Federal Deposit
Insurance Corporation

{{5-31-95 p.C-3103}}
   [¶10,737] In the Matter of Golden Gate Bank, San Francisco, California, Docket No. FDIC-93-50b (3-5-93).

   Bank to cease and desist from such unsafe or unsound practices as operating with inadequate management; operating with inadequate capital; operating with excessive volumes of adversely classified assets; operating without adequate reserve for loan losses; following hazardous lending and lax collection practices; {{5-31-95 p.C-3104}}operating with inadequate provisions for liquidity and funds management; operating in such a manner as to produce operating losses; and operating in violation of applicable laws or regulations. (This order was terminated by order of the FDIC dated 3-30-95; see ¶ 15,989.)

   [.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] Loan Loss Reserve—Establish/Maintain
   [.7] Bank Operations—Overhead Expenses—Control
   [.8] Violations of Law—Eliminate/Correct
   [.9] Liquidity and Funds Management—Policy Required
   [.10] Dividends—Restricted
   [.11] Compensation—Employees and Directors—Review Required
   [.12] Shareholders—Disclosure—Cease and Desist Order
   [.13] Institution-Affiliated Parties—Disclosure of Cease and Desist Order
In the Matter of

GOLDEN GATE BANK
SAN FRANCISCO, CALIFORNIA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-93-50b
   Golden Gate Bank, San Francisco, 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 February 23, 1993, 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 management;
   (b) operating with inadequate equity capital and reserves 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;
   (g) operating in such a manner as to produce operating losses; and
   (h) operating in violation of Parts 323 and 325 of the FDIC's Rules and Regulations, 12 C.F.R. §§ 323 and 325, as more fully described on pages 6-a and 6-a-1 of the Report of Examination as of September 22, 1992; and section 1202 and 1902 of the California Financial Code, as more fully de- {{5-31-93 p.C-3105}}scribed on page 6-a-1 of the Report of Examination as of September 22, 1992.
   IT IS FURTHER ORDERED that the Bank take affirmative action as follows:

   [.1] 1. 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 senior lending officer with significant appropriate lending, collection, and loan supervision experience and experience in upgrading a low quality loan portfolio. 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.

[.2] 2. (a) Within 120 days from the effective date of this ORDER, the Bank shall increase Tier 1 capital by no less than $2,200,000, and 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. 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.
   (b) Within 60 days from the effective date of this ORDER, the Bank shall develop and adopt a plan to meet the minimum risk-based capital requirements as described in the FDIC Statement of Policy on Risk-Based Capital contained in Appendix A to Part 325 of the FDIC Rules and Regulations, 12 C.F.R. Part 325, Appendix A. The Plan shall be in a form and manner acceptable to the Regional Director as determined at subsequent examinations.
   (c) The level of 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.
   (d) 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 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 ate 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 September 22, 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) By June 30, 1993, the Bank shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of September 22, 1992 that have not previously been charged off to not more than $7,000,000.
   (c) By December 31, 1993, the Bank shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of September 22, 1992 that have not previously been charged off to not more than $6,000,000.
   (d) By June 30, 1994, the Bank shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" as of September 22, 1992 that have not previously been charged off to not more than $4,500,000.
   (e) The requirements of subparagraphs 3(a), 3(b), and 3(c) 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), and 3(d) the word "reduce" means:

   (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.

   [.5] 5. (a) Within 60 days from the effective date of this ORDER, the Bank shall revise its 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 establish standards for unsecured credit;
   (iii) provisions which prohibit concentrations of credit;
   (iv) 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.

   [.7] 7. Within 60 days from the effective date of this ORDER, the Bank shall develop and adopt a plan to control overhead and other expenses and restore the Bank's profitability. The plan shall be in a form and manner acceptable to the Regional Director and the Superintendent as determined at subsequent examinations and/or visitations.

   [.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 September 22, 1992. In addition, the Bank shall take all necessary steps to ensure future compliance with all applicable laws and regulations.

   [.9] 9. Within 60 days from the effective date of this ORDER, the Bank shall develop or revise, adopt, and implement a written liquidity and funds management policy. 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.

   [.10] 10. The Bank shall not pay cash dividends without the prior written consent of the Regional Director and the Superintendent.

   [.11] 11. (a) The Bank shall terminate and {{5-31-93 p.C-3108}}rescind the incentive-based compensation agreements which the Bank has entered into with James R. Woolwine and Joseph Torrano.
   (b) Within 120 days from the effective date of this ORDER, the Bank shall adopt an employee compensation plan after undertaking a review of compensation paid to any of the Bank's executive officers. At a minimum, the review shall include the following:

   (i) a critical analysis of each individual's background, experience, duties and responsibilities, and an appraisal of each individual's performance compared to the present level of compensation;
   (ii) a comparison of each officer's total compensation with compensation received by officers with similar responsibilities in similar institutions; and       (iii) a determination of whether present executive officers are capable of implementing board directives and policies, operating within the constraints of laws and regulations, and operating the Bank in a prudent manner

   [.12] 12. Following the effective date of this ORDER, the Bank shall send to its shareholders 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. The description and any accompanying communication, statement, or notice shall be sent to the FDIC, Registration and Disclosure Section, 550 - 17th Street, N.W., Washington, N.C. 20429, at least fifteen (15) days prior to dissemination to shareholders. Any changes requested to be made by the FDIC shall be made prior to dissemination of the description, communication, notice, or statement
   13. 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.

   [.13] 14. Following the effective date of this ORDER, the Bank shall send to or otherwise furnish a description of this ORDER to all institution-affiliated parties as such term is defined in section 3(u) of the Act, 12 U.S.C. § 1813(u). The description shall fully describe the ORDER in all material respects
   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 5th day of March, 1993.
   Pursuant to delegated authority.