Exhibit 10.1


 


FEDERAL DEPOSIT INSURANCE
CORPORATION


 


WASHINGTON, D.C.


 


 


CALIFORNIA DEPARTMENT OF
FINANCIAL INSTITUTIONS


 


SAN FRANCISCO, CALIFORNIA


 




	
   

  	
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  In the Matter of

  	
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  )

  	
  CONSENT ORDER

  
	
  MONTEREY COUNTY BANK 

  	
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  MONTEREY, CALIFORNIA

  	
  )

  	
  FDIC-10-633b

  
	
   

  	
  )

  	
   

  
	
  (INSURED STATE NONMEMBER BANK)

  	
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The Federal Deposit Insurance Corporation (“FDIC”)
is the appropriate Federal banking agency for Monterey County Bank, Monterey,
California (“Bank”) under Section 3(q) of the Federal Deposit
Insurance Act (“FDI Act”), 12 U.S.C. § 1813(q)(3). The California Department of
Financial Institutions (“CDFI”) is the appropriate State banking agency for the
Bank under Division 1 of the California Financial Code.


 


The Bank, by and through its duly elected and acting
Board of Directors (“Board”), has executed a Stipulation to the Issuance of a
Consent Order (“Stipulation”), dated August 23, 2010, that is accepted by
the FDIC and the CDFI. With the Stipulation, the Bank has consented, without
admitting or denying any charges of unsafe or unsound banking practices
relating to management, asset quality, and liquidity, to the issuance of this
Consent Order (“Order”) by the FDIC and the CDFI pursuant to
Section 8(b)(1) of the FDI Act, and Section 1913 of the California
Financial Code.


 

















 


Having determined that the requirements for issuance
of an order under Section 8(b) of the FDI Act, 12 U.S.C. § 1818(b),
and Section 1913 of the California Financial Code have been satisfied, the
FDIC and the CDFI hereby order that:


 


1.             The Bank shall
have and retain qualified management.


 


(a)           Each member of management shall have qualifications
and experience commensurate with his or her duties and responsibilities at the
Bank. Management shall include the following: (i) a chief executive
officer with proven ability in managing a bank of comparable size and risk
profile; (ii) a chief financial officer with proven ability in all aspects
of financial management; and (iii) a senior lending officer with
significant lending, collection, and loan supervision experience and experience
in upgrading a low quality loan portfolio. Each member of management shall be
provided appropriate written authority from the Board to implement the
provisions of this Order.


 


(b)           The qualifications of management shall be assessed
on its ability to:


 


(i)            comply with the requirements
of this Order;


 


(ii)           operate the Bank in a safe
and sound manner;


 


(iii)          comply with applicable laws
and regulations; and


 


(iv)          restore all aspects of the
Bank to a safe and sound condition, including asset quality, capital adequacy,
earnings, management effectiveness, liquidity, and sensitivity to market risk.


 


(c)           During the life of this Order, the Bank shall notify
the Regional Director of the FDIC’s San Francisco Regional Office (“Regional
Director”) and the Commissioner of the California Department of Financial
Institutions (“Commissioner”) in writing when it proposes to add or replace any
individual on the Board, or employ any individual to serve as a senior


 


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executive officer, or change the responsibilities of any existing
senior executive officer to include the responsibilities of another senior
executive officer position. The term “senior executive officer” shall have the
same meaning ascribed to it in Part 303 of the FDIC’s Rules and
Regulations, 12 C.F.R. § 303.101. The notification shall include a completed
Interagency Biographical and Financial Report and Interagency Change in
Director or Senior Executive Officer and must be received at least 30 days
before the addition, employment or change of responsibilities is intended to
become effective. The Regional Director and the Commissioner shall have the
power under the authority of this Order to disapprove the addition, employment
or change of responsibilities of any proposed officer or director.


 


(d)           The requirement to submit information and the prior
disapproval provisions of this paragraph are based upon the authority of 12
U.S.C. § 1818(b) and do not require the Regional Director and the
Commissioner to complete their review and act on any such information or
authority within 30 days, or any other timeframe. The Bank shall not add,
employ or change the responsibilities of any proposed director or senior
executive officer until such time as the Regional Director and the Commissioner
have completed their review.


