Exhibit
10.1


 


UNITED STATES OF
AMERICA


BEFORE THE


BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM


WASHINGTON, D.C.


 


 


Written
Agreement by and among


 


	
  1ST
  PACIFIC BANCORP

  	
  Docket Nos. 09-157-WA/RB-HC

  
	
  San
  Diego, California

  	
  09-157-WA/RB-SM

  



 


1ST
PACIFIC BANK OF CALIFORNIA


San
Diego, California


 


and


 


FEDERAL
RESERVE BANK OF


SAN
FRANCISCO


San
Francisco, California


 


WHEREAS, in recognition
of their common goal to maintain the financial soundness of 1st Pacific
Bancorp, San Diego, California (“Bancorp”), a registered bank holding company,
and its subsidiary bank, 1st Pacific Bank of California, San Diego, California
(the “Bank”), a state chartered bank that is a member of the Federal Reserve
System, Bancorp, 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 December 9, 2009, the boards of directors of Bancorp and the Bank, at
duly constituted meetings, adopted resolutions authorizing and directing Ron
Carlson to enter into this Agreement on behalf of Bancorp and the Bank, and
consenting to compliance with each and every applicable provision of this
Agreement by Bancorp, 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, Bancorp, 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 the Bank’s senior management and major
operations and activities, including but not limited to concentrations of
credit, appraisal review, asset quality, allowance for loan and lease losses (“ALLL”),
capital, earnings, and liquidity;


 


(b)           measures
to ensure that Bank management and staff comply with approved policy
guidelines; and


 


(c)           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, credit
concentrations, ALLL, capital, earnings, and liquidity.


 


Concentrations of Credit


 


2.             Within 60 days of this
Agreement, the Bank shall submit to the Reserve Bank an acceptable written plan
to strengthen the Bank’s management of commercial real estate (“CRE”)
concentrations, including steps to reduce the risk of concentrations.  The plan shall, at a minimum, 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); and


 


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(b)           establishment of
concentration limits, including but not limited to, by loan type, geographic
location, counterparty, and borrower; and


 


(c)           a schedule for
reducing the outstanding dollar amount of CRE loans.


 


Appraisal
Review Program


 


3.             Within
60 days of this Agreement, the Bank shall submit to the Reserve Bank an
acceptable revised appraisal review program that shall, at a minimum, address,
consider, and include standards to ensure the independence of the Bank’s
appraisal review and evaluation process.


 


Asset Improvement


 


4.             (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 of the Bank conducted by the
Reserve Bank and the California Department of Financial Institutions that
commenced on March 30, 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 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 or the Bank’s loan committee.  The board of directors or loan committee
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


 


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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 or loan committee 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)).


 


5.               (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 or other asset in excess of $1,000,000, including
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 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.


 


 


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(b)           Within 30 days of the date that any
additional loan or other asset in excess of $1,000,000, 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 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.  The board
of directors shall review the progress reports before submission to the Reserve
Bank and shall document the review in the minutes of the board of directors’
meetings.


 


Allowance
for Loan and Lease Losses


 


6.                                       (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 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).


 


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(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 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 ALLL for that quarter.


 


Capital Plan


 


7.             Within 60 days of this Agreement,
Bancorp and the Bank shall jointly submit to the Reserve Bank an acceptable
written plan to maintain sufficient capital at the Bank.  The plan shall, at a minimum, address,
consider, and include the Bank’s current and future capital requirements,
including:


 


(a)           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);


 


6

















 


(b)           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;


 


(c)           the source and timing of additional
funds to fulfill the Bank’s future capital requirements and loan loss reserve
needs; and


 


(d)           the requirements of section 225.4(a) of
Regulation Y of the Board of Governors (12 C.F.R. § 225.4(a)) that Bancorp
serve as a source of strength to the Bank.


 


8.             Bancorp 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 the Bank’s capital ratios (total risk-based, Tier 1 risk-based,
or leverage) fall below the approved capital plan’s minimum ratios.  Together with the notification, Bancorp and
the Bank shall submit an acceptable written plan that details the steps Bancorp
and the Bank will take to increase the Bank’s capital ratios to or above the
approved capital plan’s minimums.


 


Strategic
Plan and Budget


 


9.             (a)           Within
60 days of this Agreement, the Bank shall submit to the Reserve Bank a
strategic plan to improve the Bank’s earnings and a budget for calendar year
2010.  The plan and budget shall include,
but not be limited to:


 


(i)            Identification of the major areas
where, and means by which, the board of directors will seek to improve the Bank’s
operating performance;


 


(ii)           a realistic and comprehensive budget
for calendar year 2010, including income statement and balance sheet
projections; and


 


(iii)          a description of the operating
assumptions that form the basis for, and adequately support, major projected
income, expense, and balance sheet components.


