EXHIBIT 99.2
AGREEMENT BY AND BETWEEN
The Bath National Bank
Bath, New York
and
The Office of the Comptroller of the Currency
The Bath National Bank, Bath, New York ("Bank") and the Comptroller of the
Currency of the United States of America ("Comptroller") wish to protect the
interests of the depositors, other customers, and shareholders of the Bank, and,
toward that end, wish the Bank to operate safely and soundly and in accordance
with all applicable laws, rules and regulations.
The Comptroller, through his/her National Bank Examiner, has examined the
Bank, and his/her findings are contained in the Report of Examination for the
examination that commenced on January 6, 2003 ("▇▇▇").
In consideration of the above premises, it is agreed, between the Bank, by
and through its duly elected and acting Board of Directors ("Board"), and the
Comptroller, through his/her authorized representative, that the Bank shall
operate at all times in compliance with the articles of this Agreement.
ARTICLE XIX
JURISDICTION
(1) This Agreement shall be construed to be a "written agreement entered
into with the agency" within the meaning of 12 U.S.C. ss. 1818(b)(1).
(2) This Agreement shall be construed to be a "written agreement between
such depository institution and such agency" within the meaning of 12 U.S.C. ss.
1818(e)(1) and 12 U.S.C. ss. 1818(i)(2).
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(3) This Agreement shall be construed to be a "formal written agreement"
within the meaning of 12 C.F.R. ss. 5.51(c)(6)(ii). See 12 U.S.C. ss. 1831i.
(4) This Agreement shall be construed to be a "written agreement" within
the meaning of 12 U.S.C. ss. 1818(u)(1)(A).
(5) All reports or plans which the Bank or Board has agreed to submit to
the Assistant Deputy Comptroller pursuant to this Agreement shall be forwarded
to:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Assistant Deputy Comptroller
Upstate New York Field ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
ARTICLE XX
COMPLIANCE COMMITTEE
(1) Within thirty days (30) days, the Board shall appoint a Compliance
Committee of at least six (6) directors, of which no more than two (2) shall be
employees of the Bank or any of its affiliates (as the term "affiliate" is
defined in 12 U.S.C. ss. 371c(b)(1)), or a family member of any such person.
Upon appointment, the names of the members of the Compliance Committee shall be
submitted in writing to the Assistant Deputy Comptroller. The Compliance
Committee shall be responsible for monitoring and coordinating the Bank's
adherence to the provisions of this Agreement.
(2) The Compliance Committee shall meet at least monthly.
(3) Within thirty days (30) days of the appointment of the Committee and
every thirty days thereafter, the Compliance Committee shall submit a written
progress report to the Board setting forth in detail:
(a) actions taken to comply with each Article of this Agreement;
and
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(b) the results of those actions.
(4) The Board shall forward a copy of the Compliance Committee's report,
with any additional comments by the Board, to the Assistant Deputy Comptroller.
ARTICLE XXI
ACTION PLAN
(1) Within thirty (30) days, the Board shall adopt, implement, and
thereafter ensure Bank adherence to a written action plan detailing the Board's
assessment of what needs to be done to address the regulatory recommendations
outlined in the Report of Examination (▇▇▇) and the requirements of this
Agreement to improve the Bank, specifying how the Board will implement the plan,
and setting forth a timetable for the implementation of the plan.
(2) Upon completion of the plan, the Board shall submit the plan to the
Assistant Deputy Comptroller for review. The Board shall establish appropriate
procedures for the implementation of the plan.
(3) In the event the Assistant Deputy Comptroller recommends changes to
the action plan, the Board shall promptly incorporate those changes into the
plan.
(4) The plan shall be implemented pursuant to the time frames set forth
within the plan unless events dictate modifications to the plan. Where the Board
considers modifications appropriate, those modifications shall be submitted to
the Assistant Deputy Comptroller for prior determination of no supervisory
objection.
(5) The Board shall ensure that the Bank has processes, personnel, and
control systems to ensure implementation of and adherence to the plan developed
pursuant to this Article.
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ARTICLE XXII
BOARD TO ENSURE COMPETENT MANAGEMENT
(1) Within one hundred and eighty days (180) days, the Board shall review
the capabilities of the Bank's management (President and Senior Loan Officer) to
perform present and anticipated duties, and shall determine whether management
changes should be made, including the need for additions to or deletions from
current management.
