30-Day Mandates: By no later than April 9, WSB’s board will assume full responsibility for 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 includes at a minimum, monthly meetings where the following areas will be reviewed and approved:

• Reports of income and expenses;
• New, overdue, renewed, insider, charged-off, and recovered loans;
• Progress in reducing the level of adversely classified assets;
• Progress with implementing corrective actions recommended by regulatory agencies and auditors;
• Asset concentrations; and
• Liquidity levels and sources.

Additionally, WSB is barred from paying any dividends to the holding company without obtaining prior written consent from regulators.

Also by April 9, WSB is mandated to increase its allowance for loan and lease losses as of third quarter 2007 by $13.3 million and thereafter maintain its allowance for loan and lease losses at an adequate level. It will also maintain an adequate allowance for loan and lease losses as determined by subsequent examinations.

WSB is also required to establish a loan grading system and practices that ensure timely and accurate credit grading reflecting the condition of each loan. On a monthly basis, management will accurately report aggregate exceptions to the board.

WSB is also barred from extending, directly or indirectly, any additional credit to any borrower who had a loan or other extension of credit that has been charged off or classified “Loss” and is uncollected. It is prevented from extending any additional credit to any borrower who has a loan or other extension of credit from the bank that has been classified, in whole or part, “Substandard” or “Doubtful” without the prior approval of a majority of the bank’s board or the Loan Committee. Before approving additional credit extensions on construction loans, WSB is required to obtain current appraisals, determine construction progress toward completion; ensure that construction projects are being completed according to original plans, specifications, and local building codes; and obtain appropriate documentation to support the borrowers’ ability to repay the loan.

Additionally, neither the board or Loan Committee can approve any extension of credit, or additional credit to any previous borrower whose loans has been classified in whole or part as “Substandard, Doubtful, Loss, or Charged Off,” without first collecting - in cash - all interest due.

WSB is also required to revise its loan policy so all lending personnel shall acknowledge in writing that they have fully read and understood all loan policies.

By April 9, management must accurately calculate primary and secondary liquidity ratios in compliance with bank policy. WSB is forced to eliminate from the calculation of the secondary liquidity ratio, any informal borrowing lines, and lines that have been terminated or suspended. In addition, the bank shall eliminate from liquidity calculations any assets unavailable to immediately meet liquidity needs, such as assets collateralizing borrowing lines.

The bank is mandated not increase the amount of brokered deposits above the amount outstanding on April 9. According to the 8K, this is approximately $65 million. In addition, WSB will not solicit, retain, or rollover brokered deposits unless it has applied for and been granted a waiver of this prohibition by the FDIC. For purposes of the Cease and Desist Order, brokered deposits are defined as any deposits funded by third party agents or nominees for depositors, including deposits managed by a trustee or custodian when each individual beneficial interest is entitled to or asserts a right to federal deposit insurance.

45-Day Mandates: By April 24, WSB’s board has been ordered to develop or revise, adopt and implement a comprehensive policy for determining the adequacy of the allowance for loans and lease losses. For the purpose of that determination, the amount of the reserve will be determined after the charge-off of all loans or other items classified “Loss.” The policy shall provide for a review of the allowance at least once each calendar quarter, and be completed at least 10 days prior to the end of each quarter, in order that the findings may be properly reported in the quarterly Reports of Condition and Income.

That review will focus on the results of WSB’s internal loan review, loan loss experience, trends of delinquent and nonaccrual loans, an estimate of potential loss exposure of significant credits, concentrations of credit, and present and prospective economic conditions. Any deficiency will be remedied in the calendar quarter it is discovered, prior to submitting the Report of Condition and Income, by a charge to current operating earnings.

60-Day Mandates: By May 9, WSB must 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. Such policy shall, at a minimum, eliminate and/or correct all internal routine and control deficiencies as more fully set forth in the ROE dated October 1, 2007, and FRB guarantee that the bank will take all necessary steps to ensure future compliance with all applicable laws and regulations.

The Audit Committee is required to develop an internal audit program that establishes procedures to protect the integrity of the bank’s operational and accounting systems. It will also develop, adopt, and implement internal audit standards and policy in written form.

By May 9, and quarterly thereafter, the Audit Committee will assure the timely completion of audits in conjunction with an approved audit schedule. The Audit Committee shall provide sufficient internal audit department staffing to ensure timely completion of annual audit plans or, alternatively, outsource internal audits to ensure timely completion of annual audit plans.

The bank’s Audit Committee is required to establish and implement an independent loan review and classification system. The loan review and classification system shall at a minimum provide for the following:

• A loan review process independent of the loan staff;
• Establish appropriate minimum frequency of loan reviews based on an assessment of loan portfolio risk and based on the risk assessment the Audit Committee shall approve an annual loan review plan;
• Ensure the qualifications of loan reviewers;
• Require that the loan review function reports directly to the Audit Committee;
• Require that the Audit Committee establish the scope and frequency of loan reviews based on an assessment of risk by loan portfolio type, and loan portfolio growth;
• Ensure that loan reviewers report directly to the Audit Committee;
• Ensure accurate and timely loan grading by management;
• Require that the Audit Committee monitor management’s progress in implementing recommendations made by loan reviewers and regulators.

Also, effective immediately, the Audit Committee will track and monitor all audit, loan review, and examination findings until such time as each finding is resolved.

