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For immediate release
February 7, 1997
The Federal Reserve Board today announced the execution
of a Written Agreement between the Cuyamaca Bank, Santee,
California, and the Federal Reserve Bank of San Francisco.
A copy of the Written Agreement is attached.
Attachment
UNITED STATES OF AMERICA
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON,
D. C.
----------------------
Written Agreement By and Between
DOCKET NO.
Yb-021-WA/R&SM
CUYAMACA BANK
Santee, California
and
FEDERAL RESERVE BANK OF SAN FRANCISCO
San Francisco, California
WHEREAS, in recognition of their common goal to restore and
maintain the financial and managerial
California
soundness of the Cuyamaca Bank, Santee,
(the "Bank"), a state chartered bank which is a member of the Federal
Reserve system, the Federal Reserve Bank of San Francisco
(the "Reserve Bank")
and the Bank have mutually agreed to enter into this Written Agreement
(the
"Agreement") ;
WHEREAS, this Agreement
is being executed
in accordance with the
Rules Regarding Delegation of Authority of the Board of Governors of the Federal
Reserve System
(the "Board of Governors"),
specifically
12 C.F.R. 265.11(a) (151,
and the Reserve Bank has received the prior approval of the Director of the
Division of Banking Supervision and Regulation
(the "Director") and the General
Counsel of the Board of Governors to enter into this Agreement with the Bank;
and
wE=S,
on
a,\
uurvf
1997, the board of directors of the Bank,
at a duly constituted meeting, adopted a resolution
authorizing and directing
fir. /?l/atiA. FbnA<
on behalf of the Bank and
to enter into this Agreement
consented to compliance with each and every provision
Bank and its institution-affiliated
of this Agreement by the
parties, as that term is defined in
section 3iu) of the Federal Deposit Insurance Act, as amended
(12 U.S.C. 1813(u)).
(the "FDI Act")
NOW, THEREFORE, before the taking of any testimony or adjudication
of, or finding on any issue of fact or law herein, and without this Agreement
constituting an admission of any allegation made or implied by the Board of
Governors, and solely for the purpose of settling this matter
without further
proceedings, the Reserve Bank and the Bank hereby agree as follows:
1.
The Bank shall not declare or pay any dividends, or make
(a)
any other form of payment representing
a reduction of capital, without the prior
written approval of the Reserve Bank and the Director.
approval shall be received at least thirty
All requests for prior
(30) days prior to the proposed
dividend declaration date and shall include, but not be limited to, information
on the amount proposed to be paid, Bank earnings and capital levels for the most
recent annual period and the fiscal year to date, and an analysis of the
proposed dividend in light of the Board of Governors'
Payment
Policy Statement on the
of Cash Dividends by State Member Banks and Bank Holding Companies,
dated NovemSer 14, 1985.
2.
(a)
Within 5&
g)
L&f
this Agreement,
the Bank
shall submit to the Reserve Bank a written business plan, approved by the Bank's
board of directors, concerning the Bank's proposed business activities
years 1997 and 1998.
The business plan shall contain provisions
the requirements of this Agreement,
and, at a minimum,
for the
that address
include:
(i)
Financial performance objectives, including
plans for asset and deposit growth, asset
quality, earnings, liquidity, and capital,
supported by detailed, quarterly pro-forma
financial statements;
(ii)
the customer base the Bank expects to service;
(iii)
the types of loans the Bank expects to make and
concentration limits by loan type;
(iv)
the types of banking and nonbanking
Bank plans to offer its customers;
(VI
the geographic area the Bank intends to serve;
(vi)
the physical plant needs of the Bank:
Page 2 of 11
services the
(b)
(vii)
establishment of a quarterly review process to
monitor the actual income and expenses of the
Bank in comparison to budgetary projections;
and
(viii)
the requirement that the current business plan
be revised quarterly as necessary, to reflect,
at a minimum, financial performance, changes in
the Bank's customer base and product mix, and
any extraordinary events affecting the Bank's
condition or future prospects.
Business plans for each calendar year subsequent to 1998
shall be submitted to the Reserve Bank by January 31st of the applicable
calendar year.
(c)
Any revisions to the business plans required by
paragraph 2(a) (viii) hereof shall be approved by the Bank's board of directors
and shall be submitted to the Reserve Bank within five (5) days of approval by
the Bank's board of directors.