 


2.             (a)           Within 120 days of the
effective date of this Order, the Bank shall achieve and maintain its Tier 1
capital in such an amount to ensure that the Bank’s leverage ratio equals or
exceeds 9 percent.


 


(b)           Within 120 days of the effective date of this Order,
the Bank shall maintain its total risk-based capital ratio in such an amount as
to equal or exceed 12 percent.


 


(c)           Within 60 days from the effective date of this
Order, the Bank shall develop and adopt a plan to maintain the capital
requirements of this Order and to comply with the FDIC’s Statement of Policy on
Risk-Based Capital contained in Appendix A to Part 325 of


 


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the FDIC’s Rules and Regulations, 12 C.F.R. Part 325,
Appendix A. Such plan and its implementation shall be in a form and manner
acceptable to the Regional Director and the Commissioner as determined at
subsequent examinations and/or visitations. The capital plan must include a
contingency plan in the event that the Bank has (i) failed to maintain the
minimum capital ratios required by subparagraph 2(a) and 2(b);
(ii) failed to submit an acceptable capital plan as required by this
subparagraph; or (iii) failed to implement or adhere to a capital plan to
which the Regional Director and the Commissioner have taken no written
objection pursuant to this subparagraph. The contingency plan shall address
other strategic alternatives, including but not limited to the sale of control
or merger of the Bank. The Bank shall implement the contingency plan upon
written notice from the Regional Director and the Commissioner.


 


(d)           The level of capital to be maintained during the
life of this Order shall be in addition to a fully funded allowance for loan
and lease losses (“ALLL”), the adequacy of which shall be satisfactory to the
Regional Director and the Commissioner as determined at subsequent examinations
and/or visitations. Any increase in Tier 1 capital necessary to meet the requirements
of this paragraph may not be accomplished through a deduction from the Bank’s
ALLL.


 


(e)           If all or part of the increase in capital required
by this Order is accomplished by the sale of new Bank securities, the Board
shall adopt and implement a plan for the sale of such additional securities,
including the voting of any shares owned or proxies held or controlled by them
in favor of the plan. Should the implementation of the plan involve a public
distribution of the Bank’s securities (including a distribution limited only to
the Bank’s existing shareholders), the Bank shall prepare offering materials
fully describing the securities being


 


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offered, including an accurate description of the financial condition
of the Bank and the circumstances giving rise to the offering, and any other
material disclosures necessary to comply with all applicable State and Federal
securities laws. Prior to the implementation of the plan and, in any event, not
less than 20 days prior to the dissemination of such materials, the plan and
any materials used in the sale of the securities shall be submitted to the
FDIC, Registration, Disclosure and Securities Unit, 550 17th St. N.W., Washington, D.C. 20429, for review,
and to the Commissioner to obtain any and all necessary securities permits or
other approvals. Any changes requested by the FDIC or the Commissioner shall be
made prior to dissemination. If the increase in capital is provided by the sale
of noncumulative perpetual preferred stock, then all terms and conditions of
the issue, including but not limited to those terms and conditions relative to
interest rate and convertibility factor, shall be presented to the Regional
Director and the Commissioner for prior approval.


 


(f)            Subject to obtaining all required prior
authorizations, permits or other approvals from the Commissioner, the Bank
shall promptly revise or supplement the offering materials it is using in
connection with the offer and sale of its securities to fully and fairly
disclose every material change or development regarding the Bank and its
operation, including every planned change that would be material, that occurs
during the offering of the securities. The Bank shall provide the revised
offering materials or supplement, along with a notice that the subscriber may
rescind its subscription, to each subscriber that has submitted a subscription
for the Bank’s securities before receiving the revised offering materials or
supplement for at least ten (10) days before accepting the subscriber’s
subscription.


 


(g)           In complying with the provisions of this paragraph,
the Bank shall provide to any subscriber and/or purchaser of the Bank’s
securities, a written notice of any planned or


 


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existing development or other changes which are materially different
from the information reflected in any offering materials used in connection
with the sale of Bank securities. The written notice required by this paragraph
shall be furnished within 10 days from the date such material development or
change was planned or occurred, whichever is earlier, and shall be furnished to
every subscriber and/or purchaser of the Bank’s securities who received or was
tendered the information contained in the Bank’s original offering materials.