(2) For the incumbent officer in the position of Financial Officer, the
Board shall within one hundred and eighty days (180) days assess the officer's
experience, other qualifications and performance compared to the position's
description, duties and responsibilities.
(3) If the Board determines that an officer will continue in his/her
position but that the officer's depth of skills needs improvement, the Board
will within 30 days develop and implement a written program, with specific time
frames, to improve the officer's supervision and management of the Bank. At a
minimum the written program shall include:
(a) an education program designed to ensure that the officer has skills
and abilities necessary to supervise effectively;
(b) a program to improve the effectiveness of the officer;
(c) objectives by which the officer's effectiveness will be measured;
and
(d) performance appraisal program for evaluating performance according
to the position's description and responsibilities and for measuring
performance against the Bank's goals and objectives.
Upon completion, a copy of the written program shall be submitted to the
Assistant Deputy Comptroller.
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(4) If any position mentioned in Paragraphs (1) or (2) of this Article
become vacant now or in the future, including if the Board determines that the
skills of the individual are not suitable for the position or realigns an
existing officer's responsibilities and a position mentioned in paragraphs (1)
or (2) becomes vacant, the Board shall within 30 days of such vacancy appoint
(on an interim basis or otherwise) a capable person to the vacant position who
shall be vested with sufficient executive authority to ensure the Bank's
compliance with this Agreement and the safe and sound operation of functions
within the scope of that position's responsibility.
(5) Prior to the appointment of any individual to an executive officer or
director position, the Board shall submit to the Assistant Deputy Comptroller
the following information:
(a) the information sought in the "Changes in Directors and Senior
Executive Officers" booklet of the Comptroller's Corporate Manual,
together with a legible fingerprint card for the proposed
individual;
(b) a written statement of the Board's reasons for selecting the
proposed officer or director; and
(c) a written description of the proposed officer's or director's duties
and responsibilities.
(6) The Assistant Deputy Comptroller shall have the power to disapprove
the appointment of the proposed new director or executive officer. However, the
lack of disapproval of such individual shall not constitute an approval or
endorsement of the proposed new director or executive officer.
(7) The requirement to submit information and the prior disapproval
provisions of this Article are based on the authority of 12 U.S.C. ss.
1818(b)(6)(E) and do not require the
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Comptroller to complete his/her review and act on any such information or
authority within ninety (90) days.
ARTICLE XXIII
CAPITAL PLAN AND HIGHER MINIMUMS
(1) The Bank shall achieve by December 31, 2003, and thereafter maintain,
the following capital levels (as defined in 12 C.F.R. Part 3 and 12 C.F.R. Part
6):
(a) Tier 1 leverage capital at least equal to six and one-quarter
percent (6.25%) of risk-weighted assets as defined by 12
C.F.R. ss.6.2(d) and (f);
(b) Tier 1 risk-based capital equal to nine percent (9%) of risk
weighted assets as defined by 12 C.F.R. ss. 6.2(i) and (f); and
(c) Total risk-based capital of eleven percent (11%) of risk weighted
assets as defined by 12 C.F.R. ss. 6.2(k) and (f).
(2) The Bank shall achieve by March 31, 2004, and thereafter maintain, the
following capital levels (as defined in 12 C.F.R. Part 3 and 12 C.F.R. Part 6):
(a) Tier 1 leverage capital at least equal to eight percent (8%) of
risk-weighted assets as defined by 12 C.F.R. ss. 6.2(d) and (f);
(b) Tier 1 risk-based capital equal to ten percent (10%) of risk
weighted assets as defined by 12 C.F.R. ss. 6.2(i) and (f); and
(c) Total risk-based capital of twelve percent (12%) of risk weighted
assets as defined by 12 C.F.R. ss. 6.2(k) and (f).
(3) Until such time the Bank has achieved compliance with paragraph (1) of
this Article, at no time shall the Bank's capital levels drop below those levels
as of the effective date of the Agreement
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(4) The requirement in this Agreement to meet and maintain a specific
capital level means that the bank may not be deemed to be "well capitalized" for
purposes of ▇▇▇.▇.▇.▇▇. 1831o and 12 C.F.R. Part 6 pursuant to 12 ▇.▇.▇.▇▇.
6.4(b)(1)(iv).
