Exhibit 10.2

 

FEDERAL DEPOSIT INSURANCE CORPORATION

 

WASHINGTON, D.C.

 

OREGON DIVISION OF FINANCE AND CORPORATE SECURITIES

 

SALEM, OREGON

 

 

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In the Matter of

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ORDER TO CEASE AND DESIST

WEST COAST BANK

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LAKE OSWEGO, OREGON

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FDIC-09-453b

 

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(INSURED STATE NONMEMBER BANK)

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West Coast Bank, Lake Oswego, Oregon (“Bank”), having been advised of its right
to a NOTICE OF CHARGES AND OF HEARING detailing the unsafe or unsound banking
practices 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 section 706.580(2) of the
Oregon Revised Statutes, 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”), and with counsel for the Oregon Division of Finance and Corporate
Securities (“DFCS”), dated                               , 2009, 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 and the DFCS.

 

The FDIC and the DFCS considered the matter and determined that they had reason
to believe that the Bank had engaged in unsafe or unsound banking practices. 
The FDIC and the DFCS, therefore, accepted the CONSENT AGREEMENT and issued the
following:

 

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ORDER TO CEASE AND DESIST

 

IT IS HEREBY ORDERED, that the Bank, its institution-affiliated parties, as that
term is defined in section 3(u) of the Act, 12 U.S.C. § 1813(u), and its
successors and assigns, cease and desist from the following unsafe and unsound
banking practices, as more fully set forth in the Joint FDIC and DFCS Report of
Examination dated March 30, 2009 (“ROE”):

 

(a)                                  operating with management whose policies
and practices are detrimental to the Bank;

 

(b)                                 operating with a board of directors which
failed to provide adequate supervision over and direction to the active
management of the Bank;

 

(c)                                  operating with inadequate capital in
relation to the kind and quality of assets held by the Bank;

 

(d)                                 operating with a large volume of poor
quality loans;

 

(e)                                  engaging in unsatisfactory lending and
collection practices;

 

(f)                                    operating in such a manner as to produce
operating losses;

 

(g)                                 operating with inadequate provisions for
liquidity; and

 

(h)                                 operating in violation of Part 323 of the
FDIC Rules and Regulations, 12 C.F.R. Part 323, concerning appraisals; and

 

(i)                                     operating in violation of Part 353 of
the FDIC Rules and Regulations, 12 C.F.R. Part 353, concerning suspicious
activity reporting.

 

IT IS FURTHER ORDERED, that the Bank, its institution-affiliated parties, and
its successors and assigns, take affirmative action as follows:

 

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.  Each member of

 

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management shall be provided appropriate written authority from the Bank’s Board
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, liquidity, and sensitivity to market risk.

 

(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 Administrator of the Oregon Division of Finance
and Corporate Securities (“Administrator”) 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.

 

(d)                                 Within 90 days after the effective date of
this ORDER, the Bank’s Board shall obtain an independent study of the management
and personnel structure of the Bank to determine whether additional personnel
are needed for the safe and profitable operation of the Bank.  Such a study
shall include, at a minimum, a review of the duties, responsibilities,
qualifications, and compensation of the Bank’s executive officers.  The Bank
shall formulate and a plan to implement the recommendations of the study.  The
plan shall be acceptable to the Regional Director and the Administrator as
determined at subsequent examinations and/or visitations.

 

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2.                                       During the life of this ORDER, the
Board and management shall ensure that management reports are sufficient to
provide the Board with timely and adequate information for making business
decisions on the basis of fully informed and meaningful deliberation and that
such reports address the deficiencies detailed in the ROE.

 

3.                                       No later than December 31, 2009 and
during the life of this ORDER, the Bank shall maintain:

 

(a)                                  A Tier 1 capital to total assets leverage
ratio (“leverage ratio”) at least equal to or greater than 10 percent and;

 

(b)                                 A ratio of qualifying total capital to
risk-weighted assets (“total risk-based capital ratio”) at least equal to or
greater than 12 percent.

 

(c)                                  The level of capital to be maintained
during the life of this ORDER pursuant to Subparagraph 3(a) shall be in addition
to a fully funded allowance for loan and lease losses, the adequacy of which
shall be satisfactory to the Regional Director and the Adminstrator as
determined at subsequent examinations and/or visitations.

 

(d)                                 Any increase in capital necessary to meet
the requirements of Paragraph 3 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
Bank’s parent holding company; or

 

(iv)                              any other means acceptable to the Regional
Director and the Administrator; or

 

(v)                                 any combination of the above means.

 

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Any increase in capital necessary to meet the requirements of Paragraph 3 of
this ORDER may not be accomplished through a deduction from the Bank’s allowance
for loan and lease losses.

 

(e)                                  If all or part of the increase in capital
required by Paragraph 3 of this ORDER is accomplished by the sale of new
securities issued by the Bank, the Bank’s Board 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 implementation of the plan
involve a public distribution of the Bank’s securities, 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 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 Unit,
Washington, D.C. 20429 and the Administrator, 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 capital is provided by the sale of
noncumulative perpetual preferred stock issued by the Bank, 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 Administrator for prior approval.

