramento, California ("Bank"), having been advised of its right to a Notice of Charges and of Hearing detailing the unsafe or unsound banking practices and violations of law and/or regulations alleged to have been committed by the Bank 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 August 11, 1992, whereby solely for the purpose of this proceeding and without admitting or denying the alleged charges of unsafe or unsound banking practices and violations of law and/or regulations, the Bank 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 Bank had engaged in unsafe or unsound banking practices and had committed violations of law and/or regulations. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

   IT IS HEREBY ORDERED that the Bank, and any institution-affiliated party as such term is defined in section 3(u) of the Act, 12 U.S.C. § 1813(u), cease and desist from the following unsafe or unsound banking practices and violations:
   (a) operating with inadequate equity capital and reserves in relation to the quality of assets held by the Bank;
   (b) operating with a large volume of poor quality loans;
   (c) operating with an inadequate loan valuation reserve;
{{10-31-92 p.C-2660}}
   (d) following lax lending and/or collection practices;
   (e) operating with inadequate provisions for liquidity and funds management; and
   (f) operating in violation of section 323.4(a) of the FDIC Rules and Regulations, 12 C.F.R. § 323.4(a), as more fully described on page 6-a of the Report of Examination as of March 10, 1992.
   IT IS FURTHER ORDERED that the Bank take affirmative action as follows:

   [.1] 1. During the life of this ORDER, the Bank 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 Bank. Management should include a chief executive officer with proven ability in managing a Bank 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 senior lending officer with significant appropriate lending, collection, and loan supervision experience and experience in upgrading a low quality loan portfolio, as well as a qualified chief financial officer. Each member of management shall be provided appropriate written authority from the Bank'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 Bank in a safe and sound manner;
   (iii) comply with applicable laws and regulations; and
   (iv) restore all aspects of the Bank to a safe and sound condition.

[.2] 2. (a) During the life of this ORDER, the Bank shall maintain adjusted Tier 1 capital in such an amount as to equal or exceed six and one-half (6.5) percent of the Bank's total assets.
   (b) The level of adjusted Tier 1 capital to be maintained during the life of this ORDER pursuant to Subparagraph 2(a) shall be in addition to a fully funded loan loss reserve, the adequacy of which shall be satisfactory to the Regional Director and Superintendent as determined at subsequent examinations and/or visitations.
   (c) Any increase in Tier 1 capital necessary to meet the requirements of Paragraph 2 of this ORDER may be accomplished by the following:

   (i) the sale of common stock; or
   (ii) the sale of noncumulative perpetual preferred stock; or
   (iii) the direct contribution of cash by the board of directors and/or shareholders of the Bank; or
   (iv) any other means acceptable to the Regional Director and the Superintendent; or
   (v) any combination of the above means.

[.3] 3. (a) Within 10 days from the effective date of this ORDER, the Bank shall eliminate from its books, by charge-off or collection, all assets classified "Loss" and one-half of the assets classified "Doubtful" as of March 10, 1992, that have not been previously collected or charged off. Elimination of these assets through proceeds of other loans made by the Bank is not considered collection for the purpose of this paragraph.
   (b) Within 120 days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of March 10, 1992 that have not previously been charged off to not more than $46,000,000.
   (c) Within 240 days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of March 10, 1992 that have not previously been charged off to not more than $42,000,000.
   (d) Within 360 days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of March 10, 1992 that have not previously been charged off to not more than $38,000,000.
   (e) With 480 days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of March 10, 1992 that have not previously been charged off to not more than $28,000,000.
   (f) Within 600 days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of March 10, 1992 that have not previously been charged off to not more than $18,000,000.
   (g) The requirements of subparagraph 3(a), 3(b), 3(c), 3(d), 3(e), and 3(f) of this ORDER are not to be construed as standards for future operations and, in addition to the foregoing, the Bank shall eventually reduce the total of all adversely classified assets. Reduction of these assets through proceeds of other loans to classified borrowers made by the Bank is not considered collection for the purpose of this paragraph. As used in subparagraph 3(b), 3(c), 3(d), 3(e), 3(f), and 3(g) the word "reduce" means:
{{10-31-92 p.C-2644}}

   (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.

   (i) why the failure of the Bank to extend such credit would be detrimental to the best interests of the Bank;
   (ii) that the Bank's position would be improved thereby; and
   (iii) how the Bank's position would be improved.

[.5] 5. Within 30 days from the effective date of this ORDER, the Bank shall revise, adopt, and implement its written lending and collection policy to correct the deficiencies set forth in the Report of Examination as of March 10, 1992 and to provide effective guidance and control over the Bank's lending function. Such policy and its implementation shall be in a form and manner acceptable to the Regional Director and the Superintendent as determined at subsequent examinations and/or visitations.

