Exhibit 10.1
UNITED STATES OF AMERICA
DEPARTMENT OF THE TREASURY
COMPTROLLER OF THE CURRENCY

             
In the Matter of:
  )   AA-EC-09-73
Beach First National Bank
  )        
Myrtle Beach, South Carolina
  )        

CONSENT ORDER
WHEREAS, the Comptroller of the Currency of the United States of America
(“Comptroller”), through his National Bank Examiner, has supervisory authority
over Beach First National Bank, Myrtle Beach, South Carolina (“Bank”);
WHEREAS, the Bank, by and through its duly elected and acting Board of Directors
(“Board”), has executed a Stipulation and Consent to the Issuance of a Consent
Order (“Stipulation and Consent”), dated November 3, 2009, that is accepted by
the Comptroller; and
WHEREAS, by this Stipulation and Consent, which is incorporated by reference,
the Bank, has consented to the issuance of this Consent Order (“Order”) by the
Comptroller.
NOW, THEREFORE, pursuant to the authority vested in him by the Federal Deposit
Insurance Act, as amended, 12 U.S.C. § 1818, the Comptroller hereby orders that:
ARTICLE I
COMPLIANCE COMMITTEE
(1) The Board shall ensure that the Bank maintains an active Compliance
Committee of at least five (5) directors, of which no more than one (1) shall be
an employee or controlling shareholder of the Bank or any of its affiliates (as
the term “affiliate” is defined in 12 U.S.C. § 371c(b)(1)), or a family member
of any such person. Upon appointment, the names of the members of the Compliance
Committee and, in the event of a change of the membership, the name of any new
member shall be submitted in writing to the Director for Special Supervision
(“Director”). The Compliance Committee shall be responsible for monitoring and
coordinating the Bank’s adherence to the provisions of this Order.

 

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(2) The Compliance Committee shall meet at least monthly.
(3) Within thirty (30) days of the date of this Order and every thirty (30) days
thereafter, the Compliance Committee shall continue to ensure the submission of
a written progress report to the Board setting forth in detail:

  (a)   a description of the actions needed to achieve full compliance with each
Article of this Order;     (b)   actions taken to comply with each Article of
this Order;     (c)   the results and status 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 Director within ten (10) days of
receiving such report.
(5) All reports or plans which the Bank or Board has agreed to submit to the
Director pursuant to this Order shall be forwarded, by overnight mail or via
email, to the following:

     
Director for Special Supervision
Comptroller of the Currency
250 E Street, S.W.
Mail Stop 7-4
Washington, DC 20219
  with a copy to:
Carolinas Field Office
Comptroller of the Currency
212 South Tryon Street, Suite 700
Charlotte, NC 28281

6) The Board shall ensure that the Bank has sufficient processes, personnel, and
control systems to effectively implement and adhere to all provisions of this
Order, and that Bank personnel have sufficient training and authority to execute
their duties and responsibilities under this Order.

 

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ARTICLE II
STRATEGIC PLAN
(1) Within ninety (90) days, the Board shall forward to the Director for his
review, pursuant to paragraph (5) of this Article, a revised written Strategic
Plan for the Bank that is acceptable to the Director, covering at least a
three-year period. At the next Board meeting following receipt of the Director’s
written determination of no supervisory objection, the Board shall adopt and the
Bank (subject to Board review and ongoing monitoring) shall implement and
thereafter ensure adherence to the Strategic Plan. The Strategic Plan shall
establish objectives for the Bank’s overall risk profile, earnings performance,
growth, balance sheet mix, off-balance sheet activities, liability structure,
capital adequacy, reduction in the volume of nonperforming assets, product line
development, and market segments that the Bank intends to promote or develop,
together with strategies to achieve those objectives, and shall, at a minimum,
include:

  (a)   a mission statement that forms the framework for the establishment of
strategic goals and objectives;     (b)   a description of the Bank’s targeted
market(s) and an assessment of the current and projected risks and competitive
factors in its identified target market(s);     (c)   the strategic goals and
objectives to be accomplished;     (d)   specific actions to improve Bank
earnings and accomplish the identified strategic goals and objectives;     (e)  
identification of Bank personnel to be responsible and accountable for achieving
each goal and objective of the Strategic Plan, including specific time frames;