3.
Within sixty
(60) days of this Agreement,
the Bank shall
submit to the Reserve Bank an acceptable written plan to achieve and thereafter
maintain an adequate capital position.
The plan shall, at a minimum, contain
provisions that address the requirements
of this Agreement,
and address and
consider:
(a)
The Bank's current and future capital requirements,
including compliance with the Capital Adequacy Guidelines of the Board of
Governors for State Member Banks:
Measure
Risk Based Measures and Tier 1 Leverage
(12 C.F.R. Part 208, App. A and B);
(b)
the potential
the volume of the Bank's adversely classified assets and
for additional asset quality problems at the Bank;
(C)
the business plan required under paragraph 2(a) (viii)
and the growth in the Bank's assets and its relationship
to the Bank's capital
ratios:
(d)
the .Bank's anticipated
(e)
the source and timing of additional
future capital and loan loss requirements
levels of retained earnings;
funds to fulfill the
set forth in this Agreement; and,
Page 3 of 11
(f)
procedures
for the Bank to notify the Reserve Bank, in
writing, within five (5) days of the end of any calendar quarter in which the
Bank's capital ratios decline such that the Bank becomes less than "well
capitalized", as such term is defined in section 208.33(b) of Regulation H of
the Board of Governors
4.
(12 C.F.R 208.33(b)).
Within sixty
(60) days of this Agreement,
submit to the Reserve Bank a written amended compliance
the Bank shall
plan regarding
applicable provisions of the Currency and Foreign Transactions
U.S.C. 5311 et seq.) and the accompanying
Department of the Treasury
at a minimum:
(31
issued by the U.S.
(31 C.F.F. 103.11 et seq.)
herein as the Bank Secrecy Act
of the Board of Governors
regulations
Reporting Act
(collectively referred to
(the "BSA")) and section 308.20 of Regulation H
(12 C.F.R. 308.20).
(a) improved documentation
The amended plan shall include,
of the annual BSA employee training
sessions and internal audit reviews of the Bank's BSA compliance, as required by
the Bank's existing written compliance policy; and
(b) an improved "know your
customer" policy that enhances the Bank's ability to (i) predict the types of
prospective transactions with each of its customers,
(ii) monitor each
transaction for consistency with the customers' regular practices and
investigate further, where appropriate,
(iii) report, in accordance with
suspicious activity reporting procedures;
and/or
(iv) prohibit transactions when
the customers' identities or activities cannot be confirmed or explained.
5.
(a)
The Bank shall at all times maintain,
through charges to
current operating income, an adequate valuation reserve for loan losses.
The
adequacy of the reserves shall be determined in light of the volume of weighted
classified loans, the current level of nonperforming
experience, evaluation of the potential
loans, past loss
for losses in the Bank's portfolio,
current economic conditions, examiners' other criticisms
Reserve Bank's Report of Examination,
Examination"),
and the requirements
contained in the
dated January 8, 1996 (the "Report of
of the Interagency
Page 4 of 11
Policy Statement on the
Allowance for Loan and Lease Losses, dated December 21, 1993.
shall be maintained
indicating the methodology
the reserve needed.
A written record
used in determining the amount of
This record shall be submitted to the Reserve Bank within
thirty (30) days of this Agreement.
Thereafter,
the Bank shall conduct, at a
minimum, a quarterly assessment of its loan loss reserve and its nonperforming
loans and shall submit documentation
Reserve Bank within thirty
of each quarterly assessment to this
(30) days of the end of each quarter.
not alter or amend its methodology
The Bank shall
submitted to the Reserve Bank pursuant to
this paragraph without providing the Reserve Bank with thirty (30) days prior
written notice.
All records required by this paragraph
the Bank for subsequent supervisory
(b)
shall be maintained
by
review.
The requirements
of this paragraph shall not be
construed as a standard for future operations of the Bank after termination of
this Agreement.
appropriate
It is the intention of these requirements
to provide for an
reduction in adversely classified assets and to maintain adequate
loan loss reserves during the term of this Agreement.
6.
Within sixty
(60) days of this Agreement,
the Bank shall
submit to the Reserve Bank acceptable written loan review procedures designed to
identify and categorize problem credits and to assess the overall quality of the
Bank's loan portfolio.