 

(f)                                    In complying with the provisions of
Paragraph 3 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 10 days from

 

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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.

 

(g)                                 For the purposes of this ORDER, the terms
“leverage ratio”, “Tier 1 capital” and “total risk-based capital ratio” shall
have, the meanings ascribed to them in Part 325 of the FDIC’s Rules and
Regulations, 12 C.F.R. §§ 325.2(m), 325.2(v) and 325.2(y).

 

4.                                       (a)                                 
Within 30 days from the effective date of this ORDER, the Bank shall eliminate
from its books, by charge-off or collection, all assets classified “Loss” in the
ROE 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 reduce all items classified “Substandard” in the ROE
that have not been previously charged off to 90% or less of Tier 1 Capital plus
the Bank’s Allowance for Loan and Lease Losses (“ALLL”).

 

(c)                                  Within 180 days from the effective date of
this ORDER, the Bank shall reduce all items classified “Substandard” in the ROE
that have not been previously charged off to 70% or less of Tier 1 Capital plus
the ALLL.

 

(d)                                 Within 270 days from the effective date of
this ORDER, the Bank shall reduce all items classified “Substandard” in the ROE
that have not been previously charged off to 50% or less of Tier 1 Capital plus
the ALLL.

 

(e)                                  The requirements of Subparagraphs 4(a) to
4(d) of this ORDER are not to be construed as standards for future operations
and, in addition to the foregoing, the Bank shall reduce the total of all
adversely classified assets.  Reduction of these assets through proceeds of
other loans made to obligors on adversely classified assets held by the Bank is
not considered

 

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collection for the purpose of this paragraph.  As used in Subparagraphs 4(b) to
4(e) 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.

 

(f)                                    Within 60 days from the effective date of
this ORDER, the Bank shall develop written asset disposition plans for each
adversely classified asset greater than $750,000.  The plans shall be reviewed
and approved by the Board and acceptable to the Regional Director and the
Administrator as determined at subsequent examinations.

 

(g)                                 Within 60 days from the effective date of
this ORDER, the Bank shall ensure that it has in place effective policies and
procedures for the reduction and collection of delinquent loans.  The plan shall
be acceptable to the Regional Director and the Administrator as determined at
subsequent examinations.

 

5.                                       (a)                                 
Beginning with the effective date of this ORDER, except with respect to unfunded
loan commitments then in effect, 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.  Subparagraph
5(a) of this ORDER shall not prohibit the Bank from renewing or extending the
maturity of any credit in accordance with the Financial Accounting Standards
Board Statement Number 15 (“FASB 15”).

 

(b)                                 Beginning with the effective date of this
ORDER, except with respect to unfunded loan commitments then in effect, 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

 

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credit from the Bank that has been classified, in whole or part, “Substandard”
and/or “Doubtful” without the prior approval of a majority of the Bank’s Board
or senior loan committee of the Bank.

 

(c)                                  The loan committee or Board shall not
approve any extension of credit, or additional credit to a borrower in
Paragraphs (b) above without first collecting in cash all past due interest.

 

(d)                                 Within 90 days from the effective date of
this ORDER, the Bank shall correct all deficiencies detailed in the items listed
as “Special Mention” in the ROE.

 

6.                                       Within 30 days from the effective date
of this ORDER, the Bank shall strengthen the effectiveness of the internal loan
review function to ensure timely and adequate internal loan reviews and ensure
that all of the loan review deficiencies detailed in the ROE are corrected.

 

7.                                       (a)                                 
Within 30 days from the effective date of this ORDER, the Bank shall revise its
Concentration Policy to limit concentrations for Commercial Real Estate (“CRE”)
and Acquisition, Development, and Construction (“ADC”) loans in order to comply
with the following: (i) Interagency Guidelines for Real Estate Lending Policies,
12 C.F.R. Part 365, Appendix A; and (ii) Commercial Real Lending Joint Guidance,
FIL-104-2006, dated December 12, 2006.   The Bank’s Concentration Policy and its
implementation shall be acceptable to the Regional Director and Administrator as
determined at subsequent examinations and/or visitations.

 

(b)                                 Within 30 days from the effective date of
this ORDER, the Bank shall develop a written plan for systematically reducing
the amount of CRE and ADC loans in compliance with the revised Concentration
Policy required by this paragraph.  The Bank shall not make any new CRE or ADC
loans unless:

 

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(i)                                     the loans are in compliance with the
written plan required by this subparagraph;

 

(ii)                                  the loans are in compliance with the
provisions of paragraph 5 of this ORDER; and

 

(iii)                               the loans are approved by the Board or
senior loan committee of the Bank.

 

The plan and its implementation shall be acceptable to the Regional Director and
Administrator as determined at subsequent examinations and/or visitations.

 

8.                                       Within 90 days of the effective date of
this ORDER, the Bank shall correct all credit data or collateral documentation
exceptions, as more fully set forth in the ROE.