 

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  (f)   a financial forecast, to include projections for major balance sheet and
income statement accounts, targeted financial ratios, and growth projections
over the period covered by the Strategic Plan;     (g)   a description of the
assumptions used to determine financial projections and growth targets;     (h)
  an identification and risk assessment of the Bank’s present and planned future
product lines (assets and liabilities) that will be utilized to accomplish the
strategic goals and objectives established in the Strategic Plan, with the
requirement that the risk assessment of new product lines must be completed
prior to the offering of such product lines;     (i)   a description of control
systems to mitigate risks associated with planned new products, growth, or any
proposed changes in the Bank’s markets;     (j)   an evaluation of the Bank’s
internal operations, staffing requirements, board and management information
systems, and policies and procedures for their adequacy and contribution to the
accomplishment of the goals and objectives established in the Strategic Plan;  
  (k)   a management employment and succession program to promote the retention
and continuity of capable management;     (l)   assigned responsibilities and
accountability for the strategic planning process, new products, growth goals,
and proposed changes in the Bank’s operating environment; and     (m)   a
description of systems to monitor the Bank’s progress in meeting the Strategic
Plan’s goals and objectives.

 

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(2) If the Board’s Strategic Plan under paragraph (1) of this Article is a sale
or merger of the Bank, the Strategic Plan shall, at a minimum, address the steps
that will be taken and the associated timeline to ensure that a definitive
agreement for the sale or merger is executed not later than ninety (90) days
after the receipt of the Director’s written determination of no supervisory
objection pursuant to paragraph (5) of this Article.
(3) At least monthly, the Board shall review financial reports and earnings
analyses prepared by the Bank that evaluate the Bank’s performance against the
goals and objectives established in the Strategic Plan, as well as the Bank’s
written explanation of significant differences between actual and projected
balance sheet, income statement, and expense accounts, including descriptions of
extraordinary and/or nonrecurring items. Within ten (10) days of the completion
of its review, the Board shall submit a copy of the reports to the Director.
(4) At least quarterly, the Board shall prepare a written evaluation of the
Bank’s performance against the Strategic Plan, based on the Bank’s monthly
reports, analyses, and written explanations of any differences between actual
performance and the Bank’s strategic goals and objectives, and shall include a
description of the actions the Board will require the Bank to take to address
any shortcomings, which shall be documented in the Board meeting minutes. Within
ten (10) days of completing its evaluation, the Board shall submit a copy to the
Director.
(5) Prior to adoption by the Board, a copy of the revised Strategic Plan, and
any subsequent amendments or revisions, shall be forwarded to the Director for
review and prior written determination of no supervisory objection. Upon
receiving a written determination of no supervisory objection from the Director,
the Board shall adopt and the Bank shall immediately implement and adhere to the
Strategic Plan.

 

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(6) The Bank may not initiate any action that deviates significantly from the
Board-approved Strategic Plan without a written determination of no supervisory
objection from the Director. The Board must give the Director advance, written
notice of its intent to deviate significantly from the Strategic Plan, along
with an assessment of the impact of such change on the Bank’s condition,
including a profitability analysis and an evaluation of the adequacy of the
Bank’s organizational structure, staffing, management information systems,
internal controls, and written policies and procedures to identify, measure,
monitor, and control the risks associated with the change in the Strategic Plan.
(7) For the purposes of this Article, changes that may constitute a significant
deviation from the Strategic Plan include, but are not limited to, a change in
the Bank’s marketing strategies, marketing partners, underwriting practices and
standards, credit administration, account management, collection strategies or
operations, fee structure or pricing, accounting processes and practices, or
funding strategy, any of which, alone or in aggregate, may have a material
impact on the Bank’s operations or financial performance; or any other changes
in personnel, operations, or external factors that may have a material impact on
the Bank’s operations or financial performance. For purposes of this paragraph,
“personnel” shall include the president, chief executive officer, chief
operating officer, chief financial officer, chief credit officer, chief
compliance officer, risk manager, auditor, member of the Bank’s board of
directors, or any other position subsequently identified in writing by the
Director.