(5) Within sixty (60) days, the Board shall develop, implement, and
thereafter ensure Bank adherence to a three year capital program. The program
shall include:
(a) specific plans for the maintenance of adequate capital that may in
no event be less than the requirements of Paragraph (1);
(b) projections for growth and capital requirements based upon strategic
plan objectives and a detailed analysis of the Bank's assets,
liabilities, earnings, fixed assets, and off-balance sheet
activities;
(c) projections of the sources and timing of additional capital to meet
the Bank's current and future needs;
(d) the primary source(s) from which the Bank will strengthen its
capital structure to meet the Bank's needs;
(e) contingency plans that identify alternative methods should the
primary source(s) under (d) above not be available; and
(f) a dividend policy that permits the declaration of a dividend only:
(i) when the Bank is in compliance with its approved capital
program;
(ii) when the Bank is in compliance with 12 U.S.C. ▇▇.▇▇. 56 and
60; and
(iii) with prior written notice to the Assistant Deputy Comptroller.
(6) Upon completion, the Bank's capital program shall be submitted to the
Assistant Deputy Comptroller for prior determination of no supervisory
objection. Upon receiving a determination of no supervisory objection from the
Assistant Deputy Comptroller, the Bank shall
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implement and adhere to the capital program. The Board shall review and update
the Bank's capital program on an annual basis, or more frequently if necessary.
Copies of the reviews and updates shall be submitted to the Assistant Deputy
Comptroller.
(7) The Board shall ensure that the Bank has processes, personnel, and
control systems to ensure implementation of and adherence to the program
developed pursuant to this Article.
ARTICLE XXIV
CREDIT RISK
(1) Within ninety (90) days, the Board shall develop, implement, and
thereafter ensure Bank adherence to a written program to reduce the high level
of credit risk in the Bank. The program shall include, but not be limited to:
(a) procedures to strengthen credit administration, underwriting, and
problem loan identification particularly in the commercial,
commercial real estate, and agricultural loan portfolios as outlined
in the Report of Examination; and
(b) procedures to strengthen management of lending operations and to
maintain an adequate, qualified staff in all functional areas;
(c) The Board shall submit a copy of the program to the Assistant Deputy
Comptroller.
(d) At least quarterly, the Board shall prepare a written assessment of
the bank's credit risk, which shall evaluate the Bank's progress
under the aforementioned program. The Board shall submit a copy of
this assessment to the Assistant Deputy Comptroller.
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(2) The Board shall ensure that the Bank has processes, personnel, and
control systems to ensure implementation of and adherence to the program
developed pursuant to this Article.
ARTICLE XXV
CRITICIZED ASSETS
(1) The Bank shall take immediate and continuing action to protect its
interest in those assets criticized in the ▇▇▇, and any subsequent Report of
Examination, by internal or external loan review, or in any list provided to
management by the National Bank Examiners during any examination.
(2) Within one hundred and twenty (120) days, the Board shall adopt,
implement, and thereafter ensure Bank adherence to a written program designed to
eliminate the basis of criticism of each problem asset in the ▇▇▇, any
subsequent Report of Examination, any internal or external loan review, or any
list provided to management by the National Bank Examiners during any
examination designated "doubtful," "substandard," or "special mention." This
program shall include, at a minimum:
(a) the development of written action plans for each criticized borrower
with an aggregate outstanding balance of one hundred thousand
dollars ($100,000) or more or when total exposure on SBA guaranteed
loan balance is one hundred thousand dollars ($100,000) or more. At
a minimum, these action plans should include those items outlined in
the ▇▇▇ as well as the following:
(i) an identification of the expected sources of repayment;
(ii) the appraised value of supporting collateral and the position
of the Bank's lien on such collateral where applicable;
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(iii) an analysis of current and satisfactory credit information,
including cash flow analysis where loans are to be repaid from
operations; and
(iv) the proposed action to eliminate the basis of criticism and
the time frame for its accomplishment.
(b) The written action plans outlined in subparagraph 2(a) shall be
produced and presented to the Board on a quarterly basis.
(3) The Board, or a designated committee composed of a quorum of outside
directors, shall conduct a review of the written action plans, on at least a
quarterly basis, to determine:
(a) the status of each criticized asset or criticized portion thereof
that equals or exceeds one hundred thousand dollars ($100,000);
(b) management's adherence to the program adopted pursuant to this
Article;
(c) the status and effectiveness of the written program; and
(d) the need to revise the program or take alternative action.