 


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(b)           A strategic 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.


 


Liquidity
Management


 


10.           Within 60 days of this Agreement, the
Bank shall submit to the Reserve Bank an acceptable revised written plan
designed 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)           measures to diversify funding
sources;


 


(c)           a timetable to reduce reliance on
short-term wholesale funding, including brokered deposits; and


 


(d)           specific liquidity targets and
parameters and the maintenance of sufficient liquidity to meet contractual
obligations and unanticipated demands.


 


11.           Within 60 days of this Agreement, the
Bank shall submit to the Reserve Bank an acceptable revised written contingency
funding plan that, at a minimum, includes adverse scenario planning and
identifies and quantifies available sources of liquidity for each scenario.


 


Dividends
and Distributions


 


12.                                 (a)           Bancorp 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)           Bancorp 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.


 


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(c)           Bancorp 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.


 


(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 Bancorp’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.  Bancorp 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)           Bancorp 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)           Bancorp shall not, directly or
indirectly, purchase or redeem any shares of its stock without the prior
written approval of the Reserve Bank.


 


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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, Bancorp 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.).  Bancorp and the Bank shall not appoint any individual to Bancorp’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 notifies
Bancorp or the Bank of disapproval within the time limits prescribed by Subpart
H of Regulation Y.


 


(b)           Bancorp
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).


 


Progress
Reports


 


15.           Within 30 days after the end of each calendar quarter
following the date of this Agreement, 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, Policies, Procedures, and Program


 


16.                                 (a)           The Bank and, as applicable, Bancorp
shall submit written plans, policies, procedures, and a program that are
acceptable to the Reserve Bank within the applicable time periods set forth in
paragraphs 2, 3, 5, 6(c), 7, 10, and 11 of this Agreement.


 


(b)           Within 10 days of approval by the
Reserve Bank, the Bank and, as applicable, Bancorp shall adopt the approved
plans, policies, procedures, and program. 
Upon


 


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adoption,
the Bank and, as applicable, Bancorp shall promptly implement the approved
plans, policies, procedures, and program, and thereafter fully comply with
them.


 


(c)           During the term of this Agreement,
the approved plans, policies, procedures, and program shall not be amended or
rescinded without the prior written approval of the Reserve Bank.


 


Communications


 


17.                                 All communications
regarding this Agreement shall be sent to:


 


(a)                                  Mr. Kevin
Zerbe


Vice
President


Banking
Supervision and Regulation


Federal
Reserve Bank of San Francisco


101
Market Street


Mail
Stop  920


San
Francisco, California  94105


 


(b)                                 Mr. Ronald J. Carlson


Chairman,
President and Chief Executive Officer


1st
Pacific Bancorp


1st
Pacific Bank of California


9333
Genesee Ave., Suite 300


San
Diego, California  92121


 


Miscellaneous


 


18.           Notwithstanding
any provision of this Agreement, the Reserve Bank, may, in its sole discretion,
grant written extensions of time to Bancorp and the Bank to comply with any
provision of this Agreement.


 


19.           The
provisions of this Agreement shall be binding upon Bancorp, the Bank, and their
institution-affiliated parties, in their capacities as such, and their
successors and assigns.


 


20.           Each
provision of this Agreement shall remain effective and enforceable until
stayed, modified, terminated, or suspended in writing by the Reserve Bank.


 


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21.           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 Bancorp, the Bank, or any of their current or
former institution-affiliated parties and their successors and assigns.


 


22.           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 10th day of
December, 2009.


 


	
  1ST
  PACIFIC BANCORP

  	
  FEDERAL
  RESERVE BANK OF SAN FRANCISCO

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Ronald J. Carlson

  	
   

  	
  By:

  	
  /s/
  Kevin Zerbe

  
	
   

  	
  Ronald J. Carlson

  	
   

  	
  Kevin Zerbe

  
	
   

  	
  Chairman, President, and Chief Executive Officer

  	
   

  	
  Vice President

  
					



 


 


	
  1ST
  PACIFIC BANK OF CALIFORNIA

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Ronald J. Carlson

  	
   

  	
   

  
	
   

  	
  Ronald
  J. Carlson

  	
   

  
	
   

  	
  Chairman,
  President, and Chief Executive Officer

  	
   

  
				



 


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