The loan review procedures
shall, at a minimum,
include
the following:
(a)
Procedures to confirm the accuracy of all risk grades
assigned by the Bank's loan officers;
(b)
procedures
to identify adequately problem loans and,
thereafter, to place such loans on the bank's watch list;
(C)
statement, maintained
for each loan identified as a watch list loan, a written
in the appropriate
credit file, of the reason(s) why such
loan merits special attention; and
(d)
a mechanism
for reporting, at least quarterly, to the
Bank's board of directors the status of each watch list loan and the action(s)
Page 5 Of 11
taken by bank management
7.
to improve the Bank's position on each watch list loan.
Within ninety
(90) days of this Agreement,
the Bank shall
submit to the Reserve Bank acceptable revised asset/liability
policies and procedures to provide for the maintenance
The policies and procedures
position.
management
of an adequate liquidity
shall, at a minimum, address and
consider:
Accounts
(a)
The Bank's level of volatile
liabilities;
(b)
the Bank's reliance on Super Money Market Demand
("SMMDAs");
contingency
Cc)
the cost and use of deposits obtained through SMMDAs;
(d)
the volume of liquid assets required to provide for
funding needs;
(e)
quantitative
guidelines
or controls which limit the
Bank's exposure to interest rate risk:
(f)
rate-sensitive
parameters
for the ratio of rate-sensitive
assets to
liabilities, and the necessary courses of action to achieve and
thereafter maintain
future compliance with such parameters;
(g)
objectives
for Bank net interest margins;
(h)
guidelines
for monitoring
and controlling exposure to
changing interest rates;
(i)
the provision of regular monthly management reports to
the Bank's board of directors;
(j)
maintenance
of written asset/liability
minutes which shall be available for supervisory
(k)
8.
deficiencies
review; and,
the duties of the asset/liability
management
Within sixty (60) days of this Agreement,
all necessary steps to correct all documentation
committee meeting
committee.
the Bank shall take
and credit information
in the Bank's loan files listed in the Report of Examination,
including obtaining accurate and current financial statements and appraisals and
Page 6 of 11
thereafter maintain and update such documentation
During the term of this Agreement,
and credit information.
the Bank shall take all steps necessary to
maintain current and complete documentation
on all loans consistent with its
loan policy.
In all cases where the Bank is unable to obtain needed
documentation
or credit information,
it shall document the actions taken to
secure the information, the reason the information could not be obtained, and
shall maintain
such documentation
in the appropriate
file for subsequent
supervisory review.
9.
(a)
of outside directors.
every month;
The audit committee of the Bank shall consist entirely
The committee
shall, at a minimum,
(i) meet at least once
(ii) maintain full and complete minutes of its actions; and
(iii) report, in writing, to the full board of directors each month.
(b)
For the purpose of this Agreement,
the terms
(i) "outside director" shall be defined as an individual who is not an employee
or executive officer of the Bank, an individual who does not have direct or
indirect control of more than five (5) percent of any class of the Bank's
outstanding
shares of stock, an individual who is not an officer or employee of
any affiliate of the Bank, or an individual who does not have direct or indirect
control of more than five (5) percent of any class of the outstanding
any affiliate of the Bank;
stock of
(ii) "executive officer" shall be defined as set
forth in section 215.2(e) of Regulation 0 of the Board of Governors
("Regulation 0") (12 C.F.R. 215.2(e)),
and (iii) "affiliate" shall be defined as
set forth in section 23A(h)(l) of the Federal Reserve Act
(12 U.S.C.
371c(b) (1)1.
(c)
Within sixty
(60) days of this Agreement, the Bank shall
submit to the Reserve Bank acceptable written audit policies and procedures
designed to strengthen the operation of the Bank's internal audit function.
policies and procedures
The
shall include, without limitation, the following:
(i)
Procedures to ensure that the Bank's internal
auditors report directly to the audit committee
Page 7 of 11
on a monthly basis and that all internal audit
reports are directly reviewed by the audit
committee;
(ii)
procedures that define the scope and frequency
of internal audits with a requirement that a
complete audit of all of the Bank's departments
be conducted on at least an annual basis;
(iii)
procedures to ensure that operating management
respond in writing to each report provided by
internal auditors, which report shall be
maintained for subsequent supervisory review;
and,
(iv)
establishment of procedures for an effective
method of resolving discrepancies between audit
and operating management concerning audit
exceptions and recommendations, with any
disputes to be resolved by the Bank's audit
comnnttee.
