UNITED STATES OF AMERICA BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D.C.
UNITED
STATES OF AMERICA
BEFORE
THE
BOARD OF
GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON,
D.C.
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Written
Agreement by and among
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Docket
Nos.
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10-025-WA/XX-XX
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10-025-WA/XX-XX
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Fresno,
California
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UNITED
SECURITY BANK
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Fresno,
California
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and
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FEDERAL
RESERVE BANK
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OF SAN FRANCISCO
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San
Francisco, California
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WHEREAS,
in recognition of their common goal to maintain the financial soundness of United
Security Bancshares, Fresno, California (“Bancshares”), a registered
bank holding company,
and its subsidiary, United Security Bank, Fresno, California (the “Bank”), a
state chartered
bank that is a member of the Federal Reserve System, Bancshares, the Bank, and
the Federal
Reserve Bank of San Francisco (the “Reserve Bank”) have mutually agreed to enter
into this
Written Agreement (the “Agreement”); and
WHEREAS, on 3/23 2010, the boards of directors of
Bancshares and the Bank, at duly constituted meetings, adopted
resolutions authorizing and directing Mr. Xxxxxx Xxxxx, President and Chief Executive Officer,
to enter into this Agreement on behalf of Bancshares and the Bank, and consenting to compliance
with each and every applicable provision of this Agreement by Bancshares and the Bank,
and their institution-affiliated parties, as defined in Sections 3(u) and 8(b)(3) of the
Federal Deposit Insurance Act, as amended (the “FDI Act”) (12 U.S.C. §§ 1813(u)
and 1818(b)(3)).
NOW,
THEREFORE, Bancshares, the Bank, and the Reserve Bank agree as
follows:
Board
Oversight
1. Within 60 days of this Agreement, the
board of directors of the Bank shall submit to
the Reserve Bank a written plan to strengthen board oversight of the management
and operations
of the Bank. The plan shall, at a minimum, address, consider, and
include:
(a) The actions that the board of directors
will take to improve the Bank’s condition and maintain effective
control over, and supervision of, the Bank’s major operations and activities, including but not
limited to, credit risk management, liquidity, and earnings;
(b) the responsibility of the board of directors to monitor
management’s adherence to approved policies and
procedures, and applicable laws and regulations; and
(c) a description
of the information and reports that are regularly reviewed by the
board of directors in its oversight of the operations and management of the
Bank, including information
on the Bank’s adversely classified assets, allowance for loan and lease losses
(“ALLL”), capital, liquidity, and earnings.
Credit
Risk Management
2. Within 60 days of this Agreement, the
Bank shall submit to the Reserve Bank an acceptable written plan to strengthen
credit risk management practices. The plan shall, at a minimum, address,
consider, and include:
(a) The
responsibility of the board of directors to establish appropriate risk tolerance
guidelines and risk limits;
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(b) timely and accurate
identification and quantification of credit risk within the loan
portfolio;
(c) strategies to
minimize credit losses and reduce the level of problem assets;
(d) procedures
for the on-going review of the investment portfolio to evaluate other-than
temporary-impairment (“OTTI”) and accurate accounting for OTTI;
(e) stress
testing of CRE loan and portfolio segments; and
(f) measures to
reduce the amount of Other Real Estate Owned (“OREO”).
Asset
Improvement
3. The Bank shall not, directly or
indirectly, extend, renew, or restructure any credit to or for the benefit of any borrower,
including any related interest of the borrower, whose loans or other extensions of credit are
criticized in the report of examination of the Bank conducted by the Reserve Bank that commenced on June
8, 2009 (the “Report of Examination”) or in any subsequent report of examination,
without the prior approval of a majority of the full board of directors or a designated committee
thereof. The board of directors or its committee shall document in writing the reasons for the
extension of credit, renewal, or restructuring, specifically certifying that: (i) the
Bank’s risk management policies and practices for loan workout activity are acceptable; (ii)
the extension of credit is necessary to improve and protect the Bank’s interest in the ultimate
collection of the credit already granted and maximize its potential for collection; (iii) the
extension of credit reflects prudent underwriting based on reasonable repayment terms and is
adequately secured; and all necessary loan documentation has been properly and accurately prepared
and filed; (iv) the Bank has performed a comprehensive credit analysis indicating that the
borrower has the willingness and ability to repay the debt as supported by an adequate workout plan,
as necessary; and (v) the board of directors or its designated committee
reasonably believes that the extension of credit will not impair the
Bank’s interest in obtaining repayment of the
already outstanding credit and that the extension of credit or renewal will be
repaid according to its terms. The written certification shall be made a part
of the minutes of the meetings of the
board of directors or its committee, as appropriate, and a copy of the signed certification, together
with the credit analysis and related information that was used in the determination, shall be retained
by the Bank in the borrower’s credit file for subsequent supervisory review. For purposes of
this Agreement, the term “related interest” is defined as set forth in section 215.2(n) of Regulation
O of the Board of Governors of the Federal Reserve System (“Board of Governors”) (12
C.F.R. § 215.2(n)).