(4) Upon adoption, and quarterly thereafter, a copy of the written action
plans for all criticized assets equal to or exceeding one hundred thousand
dollars ($100,000) along with the Board's response shall be forwarded to the
Assistant Deputy Comptroller.
(5) The Bank may extend credit, directly or indirectly, including
renewals, extensions or capitalization of accrued interest, to a borrower whose
loans or other extensions of credit are criticized in the ▇▇▇, in any subsequent
Report of Examination, in any internal or external loan review, or in any list
provided to management by the National Bank Examiners during any examination and
whose aggregate loans or other extensions exceed one hundred thousand dollars
($100,000) only if each of the following conditions is met:
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(a) the Board or designated committee finds that the extension of
additional credit is necessary to promote the best interests of the
Bank and that prior to renewing, extending or capitalizing any
additional credit, a majority of the full Board (or designated
committee) approves the credit extension and records, in writing,
why such extension is necessary to promote the best interests of the
Bank; and
(b) a comparison to the written program adopted pursuant to this Article
shows that the Board's formal plan to collect or strengthen the
criticized asset will not be compromised.
(6) A copy of the approval of the Board or of the designated committee
shall be maintained in the file of the affected borrower.
(7) The Board shall ensure that the Bank has processes, personnel, and
control systems to ensure implementation of and adherence to the plan developed
pursuant to this Article.
ARTICLE XXVI
LENDING POLICY
(1) Within sixty (60) days, the Board shall review and revise the Bank's
written loan policy. In revising this policy, the Board shall refer to the Loan
Portfolio Management booklet, A-LPM, of the Comptroller's Handbook. This policy
shall incorporate, but not necessarily be limited to, the following:
(a) a description of acceptable types of loans;
(b) a provision that current and satisfactory credit information will be
obtained on each borrower;
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(c) establishing minimum requirements for uniform and comprehensive
credit analysis, including full disclosure of all significant
aspects of the proposed credit and an assessment of the risks
involved, prior to credit approval;
(d) maturity scheduling related to the anticipated source of repayment,
the purpose of the loan, and the useful life of the collateral;
(e) maximum ratio of loan value to appraised value or acquisition costs
of collateral securing the loan;
(f) collection procedures, to include follow-up efforts, that are
systematically and progressively stronger;
(g) a definition of the Bank's trade area;
(h) guidelines and limitations for loans originating outside of the
Bank's trade area;
(i) a limitation on aggregate outstanding loans in relation to other
balance sheet accounts;
(j) distribution of loans by category;
(k) limitations on participation loans by aggregate dollar per
individual institution, and specific guidelines to properly
administer participation loans;
(l) a prohibition regarding the use of brokered deposits to fund loan
growth or support criticized loans;
(m) guidelines for loans to insiders, including a statement that such
loans will not be granted on terms more favorable than those offered
to similar outside borrowers;
(n) guidelines and limitations on concentrations of credit;
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(o) a limitation on the type and size of loans that may be made by loan
officers without prior approval by the Board or a committee
established by the Board for this purpose;
(p) measures to correct the deficiencies in the Bank's lending
procedures noted in any Report of Examination (▇▇▇); and
(q) guidelines designed to improve Board oversight of the loan approval
process, specifically with regard to credits exhibiting significant
risk. At a minimum, the policy shall:
(i) establish dollar limits on extensions of credit to any one
borrower, above which the prior approval of the Board, or a
committee thereof, would be required;
(ii) establish dollar limits on aggregate extensions of credit to
any one borrower, above which any new extensions of credit to
that borrower, regardless of amount, would require the prior
approval of the Board, or a committee thereof; and
(iii) require that all credits which deviate from the Bank's normal
course of business, including all credits which deviate from
the Bank's written strategic plan, receive the prior approval
of the Board, or a committee thereof.
(r) guidelines consistent with Banking Circular 255, Troubled Loan
Workouts and Loans to Borrowers in Troubled Industries setting forth
the criteria under which renewals of extensions of credit may be
approved. At a minimum the policy shall:
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(i) ensure that renewals are not made for the sole purpose of
reducing the volume of loan delinquencies; and
(ii) provide guidelines and limitations on the capitalization of
interest;
(s) charge-off guidelines, by type of loan or other asset, including
Other Real Estate Owned, addressing the circumstances under which a
charge-off would be appropriate and ensuring the recognition of
losses within the quarter of discovery; and
(t) a pricing policy that takes into consideration costs, general
overhead, and probable loan losses, while providing for a reasonable
margin of profit;
(u) guidelines for periodic review of the Bank's adherence to the
revised lending policy.