 

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ARTICLE III
CAPITAL PLAN AND HIGHER MINIMUMS
(1) The Bank shall within one hundred and twenty (120) days achieve and
thereafter maintain the following minimum capital ratios (as defined in 12
C.F.R. Part 3)1:

  (a)   Total capital at least equal to twelve percent (12%) of risk-weighted
assets;     (b)   Tier 1 capital at least equal to eight and one half (8.5%) of
adjusted total assets.2

(2) Within ninety (90) days, the Board shall forward to the Director for his
review, pursuant to paragraph (4) of this Article, a written revised Capital
Plan for the Bank, covering at least a three-year period. At the next Board
meeting following receipt of the Director’s written determination of no
supervisory objection, the Board shall adopt and the Bank (subject to Board
review and ongoing monitoring) shall implement and thereafter ensure adherence
to the Capital Plan. The Capital Plan shall include:

  (a)   specific plans for the achievement and maintenance of adequate capital,
which may in no event be less than the requirements of paragraph (1) of this
Article;     (b)   projections for growth and capital requirements, based upon 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 future needs, as set forth in the
Strategic Plan;

 

      1   The requirement in this Order to meet and maintain a specific capital
level means that the Bank may not be deemed to be “well capitalized” for
purposes of 12 U.S.C. § 1831o and 12 C.F.R. Part 6, pursuant to 12 C.F.R. §
6.4(b)(1)(iv).   2   Adjusted total assets is defined in 12 C.F.R. § 3.2(a) as
the average total asset figure used for call report purposes minus
end-of-quarter intangible assets.

 

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  (d)   identification of the primary sources from which the Bank will maintain
an appropriate capital structure to meet the Bank’s future needs, as set forth
in the Strategic Plan;     (e)   specific plans detailing how the Bank will
comply with restrictions or requirements set forth in this Order and with 12
U.S.C. § 1831o, including the restrictions against brokered deposits in 12
C.F.R. § 337.6;     (f)   contingency plans that identify alternative methods to
strengthen capital, should the primary source(s) under paragraph (d) of this
Article not be available; and     (g)   a prohibition on the payment of director
fees unless the Bank is in compliance with the minimum capital ratios identified
in paragraph (1).

(3) The Bank may pay a dividend or make a capital distribution only:

  (a)   when the Bank is in compliance with its approved Capital Plan and would
remain in compliance with its approved Capital Plan immediately following the
payment of any dividend;     (b)   when the Bank is in compliance with 12 U.S.C.
§§ 56 and 60; and     (c)   following the prior written determination of no
supervisory objection by the Director.

(4) Prior to adoption by the Board, a copy of the revised Capital Plan shall be
submitted to the Director for a prior written determination of no supervisory
objection. Upon receiving a written determination of no supervisory objection
from the Director, the Board shall adopt and the Bank shall immediately
implement and adhere to the Capital Plan. The Board shall review and update the
Bank’s Capital Plan at least annually and more frequently if necessary or if
requested by the Director. Revisions to the Bank’s Capital Plan shall be
submitted to the Director for a prior written determination of no supervisory
objection.

 

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(5) If the Bank fails to submit an acceptable Capital Plan as required by
paragraph (2) of this Article, fails to implement or adhere to a Capital Plan to
which the Director has taken no supervisory objection pursuant to paragraph
(4) of this Article, or fails to achieve and maintain the minimum capital ratios
as required by paragraph (1) of this Article; then in the sole discretion of the
Director, the Bank shall, upon direction of the Director, within thirty
(30) days develop and shall submit to the Director for his review and prior
written determination of no supervisory objection a Disposition Plan that shall
detail the Board’s proposal to sell or merge the Bank, or liquidate the Bank
under 12 U.S.C. § 181.
(6) In the event that the Disposition Plan submitted by the Bank’s Board
outlines a sale or merger of the Bank, the Disposition Plan shall, at a minimum,
address the steps that will be taken and the associated timeline to ensure that
a definitive agreement for the sale or merger is executed not later than one
hundred twenty (120) days after the receipt of the Director’s written
determination of no supervisory objection to the Disposition Plan. If the
Disposition Plan outlines a liquidation of the Bank, the Disposition Plan shall
detail the actions and steps necessary to accomplish the liquidation in
conformance with 12 U.S.C. §§ 181 and 182, and the dates by which each step of
the liquidation shall be completed, including the date by which the Bank will
terminate the national bank charter. In the event of liquidation, the Bank shall
hold a shareholder vote, pursuant to 12 U.S.C. § 181, and commence liquidation
within thirty (30) days of receiving the Director’s written determination of no
supervisory objection to the Disposition Plan.