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4. (a) Within 60 days of this Agreement, the
Bank shall submit to the Reserve Bank an acceptable written plan
designed to improve the Bank’s position through repayment, amortization,
liquidation, additional collateral, or other means on each loan, relationship,
or other asset in excess of $1.5 million
including OREO that are past due as to principal or interest more than 90 days as of the date of this
Agreement, are on the Bank’s problem loan list, or were adversely classified in the Report of
Examination.
(b) Within 30 days
of the date that any additional loan, relationship, or other asset in excess of $1.5 million
including OREO, becomes past due as to principal or
interest for more than 90 days, is on the Bank’s
problem loan list, or is adversely classified in any subsequent
report of examination of the Bank, the Bank shall submit to the Reserve Bank
an acceptable written plan to improve the Bank’s position on such loan,
relationship, or asset.
(c) Within 30 days after the end of each
calendar quarter thereafter, the Bank shall submit a written progress report
to the Reserve Bank to update each asset improvement plan,
which shall include, at a minimum, the carrying value of the loan or other asset
and changes in the nature and value of supporting collateral,
along with a copy of the Bank’s current problem loan list, a list of all loan
renewals and extensions without full collection of interest in the last quarter,
and past due/non-accrual report.
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Allowance
for Loan and Lease Losses
5. (a) Within 10 days of this Agreement, the
Bank shall eliminate from its books,
by charge-off or collection, all assets or portions of assets classified “loss”
in the Report of Examination that have not been previously collected in full or
charged off. Thereafter the Bank
shall, within 30 days from the receipt of any federal or state report of
examination, charge off all assets classified “loss” unless otherwise approved
in writing by the Reserve Bank.
(b) The Bank
shall maintain a sound process for determining, documenting, and recording an
adequate allowance for loan and lease losses (“ALLL”) in accordance with
regulatory reporting instructions and relevant supervisory guidance, including
the Interagency Policy Statements on the Allowance for Loan and Lease Losses,
dated July 2, 2001 (SR 01-17 (Sup)) and December 13, 2006 (SR
06-17).
(c) Within 60
days of this Agreement, the Bank shall submit to the Reserve Bank an acceptable
written program for the maintenance of an adequate ALLL. The program shall
include policies and procedures to ensure adherence to the Bank’s revised ALLL
methodology and provide for periodic reviews and updates to the ALLL
methodology, as appropriate. The program shall also provide for a review of the
ALLL by the board of directors on at least a quarterly calendar basis. Any
deficiency found in the ALLL shall be remedied in the quarter it is discovered,
prior to the filing of the Consolidated Reports of Condition and Income, by
additional provisions. The board of directors shall maintain written
documentation of its review, including the factors considered and conclusions
reached by the Bank in determining the adequacy of the ALLL. During the term of this
Agreement, the Bank shall submit to the Reserve Bank, within 30 days
after the end of each calendar quarter, a written report regarding the board of
directors’ quarterly review of the ALLL and a description of any changes to the
methodology used in determining the amount of the ALLL for that
quarter.
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Capital
Plan
6. Within 90 days of this Agreement, Bancshares shall submit to the
Reserve Bank an acceptable written plan to maintain
sufficient capital at Bancshares, on a consolidated basis, and Bancshares and the Bank shall
jointly submit to the Reserve Bank an acceptable written plan to maintain
sufficient capital at the Bank, as a separate legal entity on a stand-alone
basis. These plans shall, at a minimum, address,
consider, and include:
(a) Bancshares’
current and future capital needs, including compliance with the
Capital Adequacy Guidelines for Bank Holding Companies: Risk-Based Measure and
Tier 1 Leverage Measure, Appendices A and D of Regulation Y of the Board of
Governors (12 C.F.R. Part 225, App. A and D);
(b) the Bank’s
current and future capital needs, including compliance with the Capital Adequacy
Guidelines for State Member Banks: Risk-Based Measure and Tier 1 Leverage
Measure, Appendices A and B of Regulation H of the Board of Governors (12 C.F.R.