(2) Upon adoption, the policy shall be implemented, the Board shall
thereafter ensure Bank adherence to the policy, and a copy of the policy shall
be forwarded to the Assistant Deputy Comptroller for review.
(3) The Board shall ensure that the Bank has processes, personnel, and
control systems to ensure implementation of and adherence to the policy
developed pursuant to this Article.
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ARTICLE XXVII
NONACCRUAL LOANS
(1) The Bank shall immediately reverse or charge-off all interest that has
been accrued contrary to the requirements contained in the Instruction for
Preparation of Consolidated Reports of Condition and Income ("Call Report
Instructions") governing nonaccrual loans. Further, the bank shall immediately
reverse or charge-off that portion of the remaining accrued interest on such
loans that, when combined with principal, is not protected by sound collateral
values
(2) Within thirty (30) days, but no later than the next call report filing
on September 30, 2003, whichever date is earlier, the Board shall adopt and
implement written policies and procedures governing the supervision and control
of nonaccrual loans. Such policies and procedures shall:
(a) be consistent with the accounting requirements contained in the Call
Report Instructions;
(b) address the circumstances under which accrued interest due on a loan
may be added to the outstanding principal amount when the loan is
renewed or restructured; address the comments provided in the ▇▇▇,
and
(c) require the monthly presentation to the Board of all loans meeting
any of the nonaccrual criteria.
(3) Within sixty (60) days, the Board shall develop and implement a
written policy that shall provide for auditing accrued interest on loans. The
policy shall, at a minimum, provide for quarterly audits of loan accruals and
incorporate procedures for periodically testing the
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Bank's identification of nonaccrual loans as governed by the policy adopted
pursuant to paragraph (1) above.
(4) Upon adoption, a copy of the written policies and procedures shall be
forwarded to the Assistant Deputy Comptroller and the Board shall thereafter
ensure Bank adherence to all policies and procedures developed pursuant to this
Article.
(5) The Board shall ensure that the Bank has processes, personnel, and
control systems to ensure implementation of and adherence to the policies
developed pursuant to this Article.
ARTICLE XXVIII
CREDIT AND COLLATERAL EXCEPTIONS
(1) Within ninety (90) days the Board shall obtain current and
satisfactory credit information on all loans lacking such information, including
those listed in the ▇▇▇, in any subsequent Report of Examination, in any
internal or external loan review, or in any listings of loans lacking such
information provided to management by the National Bank Examiners at the
conclusion of an examination.
(2) Within ninety (90) days the Board shall ensure proper collateral
documentation is maintained on all loans and correct each collateral exception
listed in the ▇▇▇, in any subsequent Report of Examination, in any internal or
external loan review, or in any listings of loans lacking such information
provided to management by the National Bank Examiners at the conclusion of an
examination.
(3) Effective immediately, the Bank may grant, extend, renew, alter or
restructure any loan or other extension of credit only after:
(a) documenting the specific reason or purpose for the extension of
credit;
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(b) identifying the expected source of repayment in writing;
(c) structuring the repayment terms to coincide with the expected source
of repayment;
(d) obtaining and analyzing current and satisfactory credit information,
including cash flow analysis, where loans are to be repaid from
operations;
(i) Failure to obtain the information in Subparagraph (3)(d) shall
require a majority of the full Board (or a delegated committee
thereof) to certify in writing the specific reasons why
obtaining and analyzing the information in 3(d) would be
detrimental to the best interests of the Bank.
(ii) A copy of the Board certification shall be maintained in the
credit file of the affected borrower(s). The certification
will be reviewed by this Office in subsequent examinations of
the Bank; and
(e) documenting, with adequate supporting material, the value of
collateral and properly perfecting the Bank's lien on it where
applicable.
(4) The Board shall ensure that the Bank has processes, personnel, and
control systems to ensure implementation of and adherence to the policy
developed pursuant to this Article.