 

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(7) After the Director has advised the Bank in writing that he does not take
supervisory objection to the Disposition Plan, the Board shall immediately adopt
and implement, and shall thereafter ensure adherence to, the terms of the
Disposition Plan. Failure to submit a timely, acceptable Disposition Plan, or
failure to implement and adhere to the Disposition Plan after the Board obtains
a written determination of no supervisory objection from the Director, may be
deemed a violation of this Order, in the exercise of the Director’s sole
discretion.
ARTICLE IV
BOARD TO ENSURE COMPETENT MANAGEMENT
(1) The Board shall ensure that the Bank has competent management in place on a
full-time basis in all executive officer positions to carry out the Board’s
policies; ensure compliance with this Order; ensure compliance with applicable
laws, rules, and regulations; and manage the day-to-day operations of the Bank
in a safe and sound manner.
(2) Within ninety (90) days, the Board (with the exception of any Bank executive
officers) shall prepare a written assessment of the capabilities of the Bank’s
executive officers to perform present and anticipated duties, taking into
account the findings contained in the most recent Report of Examination, and
factoring in the officer’s past actual performance, experience, and
qualifications, compared to their position description, duties and
responsibilities, with particular emphasis on their proposed responsibilities to
execute the Strategic Plan and correct the concerns raised in the most recent
Report of Examination. Upon completion, a copy of the written assessment shall
be submitted to the Director.
(3) If the Board determines that an officer’s performance, skills or abilities
need improvement, the Board will, within thirty (30) days following its
determination, require the Bank to develop and implement a written program, with
specific time frames, to improve the officer’s performance, skills and
abilities. Upon completion, a copy of the written program shall be submitted to
the Director.

 

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(4) If the Board determines that an officer will not continue in his/her
position, the Board shall document the reasons for this decision in its
assessment performed pursuant to paragraph (2) of this Article, and shall within
sixty (60) days of such vacancy identify and provide notice to the Director,
pursuant to paragraph (5) of this Article, of a qualified and capable candidate
for the vacant position who shall be vested with sufficient executive authority
to ensure the Bank’s compliance with this Order 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 position,
the Board shall submit to the Director written notice, as required by 12 C.F.R.
§ 5.51 and in accordance with the Comptroller’s Licensing Manual. The Director
shall have the power to disapprove the appointment of the proposed executive
officer. However, the failure to exercise such veto power shall not constitute
an approval or endorsement of the proposed officer. The requirement to submit
information and the prior disapproval provisions of this Article are based upon
the authority of 12 U.S.C. § 1818(b) and do not require the Comptroller or the
Director to complete his review and act on any such information or authority
within ninety (90) days.
(6) The Board shall perform, at least annually, a written performance appraisal
for each Bank executive officer that establishes objectives by which the
officer’s effectiveness will be measured, evaluates performance according to the
position’s description and responsibilities, and assesses accountability for
action plans to remedy issues raised in Reports of Examination or audit reports.
Upon completion, copies of the performance appraisals shall be submitted to the
Director. The Board shall ensure that the Bank addresses any identified
deficiencies in a manner consistent with paragraphs (3) and (4) of this Article.

 

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ARTICLE V
LIQUIDITY RISK MANAGEMENT PROGRAM
(1) Within sixty (60) days, the Board shall revise and maintain a comprehensive
liquidity risk management program which assesses, on an ongoing basis, the
Bank’s current and projected funding needs, and ensures that sufficient funds or
access to funds exist to meet those needs. Such a program must include effective
methods to achieve and maintain sufficient liquidity and to measure and monitor
liquidity risk, to include at a minimum:

  (a)   strategies to maintain sufficient liquidity at reasonable costs
including, but not limited to, the following:

  (i)   better diversification of funding sources, reducing reliance on high
cost providers;     (ii)   reducing rollover risk;     (iii)   increasing
liquidity through such actions as obtaining additional capital, placing limits
on asset growth, aggressive collection of problem loans and recovery of
charged-off assets, and asset sales; and     (iv)   monitoring the projected
impact on reputation, economic and credit conditions in the Bank’s market(s).