90-Day Mandates: By no later than June 8, WSB shall develop a written asset disposition plan for the reduction and collection of each asset classified “Substandard” or “Doubtful” in the Oct. 1 ROE. The plan shall address specific steps and timeframes for the reduction and collection of each “Substandard” and “Doubtful” asset.

Doing so will require WSB to obtain new appraisals or evaluations as required by the FDIC’s rules and regulations on properties collateralizing “Substandard” and “Doubtful” loans before determining the disposition plan for each loan.

Physical inspections will take place on all construction projects in progress to determine their completion percentage and ascertain whether they are adhering to the original plans and specifications and are built to applicable building codes. WSB will also determine the cost to complete construction to the original plans and specifications, and if sufficient undisbursed funds remain to complete each project.

By June 8, WSB must perform a risk segmentation analysis with respect to the Concentrations of Credit listed in the Oct. 1, ROE. Concentrations should be identified by product type, geographic distribution, underlying collateral or other asset groups, which are considered economically related and in the aggregate represent a large portion of the bank’s capital account. A copy of this analysis and a plan to reduce undue concentrations of credit in commercial real estate and construction lending will be provided to the FRB Regional Director and DFI Director.

WSB is required to eliminate and/or correct all violations of law, contraventions of statements of policy, and contraventions of FILs, which are more fully set forth in the Oct. 1 ROE.

No later than June 8, WSB must submit to the FRB Regional Director and DFI Director, a written business/strategic plan covering the overall operation of the bank.

WSB is also required to formulate and implement a written profit plan that will address, at a minimum, goals and strategies for improving and sustaining the earnings of the bank, including an identification of the major areas in, and means by which, the board will seek to improve the bank’s operating performance.

Among the other requirements with time limits extending from 45 to 90 days, WSB shall:

• Recruit and hire a senior lending officer with significant appropriate lending, collection, and loan supervision experience, and experience in upgrading a low-quality loan portfolio.
• Strengthen the bank’s board of directors’ oversight of management and operations of the bank. This includes hiring a CEO with proven ability in managing a bank of comparable size, and experience in upgrading a low quality loan portfolio, and improving earnings, as well as employing a senior lending officer with significant appropriate lending, collection, and loan supervision experience - and experience in upgrading a low quality loan portfolio.
• Revise, adopt, and implement any bonus or incentive compensation plans for executive, loan, or operations officers to incorporate qualitative as well as profitability performance standards in a form and manner acceptable to the FRB Regional Director and DFI Director.
• Correct all deficiencies in the loans listed for “Special Mention” in the Oct. 1 ROE.
• Require complete loan documentation for all loan originations, renewals, and extensions including establishing realistic repayment terms, and an analysis of current credit information adequate to support the outstanding or proposed indebtedness of the borrower. Mandatory documentation will include current financial information on borrowers and guarantors including profit and loss statements, copies of signed tax returns, cash flow projections, and rent rolls; required appraisals or evaluations; title policies; security agreements; recordings; evidence of insurance; and appropriate environmental assessments. Personal income is required to be supported by verified signed tax returns or wage statements. In addition, management will be forced to establish an accurate tickler system to ensure updated financial information and insurance is obtained as required by loan documents.

The board is required to revise, adopt and fully implement a written liquidity and funds management policy. Such policy will include specific provisions to provide for a minimum primary liquidity level of at least 15 percent and address specific contingency plans that detail actions to be implemented under various liquidity scenarios.

Other mandates with various timelines attached include:

• Prohibiting loan repayment terms that result in negative amortization of loans.
• Obtaining adequate and current documentation for all loans in the bank’s loan portfolio.
• Establishing and implementing procedures to adequately monitor construction progress including determining percentage of completion and ensuring construction meets all original plans, specifications, and building codes.
• Establishing and implementing appropriate construction loan disbursement procedures that ensure construction progress is appropriate for the amount of funds disbursed, and/or appropriate documentation is provided to support disbursements. In addition, prohibit disbursing construction loans in cash.
• Requiring the preparation of a loan Watch List, which shall include relevant information on all loans in excess of $50,000 that are classified “Substandard” or “Doubtful” in the Oct. 1, ROE, and all other loans in excess of $100,000 that warrant individual review and consideration by the bank’s board as determined by the Loan Committee or active management. The loan Watch List shall be presented to the bank’s board for review monthly with such review noted in the minutes.
• WSB’s board shall adopt procedures whereby loan officer compliance with the revised loan policy is monitored and responsibility for exceptions is assigned, to ensure loan policy exceptions are documented in credit approval memoranda, the reason for exceptions are adequately supported, any exceptions are properly approved, and loan exception tracking reports are provided to the board on a monthly basis.
• Developing and implementing policies and procedures to ensure proper accounting for Other Real Estate Owned including obtaining appraisals in a timely manner to determine property value, ensuring the book value excludes estimated selling costs, requiring accurate documentation of capitalized improvements to properties. In addition, monthly status update to the board on Other Real Estate Owned are required.

While the Cease and Desist Order remains in effect, WSB agreed to maintain a Tier 1 capital to total assets leverage ratio at least equal to or greater than, eight percent; a Tier 1 capital to risk-weighted assets ratio at least equal to or greater than 10 percent; and a ratio of qualifying total capital to risk-weighted assets at least equal to or greater than 13 percent in accordance with FDIC’s Rules and Regulations.