Part 208, App. A and B);
(c) the adequacy
of the Bank’s capital, taking into account the volume of classified credits,
concentrations of credit, ALLL, current and projected asset growth, and
projected retained earnings;
(d) the source
and timing of additional funds to
fulfill the consolidated organization’s and the Bank’s future capital
requirements; and
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(e) the requirements of Section 225.4(a) of
Regulation Y of the Board of Governors (12 C.F.R. § 225.4(a)) that Bancshares
serve as a source of strength to the Bank.
7. Bancshares and the Bank shall notify the Reserve
Bank, in writing, no more than 30 days after the end of any quarter in
which any of Bancshares’ consolidated capital ratios or the Bank’s capital
ratios (total risk-based, Tier 1, or leverage) fall below the approved capital
plan’s minimum ratios. Together with the notification, Bancshares and the Bank
shall submit an acceptable written plan that details the steps Bancshares or the
Bank, as appropriate, will take to increase Bancshares’ or the Bank’s capital
ratios to or above the approved capital plan’s minimums.
Liquidity/Funds
Management
8. Within 90
days of this Agreement, the Bank shall submit to the Reserve Bank an acceptable
written plan to improve management of the Bank’s liquidity position and funds
management practices. The plan shall, at a minimum, address, consider, and
include:
(a) Measures to
enhance the monitoring, measurement, and reporting of the Bank’s liquidity to
the board of directors;
(b) a timetable
to reduce reliance on short-term wholesale funding, including
brokered deposits; and
(c) specific
liquidity targets and parameters and the maintenance of sufficient liquidity to
meet contractual obligations and unanticipated demands.
9. Within 90
days of this Agreement, the Bank shall revise and submit to the
Reserve Bank an acceptable written contingency funding plan that, at a
minimum, includes adverse scenario planning and identifies and quantifies
available sources of liquidity for each scenario.
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10. (a) Within 60 days of this Agreement, the
Bank shall submit to the Reserve Bank a written revised business plan for
the remainder of 2010 to improve the Bank’s earnings and overall condition. The
plan, at a minimum, shall provide for or describe:
(i) a realistic
and comprehensive budget for the remainder of calendar year 2010, including
income statement and balance sheet projections; and
(ii) a description of
the operating assumptions that form the basis for, and adequately support,
major projected income, expense, and balance sheet components.
(b) During the
term of this Agreement, a
business plan and budget for each calendar year subsequent to 2010 shall be
submitted to the Reserve Bank at least 30 days prior to the beginning of that
calendar year.
Dividends
and Distributions
11. (a) Bancshares and the Bank shall not declare or pay
any dividends without the prior written approval of the Reserve Bank and
the Director of the Division of Banking Supervision and Regulation of the Board
of Governors (the “Director”).
(b) Bancshares shall not take any
other form of payment representing a reduction in capital from the Bank without
the prior written approval of the Reserve Bank.
(c) Bancshares
and its nonbank subsidiaries shall not make any distributions of interest,
principal, or other sums on subordinated debentures or trust preferred
securities without the prior written approval of the Reserve Bank and the
Director.
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(d) All requests
for prior approval shall be received at least 30 days prior to the proposed
dividend declaration date, proposed distribution on subordinated debentures, and
required notice of deferral on trust preferred securities. All requests shall
contain, at a minimum, current and projected information, as
appropriate, on Bancshares’ capital, earnings, and cash flow; the Bank’s
capital, asset quality, earnings and ALLL needs; and identification of the
sources of funds for the proposed payment or distribution. Bancshares and the
Bank, as appropriate, must also demonstrate that the requested declaration or
payment of dividends is consistent with the Board of Governors’ Policy Statement
on the Payment of Cash Dividends by State Member Banks and Bank Holding
Companies, dated November 14, 1985 (Federal Reserve Regulatory Service, 4-877 at
page 4-323).
Debt
and Stock Redemption
12. (a) Bancshares shall not, directly or indirectly,
incur, increase, or guarantee any debt without the prior written
approval of the Reserve Bank. All requests for prior written approval shall contain, but not be
limited to, a statement regarding the purpose of the debt,
the terms of the debt, and the planned
source(s) for debt repayment, and an analysis of the cash flow resources available to meet
such debt
repayment.
(b) Bancshares shall not, directly or indirectly,
purchase or redeem any shares of its stock without the prior written
approval of the Reserve Bank.