  (b)   The preparation of liquidity reports which shall be reviewed by the
Board on at least a monthly basis, to include, at a minimum, the following:

  (i)   a certificate of deposit maturity schedule, including separate line
items for brokered deposits and uninsured deposits, depicting maturities on a
weekly basis for the next two months and monthly for the following four months,
which schedule shall be updated at least weekly;

 

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  (ii)   a schedule of all funding obligations, including money market accounts,
unfunded loan commitments, outstanding lines of credit and outstanding letters
of credit, showing the obligations that can be drawn immediately, and on a
weekly basis for the next two months and monthly for the following four months,
which schedule shall be prepared and updated at least weekly;     (iii)   a
listing of funding sources, prepared and updated on a weekly basis for the next
two months and monthly for the following four months, including federal funds
sold; unpledged assets and assets available for sale; and borrowing lines by
lender, including original amount, remaining availability, type and book value
of collateral pledged, terms, and maturity date, if applicable.     (iv)   a
monthly sources and uses of funds report for a minimum period of six months,
updated monthly, which reflects known and projected changes in asset and
liability accounts, and the assumptions used in developing the projections. Such
reports shall include, at a minimum:

  1.   the funding obligations and sources required by (b) and (c) of this
paragraph;     2.   projected additional funding sources, including loan
payments, loan sales/participations, or deposit increases; and     3.  
projected additional funding requirements from a reduction in deposit accounts
including uninsured and brokered deposits, inability to acquire federal funds
purchased, or availability limitations or reductions associated with borrowing
relationships.

 

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  (c)   A contingency funding plan that, on a monthly basis, forecasts funding
needs, and funding sources under different stress scenarios which represent
management’s best estimate of balance sheet changes that may result from a
liquidity or credit event. The contingency funding plan shall include:

  (i)   specific plans detailing how the Bank will comply with restrictions or
requirements set forth in this Order and 12 U.S.C. §1831o, including the
restrictions against brokered deposits in 12 C.F.R. §337.6 (which plans may be
subject to revision as may be appropriate upon the adoption, if any, of
currently-proposed changes to 12 C.F.R.§ 337.6);     (ii)   the preparation of
reports which identify and quantify all sources of funding and funding
obligations under best case and worst case scenarios, including asset funding,
liability funding and off-balance sheet funding; and     (iii)   procedures
which ensure that the Bank’s contingency funding practices are consistent with
the Board’s guidance and risk tolerances.

(2) The Board shall submit a copy of the comprehensive liquidity risk management
program, along with the reports required by this Article, to the Director for
review.

 

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ARTICLE VI
LOAN PORTFOLIO MANAGEMENT
(1) Within sixty (60) days, Board shall revise and the Bank (subject to Board
review and ongoing monitoring) shall continue to ensure implementation and
adherence to a written credit policy to improve the Bank’s loan portfolio
management. The credit policy shall include (but not be limited to):

  (a)   a description of the types of credit information required from borrowers
and guarantors, including (but not limited to) annual audited statements,
interim financial statements, personal financial statements, and tax returns
with supporting schedules;     (b)   procedures that require any extension of
credit (new, maturity extension, or renewal) is made only after obtaining and
validating current credit information about the borrower and any guarantor
sufficient to fully assess and analyze the borrower’s and guarantor’s cash flow,
debt service requirements, contingent liabilities, and global liquidity
condition, and only after the credit officer prepares a documented credit
analysis;     (c)   procedures that require any extension of credit (new,
maturity extension, or renewal) is made only after obtaining and documenting the
current valuation of any supporting collateral, perfecting and verifying the
Bank’s lien position, and that reasonable limits are established on credit
advances against collateral, based on a consideration of (but not limited to) a
realistic assessment of the value of collateral, the ratio of loan to value, and
overall debt service requirements;     (d)   procedures to ensure that loans
made for the purpose of constructing or developing real estate include (but are
not limited to) requirements to:

  (i)   obtain and evaluate detailed project plans; detailed project budget;
time frames for project completion; detailed market analysis; and

 

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      sales projections, including projected absorption rates;     (ii)  
conduct stress testing of significant project and lending; and     (iii)  
obtain current documentation sufficient to support a detailed analysis of the
financial condition of borrowers and significant guarantors.