 


(h)           For the purposes of this Order, the terms “leverage
ratio”, “Tier 1 capital” and “total risk-based capital ratio” shall have, the
meanings ascribed to them in Part 325 of the FDIC’s Rules and
Regulations, 12 C.F.R. §§ 325.2(m), 325.2(v), 325.2(y), and Appendix A.


 


3.             The Bank shall
not pay cash dividends or make any other payments to its shareholders without
the prior written consent of the Regional Director and the Commissioner.


 


4.             As of the
effective date of this Order, the Bank shall eliminate from its books, by
charge-off or collection, all assets classified “Loss” in the February 16,
2010 joint Report of Examination (“ROE”) that have not been previously
collected or charged off. Elimination of these assets through proceeds of other
loans made by the Bank is not considered collection for the purpose of this
paragraph.


 


5.             (a)           Within 90 days from the
effective date of this Order, the Bank shall formulate a written plan to reduce
the Bank’s risk exposure in each asset adversely classified “Substandard” or
“Doubtful” in the ROE. For purposes of this provision, “reduce” means to
collect, charge off, or improve the quality of an asset so as to warrant its
removal from adverse classification by the Regional Director and the
Commissioner. In developing the plan mandated by this paragraph, the Bank
shall, at a minimum, and with respect to each such adversely classified loan or
lease, review, analyze, and document the financial position of the borrower,


 


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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)           The plan mandated by this provision shall also
include, but not be limited to, the following:


 


(i)            A schedule for reducing the outstanding dollar
amount of each such adversely classified asset, including timeframes for
achieving the reduced dollar amounts (at a minimum, the schedule for each such
adversely classified asset must show its expected dollar balance on a quarterly
basis);


 


(ii)           Specific action plans intended to reduce the Bank’s
risk exposure in each such classified asset;


 


(iii)          A schedule showing, on a quarterly basis, the
expected consolidated balance of all such adversely classified assets, and the
ratio of the consolidated balance to the Bank’s projected Tier 1 capital plus
the ALLL;


 


(iv)          A provision for the Bank’s submission of monthly
written progress reports to its Board; and


 


(v)           A provision mandating Board review of the progress
reports, with a notation of the review recorded in the minutes of the meeting
of the Board.


 


(c)           The Bank shall, immediately upon completion, submit
the plan to the Regional Director and the Commissioner for review and comment.
Within 30 days from receipt of any comment from the Regional Director and the
Commissioner, and after due consideration of any recommended changes, the Board
shall approve the plan, which approval shall be 


 


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recorded in the minutes of the Board meeting.
Thereafter, the Bank shall implement and fully comply with the plan.


 


6.             (a)           Beginning with the effective
date of this Order, the Bank shall not extend, directly or indirectly, any
additional credit to, or for the benefit of, any borrower who has a loan or
other extension of credit from the Bank that has been charged off or
classified, in whole or in part, “Loss” and is uncollected. This paragraph
shall not prohibit the Bank from renewing or extending the maturity of any
credit in accordance with the Financial Accounting Standards Board Statement
Number 15 (“FASB 15”).


 


(b)           Beginning with the effective date of this Order, the
Bank shall not extend, directly or indirectly, any additional credit to, or for
the benefit of, any borrower who has a loan or other extension of credit from
the Bank that has been classified, in whole or part, “Doubtful” or
“Substandard” without the prior approval of a majority of the Board or loan
committee of the Bank.


 


7.             Within 45 days
from the effective date of this Order, the Board shall review the
appropriateness of the Bank’s allowance for loan and lease losses (“ALLL”) and
establish a comprehensive policy for determining an appropriate level of the
ALLL, including documenting its analysis according to the standards set forth
in the July 25, 2001 Interagency Policy Statement on Allowance for Loan
and Lease Losses Methodologies and Documentation for Banks and Savings
Associations. For the purpose of this determination, an appropriate ALLL shall
be determined after the charge-off of all loans or other items classified
“Loss.” The policy shall provide for a review of the ALLL at least once each
calendar quarter. Said review shall be completed in order that the findings of
the Board with respect to the ALLL are properly reported in the quarterly
Reports of Condition and Income. The review shall focus on the accounting


