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{{10-31-92 p.C-2662}}
   [10,631] In the Matter of Burlingame Bank & Trust Company, Burlingame, California, Docket No. FDIC-92-274b (8-25-92).

   Bank to cease and desist from such unsafe or unsound practices as operating with inadequate management; operating with inadequate capital; operating with an excessive level of poor quality assets; operating without adequate reserve for loan losses; following hazardous lending and lax collection practices; operating with {{8-31-95 p.C-2663}}inadequate liquidity and funds management provisions; and operating in violation of applicable laws or regulations. (This order was terminated by order of the FDIC dated June 22, 1995. See ¶16,013.)

   [.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—Concentrations of Credit—Risk Segmentation Analysis
   [.7] Loan Loss Reserve—Establish/Maintain
   [.8] Violations of Law—Eliminate/Correct
   [.9] Asset/Liability Management—Written Policy—Minimum Requirements
   [.10] Reports of Condition and Income—Amendment Required
   [.11] Dividends—Restricted
   [.12] Shareholders—Disclosure—Cease and Desist Order
   [.13] Real Estate Activities—Compliance with State Law Required
   [.14] Compliance Reports—Frequency

In the Matter of

BURLINGAME BANK & TRUST
COMPANY

BURLINGAME, CALIFORNIA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-92-274b

   Burlingame Bank & Trust Company, Burlingame, 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 25, whereby solely for the purpose of this proceeding and without admitting 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:

ORDER TO CEASE AND DESIST

   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 alleged unsafe or unsound banking practices and violations:
   (a) operating with inadequate management;
   (b) operating with inadequate equity capital in relation to the volume and quality of assets held by the Bank;
   (c) operating with a large volume of poor quality loans;
   (d) operating with an inadequate loan valuation reserve;
   (e) following hazardous lending and lax collection practices;
   (f) operating with inadequate provisions for liquidity and funds management; and
   (g) operating in violation of section 23A of the Federal Reserve Act, 12 U.S.C. § 371c, made applicable to state nonmember in- {{8-31-95 p.C-2664}}sured institutions by section 18(j)(1) of the Act, 12 U.S.C. § 1828(j)(1); section 215.4(d) of Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. § 215.4(d), made applicable to state non-member institutions by section 18(j)(2) of the Act, 12 U.S.C. § 1828(j)(2); Part 353 of the Rules and Regulations of the FDIC, 12 C.F.R. § 353; and section 7(a)(1) of the Federal Deposit Insurance Act, 12 U.S.C. § 1817(a)(1).
   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 thereafter 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 financial institution of comparable size. Management should also include a senior executive officer with an appropriate level of lending, collection, and loan supervision experience for the type and quality of the Bank's loans and experience in upgrading low quality assets. 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, including asset quality, capital adequacy, earnings, management effectiveness, and liquidity.
   (c) During the life of this ORDER, the Bank shall notify the Regional Director of the FDIC's San Francisco Regional Office ("Regional Director") and the Superintendent of Banks for the State of California ("Superintendent") in writing when it proposes to add any individual to the Bank's board of directors or employ any individual as a senior executive officer. The notification must be received at least 30 days before such addition or employment is intended to become effective and should include a description of the background and experience of the individual or individuals to be added or employed.
   (d) The Bank may not add any individual to its board of directors or employ any individual as a senior executive officer if the Regional Director issues a notice of disapproval pursuant to section 32 of the Act, 12 U.S.C. § 1831i.

   [.2] 2. (a) Within 180 days from the effective date of this ORDER, the Bank shall have 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 and have total capital in such an amount as to equal or exceed nine (9.0) percent of the Bank's Risk-weighted Assets. Thereafter, during the life of this ORDER, the Bank shall maintain 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 and total capital of nine (9.0) percent of the Bank's Risk-weighted Assets.
   (b) 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, shareholders, and/or parent holding company; or
       (iv) any other means, including retained earnings, acceptable to the Regional Director and the Superintendent; or
       (v) any combination of the above means.
Any increase in Tier 1 capital necessary to meet the requirements of Paragraph 2 of this ORDER may not be accomplished through a deduction from the Bank's loan loss reserves.
   (c) If all or part of the increase in Tier 1 capital required by Paragraph 2 of this ORDER is accomplished by the sale of new securities issued by the Bank, the board of directors shall forthwith take all necessary steps to adopt and implement a plan for the sale of such additional securities, including the voting of any shares owned or proxies held or controlled by them in favor of the plan. Should the im- {{10-31-92 p.C-2665}}plementation of the plan involve a public distribution of the Bank's securities (including a distribution limited only to the Bank's existing shareholders), the Bank shall prepare offering materials fully describing the securities being offered, including an accurate description of the financial condition of the Bank and the circumstances giving rise to the offering, and any other material disclosures necessary to comply with the Federal securities laws. Prior to the implementation of the plan and, in any event, not less than fifteen (15) days prior to the dissemination of such materials, the plan and any materials used in the sale of the securities shall be submitted to the FDIC, Registration and Disclosure Section, Washington, D.C. 20429, for review. Any changes requested to be made in the plan or materials by the FDIC shall be made prior to their dissemination. If the increase in Tier 1 capital is provided by the sale of noncumulative perpetual preferred stock, then all terms and conditions of the issue, including but not limited to those terms and conditions relative to interest rate and convertibility factor, shall be presented to the Regional Director and the Superintendent for prior approval.
   (d) In complying with the provisions of Paragraph 2 of this ORDER, the Bank shall provide to any subscriber and/or purchaser of the Bank's securities, a written notice of any planned or existing development or other changes which are materially different from the information reflected in any offering materials used in connection with the sale of Bank securities. The written notice required by this paragraph shall be furnished within ten (10) days from the date such material development or change was planned or occurred, whichever is earlier, and shall be furnished to every subscriber and/or purchaser of the Bank's securities who received or was tendered the information contained in the Bank's original offering materials.
   (e) For the purposes of this ORDER, the terms "Tier 1 capital" and "total assets" shall have the meanings ascribed to them in Part 325 of the FDIC Rules and Regulations, 12 C.F.R. §§ 325.2(m) and 325.2(n).