   [.6] 6. During the life of this ORDER, the Bank shall cease the accrual of interest on any loan that is subject to adverse classification by the FDIC or State Banking Department, and is 90 days or more past due. In addition, with respect to any such loan for which interest has been accrued, the Bank shall, within 10 days, reverse all previously accrued but uncollected interest against appropriate income and balance sheet accounts.
   Additionally, for the purpose of this paragraph, the Bank shall not engage in any practice or use any device which avoids recognition of overdue loans and/or artificially inflates the income of the Bank.

   [.7] 7. The Bank shall reduce the concentration in speculative real estate construction financing detailed on page 2-b in the Report of Examination as of March 10, 1992 to not more than:

   (a) 275% of Tier 1 capital within 180 days of the effective date of this ORDER;
   (b) 200% of Tier 1 capital within 360 days of the effective date of this ORDER; and
   (c) 150% of Tier 1 capital within 540 days of the effective date of this ORDER.
   Decreasing the concentration through proceeds of other loans made by the Bank where the repayment is dependent, in whole or in part, upon the successful sale of real estate, is not considered reduction for the purpose of this paragraph.

   [.9] 9. Within 30 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of law which are more fully set out on page 6-a of the Report of Examination of the Bank as of March 10, 1992. In addition, the Bank shall take all necessary steps to ensure future compliance with all applicable laws and regulations.

   [.10] 10. Within 30 days from the effective date of this ORDER, the board of directors shall revise, adopt and fully implement at all times during the life of this Order, a written liquidity and funds management policy. Such policy shall include specific provisions to provide for a minimum liquidity level of 20 percent and a level of rate sensitive assets to rate sensitive liabilities in the range of 0.80 to 1.20 for periods of six, twelve and twenty-four months consistent with the calculation of such ratios by the FDIC in its Reports of Examination with the exception that title company demand deposits will be included in the selected liabilities calculation to the extent that these deposits are invested in Federal funds sold. The policy and its implementations shall be in a form and manner acceptable to the Regional Director and the Superintendent as determined at subsequent examinations and/or visitations.

   [.11] 11. Within 10 days after eliminating from its books any accrued interest in compliance with Paragraph 6 of this Order, the Bank shall file with the FDIC Consolidated Reports of Condition and Income which shall accurately reflect the financial condition of the Bank. Thereafter and during the life of this ORDER, the Bank shall file with the FDIC Consolidated Reports of Condition and Income which accurately reflect the financial condition of the Bank as of the end of the period for which the Reports are filed, including any adjustment in the Bank's books made necessary or appropriate as a consequence of any California State Banking Department or FDIC examination of the Bank during that reporting period.

   [.12] 12. During the life of this ORDER, the Bank shall implement its revised executive compensation (bonus) plan. The plan's implementation shall be in a form and manner acceptable to the Regional Director and Superintendent as determined at subsequent examinations and/or visitations of the Bank.

   [.13] 13. The Bank shall not pay cash dividends in any amount except as follows:

   (a) such declarations and payments are made in accordance with applicable State and Federal laws and regulations;
   (b) that after payment of such dividends, the ratio of adjusted Tier 1 capital to total assets of the Bank will be not less than six and one-half (6.5) percent and the reserve for loan losses shall be at an adequate level;
   (c) that such declaration and payment of dividends shall be approved in advance by the board of directors; and
   (d) that such declaration and payment of dividends shall be approved in advance, in writing, by the Regional Director and the Superintendent, which approval shall not be unreasonably withheld.

   [.15] 15. During the life of this ORDER, the Bank shall not participate, directly or indirectly, in real estate activities subject to section 751.3 of the California Financial Code, Cal. Fin. Code § 751.3 (West 1989).

   [.16] 16. Within 90 days, the Bank shall submit a revised midrange strategic plan covering the period 1993-1995 that reflects changes in the Bank's balance sheet and ongoing operations necessitated by the requirements of this ORDER. Such a plan shall focus on restricting future growth to a level consistent with prudent banking standards. The plan and its implementation shall be in a form and manner acceptable to the Regional Director and Superintendent.

   [.17] 17. 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 Bank shall furnish written progress reports to the Regional Director and the Superintendent 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 Bank's Report of Condition and the Bank'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 Superintendent have released the Bank in writing from making further reports.
   The provisions of this ORDER shall be binding upon the Bank, its directors, officers, employees, agents, successors, assigns, and other persons participating in the conduct of the affairs of the Bank.
   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 17th day of August, 1992.
   Pursuant to delegated authority.