 


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standards set forth in FAS 5 and FAS 114, the results of the Bank’s
internal loan review, loan and lease loss experience, trends of delinquent and
non-accrual loans, an estimate of potential loss exposure of significant
credits, concentrations of credit, and present and prospective economic
conditions. A deficiency in the ALLL shall be remedied in the calendar quarter
it is discovered, prior to submitting the Report of Condition, by a charge to
current operating earnings. The minutes of the Board meeting at which such
review is undertaken shall indicate the results of the review. The Bank’s
policy for determining the adequacy of the Bank’s ALLL and its implementation
shall be satisfactory to the Regional Director and the Commissioner as
determined at subsequent examinations and/or visitations.


 


8.             (a)           Within 60 days from the
effective date of this Order, the Bank shall develop or revise, adopt, and
implement written lending and collection policies to provide effective guidance
and control over the Bank’s lending function. Such policies and their
implementation shall be satisfactory to the Regional Director and the
Commissioner as determined at subsequent examinations and/or visitations.


 


(b)           The policies required by this paragraph shall, at a
minimum, include the following:


 


(i)            provisions that require complete loan documentation,
realistic repayment terms, and current credit information adequate to support
the outstanding indebtedness of the borrower. Such documentation shall include
current financial information, profit and loss statements or copies of tax
returns and cash flow projections;


 


(ii)           provisions that establish standards for unsecured
credit;


 


(iii)          provisions that establish officer lending limits;


 


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(iv)          provisions that require the preparation of a loan
“watch list” that shall include relevant information on all loans in excess of
$500,000, which are classified “Substandard” and “Doubtful” in the ROE, or by
the FDIC or CDFI in subsequent Reports of Examination and all other loans in
excess of $500,000, which warrant individual review and consideration by the
Board as determined by the loan committee or active management. The loan “watch
list” shall be presented to the Board for review at least monthly with such
review noted in the minutes;


 


(v)           provisions that require an accurate internal grading
system;


 


(vi)          provisions that require independent loan review; and


 


(vii)         the Board shall adopt procedures whereby officer
compliance with the revised loan policy is monitored and responsibility for
exceptions thereto assigned. The procedures adopted shall be reflected in
minutes of a Board meeting at which a quorum is present and the vote of each
Director is noted.


 


9.             Within 60 days
from the effective date of this Order, the Bank shall develop or revise, adopt,
and implement a written liquidity and funds management policy that adequately
addresses liquidity needs and contingency funding, appropriately reduces its
reliance on non-core funding sources, and complies with the Guidance on
Liquidity Risk Management, FIL-84-2008, dated August 26, 2008. Such policy
and its implementation shall be satisfactory to the Regional Director and the
Commissioner as determined at subsequent examinations and/or visitations.


 


10.          (a)           During the life of this Order, the Bank shall comply
with the provisions of section 337.6 of the FDIC’s Rules and Regulations,
12 C.F.R. § 337.6.


 


(b)           Within 60 days from the effective date of this Order
the Bank shall submit to the Regional Director and the Commissioner a written
plan for eliminating its reliance on


 


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brokered deposits. The plan shall contain
details as to the current composition of brokered deposits by maturity and
explain the means by which such deposits will be reduced. For purposes of this
Order, brokered deposits are defined as described in section 337.6(a)(2) of the
FDIC’s Rules and Regulations, 12 C.F.R. § 337.6(a)(2). Such plan and its
implementation shall be satisfactory to the Regional Director and the
Commissioner as determined at subsequent examinations and/or visitations.


 


11.          Within 120 days from the effective date of this
Order, the Bank shall develop or revise, adopt, and implement a written plan
addressing retention of profits, reducing overhead expenses, and setting forth
a comprehensive budget covering the period January 1, 2011, to
December 31, 2013. The plan required by this Paragraph shall contain
formal goals, strategies and benchmarks which are consistent with sound banking
practices to improve the Bank’s net interest margin, increase interest income,
reduce discretionary expenses, and improve and sustain earnings of the Bank. It
shall also contain a thorough description of the operating assumptions that
form the basis for, and adequately support, each major component of the plan.
Such plan and its implementation shall be satisfactory to the Regional Director
and the Commissioner as determined at subsequent examinations and/or
visitations.