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ARTICLE XXIX
INTERNAL LOAN REVIEW
(1) The Board shall within thirty (30) days employ or designate a
sufficiently experienced and qualified person(s) or firm to ensure the timely
and independent identification of problem loans and leases.
(2) Within forty-five (45) days, the Board shall establish an effective,
independent loan review system to periodically review the Bank's loan and lease
portfolios to assure the timely identification and categorization of problem
credits and provide an assessment of the overall condition of the loan and lease
portfolios. The system shall provide for a written report to be filed with the
Board after each review and shall use a loan and lease grading system consistent
with the guidelines set forth in the Rating Credit Risk booklet, A-RCR, of the
Comptroller's Handbook. These reports shall, at a minimum, include conclusions
regarding:
(a) the identification, type, rating, and amount of problem loans and
leases;
(b) credit and collateral documentation exceptions;
(c) the identification and status of credit related violations of law,
rule or regulation;
(d) the identity of the loan officer and/or participating financial
institution who originated each loan reported in accordance with
subparagraphs (a) through (c) of the Article as well as the adequacy
of loan officer credit analyses;
(e) loans and leases to executive officers, directors, principal
shareholders (and their related interests) of the Bank;
(f) loans and leases not in conformance with the Bank's lending and
leasing policies, and exceptions to the Bank's lending and leasing
policies;
(g) the adequacy of allowance for loan and lease loss allocations; and
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(h) the adequacy of written action plans for criticized borrowers as
outlined in Article VII.
(3) At least annually, such report, also shall include conclusions on, at
a minimum:
(a) the overall quality of the loan and lease portfolios;
(b) concentrations of credit; and
(c) the adequacy of management's documentation supporting the allowance
for loan and lease loss methodology and as well as the methodology's
compliance with regulatory guidance.
(4) The Board shall evaluate the internal loan and lease review report(s)
and shall ensure that immediate, adequate, and continuing remedial action, if
appropriate, is taken upon all findings noted in the report(s).
(5) A copy of the reports submitted to the Board, as well as documentation
of the action taken by the Bank to collect or strengthen assets identified as
problem credits, shall be maintained in the Bank.
(6) The Board shall ensure that the Bank has processes, personnel, and
control systems to ensure implementation of and adherence to the policy
developed pursuant to this Article.
ARTICLE XXX
INTEREST RATE RISK MEASUREMENT SYSTEMS
(1) Within thirty (30) days, the Board shall adopt, implement, and
thereafter ensure Bank adherence to a written action plan outlining proposed
corrective action and corresponding timeframes to address each item recommended
in the ▇▇▇ - Matters Requiring Attention (MRA) Interest Rate Risk Measurement
and Monitoring Systems. In formulating this plan, the
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Board shall also refer to the Interest Rate Risk booklet, L-IRR, of the
Comptroller's Handbook. The plan shall provide for a coordinated interest rate
risk measurement process and, at a minimum, address:
(a) Enhancement of the measurement system and supporting documentation
used to prepare management reports as recommended in the ▇▇▇;
(b) Employment of sufficient competent personnel to ensure timely,
routine preparation of management reports used to make strategic
interest rate risk decisions;
(c) Establishment of a comprehensive validation process as required by
OCC Bulletin 2000-16 Risk Modeling - Model Validation dated May 30,
2000.
(d) Periodic review of the Bank's adherence to the plan to achieve
timely compliance.
(2) Upon adoption, a copy of the written plan shall be forwarded to the
Assistant Deputy Comptroller for review.
(3) The Board shall ensure that the Bank has processes, personnel, and
control systems to ensure implementation of and adherence to the policy
developed pursuant to this Article.
ARTICLE XXXI
ALLOWANCE FOR LOAN AND LEASE LOSSES
(1) The Board shall review the adequacy of the Bank's Allowance for Loan
and Lease Losses (Allowance) and shall establish a program for the maintenance
of an adequate Allowance. This review and program shall be designed in light of
the comments on maintaining a proper Allowance found in the ▇▇▇, the
Comptroller's Handbook - Allowance for Loan and Lease Losses booklet, A-ALLL,
OCC Bulletin 2001-37, Policy Statement on Allowance for Loan and
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Lease Losses Methodologies and Documentation for Banks and Savings Institutions,
and Statement of Financial Accounting Standards (FASB) 114 - Accounting by
Creditors for the Impairment of a Loan, and shall focus particular attention on
the following factors:
(a) results of the Bank's internal and external loan review;
(b) an estimate of inherent loss exposure on each significant credit;
(c) loan loss experience;
(d) trends of delinquent and nonaccrual loans;
(e) concentrations of credit in the Bank;
(f) present and prospective economic conditions; and
(g) participations purchased from other financial institutions.
