Exhibit 10.1
UNITED STATES OF AMERICA
BEFORE THE
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D.C.
ILLINOIS DEPARTMENT OF FINANCIAL AND PROFESSIONAL REGULATION
DIVISION OF BANKING
SPRINGFIELD, ILLINOIS

           
 
         
 
         
Written Agreement by and among
         
 
         
MIDWEST BANC HOLDINGS, INC.
    Docket Nos.   09-190-WA/RB-HC
Melrose Park, Illinois
        09-190-WA/RB-SM
 
         
MIDWEST BANK AND TRUST COMPANY
        2009-DB-102
Elmwood Park, Illinois
         
 
         
FEDERAL RESERVE BANK OF
         
  CHICAGO
         
Chicago, Illinois
         
 
         
and
         
 
         
ILLINOIS DEPARTMENT OF
         
  FINANCIAL AND PROFESSIONAL
         
  REGULATION
         
  DIVISION OF BANKING
         
Springfield, Illinois
         
 
         
 
         

     WHEREAS, in recognition of their common goal to maintain the financial
soundness of Midwest Banc Holdings, Inc. (“ MBHI”), Melrose Park, Illinois, a
registered bank holding company, and its subsidiary bank, Midwest Bank and Trust
Company, Elmwood Park, Illinois (the “Bank”), a state chartered bank that is a
member of the Federal Reserve System, MBHI, the Bank, the Federal Reserve Bank
of Chicago (the “Reserve Bank”), and the Illinois Department of Financial and
Professional Regulation, Division of Banking (the “Department”) have mutually
agreed to enter into this Written Agreement (the “Agreement”); and

 

--------------------------------------------------------------------------------

 

     WHEREAS, on December 15, 2009, MBHI’s and the Bank’s boards of directors,
at duly constituted meetings, adopted resolutions authorizing and directing
Roberto R. Herencia to consent to this Agreement on behalf of MBHI and the Bank,
and consenting to compliance with each and every applicable provision of this
Agreement by MBHI, 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, MBHI, the Bank, the Reserve Bank, and the Department 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 and the Department 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, allowance for loan and lease losses (“ALLL”), capital,
earnings, and funds management; and
          (b) a description of the information and reports that will be
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, concentrations of credits, ALLL, capital, earnings, and funds
management.

2

--------------------------------------------------------------------------------

 

Credit Risk Management
     2. Within 60 days of this Agreement, the Bank shall submit to the Reserve
Bank and the Department an acceptable written plan to strengthen credit risk
management practices. The plan shall, at a minimum, address, consider, and
include:
          (a) Procedures to identify, limit, and manage concentrations of credit
that are consistent with the Interagency Guidance on Concentrations in
Commercial Real Estate Lending, Sound Risk Management Practices, dated
December 12, 2006 (SR 07-1);
          (b) the establishment by the board of directors of the Bank of
appropriate written risk tolerance guidelines and risk limits, and controls to
ensure adherence thereto;
          (c) procedures to periodically review and revise risk exposure limits
to address changes in market conditions
          (d) strategies to reduce concentrations of credit; and
          (e) sufficient experienced staff to resolve problem credits.
Asset Improvement
     3. (a) The Bank shall not, directly or indirectly, extend or renew any
credit to or for the benefit of any borrower, including any related interest of
the borrower, who is obligated to the Bank in any manner on any extension of
credit or portion thereof that has been charged off by the Bank or classified,
in whole or in part, “loss” in the report of examination conducted jointly by
the Reserve Bank and the Department that commenced on May 18, 2009 (“Report of
Examination”) or in any subsequent report of examination, as long as such credit
remains uncollected.
          (b) The Bank shall not, directly or indirectly, extend or renew any
credit to or for the benefit of any borrower, including any related interest of
the borrower, whose extension

3

--------------------------------------------------------------------------------

 

of credit has been classified “doubtful” or “substandard” in the Report of
Examination or in any subsequent report of examination, without the prior
approval of the Bank’s board of directors. The board of directors shall document
in writing the reasons for the extension of credit or renewal, specifically
certifying that: (i) the extension of credit is necessary to protect the Bank’s
interest in the ultimate collection of the credit already granted or (ii) the
extension of credit is in full compliance with the Bank’s written loan policy,
is adequately secured, and a thorough credit analysis has been performed
indicating that the extension or renewal is reasonable and justified, all
necessary loan documentation has been properly and accurately prepared and
filed, the extension of credit will not impair the Bank’s interest in obtaining
repayment of the already outstanding credit, and the board of directors
reasonably believes 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 board of directors meetings, 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 (the “Board
of Governors”) (12 C.F.R. §215.2(n)) .
     4. (a) Within 60 days of this Agreement, the Bank shall submit to the
Reserve Bank and the Department an acceptable written plan designed to improve
the Bank’s position through repayment, amortization, liquidation, additional
collateral, or other means on each loan or other asset in excess of $500,000,
including other real estate owned (“OREO”), that (i) is past due as to principal
or interest more than 90 days as of the date of this Agreement; (ii) is on the
Bank’s problem loan list; or (iii) was adversely classified in the Report of
Examination. In

