ex101.htm


    Exhibit
10.1

     

     

    


    FEDERAL
DEPOSIT INSURANCE CORPORATION

     

    WASHINGTON,
D.C.

     

    WASHINGTON
DEPARTMENT OF FINANCIAL INSTITUTIONS

     

    OLYMPIA,
WASHINGTON

     

    
       

      
        	 	 	 
	
                 

                In the
      Matter of

                 

                FIRST SAVINGS BANK NORTHWEST 

                RENTON, WASHINGTON

                 

                (INSURED STATE NONMEMBER BANK)

                 

              	
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                  CONSENT
      ORDER

                   

                  FDIC-10-524b

                

              


      

    

    


    The
Federal Deposit Insurance Corporation ("FDIC") is the appropriate Federal
banking agency for First Savings Bank Northwest, Renton, Washington ("Bank")
under Section 3(q) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. §
1813(q)(3). The Washington Department of Financial Institutions ("WDFI") is the
appropriate State banking agency for the Bank under Title 32 of the Revised Code
of Washington ("RCW").

    The Bank,
by and through its duly elected and acting Board of Directors ("Board"), has
executed a Stipulation to the Issuance of a Consent Order ("Stipulation"), dated
September 22, 2010,
that is accepted by the FDIC and the WDFI. With the Stipulation, the Bank has
consented, without admitting or denying any charges of unsafe or unsound banking
practices relating to, among other things, the Bank's asset quality, earnings
and, management, to the issuance of this Consent Order ("Order") by the FDIC and
the WDFI pursuant to Section 8(b)(1) of the FDI Act, and RCW Anno. §
32.04.250.


    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

     

    
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    Having
determined that the requirements for issuance of an order under Section 8(b) of
the FDI Act, 12 U.S.C. § 1818(b), and RCW have been satisfied, the FDIC and the
WDFI hereby order that:

    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 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 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 Director of
Banks of the Washington Department of Financial Institutions ("Director of
Banks") in writing when it proposes to add or replace any individual on the
Board, or employ any individual to serve as a


    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

    
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    senior
executive officer, or change the responsibilities of any existing senior
executive officer to include the responsibilities of another senior executive
officer position. The term "senior executive officer" shall have the same
meaning ascribed to it in Part 303 of the FDIC's Rules and Regulations, 12
C.F.R. § 303.101. The notification shall include a completed Interagency
Biographical and Financial Report and Interagency Change in Director or Senior
Executive Officer and must be received at least 30 days before the addition,
employment or change of responsibilities is intended to become effective. The
Regional Director and the Director of Banks shall have the power under the
authority of this Order to disapprove the addition, employment or change of
responsibilities of any proposed officer or director.

            (d)    The requirement to
submit information and the prior disapproval provisions
of this paragraph are based upon the authority of 12 U.S.C. § 1818(b) and do not
require the Regional Director and the Director of Banks to complete their review
and act on any such information or authority within 30 days, or any other
timeframe. The Bank shall not add, employ or change the responsibilities of any
proposed director or senior executive officer until such time as the Regional
Director and the Director of Banks have completed their review.

        2.            Within
30 days from the effective date of this Order, the Board shall increase its
participation
in the affairs of the Bank, assuming full responsibility for the approval of
sound policies and objectives and for the supervision of all of the Bank's
activities, consistent with the role and expertise commonly expected for
directors of banks of comparable size. This participation shall include meetings
to be held no less frequently than monthly at which, at a minimum, the following
areas shall be reviewed and approved: reports of income and expenses; new,
overdue, renewal, insider, charged-off, and recovered loans; investment
activity; liquidity and funds managements activities; operating policies; and
individual committee actions. The


    
      
         


      

      
         


        
          

        

      

      
         


      

    


     

    
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    Board
minutes shall document these reviews and approvals, including the names of any
dissenting directors.

    3.  Within 90
days from the effective date of this Order, the Board shall obtain an
independent study of the management and personnel structure of the Bank to
determine whether the Bank is staffed by qualified individuals commensurate with
its size and risk profile to ensure the safe and profitable operation of the
Bank. Such study shall include, at a minimum, a review of the duties,
responsibilities, qualifications, and remuneration of the Bank's officers, an
evaluation of management resources, and recommendations regarding management and
staffing in the context of the Bank's strategic plan. A copy of the study shall
be submitted to the Regional Director and the Director of Banks. The Board shall
adopt a plan to implement the recommendations of the study. The plan policy and
its implementation shall be satisfactory to the Regional Director and the
Director of Banks as determined at subsequent examinations and/or
visitations.