  (e)   a requirement that borrowers and/or guarantors maintain any collateral
margins established in the credit approval process;     (f)   procedures that
prohibit the capitalization of accrued interest on any loan renewal or
extension;     (g)   procedures that prohibit, on any loan renewal, extension or
modification, the establishment of a new interest reserve using the proceeds of
any Bank loan to the same borrower or guarantor;     (h)   procedures to ensure
that all exceptions to the credit policy shall be clearly documented on the loan
offering sheet, problem loan report, and other MIS; and approved by the Board or
a committee thereof before the loan is funded or renewed;     (i)   credit risk
rating definitions consistent with applicable regulatory guidance;     (j)  
procedures for early problem loan identification, to ensure that credits are
accurately risk rated at least monthly;     (k)   procedures governing the
identification and accounting for nonaccrual loans that are consistent with the
requirements contained in the Call Report Instructions; and

 

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  (l)   prudent lending and approval limits for lending officers that are
commensurate with their experience and qualifications, and that prohibit
combining individual lending officers’ lending authority to increase limits.

(2) The Board shall ensure that Bank personnel performing credit analyses are
adequately trained in cash flow analysis, particularly analysis using
information from tax returns, and that processes are in place to ensure that
additional training is provided as needed.
(3) Within sixty (60) days the Board shall establish a written performance
appraisal and salary administration process for loan officers that adequately
considers performance relative to job descriptions, policy compliance,
documentation standards, accuracy in credit grading, and other loan
administration matters.
ARTICLE VII
CONCENTRATIONS OF CREDIT
(1) Within ninety (90) days, the Board shall enhance current policy and the Bank
(subject to Board review and ongoing monitoring) shall continue to ensure
implementation and adherence to a written concentration management program
consistent with the guidelines in OCC Bulletin 2006-46. The program shall
include (but not be limited to) the following:

  (a)   policy guidelines addressing the level and nature of exposures
acceptable to the institution and setting concentration limits, including limits
on commitments to individual borrowers and appropriate sub-limits;     (b)  
procedures to identify and quantify the nature and level of risk presented by
concentrations, including review of reports describing changes in conditions in
the Bank’s markets;     (c)   procedures to periodically review and revise, as
appropriate, risk exposure limits and sub-limits to conform to any changes in
the institution’s strategies and to respond to changes in market conditions;

 

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          (d)   periodic portfolio-level stress tests or sensitivity analysis to
quantify the impact of changing economic conditions on asset quality, earnings,
and capital;     (e)   appropriate strategies for managing concentration levels,
including a economic conditions on asset contingency plan to reduce or mitigate
concentrations in the event of adverse market conditions; and     (f)   periodic
reports to the Board, to include the following, as appropriate:

  (i)   a summary of concentration levels, by type and subtype;
    (ii)   a synopsis of the Bank’s market analysis;     (iii)   a discussion of
recommended strategy when concentrations approach or exceed Board-approved
limits;     (iv)   a synopsis of changes in risk levels by concentration type
and subtype, with discussion of recommended changes in credit administration
procedures (for example, underwriting practices, risk rating, monitoring, and
training)

(2) The Board shall forward a copy of the program required in paragraph
(1) above, and any concentration reports, studies, or analyses to the Director.
ARTICLE VIII
APPRAISALS OF REAL PROPERTY
(1) The Board shall require and the Bank shall obtain a current independent
appraisal or updated appraisal, in accordance with 12 C.F.R. Part 34, on any
loan that is secured by real property:

  (a)   where the loan’s appraisal was found to violate 12 C.F.R. Part 34;

 

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  (b)   where the loan was criticized in the most recent ROE or by the Bank’s
internal or external loan review and the most recent independent appraisal is
more than twelve (12) months old; or     (c)   where the borrower has failed to
comply with the contractual terms of the loan agreement and the loan officer’s
analysis of current financial information does not support the ongoing ability
of the borrower or guarantor(s) to perform in accordance with the contractual
terms of the loan agreement and the most recent independent appraisal is more
than twelve (12) months old.

