AGREEMENT BY AND BETWEEN Los Alamos National Bank Los Alamos, New Mexico and The Comptroller of the Currency
AGREEMENT
BY AND BETWEEN
Los
Alamos National Bank
Los
Alamos, New Mexico
and
The
Comptroller of the Currency
Los Alamos
National Bank, Los Alamos, NM (“Bank”) and the Comptroller of the Currency of
the United States of America (“Comptroller”) wish to protect the interests of
the depositors, other customers, and shareholders of the Bank, and, toward that
end, wish the Bank to operate safely and soundly and in accordance with all
applicable laws, rules and regulations.
The
Comptroller has found unsafe and unsound banking practices relating to an
excessive level of classified assets and concentrations of credit.
In consideration of the above premises,
it is agreed, between the Bank, by and through its duly elected and acting Board
of Directors (“Board”), and the Comptroller, through his authorized
representative, that the Bank shall operate at all times in compliance with the
articles of this Agreement.
ARTICLE
I
JURISDICTION
(1) This
Agreement shall be construed to be a “written agreement entered into with the
agency” within the meaning of 12 U.S.C. § 1818(b)(1).
(2) This
Agreement shall be construed to be a “written agreement between such depository
institution and such agency” within the meaning of 12 U.S.C.
§ 1818(e)(1) and 12 U.S.C. § 1818(i)(2).
(3) This
Agreement shall be construed to be a “formal written agreement” within the
meaning of 12 C.F.R. § 5.51(c)(6)(ii). See 12 U.S.C.
§ 1831i.
(4) This
Agreement shall be construed to be a “written agreement” within the meaning of
12 U.S.C. § 1818(u)(1)(A).
(5) All
reports or plans which the Bank or Board has agreed to submit to the Assistant
Deputy Comptroller pursuant to this Agreement shall be forwarded to
the:
Assistant
Deputy Comptroller
Arizona/New
Mexico Field Xxxxxx
0000
Xxxxx 00xx
Xxxxxx, Xxxxx 000
Xxxxxxx,
Xxxxxxx 00000.
ARTICLE
II
COMPLIANCE
COMMITTEE
(1) Within
fifteen (15) days of the date of this Agreement, the Board shall appoint a
Compliance Committee of at least three (3) directors, of which no more than one
(1) shall be an employee or controlling shareholder of the Bank or any of its
affiliates (as the term “affiliate” is defined in 12 U.S.C.
§ 371c(b)(1)), or a family member of any such person. Upon
appointment, the names of the members of the Compliance Committee and, in the
event of a change of the membership, the name of any new member shall be
submitted in writing to the Assistant Deputy Comptroller. The
Compliance Committee shall be responsible for monitoring and coordinating the
Bank's adherence to the provisions of this Agreement.
(2) The
Compliance Committee shall meet at least monthly.
(3) Within
thirty (30) days of the date of this Agreement and quarterly thereafter, the
Compliance Committee shall submit a written progress report to the Board setting
forth in detail:
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(a)
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a
description of the action needed to achieve full compliance with each
Article of this Agreement;
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(b)
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actions
taken to comply with each Article of this Agreement; and
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(c)
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the
results and status of those actions.
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(4) The Board
shall forward a copy of the Compliance Committee's report, with any additional
comments by the Board, to the Assistant Deputy Comptroller within ten (10) days
of receiving such report.
(5) The Board
shall ensure that the Bank has processes, personnel, and control systems to
ensure implementation of and adherence to the requirements of this
Agreement.
ARTICLE
III
CAPITAL
PLAN
(1) Within
thirty (30) days, the Board shall review the Bank’s current three year capital
program to ensure that it contains, at minimum:
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(a)
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specific
plans for the maintenance of adequate capital given the Bank’s risk
profile;
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(b)
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projections
for growth and capital requirements based upon a detailed analysis of the
Bank's risk profile, assets, liabilities, earnings, fixed assets, and
off-balance sheet activities;
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(c)
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projections
of the sources and timing of additional capital to meet the Bank's current
and future needs;
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(d) contingency
plans that identify alternative methods should the primary source(s) under (d)
above not be available;
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(e)
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the
amount of capital available to the Bank from the Bank’s holding company
and/or ownership along with an estimation of the amount of time necessary
to access these sources; and
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(f) a
dividend policy that permits the declaration of a dividend only:
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(i)
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when
the Bank is in compliance with its approved capital program;
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(ii)
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when
the Bank is in compliance with 12 U.S.C. §§ 56 and 60;
and
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(iii)
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with
the prior written determination of no supervisory objection by the
Assistant Deputy Comptroller.
