Exhibit 10.1
 
MEMORANDUM OF UNDERSTANDING

The Board of Directors (“Board”) of First Savings Bank Northwest, Renton,
Washington (“Bank”) agrees to take the actions outlined below to correct the
less than satisfactory conditions detailed in the Report of Visitation dated
October 31, 2011, prepared jointly by Federal Deposit Insurance Corporation
(“FDIC”) and Washington State Department of Financial Institutions (“DFI”).

[1]
(a) During the life of this MEMORANDUM, the Bank shall retain management
acceptable to the Regional Director of the FDIC San Francisco Regional Office
(Regional Director) and the Director of Banks for the State of Washington
(Director of Banks).  Such management shall include the following: (i) a chief
executive officer with proven ability in managing a bank of comparable size and
risk profile; (ii) a chief financial officer with proven ability in all aspects
of financial management; and (iii) a senior lending officer with significant
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 Board to implement the provisions of this
MEMORANDUM.

 
(b) During the life of this MEMORANDUM, the Bank shall notify the Regional
Director and the Director of Banks in writing when it proposes to add any
individual to the Bank’s Board 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.

(c) 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]
Within 60 days from the effective date of this MEMORANDUM, management shall
establish a plan to improve the management of interest rate risk (IRR) and
strengthen the model used to monitor IRR.  Improvements should
include:  modeling of decay rate assumptions for non-maturity deposits;
developing bank-specific prepayment rates; reassessing critical assumptions in
the IRR model at least annually; and a requirement that the results of these
assessments should be reviewed by the Board or ALCO.

[3]
During the life of this MEMORANDUM, the Bank shall maintain a Tier 1 Leverage
Capital ratio of no less than 10 percent of the Bank’s adjusted Part 325 total
assets.  In addition, during the life of this MEMORANDUM the Bank shall maintain
its Total Risk-Based Capital ratio of no less than 12 percent.  Tier 1 Leverage
Capital and Part 325 total assets utilized shall be calculated in accordance
with prevailing instructions for the preparation of Reports of Condition and
Income (Call Reports).

[4]
Within 30 days from the effective date of this MEMORANDUM, the Bank shall
maintain an adequate Allowance for Loan and Lease Losses (“ALLL”).  Any
deficiency in the ALLL shall be remedied in the calendar quarter it is
discovered, prior to submitting the Call Reports, by a charge to current
operating earnings.  The minutes of the Board meeting at which such review is
undertaken shall indicate the results of the review.  Upon completion of the
review, the bank shall increase and maintain its ALLL consistent with the
allowance policy established.  Such policy

 
 
 
 

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[4]
and its implementation shall be satisfactory to the Regional Director and
Director of Banks as determined at subsequent examinations or visitations.

[5]
(a) Within 60 days from the effective date of this MEMORANDUM, the Bank shall
revise, adopt, and implement written lending and collection policies to provide
effective guidance and control over the Bank’s lending and credit administration
function.  Such policies and their implementation shall be in a form and manner
acceptable to the Regional Director and the Director of Banks as determined at
subsequent examinations or visitations.

(b) The initial revisions to loan policy and practices, required by this
paragraph, at a minimum, shall include the following:
i.           
a provision requiring complete loan documentation, repayment terms and current
credit information adequate to support the outstanding indebtedness of the
borrower.  Such documentation shall include current financial information on a
global basis, profit and loss statements or copies of tax returns and cash flow
projections;

ii.          
a provision establishing limitations on the amount that can be loaned in
relation to established collateral values;

iii.         
a provision prohibiting concentrations of credit in excess of 25 percent of the
bank’s total capital to any borrower and that borrower's related interests; and

iv.          
a provision specifying when real estate appraisals must be conducted by an
independent third party;

[6]
Within 60 days after the effective date of this MEMORANDUM, the Bank shall
develop, adopt, and implement a written policy governing the relationships
between the Bank and its affiliates and shall specifically address acceptable
volumes and terms of the Bank’s purchase of affiliate/affiliate originated
assets; common functional authority between the Bank and affiliates’ directors,
officers or employees; and the degree and constraints of functional control
originating from outside the Bank.  Such policy and its implementation shall be
in a form and manner acceptable to the Regional Director and Director of Banks
as determined at subsequent examinations or visitations.

[7]
The Bank shall not pay cash dividends without the prior written consent of the
Regional Director and the Director of Banks.

[8]
Within 30 days after the end of the first quarter following the effective date
of this MEMORANDUM, and within thirty (30) days after the end of each quarter
thereafter, the Bank shall furnish written progress reports to the Regional
Director and the Director of Banks detailing the form and manner of any actions
taken to secure compliance with this MEMORANDUM and the results thereof.

The provisions of this MEMORANDUM shall be binding upon 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), to include, its directors, officers, employees, agents,
successors, assigns, and other persons participating in the conduct of the
affairs of the Bank.
 
 
 
 
 

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This MEMORANDUM shall become effective on the date below.

The provisions of this MEMORANDUM shall remain effective except to the extent
that, and until such time as, any provisions of this MEMORANDUM shall have been
modified, terminated, suspended, or set aside by the FDIC and Washington State
DFI.

Dated this 23rd day of March, 2012.
 
 

FEDERAL DEPOSIT INSURANCE CORPORATION  BANK      By:  /s/Paul P.
Worthing                                                  /s/Victor
Karpiak                                          Paul P. Worthing Victor
Karpiak          Assistant Regional Director         /s/Joann E.
Lee                                     WASHINGTON STATE DEPARTMENT OF   Joann
E. Lee  FINANCIAL INSTITUTIONS        By:   /s/Richard M.
Riccobono                                       /s/Gary F.
Faull                                             Richard M. Riccobono Gary F.
Faull               Director of Banks     /s/Gerald
Edlund                                    Gerald Edlund            /s/Gary F.
Kohlwes                                Gary F. Kohlwes            /s/Robert L.
Anderson                         Robert L. Anderson            /s/M. Scott
Gaspard                            M. Scott Gaspard            /s/Daniel L.
Stevens                            Daniel L. Stevens                     

 
                                                                                                               

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