    4.  (a)            Within
30 days from the effective date of this Order, the Bank shall increase
and thereafter maintain its Tier 1 capital in such an amount to ensure that the
Bank's leverage ratio equals or exceeds 10 percent.

             (b)   Within 30
days from the effective date of this Order, the Bank shall maintain its total
risk-based capital ratio in such an amount as to equal or exceed 12
percent.

            
(c)   Within 60
days from the effective date of this Order, the Bank shall develop and adopt a
plan to meet and maintain the capital requirements of this Order and to comply
with the FDIC's Statement of Policy on Risk-Based Capital contained in Appendix
A to Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325, Appendix
A. Such plan and


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    
       

      
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    its
implementation shall be in a form and manner acceptable to the Regional Director
and the Director of Banks as determined at subsequent examinations and/or
visitations.

    (d)  The level
of capital to be maintained during the life of this Order 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 Director of Banks as
determined at subsequent examinations and/or visitations. Any increase in Tier 1
capital necessary to meet the requirements of this paragraph 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 this Order is accomplished by the
sale of new securities, the Board shall 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 (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 20 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,
Disclosure and Securities Unit, 550 17th St.
N.W., Washington, D.C. 20429, for review. Any changes requested by the FDIC
shall be made prior to dissemination. If the increase in capital is provided by
the sale of noncumulative perpetual preferred stock, then all terms and
conditions of the issue, including but


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    
       

      
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    not
limited to those terms and conditions relative to interest rate and
convertibility factor, shall be presented to the Regional Director and the
Director of Banks for prior approval.

                          
   
(f)  In
complying with the provisions of this paragraph, 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 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), 325.2(y),
and Appendix A.

    5.  The Bank
shall not pay cash dividends or any other form of payment or distribution
representing a reduction of Bank capital without the prior written approval of
the FDIC. All requests for prior approval shall be received by the FDIC at least
thirty (30) days prior to the earlier of the proposed declaration or
distribution date.

    6.  (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" and
one-half of the assets classified "Doubtful" 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.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    
       

      
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    (b)  Within
180 days from the effective date of this Order, the Bank shall have reduced the
assets classified "Substandard" in the ROE, that have not previously been
charged off to not more than 65 percent of the Bank's Tier 1 capital and ALLL as
of the ROE effective date of December 31, 2009.

    (c)  The
requirements of this paragraph 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 this paragraph 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 and the
WDFI.

    7.            Within
60 days from the effective date of this Order, the Board shall review the
appropriateness
of the Bank's allowance for loan and lease losses ("ALLL") and revise or
establish a comprehensive policy for determining an appropriate level of the
ALLL, including documenting its analysis according to the standards set forth in
the July 25, 2001 Interagency Policy Statement on Allowance for Loan and Lease
Losses Methodologies and Documentation for Banks and Savings Associations. For
the purpose of this determination, an appropriate ALLL shall be determined after
the charge-off of all loans or other items classified "Loss." The policy shall
provide for a review of the ALLL at least once each calendar quarter. Said
review shall be completed in order that the findings of the Board with respect
to the ALLL are properly reported in the quarterly Reports of Condition and
Income. The review shall focus on the


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    
      
         

        
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    accounting
standards set forth in the Financial Accounting Standards Board Accounting
Standards Codification ("ASC") 450 (formerly known as FAS 5) and ASC 310-40
(formerly known as FAS 114), the results of the Bank's internal loan review,
loan and lease loss experience, trends of delinquent and non-accrual loans, an
estimate of potential loss exposure of significant credits, concentrations of
credit, and present and prospective economic conditions. A deficiency in the
ALLL shall be remedied in the calendar quarter it is discovered, prior to
submitting the Report of Condition, 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. The Bank's policy for determining the
adequacy of the Bank's ALLL and its implementation shall be satisfactory to the
Regional Director and the Director of Banks as determined at subsequent
examinations and/or visitations.

          8. 
          (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. This paragraph
shall not prohibit the Bank from renewing or extending the maturity of any
credit in accordance with the Financial Accounting Standards Board ("FASB")
Accounting Standards Codification 470-60 ("ASC 470-60"), formerly known as FASB
Statement Number 15 ("FAS 15").

                  (b)    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 classified,
in whole or part, "Doubtful" or Substandard" without the prior approval of a
majority of the Board or loan committee of the


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    
      
         

        
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    Bank. The
Board and loan committee shall not approve any extension of credit or additional
credit to such borrowers without first collecting in cash all past due
interest.

    9.  (a)     Within 90 days from
the effective date of this Order, the Bank shall develop
or revise, adopt, and implement written lending and collection policies and
practices to provide effective guidance and control over the Bank's lending
function, including an accurate and timely loan grading system. Such policies,
practices, and their implementation shall be satisfactory to the Regional
Director and the Director of Banks as determined at subsequent examinations
and/or visitations.