(2) The Board shall require and the Bank shall obtain a current independent
appraisal or updated appraisal, in accordance with 12 C.F.R. Part 34, on each
parcel of Other Real Estate Owned (“OREO”) where it is needed to bring an
existing OREO appraisal into conformity with the provisions of 12 C.F.R.
Part 34. The Board shall require and the Bank shall obtain a current independent
appraisal or updated appraisal before any new parcel is transferred to OREO.
(3) Appraisals required by this Article shall be ordered within thirty (30) days
of the date of the Order, and going forward, within thirty (30) days following
the event triggering the appraisal requirement, for delivery to the Bank within
sixty (60) days of ordering.
(4) Within thirty (30) days, the Board shall require and the Bank shall develop
and implement an independent review and analysis process to ensure that
appraisals conform to appraisal standards and regulations. The appraisal review
and analysis process shall ensure that appraisals are:

  (a)   performed in accordance with 12 C.F.R. Part 34;     (b)   consistent
with the guidance in OCC Bulletin 2005-6, “Appraisal Regulations and the
Interagency Statement on Independent Appraisal and Evaluation Functions:
Frequently Asked Questions” (March 22, 2005); and,

 

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  (c)   consistent with OCC Advisory Letter 2003-9, “Independent Appraisal and
Evaluation Function” (October 28, 2003).

(5) Written documentation supporting each appraisal review and analysis shall be
retained in the loan file, along with the appraisal.

 

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ARTICLE IX
CREDIT AND COLLATERAL EXCEPTIONS
(1) Except as otherwise provided herein, the Bank shall obtain current and
complete credit information on all loans lacking such information, including
those listed in the most recent Report of Examination (within sixty (60) days
from the effective date of this Order), in any subsequent Report (within sixty
(60) days from the issuance of such Report), in any internal or external loan
review (within sixty (60) days from the completion of such review), or in any
listings of loans lacking such information provided to management by the
National Bank Examiners at the conclusion of an examination (within sixty
(60) days from receipt of such listing). The Bank shall maintain a list of any
credit exceptions that have not been corrected within the timeframe discussed
above. This list shall include an explanation of the actions taken to correct
the exception, the reasons why the exception has not yet been corrected, and a
plan to correct the exception.
(2) Except as otherwise provided herein, the Bank shall ensure proper collateral
documentation is maintained on all loans and correct each collateral exception
listed in the most recent Report of Examination (within sixty (60) days from the
effective date of this Order), in any subsequent Report (within sixty (60) days
from the issuance of such Report), in any internal or external loan review
(within sixty (60) days from the completion of such review), or in any listings
of loans lacking such information provided to management by the National Bank
Examiners at the conclusion of an examination (within sixty (60) days from the
receipt of such listing). The Bank shall maintain a list of any collateral
exceptions that have not been corrected within the timeframe discussed above.
This list shall include an explanation of the actions taken to correct the
exception, the reasons why the exception has not yet been corrected, and a plan
to correct the exception.

 

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(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;
    (b)   identifying the expected source of repayment in writing;     (c)  
structuring the repayment terms to coincide with the expected source of
repayment;     (d)   documenting, with adequate supporting material, the value
of collateral and properly perfecting the Bank’s lien on it where applicable;
and     (e)   obtaining and analyzing current and complete credit information,
including cash flow analysis, where loans are to be repaid from operations and
global cash flow analysis, where loan repayment is expected from other sources
such as Guarantors, unless

  (i)   A majority of the full Board (or a designated committee thereof)
certifies in writing the specific reasons why obtaining and analyzing this
information would be detrimental to the best interests of the Bank; and     (ii)
  a copy of the Board certification is maintained in the credit file of the
affected borrower(s).

