Federal Deposit
Insurance Corporation

{{6-30-94 p.C-1357}}
   [¶10,315] In the Matter of Emerald City Bank, Seattle, Washington, Docket No. FDIC-91-126b (8-26-91).

   Bank to cease and desist from such unsafe or unsound practices as operating with inadequate capital; operating with an excessive level of poor quality assets; following hazardous lending and lax collection practices; operating with inadequate liquidity; operating with inadequate routine and controls policies; 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 4-13-94; see ¶ 15,850.)

   [.1] Capital—Core Capital—Increase/Maintain—Methods
   [.2] Assets—Adversely Classified—Eliminate/Reduce
   [.3] Loan Policy—Written Revision—Minimum Requirements
   [.4] Budget—Annual Preparation Required
   [.5] Violations of Law—Eliminate/Correct
   [.6] Asset/Liability Management—Written Policy—Implementation
   [.7] Bank Operations—Internal Routine and Controls—Written Policy Required
   [.8] Compliance Reports—Frequency

In the Matter of

EMERALD CITY BANK
SEATTLE, WASHINGTON
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

   The Federal Deposit Insurance Corporation ("FDIC"), on May 2, 1991, issued to Emerald City Bank, Seattle, Washington ("Bank"), a NOTICE OF CHARGES AND OF HEARING ("NOTICE"), pursuant to section 8(b)(1) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1818(b)(1). The NOTICE charges the Bank with having engaged in unsafe or unsound banking practices and violations of law and/or regulations.
   The insured institution and counsel for the FDIC thereafter executed a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT"), dated August 22, 1991, whereby, solely for the purpose of this proceeding and without admitting or denying the allegations in the NOTICE, 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 has 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 by taking the affirmative action described in the following enumerated paragraphs:
   (a) operating with inadequate equity capital and reserves in relation to the volume and quality of assets held by the Bank;
   (b) operating with a large volume of poor quality loans;
   (c) following hazardous lending and lax collection practices;
   (d) operating with inadequate provisions for liquidity and funds management;
   (e) operating with inadequate routine and controls policies;
   (f) operating in such a manner as to produce operating losses; and
   (g) operating in violation of section 22(h)
{{6-30-94 p.C-1358}}of the Federal Reserve Act, as amended, 12 U.S.C. § 375b and section 215.4(a) of Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. § 215.4(a), made applicable to state nonmember institutions by section 18(j)(2) of the Act, 12 U.S.C. § 1828(j)(2); and section 350 of the FDIC Rules and Regulations, 12 C.F.R. § 350.
   IT IS ORDERED that the Bank take affirmative action as follows:

[.1] 1. (a) The Bank shall increase core capital by not less than $750,000 on or before December 31, 1991 and by an additional $750,000 on or before June 30, 1992. Thereafter, during the life of this ORDER, the Bank shall maintain core capital in such an amount as to equal or exceed seven and one-half (7.5) 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) Any increase in core capital necessary to meet the requirements of Paragraph 1 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) the collection of assets previously charged off; or
   (v) the reduction of the "Loss" assets specified in Paragraph 2 of this ORDER without loss or liability to the Bank; or
   (vi) any other means acceptable to the Regional Director and the Supervisor of Banking, State of Washington ("Supervisor"); or
   (vii) any combination of the above means.

   [.2] 2. 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 paragraph 2 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.

[.4] 4. (a) Within 30 days from the effective date of this ORDER, the Bank shall fully implement its recently adopted written plan and comprehensive budget for 1991, which plan anticipates achievement of profitability during the second half of the year. Such implementation shall be in a form and manner acceptable to the Regional Director and the Supervisor as determined at subsequent examinations and/or visitations.
   (b) Thereafter, the Bank shall formulate such a plan and budget by November 30 of each subsequent year.
   (c) Following the end of each calendar quarter, the board of directors shall evaluate the Bank's actual performance in relation to the plan and budget required to be implemented by subparagraph 4(a) of this ORDER and shall record the results of the evaluation, and any actions taken by the Bank, in the minutes of the board of directors meeting at which such evaluation is undertaken.

   [.5] 5. By no later than December 31, 1991, the Bank shall, to the extent reasonably possible, 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 October 22, 1990. In addition, the Bank shall take all necessary steps to ensure future compliance with all applicable laws and regulations.

   [.6] 6. Within 30 days from the effective date of this ORDER, the board of directors shall implement its comprehensive asset/ liability management policy. Such implementation shall be in a form and manner acceptable to the Regional Director and the Supervisor as determined at subsequent examinations and/or visitations.

   [.7] 7. Within 60 days from the effective date of this ORDER, the Bank shall adopt and implement a policy for the operation of the Bank in such a manner as to provide adequate internal routine and control policies consistent with safe and sound banking practices. The policies should include but not be limited to the following: (1) the monthly certification of all general ledger accounts; (2) the monthly reconcilement of all due from and due to accounts maintained with other financial institutions; (3) the designation of a qualified employee to serve as a part-time internal audit supervisor; and (4) the submission of a quarterly written report to the board of directors by the internal audit supervisor that covers compliance with all internal routine and control policies and all audit work performed during the preceding three months. Such policies shall be satisfactory to the Regional Director and Supervisor as determined at subsequent examinations and/or visitations.

   [.8] 8. 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 Supervisor 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 Supervisor have released the Bank in writing from making further reports.
   The provisions of this ORDER shall be binding upon the Bank, its directors, offi- {{10-31-91 p.C-1360}}cers, 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, and provisions of this ORDER shall have been modified, terminated, suspended, or set aside by the FDIC.
   Dated at San Francisco, California, this 26th day of August, 1991.
   Pursuant to delegated authority.