10.
Within sixty
(60) days of this Agreement,
the Bank shall
develop acceptable written policies and procedures designed to strengthen and
maintain its records, systems and internal controls and shall submit a copy of
these policies and procedures
to the Reserve Bank.
corrective steps that are responsive to the
shall include, without limitation,
criticism of the Bank's current procedures
forth in the Report of Examination,
(a)
maintained
The policies and procedures
respecting internal controls as set
including, but not limited to the following:
Controls to ensure that cash drawer limits are
and reviewed;
(b)
policies
accordance with the requirements
of Governors
for reporting suspected criminal activity in
of section 208.20 of Regulation H of the Board
(12 C.F.R. 208.20);
(c)
controls tc ensure that documented audits of wire
transfer activity are performed and maintained;
(d)
development
of policies and procedures addressing bank
premises and fixed assets; and,
(e)
development
of procedures to ensure the accuracy of
subsidiary ledgers.
Page 8 of 11
11.
The Bank shall not engage, directly or indirectly, in any
violation of Regulation 0 (12 C.F.R. Part 215).
12.
The plans, policies, and procedures
required by paragraphs
3,
4, 6, 7, 9(c) and 10 hereof shall be submitted to the Reserve Bank for review
Acceptable
and approval.
plans, policies, and procedures
shall be submitted to
the Reserve Bank within the required time periods.
adopt the
+i%& T&Bj&shall
approved plans, policies, and procedures within
) ays of approval by the
Reserve Bank and then shall fully comply with them.
Agreement,
During the term of this
the approved plans, policies, and procedures
shall not be amended or
rescinded without the prior written approval of the Reserve Bank.
13.
Within thirty
(30) days of the end of each calendar quarter
(March 31, June 30, September 30 and December 31) following the date of this
Agreement,
the Bank shall furnish to the Reserve Bank written progress reports
detailing the form and manner of all actions taken to secure compliance with
this Agreement
the corrections
and the results thereof.
Such reports may be discontinued
required by this Agreement have been accomplished,
when
and the
Reserve Bank has, in writing, released the Bank from making further reports.
14.
All communications
regarding this Agreement
shall be sent to:
(a)
Mr. Harold H. Blum
Director, Banking and Trust Supervision
Federal Reserve Bank of San Francisco
P. 0. Box 7702
94120-7702
San Francisco, California
(b)
Ms. Sharon Dunlavey
Deputy Superintendent of Banks
California State Banking Department
9609 Waples Street, Suite 100
San Diego, California
92121
(C)
Mr. Allan A. Farias
President and Chief Executive Officer
Cuyamaca Bank
9955,Mission Gorge Road
Santee, California
92071
Page 9 of 11
15.
The provisions
of this Agreement shall be binding upon the
Bank and all of its institution-affiliated
parties, in their capacities as such,
and their successors and assigns.
16.
Notwithstanding
any provision of this Agreement to the
contrary, the Reserve Bank, in its sole discretion, may grant written extensions
of time to the Bank to comply with any provision of this Agreement.
17.
The provisions
of this Agreement shall not bar, estop, or
otherwise prevent the Board of Governors or any other federal or state agency or
department
from taking any other action affecting the Bank or any of its current
or former institution-affiliated
18.
parties and its SUCC~SSOIS or assigns.
Each provision of this Agreement shall remain effective and
enforceable until stayed, modified,
terminated or suspended by the Reserve
Bank.
19.
This Agreement
supersedes the Written Agreement between the
Reserve Bank and the Bank, dated June 17, 1992, which is hereby terminated.
Page 10 of 11
20.
This Agreement is a "written agreement"
section 8 of the FDI Act
for the purposes of
(12 U.S.C. 1818).
IN WITNESS HEREOF, the parties have caused this Agreement to be
executed as of the &day
of
3-----'
CUYAMACA BANK
n
By:
lgg7.
FEDERAL RESERVE
SAN FFGLNCISCO
BANK
OF
By: -4 d.G
The undersigned directors of the Bank acknowledge that each has read
the foregoing Agreement and approve of the consent thereto by the Bank.
A
Dems
Page 11 of 11
K. Vanier