4

--------------------------------------------------------------------------------

 

developing the plan for each loan, the Bank shall, at a minimum, review,
analyze, and document the financial position of the borrower, including source
of repayment, repayment ability, and alternative repayment sources, as well as
the value and accessibility of any pledged or assigned collateral, and any
possible actions to improve the Bank’s collateral position.
          (b) Within 30 days of the date that any additional loan or other asset
in excess of $500,000, including OREO, that (i) becomes past due as to principal
or interest for more than 90 days; (ii) is on the Bank’s problem loan list; or
(iii) is adversely classified in any subsequent report of examination of the
Bank, the Bank shall submit to the Reserve Bank and the Department an acceptable
written plan to improve the Bank’s position on such loan 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 and the
Department 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. The
board of directors shall review the progress reports before submission to the
Reserve Bank and the Department and shall document the review in the minutes of
the board of directors’ meetings.
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

5

--------------------------------------------------------------------------------

 

off all assets classified “loss” unless otherwise approved in writing by the
Reserve Bank and the Department.
          (b) Within 60 days of this Agreement, the Bank shall review and revise
its allowance for loan and lease losses (“ALLL”) methodology consistent with
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), and the findings and recommendations regarding the
ALLL set forth in the Report of Examination, and submit a description of the
revised methodology to the Reserve Bank and the Department. The revised ALLL
methodology shall be designed to maintain an adequate ALLL and shall address,
consider, and include, at a minimum, the reliability of the Bank’s loan grading
system, the volume of criticized loans, concentrations of credit, the current
level of past due and nonperforming loans, past loan loss experience, evaluation
of probable losses in the Bank’s loan portfolio, including adversely classified
loans, and the impact of market conditions on loan and collateral valuations and
collectability.
          (c) Within 90 days of this Agreement, the Bank shall submit to the
Reserve Bank and the Department an acceptable written program for the
maintenance of an adequate ALLL. The program shall include policies and
procedures to ensure adherence to the 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

6

--------------------------------------------------------------------------------

 

adequacy of the ALLL. During the term of this Agreement, the Bank shall submit
to the Reserve Bank and the Department, 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 ALLL for that quarter.
Earnings Plan and Budget
     6. (a) Within 90 days of this Agreement, the Bank shall submit to the
Reserve Bank and the Department a written business plan for 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 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) A business plan and budget for each calendar year subsequent to
2010 shall be submitted to the Reserve Bank and the Department at least 30 days
prior to the beginning of that calendar year.
Capital Plan
     7. Within 60 days of this Agreement, MBHI and the Bank shall submit to the
Reserve Bank and the Department an acceptable joint written plan to maintain
sufficient capital at MBHI on a consolidated basis, and the Bank as a separate
legal entity on a stand-alone basis. The plan shall, at a minimum, address,
consider, and include:
          (a) MBHI’s current and future capital requirements, including
compliance with the Capital Adequacy Guidelines for Bank Holding Companies:
Risk-Based Measure and

7

--------------------------------------------------------------------------------

 

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 requirements, 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 assets, concentrations of credit, the adequacy of the ALLL,
current and projected asset growth, projected retained earnings, and anticipated
and contingency funding needs;
          (d) the source and timing of additional funds to fulfill MBHI ‘s and
the Bank’s future capital requirements; and
          (e) the requirements of section 225.4(a) of Regulation Y of the Board
of Governors (12 C.F.R. § 225.4(a)) that MBHI serve as a source of strength to
the Bank.
     8. MBHI and the Bank shall notify the Reserve Bank and the Department, in
writing, no more than 30 days after the end of any calendar quarter in which any
of MBHI’s 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, the MBHI and the Bank shall submit an
acceptable written plan that details the steps MBHI or the Bank, as appropriate,
will take to increase MBHI’s or the Bank’s capital ratios to or above the
approved capital plan’s minimums.

8

--------------------------------------------------------------------------------

 

Liquidity and Funds Management
     9. Within 60 days of this Agreement, the Bank shall submit to the Reserve
Bank and the Department an acceptable written plan designed to enhance
management of the Bank’s liquidity position. The plan shall, at a minimum,
address, consider, and include:
          (a) Measures to enhance the monitoring and reporting of the Bank’s
liquidity position; and
          (b) periodic review of risk limits to ensure that they remain
commensurate with the Bank’s liquidity risk profile.
     10. Within 30 days of this Agreement, the Bank shall submit to the Reserve
Bank and the Department a revised written contingency funding plan that, at a
minimum, identifies available sources of liquidity and includes enhanced adverse
scenario planning.
Interest Rate Risk Management
     11. Within 60 days of this Agreement, the Bank shall submit to the Reserve
Bank and the Department an acceptable written plan to improve interest rate risk
management practices that are appropriate for the size and complexity of the
Bank. The plan shall, at a minimum, address the following:
          (a) Enhanced measurement and reporting of interest rate risk that, at
a minimum, considers and includes:
               (i) Wholesale products containing embedded options; and
               (ii) loans with contractual floors;
          (b) Procedures and controls, including, but not limited to, periodic
stress testing of critical modeling assumptions, to ensure that the inputs and
assumptions used to model