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(2) Upon
review by the Board, the Bank's capital program shall be submitted to the
Assistant Deputy Comptroller for prior determination of no supervisory
objection. Upon receiving a determination of no supervisory objection
from the Assistant Deputy Comptroller, the Bank shall adhere to the capital
program on an ongoing basis. The Board shall review and update the
Bank's capital program on an annual basis, or more frequently if
necessary. Copies of the reviews and updates shall be submitted to
the Assistant Deputy Comptroller.
ARTICLE
IV
STAFFING
PLAN
(1) Within
ninety (90) days of the date of this Agreement the Board shall develop a
staffing plan for the Bank’s loan function (with an emphasis on lending and
collections) that is consistent with the requirements of this Agreement and safe
and sound banking practices. At a minimum, the plan will consist of
the following:
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(a)
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identification
of the skills and expertise needed to administer the Bank’s credit
function in a safe and sound manner;
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(b)
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identification
of the skills and expertise of the Bank’s current staff in all credit
functional areas; and
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(c)
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comparison
of the current staff’s skills and expertise identified in (1)(b) of this
Article to the skills and expertise identified in (1)(a) of this Article
as necessary to develop, market, and administer the products that will be
utilized in accomplishing the Bank’s goals and objectives.
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(2) Within
forty-five (45) days of the development of the staffing plan, the Board will
implement the plan and direct any changes necessary to provide the Bank with a
staff that possesses the skills and expertise identified in (1)(a) of this
Article. Thereafter the Board will ensure that the Bank adheres to
the staffing plan.
(3) Upon
completion of the actions required by Paragraphs (1) and (2), the Board will
provide a copy of its staffing plan to the Assistant Deputy Comptroller for
review.
(4) Within
ninety (90) days of the date of this Agreement, the Board shall identify a
capable candidate for Senior Lending Officer (SLO) of the Bank, and submit the
information required by paragraph (5) of this Article. The candidate
shall be employed and vested with sufficient authority to fulfill the duties and
responsibilities of the position and ensure the safe and sound operation of the
Bank, following review and written no objection by the Assistant Deputy
Comptroller, as provided in this Article.
(5) Prior
to the employment of any individual as Senior Lending Officer, the Board shall
submit to the Assistant Deputy Comptroller the following
information:
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(a)
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the
information sought in the “Changes in Directors and Senior Executive
Officers” booklet of the Comptroller’s Corporate Manual, together with a
legible fingerprint card for the proposed individual;
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(b)
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a
written statement of the Board's reasons for selecting the proposed
officer; and
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(c)
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a
written description of the proposed officer's duties and
responsibilities.
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(6) The
requirement to submit information and the no objection provisions of this
Article are based on the authority of 12 U.S.C. § 1818(b) and do not require the
Comptroller to complete his review and act on any such information or authority
within ninety (90) days.
ARTICLE
V
CRITICIZED
ASSETS
(1) The
Bank shall continue to take timely action to protect its interest in those
assets criticized (those listed as “special mention,” “substandard,” or
“doubtful”) in the XXX, in any subsequent Report of Examination, by internal or
external loan review, or in any list provided to management by the National Bank
Examiners during any examination.
(2) The
Board shall continue to implement its action plans to ensure Bank adherence to a
written program designed to eliminate the basis of criticism of assets in the
XXX, in any subsequent Report of Examination or OCC correspondence, or by any
internal or external loan review. This program shall include, at a
minimum:
(a) an
identification of the expected sources of repayment;
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(b)
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a
current appraisal or evaluation as appropriate of supporting collateral
and the position of the Bank’s lien on such collateral where
applicable;
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(c)
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an
analysis of current credit information, including cash flow analysis where
loans are to be repaid from operations;
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(d)
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the
appropriate loan history and related debt information;
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(e)
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the
appropriate support for the loan grade;
and
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(f)
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the
proposed action to eliminate the basis of criticism and the time frame for
its accomplishment.