Compliance
with Laws and Regulations
13. The Bank shall immediately take all
necessary steps to correct all violations of law and regulation cited in the
Report of Examination. In addition, the board of directors of
the Bank shall take the necessary steps to ensure the Bank’s future
compliance with all applicable laws and regulations.
14. In appointing any new director or senior executive
officer, or changing the responsibilities
of any senior executive officer so that the officer would assume a different
senior executive
officer position, the Bank shall comply with the notice provisions of Section 32
of the FDI Act (12 U.S.C. § 1831i) and Subpart H of Regulation Y
of the Board of Governors of the Federal
Reserve System (the “Board of Governors”) (12 C.F.R. §§ 225.71 et
seq.).
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15. The Bank shall comply with the
restrictions on indemnification and severance payments of Section 18(k) of the FDI
Act (12 U.S.C. § 1828(k)) and Part 359 of the Federal Deposit Insurance Corporation’s
regulations (12 C.F.R. Part 359).
Compliance
with the Agreement
16. (a) Within 10 days of this Agreement, the board of
directors of the Bank shall appoint a committee (the “Compliance
Committee”) to monitor and coordinate the Bank’s compliance with the provisions of this
Agreement. The Compliance Committee shall include a majority of outside directors who are
not executive officers or principal shareholders of the Bank, as defined in Sections
215.2(e)(1) and 215.2 (m)(1) of Regulation O of the Board of Governors (12 C.F.R. §§ 215.2(e)(1) and
215.2(m)(1). At a minimum, the Compliance Committee shall meet at least monthly,
keep detailed minutes of each meeting, and report its findings to the board of directors of the
Bank.
17. Within 30 days
after the end of each calendar quarter following the date of
this Agreement, Bancshares and the Bank shall submit to the Reserve Bank
written progress reports detailing the form and manner of all actions taken
to secure compliance with this Agreement and the results
thereof.
Approval
and Implementation of Plans and Program
18. (a) The Bank, and as applicable, Bancshares
shall submit written plans and a program
that are acceptable to the Reserve Bank within the applicable time periods set
forth in paragraphs
2, 4(a), 4(b), 5(c), 6,7, 8, and 9 of this Agreement.
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(b) Within 10 days of approval by the
Reserve Bank, the Bank, and as applicable, Bancshares
shall adopt the approved plans and program. Upon adoption, the Bank, and as
applicable, Bancshares shall promptly implement the approved plans and
program.
(c) During the term of this Agreement, the
approved plans and program shall not be amended or rescinded without the
prior written approval of the Reserve Bank.
Communications
19. All communications regarding this
Agreement shall be sent to:
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(a)
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Xx.
Xxx X. Xxxxxx
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Examining
Officer, Banking Supervision and Regulation
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Federal
Reserve Bank of San Francisco
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000
Xxxxxx Xxxxxx
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Xxx
Xxxxxxxxx, Xxxxxxxxxx 00000
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(b)
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Mr.
Xxxxxx Xxxxx
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President
and Chief Executive Officer
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United
Security Bank
0000
Xxxx Xxxxxx
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Xxxxxx,
Xxxxxxxxxx 00000
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Miscellaneous
20. Notwithstanding any provision of
this Agreement, the Reserve Bank may, in its sole discretion, grant written
extensions of time to Bancshares and the Bank to comply with any provision of
this Agreement.
21. The provisions of
this Agreement shall be binding upon Bancshares, the Bank, and their
institution-affiliated parties, in their capacities as such, and their
successors and assigns.
22. Each provision of
this Agreement shall remain effective and enforceable until stayed, modified,
terminated, or suspended in writing by the Reserve Bank.
23. The provisions of
this Agreement shall not bar, estop, or otherwise prevent the Board of
Governors, the Reserve Bank, or
any other federal or state agency from taking any other action affecting Bancshares, the
Bank, or any of their current or former institution-affiliated parties and their
successors and assigns.
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24. Pursuant to
Section 50 of the FDI Act (12 U.S.C. § 1831aa), this
Agreement is enforceable by the Board of Governors under Section 8 of the FDI
Act (12 U.S.C. § 1818).
IN
WITNESS WHEREOF, the parties
have caused this Agreement to be executed as of the 23RD of
MARCH, 2010.
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FEDERAL
RESERVE BANK
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UNITED SECURITY BANK
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OF SAN FRANCISCO
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By:
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/s/ Xxxxxx Xxxxx
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By:
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/s/ Xxx X. Xxxxxx
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Xxxxxx
Xxxxx
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Xxx
X. Xxxxxx
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President
and Chief Executive Officer
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Examining
Officer
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