(2) The program shall provide for a review of the Allowance by the Board
at least once each calendar quarter. Any deficiency in the Allowance shall be
remedied in the quarter it is discovered, prior to the filing of the
Consolidated Reports of Condition and Income, by additional provisions from
earnings. Written documentation shall be maintained indicating the factors
considered and conclusions reached by the Board in determining the adequacy of
the Allowance.
(3) The Board shall ensure that the Bank has processes, personnel, and
control systems to ensure implementation of and adherence to the program
developed pursuant to this Article.
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ARTICLE XXXII
ADMINISTRATIVE APPEALS AND EXTENSIONS OF TIME
(1) If the Bank determines that an exception to any provision of this
Agreement is in the best interests of the Bank, or requires an extension of any
timeframe within this Agreement, the Board shall submit a written request to the
Assistant Deputy Comptroller asking for relief.
(2) Any written requests submitted pursuant to this Article shall include
a statement setting forth in detail the special circumstances that prevent the
Bank from complying with any provision, that require the Assistant Deputy
Comptroller to exempt the Bank from any provision, or that require an extension
of any timeframe within this Agreement. All such requests shall be accompanied
by relevant supporting documentation.
(3) The Assistant Deputy Comptroller's decision in granting the request is
final and not subject to further review.
ARTICLE XXXIII
CLOSING
(1) Although the Board has agreed to submit certain programs and reports
to the Assistant Deputy Comptroller for review or prior determination of no
supervisory objection, the Board has the ultimate responsibility for proper and
sound management of the Bank.
(2) It is expressly and clearly understood that if, at any time, the
Comptroller deems it appropriate in fulfilling the responsibilities placed upon
him/her by the several laws of the United States of America to undertake any
action affecting the Bank, nothing in this Agreement shall in any way inhibit,
estop, bar, or otherwise prevent the Comptroller from so doing.
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(3) Any time limitations imposed by this Agreement shall begin to run from
the effective date of this Agreement. Such time requirements may be extended in
writing by the Assistant Deputy Comptroller for good cause upon written
application by the Board.
(4) The provisions of this Agreement shall be effective upon execution by
the parties hereto and its provisions shall continue in full force and effect
unless or until such provisions are amended in writing by mutual consent of the
parties to the Agreement or excepted, waived, or terminated in writing by the
Comptroller.
(5) In each instance in this Agreement in which the Board is required to
ensure adherence to, and undertake to perform certain obligations of the Bank,
it is intended to mean that the Board shall:
(a) authorize and adopt such actions on behalf of the Bank as may be
necessary for the Bank to perform its obligations and undertakings
under the terms of this Agreement;
(b) require the timely reporting by Bank management of such actions
directed by the Board to be taken under the terms of this Agreement;
(c) follow-up on any non-compliance with such actions in a timely and
appropriate manner; and
(d) require corrective action be taken in a timely manner of any
non-compliance with such actions.
(6) This Agreement is intended to be, and shall be construed to be, a
supervisory "written agreement entered into with the agency" as contemplated by
12 U.S.C. ss. 1818(b)(1), and expressly does not form, and may not be construed
to form, a contract binding on the OCC or the United States. Notwithstanding the
absence of mutuality of obligation, or of
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consideration, or of a contract, the OCC may enforce any of the commitments or
obligations herein undertaken by the Bank under its supervisory powers,
including 12 U.S.C. ss. 1818(b)(1), and not as a matter of contract law. The
Bank expressly acknowledges that neither the Bank nor the OCC has any intention
to enter into a contract. The Bank also expressly acknowledges that no OCC
officer or employee has statutory or other authority to bind the United States,
the U.S. Treasury Department, the OCC, or any other federal bank regulatory
agency or entity, or any officer or employee of any of those entities to a
contract affecting the OCC's exercise of its supervisory responsibilities. The
terms of this Agreement, including this paragraph, are not subject to amendment
or modification by any extraneous expression, prior agreements or prior
arrangements between the parties, whether oral or written.
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