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(3) The
Board, or a designated committee, shall conduct a review, on at least a
quarterly basis, to determine:
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(a)
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the
status of each criticized asset or criticized portion thereof that equals
or exceeds seven hundred and fifty thousand dollars
($750,000);
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(b)
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management’s
adherence to the program adopted pursuant to this Article;
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(c)
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the
status and effectiveness of the written program; and
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(d)
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the
need to revise the program or take alternative
action.
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(4) The
Bank may not extend credit, directly or indirectly, including renewals or
extensions, to a borrower whose loans or other extensions of credit are
criticized in the XXX, in any subsequent Report of Examination or OCC
correspondence, in any internal or external loan review, or in any list provided
to management by the National Bank Examiners during any examination and whose
aggregate loans or other extensions exceed seven hundred and fifty thousand
dollars ($750,000), unless the Board certifies in writing that each of the
following conditions is met:
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(a)
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the
extension or renewal is necessary to promote the best interests of the
Bank;
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(b)
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the
Board has documented the reason(s) that the extension or renewal is
necessary to promote the best interests of the Bank; and
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(c)
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the
Board’s formal plan to collect or strengthen the criticized asset will not
be compromised;
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(5) A
copy of the written certification required by paragraph (4) of this article
shall be maintained in the credit file of the borrower.
ARTICLE
VI
CREDIT RISK
RATINGS
(1) The
Board shall continue to adhere to and shall submit within sixty (60) days of the
date of this Agreement, to the Assistant Deputy Comptroller for a prior written
determination of no supervisory objection, a program to ensure that: 1) the risk
associated with the Bank’s loans and other assets is properly reflected and
accounted for on the Bank’s books and records and that 2) the Bank does not
improperly recognize income, to include, at a minimum, provisions requiring
that:
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(a)
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the
loan grading system is consistent with the guidelines set forth in Rating
Credit Risk, A-RCR, of the Comptroller’s Handbook
and is based upon definitive objective and subjective
criterion;
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(b)
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loans
and other assets are graded based upon current facts and existing/
reasonable (considering the loan purpose) repayment terms with a focus
upon whether the primary repayment source is threatened by a well-defined
weakness and whether the credit relies heavily upon secondary repayment
sources, especially illiquid collateral or an unsubstantiated
guarantor;
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(c)
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loans
and other assets are timely placed on nonaccrual by the lending officers
in accordance with the guidelines set forth in the Call
Report;
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(d)
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lending
officers conduct periodic, formal reviews for determining the appropriate
risk rate and accrual determination;
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(e)
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appropriate
analysis and documentation are maintained in the credit files to support
the current and previous risk rate or accrual determination for all credit
relationships totaling seven hundred and fifty thousand dollars ($750,000)
or more;
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(f)
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all
senior officers involved in the Bank’s lending function, and all lending
officers receive immediate training with respect to the application of
Subparagraphs (a) through (e) of this Article;
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(g)
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the
lending officers and senior management are assigned responsibility and
held accountable for ensuring that the Bank’s loans and other assets are
appropriately and timely risk rated, charged off and/or placed on
nonaccrual;
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(h) independent
validation of the risk rating process; and
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(i)
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management
information systems that periodically provide feedback about the
effectiveness of the program by senior management and the individual
lending officers.
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(2) Upon
receiving a written determination of no supervisory objection from the Assistant
Deputy Comptroller, the Board shall immediately implement and thereafter ensure
adherence to the program required by this Article.
ARTICLE
VII
COMMERCIAL REAL ESTATE LOAN
POLICY
(1) The
Bank shall continue to ensure that Commercial Real Estate (CRE) loans are
renewed, in accordance with its loan policy, only after the Bank obtains updated
collateral values and conducts a complete financial analysis of the borrower or
guarantor’s ability to repay principal and interest or as otherwise permitted
within the Policy Statement for Prudent Commercial Real Estate Loan
Workouts.
(2) Any
deviation from the Bank’s CRE loan policy and the requirements of this Article
must continue to contain an explanation and justification for the deviation in
the credit analysis and the loan must be risk graded appropriately.