9

--------------------------------------------------------------------------------

 

and control the vulnerability of the Bank’s net interest income due to changes
in interest rates are accurate and reflect the Bank’s current balance sheet
structure and market conditions; and
          (c) provide for a periodic independent review and assessment of the
Bank’s interest rate risk model and processes, including but not limited to, the
accuracy and completeness of the data inputs into the Bank’s risk measurement
system, and compliance with the Bank’s policies.
Dividends and Distributions
     12. (a) The Bank shall not declare or pay any dividends without the prior
written approval of the Reserve Bank, the Director of the Division of Banking
Supervision and Regulation of the Board of Governors (the “Director”), and the
Department.
          (b) MBHI shall not declare or pay any dividends without the prior
written approval of the Reserve Bank and the Director.
          (c) MBHI 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.
          (d) MBHI and its nonbank subsidiary 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.
          (e) 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 the parent’s 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. For requests
to declare or pay

10

--------------------------------------------------------------------------------

 

dividends, MBHI 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
     13. (a) MBHI and its nonbank subsidiary, 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) MBHI 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
     14. (a) 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, MBHI and 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 (12
C.F.R. §§ 225.71 et seq.) and also provide notice to the Department. MBHI and
the Bank shall not appoint any individual to MBHI’s or the Bank’s board of
directors or employ or change the responsibilities of any individual as a senior
executive officer if the Reserve Bank or the Department notifies MBHI or the
Bank of disapproval within the time limits prescribed by Subpart H of
Regulation Y.

11

--------------------------------------------------------------------------------

 

          (b) MBHI and 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 Agreement
     15. (a) Within 10 days of this Agreement, MBHI and the Bank’s boards of
directors shall appoint a joint compliance committee (the “Compliance
Committee”) to monitor and coordinate MBHI’s and 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
MBHI and 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
boards of directors of MBHI and the Bank.
Progress Reports
     16. Within 30 days after the end of each calendar quarter following the
date of this Agreement, the Bank shall submit to the Reserve Bank and the
Department written progress reports detailing the form and manner of all actions
taken to secure compliance with the provisions of this Agreement and the results
thereof.
Approval and Implementation of Plans and Program
     17. (a) MBHI and the Bank shall submit written plans and a program that are
acceptable to the Reserve Bank and the Department within the applicable time
periods set forth in paragraphs 2, 4(a), 4(b), 5(c), 7, 8, 9, 10, and 11 of this
Agreement.

12

--------------------------------------------------------------------------------

 

          (b) Within 10 days of approval by the Reserve Bank and the Department,
MBHI and the Bank shall adopt the approved plans and program. Upon adoption,
MBHI and the Bank shall promptly implement the approved plans and program, and
thereafter fully comply with them.
          (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 and the Department.
Communications
     18. All communications regarding this Agreement shall be sent to:

  (a)   Mr. Charles F. Luse
Assistant Vice President
Federal Reserve Bank of Chicago
230 South LaSalle Street
Chicago, Illinois 60604     (b)   Mr. Scott D. Clarke
Assistant Director
Department of Financial and Professional Regulation
Department of Banking
122 South Michigan Ave
Chicago, Illinois 60603     (c)   Mr. Roberto R. Herencia
President & CEO
Midwest Banc Holdings, Inc.
Midwest Bank and Trust Company
501 W. North Avenue
Melrose Park, Illinois 60160

13

--------------------------------------------------------------------------------

 

Miscellaneous
     19. Notwithstanding any provision of this Agreement, the Reserve Bank and
the Department may, in their sole discretion, grant written extensions of time
to MBHI and the Bank to comply with any provision of this Agreement.
     20. The provisions of this Agreement shall be binding upon MBHI, the Bank,
and their institution-affiliated parties, in their capacities as such, and their
successors and assigns.
     21. Each provision of this Agreement shall remain effective and enforceable
until stayed, modified, terminated, or suspended in writing by the Reserve Bank
and the Department.
     22. The provisions of this Agreement shall not bar, estop, or otherwise
prevent the Board of Governors, the Reserve Bank, the Department, or any other
federal or state agency from taking anyother action affecting MBHI, the Bank, or
any of their current or former institution-affiliated parties and their
successors and assigns.

14

--------------------------------------------------------------------------------

 

     23. 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 addition, this Agreement is enforceable by the
Department under Section 48 of the Illinois Banking Act.
     IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the 18th day of December, 2009.

                      MIDWEST BANC HOLDINGS, INC.       FEDERAL RESERVE BANK OF
CHICAGO                      
 
                   
By:
  /s/ Roberto R. Herencia       By:   /s/ Mark H. Kawa    
 
                   
 
  Roberto R. Herencia           Mark H. Kawa    
 
  President & CEO           Vice President    
 
                    MIDWEST BANK AND TRUST COMPANY       ILLINOIS DEPARTMENT OF
FINANCIAL AND PROFESSIONAL REGULATION                    
 
                   
By:
  /s/ Roberto R. Herencia       By:   /s/ Jorge A. Solis    
 
                   
 
  Roberto R. Herencia           Jorge A. Solis    
 
  President & CEO           Director    

15