[.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" as of March 20, 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 90 days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" as of March 20, 1992 that have not previously been charged off to not more than $8,000,000.
   (c) Within 180 days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" as of March 20, 1992 that have not previously been charged off to not more than $7,000,000.
   (d) Within 270 days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" as of March 20, 1992 that have not previously been charged off to not more than $5,000,000.
   (e) Within 360 days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" as of March 20, 1992 that have not previously been charged off to not more than $4,000,000.
   (f) The requirements of subparagraph 3(a), 3(b), 3(c), 3(d) and 3(e) 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 made by the Bank is not considered collection for the purpose of this paragraph. As used in subparagraphs 3(b), 3(c), 3(d), 3(e) and 3(f) the word "reduce" means:

       (i) to collect;
    {{10-31-92 p.C-2666}}
       (ii) to charge-off; or
       (iii) to sufficiently improve the quality of assets adversely classified to warrant removing any adverse classification, as determined by the FDIC.

[.4] 4. (a) Beginning with the effective date of this ORDER, the Bank shall not extend, directly or indirectly, any additional credit to, or for the benefit of, any borrower who has a loan or other extension of credit from the Bank that has been charged off or classified, in whole or in part, "Loss" and is uncollected. The requirements of this paragraph shall not prohibit the Bank from renewing (after collection in cash of interest due from the borrower) any credit already extended to any borrower.
   (b) The immediately preceding paragraph shall not apply if the Bank's board determines that the failure to extend further credit to a particular borrower would be detrimental to the best interests of the Bank. Prior to the extending of any additional credit pursuant to this paragraph, either in the form of a renewal, extension, or further advance of funds, such additional credit shall be approved by a majority of the board of directors, or a designated committee thereof, who shall certify, in writing:
       (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.
The signed certification shall be made a part of the minutes of the board of directors or designated committee, and a copy of the signed certification shall be retained in the borrower's credit file.

    [.5] 5. (a) Within 60 days from the effective date of this ORDER, the Bank shall revise, adopt, and implement written lending and collection policies to provide effective guidance and control over the Bank's lending function, which policies shall include specific guidelines for placing loans on a non-accrual basis. In addition, the Bank shall obtain adequate and current documentation for all loans in the Bank's loan portfolio. Such policies and their implementation shall be in a form and manner acceptable to the Regional Director and the Superintendent as determined at subsequent examinations and/or visitations.
       (b) The initial revisions to the Bank's loan policy and practices, required by this paragraph, at a minimum, shall include the following:
         (i) provisions, consistent with FDIC instructions for the preparation of Reports of Condition and Income, under which the accrual of interest income is discontinued and previously accrued interest is reversed on delinquent loans;
         (ii) provisions which prohibit the capitalization of interest or loan related expense unless the board of directors supports in writing and records in the minutes of the corresponding board of directors meeting why an exception thereto is in the best interests of the Bank;
         (iii) provisions which require complete loan documentation, realistic repayment terms and current credit information adequate to support the outstanding indebtedness of the borrower. Such documentation shall include current financial information, profit and loss statements or copies of tax returns and cash flow projections;
         (iv) provisions which incorporate limitations on the amount that can be loaned in relation to established collateral values;
         (v) provisions which specify the circumstances and conditions under which real estate appraisals must be conducted by an independent third party;
         (vi) provisions which establish standards for unsecured credit;
         (vii) provisions which establish officer lending limits;
         (viii) provisions that directors first determine that the lending staff has the expertise necessary to properly supervise construction loans and that adequate procedures are in place to monitor any construction involved before funds are disbursed;
         (ix) provisions which prohibit concentrations of credit in excess of 25 percent of the Bank's total equity capital and reserves to any borrower and that borrower's related interests;
         (x) provisions which require the preparation of a loan "watch list" which {{10-31-92 p.C-2667}}shall include relevant information on all loans in excess of $100,000 which are classified "Substandard" as of March 20, 1992 or by the FDIC or California State Banking Department in subsequent Reports of Examination, so long as such loans remain classified substandard, and all other loans in excess of $150,000 which warrant individual review and consideration by the board of directors as determined by the loan committee or active management. The loan "watch list" shall be presented to the board of directors for review at least monthly with such review noted in the minutes;
         (xi) provisions that prohibit the use of overdrafts over $10,000 to extend credit for a period in excess of 30 days without the prior written approval of the board of directors or the appropriate loan committee; and
         (xii) the board of directors shall adopt procedures whereby officer compliance with the revised loan policy is monitored and responsibility for exceptions thereto assigned. The procedures adopted shall be reflected in minutes of a board of directors meeting at which all members are present and the vote of each is noted.

