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Exhibit 10.2
MEMORANDUM OF UNDERSTANDING
between
National Mercantile Bancorp
Los Angeles, California
and the
Federal Reserve Bank of San Francisco
National Mercantile Bancorp. Los Angeles, California ("Bancorp"), a
registered one-bank holding company, and the Federal Reserve Bank of San
Francisco (the "Reserve Bank"), as evidenced by signatures of their duly
appointed officers below, have hereby entered into this Memorandum of
Understanding (the "Memorandum"). This Memorandum evidences the understanding
of Bancorp and the Reserve Bank regarding the satisfactory restoration of
Bancorp's subsidiary financial institution, Mercantile National Bank, Los
Angeles, California ("Mercantile") to a "Satisfactory" condition, as evidenced
by examinations conducted by the Office of the Comptroller of the Currency (the
"Comptroller"). Accordingly, Bancorp agrees to adopt the following plans,
policies and courses of action:
1. (a) Bancorp shall not declare or pay any dividends without the prior
written approval of the Reserve Bank. Requests for prior approval shall be
received in writing by the Reserve Bank at least thirty (30) days prior to the
proposed declaration date. Such requests shall contain sufficient
documentation to demonstrate that the proposed dividend is in compliance with
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the Board of Governors of the Federal Reserve System's (the "Board of
Governors") Policy Statement dated November 14, 1985, concerning the payment of
cash dividends by bank holding companies, and is otherwise consistent with the
Board of Governors' Capital Adequacy Guidelines (12 C.F.R Part 225,
App. A & D).
2. During the term of this Memorandum, Bancorp shall ensure compliance
with the capital requirements pursuant to the Formal Agreement (the
"Agreement") between the Comptroller and Mercantile dated July 26, 1991.
Bancorp shall notify the Reserve Bank, in writing, within ten (10) days of the
end of any calendar quarter, should Mercantile's capital ratios fall below the
minimum levels required under the Agreement, and submit to the Reserve Bank
within thirty (30) days an acceptable plan that details the steps Bancorp will
take to increase Mercantile's capital ratios to the required minimum level. The
Reserve Bank may comment within twenty (20) days of receipt of the
aforementioned capital plan. Bancorp shall adopt the approved plan within ten
(10) days of receipt of approval by the Reserve Bank.
3. Within ninety (90) days of the effective date this Memorandum, the
board of directors of Bancorp shall submit to the Reserve Bank a written
statement concerning the steps that the board of directors proposes to take to
improve the condition of Mercantile and the consolidated organization. The
statement shall, at a minimum, address and consider: (a) the responsibilities
of Bancorp's board of directors regarding the definition, approval,
implementation and monitoring of the proposed corrective steps; (b) an
identification of the major areas in and the means by which Bancorp will seek
to
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improve the condition of Mercantile and the consolidated organization; (c)
an identification of the detailed information that will be assessed by the
members of the board of directors in the review process to include data on
Mercantile's adversely classified assets, loan loss reserve adequacy, risk
based capital and liquidity; (d) the development of realistic and comprehensive
budgets; and (e) the establishment of a periodic, internal review process to
monitor compliance with the board of director's objectives.
4. Within sixty (60) days of the date of this Memorandum, a committee
of directors of Bancorp shall conduct a review and assessment of the senior and
executive officers of Mercantile and Bancorp. The review shall include an
assessment of positions which are currently vacant, or which are staffed by
consultants or temporary employees. The review shall focus on the
qualifications of each senior and executive officer, and the ability of that
person to perform competently his or her assigned duties. Within ten (10) days
of the completion of the review and assessment, the committee shall forward to
the Reserve Bank its written findings and conclusions of such review and
assessment along with a written description of any management or operational
changes that may be proposed as a result of the findings. The purpose of this
review shall be to aid in the development of a senior management structure
suitable to the needs of Bancorp and Mercantile, and to staff adequately, with
qualified and trained personnel, all positions at Bancorp and Mercantile. The
qualifications of management shall be assessed, at a minimum, on its ability to:
(a) Comply with the requirements of this Memorandum;
(b) restore and maintain all aspects of Bancorp and Mercantile
to a safe and sound condition, including asset quality, loan loss adequacy,
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liquidity, and capital adequacy;
(c) develop realistic and comprehensive budgets;
(d) ensure compliance with the Agreement; and,
(e) comply with all applicable laws and regulations.
5. During the term of this Memorandum, or as otherwise required by law,
Bancorp shall comply with the provisions of Section 32 of the FDI Act
(12 U.S.C. 1831i) and sections 225.71 through 225.73 of Regulation Y of the
Board of Governors of the Federal Reserve System with respect to the
appointment of any new directors or the hiring or promotion of any new senior
executive officers.
6. Bancorp shall not execute any new employment, service, or severance
contracts, renew or modify existing contracts, with any executive officer
without providing the Reserve Bank ten (10) days prior written notice. Said
notice should include all details pertinent to the transaction. The Reserve
Bank shall have the right to disapprove any such contract or portion thereof.