ARTICLE
VIII
COMMERCIAL REAL ESTATE RISK
MANAGEMENT
(1) The
Bank shall continue to take immediate and ongoing action to significantly reduce
its concentrations of credit risk in commercial real estate (CRE)
lending;
(2) Within
sixty (60) days of this Agreement, the Board shall prepare and submit to the
Assistant Deputy Comptroller for a prior written determination of no supervisory
objection, a written program (including appropriate revisions to policies and
procedures) designed to manage the risk in the Bank’s commercial real estate
(“CRE”) loan portfolio in accordance with the guidelines in OCC Bulletin
2006-46, Concentration in Commercial Real Estate Lending and the Commercial Real
Estate and Construction Lending, A-CRE, of the Comptroller’s
Handbook. The written CRE program should, at a minimum,
include:
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(a)
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the
development of CRE concentration limits and an overall CRE reduction
strategy, stratified by type, locality, individual builder/developer and
individual property, and other meaningful measures supported by written
analysis;
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(b)
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monthly
monitoring of concentration reports that stratify the CRE portfolio by
product type, locality and other meaningful measures; and
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(c)
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portfolio-level
multi-factor stress testing and/or sensitivity analysis on homogeneous
pools of loans (e.g., undeveloped land, office space) to quantify the
impact of changing economic conditions on asset quality, earnings, and
capital;
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(3) Upon
receiving a written determination of no supervisory objection from the Assistant
Deputy Comptroller, the Board shall ensure adherence to the program, policies
and procedures required by this Article.
ARTICLE
IX
RETAIL CREDIT RISK
MANAGEMENT
(1) Within
ninety (90) days of the date of this Agreement, the Bank shall take the
following steps, at minimum, to enhance home equity loan (HEL) and home equity
line of credit (HELOC) portfolio monitoring:
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(a)
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conduct
a thorough review of the HEL and HELOC portfolios to obtain credit scores,
debt to income ratios (“DTIs”), employer and industry information for
borrower(s), usage of funds, geographies, loan-to-values (“LTVs”), and any
other pertinent information;
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(b)
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develop
management information systems (MIS) incorporating the information
detailed in Paragraph (1)(a) of this Article that quantifies the amount of
lending to:
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(i) lower
credit score borrowers;
(ii) the
exposure to different employers, industries, and geographies;
(iii)
HELs and HELOCs funded for commercial purposes; and
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(iv)
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borrowers
with higher DTI and LTV ratios in order to determine risk characteristics
within the portfolio
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(c)
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update
the Loan Policy and Loan Training Manual to provide consistent guidance
for calculating and stressing DTI ratios, tracking exceptions, and
improving documentation of mitigating factors. Track exceptions to this
policy as part of a policy exception report specific to these portfolios;
and
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(d)
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present
the MIS to the board or a board appointed committee on a quarterly basis
and develop tolerance limits for higher risk elements including, but not
limited to, geographies, usage of funds, low credit score borrowers, high
DTI and LTV ratios.
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ARTICLE
X
ALLOWANCE FOR LOAN AND LEASE
LOSSES
(1) The
Board shall continue to adhere to and shall submit within forty-five (45) days
of the date of this Agreement, to the Assistant Deputy Comptroller for a prior
written determination of no supervisory objection, written policies and
procedures for maintaining an adequate Allowance for Loan and Lease Losses
(“ALLL”) in accordance with generally accepted accounting
principles. The ALLL policies and procedures shall remain consistent
with the guidance set forth in the Federal Financial Institutions Examination
Council’s “Interagency Policy Statement on the Allowance for Loan and Lease
Losses” dated December 13, 2006 (OCC Bulletin 2006-47), and shall at a minimum
include:
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(a)
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procedures
for determining whether a loan is impaired and measuring the amount of
impairment, consistent with FASB Statement of Financial Accounting
Standards No. 114, Accounting by Creditors for Impairment of a
Loan;
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(b)
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procedures
for segmenting the loan portfolio and estimating loss on groups of loans,
consistent with FASB Statement of Financial Accounting Standards No. 5,
Accounting for Contingencies;
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(c) procedures
for validating the ALLL methodology; and
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(d)
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a
process for summarizing and documenting, for the Board’s review and
approval, the amount to be reported in the Consolidated Reports of
Condition and Income (“Call Reports”) for the ALLL. Any
deficiency in the ALLL shall be remedied in the quarter it is discovered,
prior to the filing of the Call Reports, through additional provision
expense.