 


(b)           Following the end of each calendar quarter, the
Board shall evaluate the Bank’s actual performance in relation to the plan and
shall record the results of the evaluation, and any actions taken by the Bank,
in the minutes of the Board meeting at which such evaluation is undertaken.


 


12.          Within 120 days from the effective date of this
Order, the Bank shall develop or revise, adopt, and implement a written
three-year strategic plan. Such plan shall be submitted to the Regional
Director and the Commissioner and shall include specific goals for the dollar


 


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volume of total loans, total investment securities, and total deposits
as of year-end 2011, 2012, and 2013. For each time frame, the plan will also
specify:


 


(b)           the anticipated average maturity and average yield
on loans and securities;


 


(c)           the average maturity and average cost of deposits;


 


(d)           the level of earning assets as a percentage of total
assets; and


 


(e)           the ratio of net interest income to average earning
assets.


 


Such plan and its implementation shall be
satisfactory to the Regional Director and the Commissioner as determined at
subsequent examinations and/or visitations.


 


13.          The Bank shall not engage in any expansionary
activities, including opening any branches, without the prior written consent
of the Regional Director and the Commissioner.


 


14.          The Bank shall notify the Regional Director and the
Commissioner no less than one business day in advance of making a planned
public announcement or notification regarding changes in the Bank’s financial
condition, executive management or Board.


 


15.          Within 30 days of the end of the first quarter
following the effective date of this Order, and within 30 days of the end of
each quarter thereafter, the Bank shall furnish written progress reports to the
Regional Director and the Commissioner detailing the form and manner of any
actions taken to secure compliance with this Order and the results thereof.
Such reports may be discontinued when the corrections required by this Order
have been accomplished and the Regional Director and the Commissioner have
released the Bank in writing from making further reports.


 


16.          Following the effective date of this Order, the Bank
shall provide a copy of the Order or otherwise furnish a description of the
Order to its shareholder(s) in conjunction with:


 


(a)           the Bank’s next shareholder communication; and


 


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(b)           the notice or proxy statement preceding the Bank’s
next shareholder meeting.


 


The description shall fully describe the Order in
all material respects. The description and any accompanying communication,
statement, or notice shall be sent to the FDIC, Division of Supervision and
Consumer Protection, Accounting and Securities Disclosure Section, 550 17th Street, N.W., Washington, D.C. 20429, at least
20 days prior to dissemination to shareholders. Any changes requested to be
made by the FDIC shall be made prior to dissemination of the description,
communication, notice, or statement.


 


The provisions of this Order shall not bar, estop,
or otherwise prevent the FDIC, the CDFI, or any other federal or state agency
or department from taking any other action against the Bank or any of the
Bank’s current or former institution-affiliated parties, as that term is
defined in Section 3(u) of the FDI Act, 12 U.S.C. § 1813(u).


 


This Order will become effective upon its issuance
by the FDIC and the CDFI.


 


The provisions of this Order shall be binding upon
the Bank, its institution-affiliated parties, and any successors and assigns
thereof.


 


The provisions of this Order shall remain effective
and enforceable except to the extent that and until such time as any provision
has been modified, terminated, suspended, or set aside by the FDIC and the
CDFI.


 


Violation of any provisions of this Order, will be
deemed to be conducting business in an unsafe or unsound manner, and will
subject the Bank to further regulatory enforcement action.


 


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Issued pursuant to delegated
authority


 


Dated at San Francisco,
California, this 1st day of September, 2010.


 


 


	
  /s/ Kathy Moe for

  	
   

  	
  /s/ Scott D. Cameron

  
	
  J. George Doerr

  	
   

  	
  Scott D. Cameron

  
	
  Deputy Regional Director

  	
   

  	
  Chief Examiner

  
	
  Risk Management

  	
   

  	
  California Department of

  
	
  Division of Supervision and Consumer Protection

  	
   

  	
  Financial Institutions

  
	
  San Francisco Region

  	
   

  	
   

  
	
  Federal Deposit Insurance Corporation

  	
   

  	
   

  



 


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