 

9.                                       Within 60 days of the effective date of
this ORDER, the Bank shall develop and submit to the Regional Director and the
Administrator a written three-year strategic plan.  Such plan shall include
specific goals for the dollar volume of total loans, total investment
securities, and total deposits as of December 31, 2009, December 31, 2010,
December 31, 2011, and December 31, 2012.  For each time frame, the plan will
also specify the anticipated average maturity and average yield on loans and
securities; the average maturity and average cost of deposits; the level of
earning assets as a percentage of total assets; and the ratio of net interest
income to average earning assets.  The plan shall be in a form and manner
acceptable to the Regional Director and the Administrator as determined at
subsequent examinations and/or visitations.

 

10.                                 Within 60 days from the effective date of
this ORDER, the Bank shall develop and implement a written profit plan.  The
plan shall be in a form and manner acceptable to the Regional Director and the
Administrator as determined at subsequent examination and/or visitations.

 

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11.                                 (a)                                  Within
30 days from the effective date of this ORDER, the Bank shall eliminate and/or
correct all violations of law, as more fully set forth in the ROE.  In addition,
the Bank shall take all necessary steps to ensure future compliance with all
applicable laws and regulations.

 

(b)                                 The Bank shall strengthen all aspects of its
appraisal review processes to ensure compliance with Part 323 of the FDIC’s
Rules and Regulations and the October 23, 2003, Financial Institution Letter
entitled Independent Appraisal and Evaluation Functions (FIL-84-2003).

 

(c)                                  The Bank shall strengthen its Suspicious
Activity Reporting to ensure compliance with Part 353 of the FDIC’s Rules and
Regulations and ensure timely investigation of unusual or suspicious activity
and filing of Suspicious Activity Reports.

 

12.                                 Beginning with the effective date of this
ORDER, the Bank shall cease business activities with any brokers, appraisers,
contractors, builders, realtors, architects, processors, former employees, or
others individuals or companies identified as having been involved in or
suspected of fraudulent activities, unless the Bank can show appropriate
reasons, in relation to its potential risk exposure, for continuing such
business or banking relationship(s).  Such reasons shall be acceptable to the
Regional Director and the Administrator.

 

13.                                 Within 120 days from the effective date of
this ORDER, the Bank shall provide training in suspicious activity detection and
reporting to all employees, officers, and directors of the Bank; thereafter,
such training shall be provided to employees every year.

 

14.                                 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 shall require the Bank to
maintain a minimum Primary Liquidity Ratio of 15 percent and a plan for
achieving and maintaining the minimum Primary Liquidity Ratio.  In addition, the
policy shall

 

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include specific provisions to limit the Bank’s Net Non-Core Funding Dependency
Ratio to not more than 25 percent and a plan for achieving and maintaining the
Net Non-Core Funding Dependency Ratio.  The liquidity and funds management
policy shall be in a form and manner acceptable to the Regional Director and the
Administrator as determined at subsequent examinations and/or visitations.  For
purposes of this ORDER, the term “Primary Liquidity Ratio” shall mean the amount
equal to the sum of net cash, short-term, and marketable assets divided by the
sum of net deposits and short-term liabilities.  The term “Net Non-Core Funding
Dependency Ratio” is as defined in the Uniform Bank Performance Report.

 

15.                                 The Bank shall not pay cash dividends
without the prior written consent of the Regional Director and the
Administrator.

 

16.                                 (a)                                  During
the life of this ORDER, the Bank shall not solicit, accept, renew, or roll over
brokered deposits unless it has applied for and been granted a waiver of this
prohibition by the FDIC in accordance with the provisions of section 337.6 of
the FDIC’s Rules and Regulations, 12 C.F.R.  §337.6.  In addition, the bank
shall comply with the interest rate restrictions under section 337.6 of the
FDIC’s Rules and Regulations, 12 C.F.R. § 337.6.

 

(b)                                 For purposes of this ORDER, brokered
deposits are defined as described in section 337.6(a)(2) of the FDIC’s Rules and
Regulations, 12 C.F.R. §337.6(a)(2).

 

17.                                 Within 30 days of the end of the first
quarter, following the effective date of this ORDER, and within 30 days of the
end of each quarter thereafter, the Bank shall furnish written progress reports
to the Regional Director and the Administrator 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

 

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accomplished and the Regional Director and the Administrator have released the
Bank in writing from making further reports.

 

18.                                 Following the effective date of this ORDER,
the Bank shall either send a copy of this ORDER to its shareholder West Coast
Bancorp or otherwise furnish a description of this ORDER in conjunction with the
next board meeting of West Coast Bancorp, in which case such 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,
Accounting and Securities Section, Washington, D.C. 20429, at least 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.

 

This ORDER will become effective upon its issuance by the FDIC and the DFCS. 
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 and the DFCS.

 

Pursuant to delegated authority.

 

Dated at San Francisco, California, this 22 day of October, 2009.

 

 

/s/ J. George Doerr

 

/s/ David C. Tatman

J. George Doerr

 

David C. Tatman

Deputy Regional Director

 

Administrator

Risk Management

 

Oregon Division of Finance and Corporate Securities

Division of Supervision and Consumer Protection

 

 

San Francisco Region

 

 

Federal Deposit Insurance Corporation

 

 

 

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