   [.6] 6. Within 90 days from the effective date of this ORDER, the Bank shall perform a risk segmentation analysis with respect to the concentrations of credit listed on page 2-b of the Report of Examination of the Bank as of March 20, 1992. Concentrations should be identified by product type, geographic distribution, underlying collateral or other asset groups which are considered economically related and in the aggregate represent a large portion of the Bank's capital account. A copy of this analysis will be provided to the Regional Director and the Superintendent and the Board agrees to develop a plan to reduce any segment of the portfolio which the Regional Director and the Superintendent deem to be an undue concentration of credit in relation to the Bank's capital account. The plan's implementation shall be in a manner acceptable to the Regional Director as determined at subsequent examinations and/or visitations.

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

   [.8] 8. Within 60 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 pages 6-a and 6-a-1 of the Report of Examination of the Bank as of March 20, 1992. In addition, the Bank shall take all necessary steps to require future compliance with all applicable laws and regulations.

   [.9] 9. Within 60 days from the effective date of this ORDER, the board of directors shall develop a comprehensive asset/ liability management policy. The policy shall establish standards consistent with generally accepted prudent banking operations by giving specific consideration to:

       (i) establishing a range for the Bank's volatile liability dependency ratio, as computed by the FDIC in its Reports of Examination, and which ratio shall, within 90 days from the effective date of this ORDER, be reduced to not more than fifteen (15.0) percent and maintained at that level for each calendar quarterly average of the daily ratios. The requirements of this paragraph shall not be construed as standards for future operations, and the Bank's volatile liability dependency ratio shall be maintained at a level consistent with prudent banking practices;
       (ii) establishing a range for shortterm investments to potentially volatile liabilities, as those terms are defined by the FDIC in its current edition of "A Users Guide for the Uniform Bank Performance Report";
       (iii) establishing maturity ranges for the Bank's investment portfolio;
       (iv) establishing acceptable ranges for {{10-31-92 p.C-2668}}the Bank's rate sensitivity and gap ratios; and
       (v) the establishing of an asset/ liability committee, including a description of its responsibilities, how often it will meet, how it will obtain information and guidance from the board of directors, and how its activities will be reported to the board of directors.

   [.10] 10. Within 10 days after eliminating from its books any asset in compliance with Paragraph 3 of this ORDER, the Bank shall file with the FDIC amended Consolidated Reports of Condition and Income which shall accurately reflect the financial condition of the Bank as of March 31, 1992. Thereafter, 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 consequent of any California State Banking Department or FDIC examination of the Bank during that reporting period.

   [.11] 11. 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 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 delayed or withheld.

   [.12] 12. Following the effective date of this ORDER, the Bank shall send to its shareholder or otherwise furnish a description of this ORDER in conjunction with the Bank's next shareholder communication and also in conjunction with its notice or proxy statement preceding the Bank's next shareholder meeting. The description shall fully describe the ORDER in all material respects.

   [.13] 13. During the life of this ORDER, the Bank shall furnish to the Regional Director a copy of any application to the Superintendent filed pursuant to section 751.3 of the California Financial Code, Cal. Fin. Code § 751.3 (West 1989), to engage in real estate activities. This copy of such application shall be furnished to the Regional Director on or before the date of its filing with the Superintendent. In no event shall the Bank engage in real estate activities which are the subject of any such application filed pursuant to section 751.3 of the California Financial Code without the prior written consent of the Regional Director.

   [.14] 14. Within 45 days of the end of the first calendar quarter following the effective date of this ORDER, and within forty-five days of the end of each calendar 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 last 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 has 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.
   Dates at San Francisco, California, this 25th day of August, 1992.
   Pursuant to delegated authority.

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