If the Reserve Bank disapproves, any contract or renewal or modification
thereof, Bancorp shall not execute said contract or renewal or modification, as
the case may be.
7. Bancorp shall not, directly or indirectly, increase its borrowings
or incur any debt, including, but not limited to, the renewal of existing debt,
without the prior written approval of the Reserve Bank.
8. Bancorp shall not purchase, redeem or otherwise acquire,
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directly or indirectly, any of its stock without the prior written approval of
the Reserve Bank.
9.(a) Bancorp shall not, directly or indirectly, without the prior
written approval of the Reserve Bank, make during any calendar month any cash
expenditure in excess of $10,000 to any individual or entity, or any cash
expenditures that aggregate in excess of $10,000 to any individual or entity.
(b) Bancorp shall provide the Reserve Bank with at least fifteen
(15) days advance written notice when requesting prior written approval under
this paragraph, and shall include with such written notice documentation
sufficient to demonstrate the appropriateness of any such expenditures.
10. Bancorp shall take such actions as are necessary to ensure that
Mercantile attains compliance with any formal or informal supervisory action
issued by Mercantile's primary federal regulator.
11. Bancorp shall not, directly or indirectly, enter into any
agreements to acquire or divest of any interest in any entities or portfolios,
or engage in any new line of business, without the prior written approval of
the Reserve Bank. Requests pursuant to this paragraph shall be in writing,
received at least thirty (30) days prior to the consummation of the proposed
transaction and contain a full description of the proposed transaction, its
purpose(s), and such other matters that may be pertinent to the proposed
acquisition to assist the Reserve Bank in its review of the proposed
transaction. Should the Reserve Bank disapprove, Bancorp will not proceed with
the transaction.
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12. The plans, policies and procedures required by paragraphs 2 and 3
hereof, shall be submitted to the Reserve Bank for review and approval.
Acceptable plans, policies and procedures shall be submitted to the Reserve
Bank within the required time periods set forth in the Memorandum. Bancorp
shall adopt the approved plans, policies and procedures upon receipt of
approval by the Reserve Bank and then fully comply with them. During the term
of this Memorandum the approved plans, policies and procedures shall not be
amended or rescinded unless agreed to in writing by the Reserve Bank.
13. Within ten (10) days of the effective date of this Memorandum,
Bancorp's board of directors shall form a committee to monitor compliance with
the provisions of the Memorandum. Within forty-five (45) days of the end of
each calendar quarter (September 30, December 31, March 31, and June 30)
following the effective date of this Memorandum, said committee shall submit to
the Reserve Bank a written progress report detailing the form and manner of all
actions taken to comply with this Memorandum and the results thereof. Along
with such reports, Bancorp shall submit to the Reserve Bank:
(a) The parent company only balance sheet as of the end of that
reporting period;
(b) the parent company only income statement through that
reporting period;
(c) Mercantile's Report of Condition as of the end of that
quarter;
(d) Mercantile's Report of Income for the period ending that
quarter; and ,
(e) a copy of all written submissions filed by Mercantile with
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its primary federal regulator to any cease and desist order or any formal or
informal supervisory agreement entered into between Mercantile and such agency.
For the purposes of the above reporting requirements, parent company only
financial statements (without audit) shall be prepared in accordance with
generally accepted accounting principles and shall be certified by an officer of
Bancorp. Such reports may be discontinued when the corrections required by this
Memorandum have been accomplished and the Reserve Bank has, in writing,
released Bancorp from making further reports.
14. All correspondence regarding this Memorandum shall be sent to:
(a) Mr. Harold H. Blum
Director, Banking Supervision
Federal Reserve Bank of San Francisco
P.O. Box 7702
San Francisco, California 94120
(b) Mr. Howard P. Ladd
Chairman of the Board
National Mercantile Bancorp
1840 Century Park East
Los Angeles, California 90067
15. The provisions of this Memorandum shall be binding upon Bancorp and
each of its institution affiliated parties in their capacities as such, and
their successors and assigns.
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16. Each provision of this Memorandum shall remain effective and
enforceable until stayed, modified, terminated or suspended in writing by the
Reserve Bank.
IN WITNESS WHEREOF, the parties, through their authorized
representatives, have caused this Memorandum to be executed as of the 26th day
of October, 1995.
NATIONAL MERCANTILE BANCORP FEDERAL RESERVE BANK OF SAN FRANCISCO
By /s/ Howard P. Ladd By /s/ Robert Johnson
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Its Chairman
The undersigned directors each acknowledge that they have read the
foregoing Memorandum and approve of the consent thereto by National Mercantile
Bancorp.
/s/ Alan Grahm /s/ A. Thomas Hickey
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Alan Grahm A. Thomas Hickey
/s/ Howard P. Ladd /s/ Robert E. Thomson
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Howard P. Ladd Robert E. Thomson
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