            
(b)      The
initial revisions to the Bank's loan policy and practices required by
this
paragraph shall, at a minimum, address all credit administration and
underwriting recommendations noted in the ROE, including prudent limits on and
adequate oversight of loans to one borrower or closely related
borrowers.

    10.  Within 60
days from the effective date of this Order, the Bank shall develop or revise,
adopt, and implement a written plan, approved by its Board and acceptable to the
Regional Director and the Director of Banks for systematically reducing the
amount of loans or other extensions of credit advanced, directly or indirectly,
to or for the benefit of, any borrowers in the "Commercial Real Estate"
Concentration. Such plan shall be in conformance with Appendix A of Part 365 of
the FDIC's Rules and Regulations, 12 C.F.R. Part 365, Appendix A; and Financial
Institution Letter (FIL)-104-2006, Commercial Real Estate Lending Joint
Guidance, dated December 12, 2006.

    11.  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 that
adequately addresses liquidity needs and appropriately reduces its reliance on
non-core funding sources.


    
      
         


      

      
         


        
          

        

      

      
         


      

    

    
      
         

        
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    Such
policy and its implementation shall be satisfactory to the Regional Director and
the Director of Banks as determined at subsequent examinations and/or
visitations.

    12.           Within
60 days from the effective date of this Order, the Bank shall develop or
revise,
adopt, and implement a written three-year strategic plan. Such plan shall be
submitted to the Regional Director and the Director of Banks and shall include
specific goals for the dollar volume of total loans, total investment
securities, and total deposits as of year-end 2010, 2011, and 2012. For each
time frame, the plan will also specify:

    (a)  the
anticipated average maturity and average yield on loans and
securities;

    (b)  the
average maturity and average cost of deposits;

    (c)  the level
of earning assets as a percentage of total assets; and

    (d)  the ratio
of net interest income to average earning assets. 

    Such plan
and its implementation shall be satisfactory to the Regional Director and the
Director of Banks as determined at subsequent examinations and/or
visitations.

    13.         
During the life of this Order, the Bank shall comply with the provisions of
section
337.6 of the FDIC's Rules and Regulations, 12 C.F.R. § 337.6.

    14.           Within
60 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.

                      
15.    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 Director of Banks
detailing the form and manner of any actions taken to secure compliance with
this Order and the results thereof. Such


    
      
         


      

      
         


        
          

        

      

      
         


      

    

    
      
         

        
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    reports
shall include a copy of the Bank's Reports of Condition and Income. Such reports
may be discontinued when the corrections required by this Order have been
accomplished and the Regional Director and the Director of Banks have released
the Bank in writing from making further reports.

     

         16.   Following the effective date of
this Order, the Bank shall provide a copy of the Order or
otherwise furnish a description of the Order to its shareholder(First Financial
Northwest, Inc.) in conjunction with the next board meeting of First Financial
Northwest, Inc. 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, Division of Supervision and
Consumer Protection, Accounting and Securities Disclosure Section, 550 17th
Street, N.W., Washington, D.C. 20429, at least 20 days prior to dissemination to
the shareholder. Any changes requested to be made by the FDIC shall be made
prior to dissemination of the description, communication, notice, or
statement.

              The
provisions of this Order shall not bar, estop, or otherwise prevent the FDIC,
the WDFI, or any other federal or state agency or department from taking any
other action against the Bank or any of the Bank's current or former
institution-affiliated parties, as that term is defined in Section 3(u) of the
FDI Act, 12 U.S.C. § 1813(u).

              This Order will become effective upon its issuance by
the FDIC and the WDFI.

                    
The provisions of this Order shall be binding upon the Bank, its
institution-affiliated parties, and any successors and assigns
thereof.

              The
provisions of this Order shall remain effective and enforceable except to the
extent that and until such time as any provision has been modified, terminated,
suspended, or set aside 


    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

    
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    by the
FDIC and the WDFI.

     

    
      Issued
pursuant to delegated authority 

       

      Dated at
San Francisco, California, this 24th day of September,
2010



     

     

    
      
         

        
          	/s/ J.
      George
      Doerr                                                             
      	/s/Brad
      Williamson                                                    
      
	
                  J.
      George Doerr

                  Deputy
      Regional Director

                  Risk
      Management

                  Division
      of Supervision and Consumer Protection 

                  San
      Francisco Region

                  Federal
      Deposit Insurance Corporation

                	
                  Brad
      Williamson

                  Director of Banks

                  Washington Department of Financial 

                      
  Institutions