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ARTICLE
XI
CLOSING
(1) Although
the Board has agreed to submit certain programs and reports to the Assistant
Deputy Comptroller for review or prior written determination of no supervisory
objection, the Board has the ultimate responsibility for proper and sound
management of the Bank.
(2) It
is expressly and clearly understood that if, at any time, the Comptroller deems
it appropriate in fulfilling the responsibilities placed upon him/her by the
several laws of the United States of America to undertake any action affecting
the Bank, nothing in this Agreement shall in any way inhibit, estop, bar, or
otherwise prevent the Comptroller from so doing.
(3) Any
time limitations imposed by this Agreement shall begin to run from the effective
date of this Agreement. Such time requirements may be extended in
writing by the Assistant Deputy Comptroller for good cause upon written
application by the Board.
(4) The
provisions of this Agreement shall be effective upon execution by the parties
hereto and its provisions shall continue in full force and effect unless or
until such provisions are amended in writing by mutual consent of the parties to
the Agreement or excepted, waived, or terminated in writing by the
Comptroller.
(5) In
each instance in this Agreement in which the Board is required to ensure
adherence to, and undertake to perform certain obligations of the Bank, it is
intended to mean that the Board shall:
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(a)
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authorize
and adopt such actions on behalf of the Bank as may be necessary for the
Bank to perform its obligations and undertakings under the terms of this
Agreement;
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(b)
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require
the timely reporting by Bank management of such actions directed by the
Board to be taken under the terms of this Agreement;
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(c)
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follow-up
on any non-compliance with such actions in a timely and appropriate
manner; and
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(d)
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require
corrective action be taken in a timely manner of any non-compliance with
such actions.
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(6) This
Agreement is intended to be, and shall be construed to be, a supervisory
“written agreement entered into with the agency” as contemplated by 12 U.S.C. §
1818(b)(1), and expressly does not form, and may not be construed to form, a
contract binding on the Comptroller or the United
States. Notwithstanding the absence of mutuality of obligation, or of
consideration, or of a contract, the Comptroller may enforce any of the
commitments or obligations herein undertaken by the Bank under his supervisory
powers, including 12 U.S.C. § 1818(b)(1), and not as a matter of contract
law. The Bank expressly acknowledges that neither the Bank nor the
Comptroller has any intention to enter into a contract. The Bank also
expressly acknowledges that no officer or employee of the Office of the
Comptroller of the Currency has statutory or other authority to bind the United
States, the U.S. Treasury Department, the Comptroller, or any other federal bank
regulatory agency or entity, or any officer or employee of any of those entities
to a contract affecting the Comptroller’s exercise of his supervisory
responsibilities. The terms of this Agreement, including this
paragraph, are not subject to amendment or modification by any extraneous
expression, prior agreements or prior arrangements between the parties, whether
oral or written.
IN TESTIMONY WHEREOF, the undersigned,
authorized by the Comptroller, has hereunto set his hand on behalf of the
Comptroller.
/s/
Xxxxxx X.
Xxxxxx January 26, 2010
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Xxxxxx
X. Xxxxxx
Assistant
Deputy Comptroller
Arizona/New
Mexico Field Office
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Date
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IN TESTIMONY WHEREOF, the undersigned,
as the duly elected and acting Board of Directors of the Bank, have hereunto set
their hands on behalf of the Bank.
/s/
Xxxxxxx X.
Xxxxx January 26, 2010
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X. Xxxxx
/s/
Xxxxxxx X. Xxxxxx
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January
26, 2010
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January
26, 2010
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January
26, 2010
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Xxxxxx X. Xxxxxxx, Xx.
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January
26, 2010
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January
26, 2010
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January
26, 2010
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Date
January
26, 2010
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Date
January
26, 0000
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Xxxxxx X. Xxxxxxxxx
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Date
January
26, 2010
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Date
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