Tacoma-based Pierce Commercial Bank this week joined a list of at least 18 other state banks that have received stern “cease and desist” orders from federal and state regulators.

The holding company and bank received the order on Monday.

The order primarily addresses Pierce Commercial’s home mortgage operation, which had been discontinued earlier this year.

“Our core bank is still doing well,” said Gary Gahan, Pierce Commercial president and CEO, on Tuesday afternoon.

Gahan attended a meeting of the bank’s board of directors earlier in the day.

He emphasized that the bank remains well capitalized and that operations remain sound.

Bad loans “are 1.6 percent of assets, compared to 5.6 percent for peer banks,” he said.

Most other orders sent to state banks this year concern capital levels – how much a bank “has in the bank” to cover bad loans, and how much more it can raise to ensure stability.

There was little said about capital levels in this week’s order to Pierce Commercial and its parent Pierce County Bancorp. Instead, the order addressed “a large volume of residential mortgage loans through a mortgage banking division of the bank.”

Among other actions ordered, regulators at the Federal Reserve and the state Department of Financial Institutions said Pierce Commercial must:

 • Provide increased oversight and regular review of internal operations, compliance and liquidity.

 • Retain an independent auditor to review and assess the bank’s governance.

 • Originate no residential mortgage loans without prior approval.

 • Submit a detailed review of loan policies.

 • Prepare a strategic plan to improve earnings in 2010.

 • Pay no dividends to shareholders without approval.

Just as regulators did not center their remarks on capital levels, their order did emphasize “compliance with laws and regulations” – relatively unusual in cease-and-desist orders. The bank was also ordered to submit a “written code of ethics and conflicts of interest policy applicable to the bank’s directors, officers, employees and contractors.”

Gahan said Tuesday that he was aware of the regulators’ concerns.

“In our mortgage operation that we sold off, there was the implication that they were doing some improprieties,” he said. “I really can’t go into detail right now. We maintain the utmost degree of ethical standards, which will continue.”

Gahan said he was pleased to be rid of the home mortgage arm of the business.

“I’m so happy to be back focusing on the core business model of the bank,” he said. “From a revenue side, it’s going to impact earnings – that division counted for 28 to 30 percent of our income – but we will make it up.”

The bank, he said, would emphasize service to the needs of local businesses rather than residential mortgage clients.

Pierce Commercial Bank was founded in 1997 and maintains headquarters in Tacoma’s Allenmore business district. In its latest report to regulators, the bank listed assets of nearly $267 million.

Brad Williamson, director of banks at the state Department of Financial Institutions, was in Washington, D.C. on Tuesday attending regulatory meetings.

He offered no comment concerning the order.

C.R. Roberts: 253-597-8535

c.r.roberts@thenewstribune.com