ARTICLE X
LOAN REVIEW
(1) Within thirty (30) days, the Board shall establish an effective,
independent, and on-going loan review program to review, at least quarterly, the
Bank’s loan and lease portfolios, to assure the timely identification and
categorization of problem credits. The program shall provide for a written
report to be filed with the Board promptly after each review and shall employ a
loan and lease rating system consistent with the guidelines set forth in “Rating
Credit Risk” and “Allowance for Loan and Lease Losses,” booklets A-RCR and
A-ALLL, respectively, of the Comptroller’s Handbook. Such reports shall include,
at a minimum:

 

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  (a)   conclusions regarding the overall quality of the loan and lease
portfolios;     (b)   the identification, type, rating, and amount of problem
loans and leases;     (c)   the identification and amount of delinquent loans
and leases     (d)   credit and collateral documentation exceptions;     (e)  
loans meeting the criteria for nonaccrual status;     (f)   the identity of the
loan officer of each loan reported in accordance with subparagraphs (b) through
(e);     (g)   the identification and status of credit-related violations of
law, rule, or regulation;     (h)   concentrations of credit;     (i)   loans
and leases to the directors, executive officers, and principal shareholders of
the Bank and to their related interests; and     (j)   loans and leases in
nonconformance with the Bank’s lending and leasing policies, and exceptions to
the Bank’s lending and leasing policies.

(2) The Board shall evaluate the loan and lease review report(s) and shall
ensure that immediate, adequate, and continuing remedial action, as appropriate,
is taken upon all findings noted in the report(s), and documentation of the
action taken by the Bank to collect or strengthen assets identified as problem
credits, shall be preserved in the Bank.

 

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ARTICLE XI
ALLOWANCE FOR LOAN AND LEASE LOSSES
(1) The Board shall immediately require and the Bank shall implement and
thereafter adhere to a program for the maintenance of an adequate Allowance for
Loan and Lease Losses (“ALLL”). The program shall be consistent with the
comments on maintaining a proper ALLL found in the Interagency Policy Statement
on the ALLL contained in OCC Bulletin 2006-47 (December 13, 2006) and with
“Allowance for Loan and Lease Losses,” booklet A-ALLL of the Comptroller’s
Handbook, and shall incorporate the following:

  (a)   internal risk ratings of loans;     (b)   results of the Bank’s
independent loan review;     (c)   criteria for determining which loans will be
reviewed under Financial Accounting Standard (“FAS”) 114, how impairment will be
determined, and procedures to ensure that the analysis of loans complies with
FAS 114 requirements;     (d)   criteria for determining FAS 5 loan pools and an
analysis of those loan pools;     (e)   recognition of non-accrual loans in
conformance with generally accepted accounting principles (“GAAP”) and
regulatory guidance;     (f)   loan loss experience;     (g)   trends of
delinquent and non-accrual loans;     (h)   concentrations of credit in the
Bank; and     (i)   present and projected economic and market conditions.

(2) The program shall provide for a review of the ALLL by the Board at least
once each calendar quarter. Any deficiency in the ALLL shall be remedied in the
quarter it is discovered, prior to the Consolidated Reports of Condition and
Income, by additional provisions from earnings. Written documentation shall be
maintained of the factors considered and conclusions reached by the Board in
determining the adequacy of the ALLL and made available for review by National
Bank Examiners.

 

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(3) A copy of the Board’s ALLL program, and any subsequent revisions to the
program, shall be submitted to the Director for review.
ARTICLE XII
CRITICIZED ASSETS
(1) Within thirty (30) days, the Board shall adopt and the Bank (subject to
Board review and ongoing monitoring) shall implement and thereafter ensure
adherence to a written program designed to protect the Bank’s interest in those
assets criticized in the most recent Report of Examination (“ROE”), in any
subsequent ROE, by any internal or external loan review, or in any list provided
to management by the National Bank Examiners during any examination as
“doubtful,” “substandard,” or “special mention.” The program shall include the
development of Criticized Asset Reports (“CARs”) identifying all credit
relationships and other assets totaling in aggregate two hundred fifty thousand
dollars ($250,000) or more, criticized as “doubtful,” “substandard,” or “special
mention.” The CARs must be updated and submitted to the Board and the Directors
at least quarterly. Each CAR shall cover an entire credit relationship and
include, at a minimum, analysis and documentation of the following:

  (a)   the origination date and any renewal or extension dates, amount, purpose
of the loan, and the originating and current loan officer(s);     (b)   the
expected primary and secondary sources of repayment, and an analysis of the
adequacy of the repayment source;     (c)   the appraised value of supporting
collateral and the position of the Bank’s lien on such collateral, where
applicable, as well as other necessary documentation to support the current
collateral valuation;     (d)   an analysis of current and complete credit
information, including cash flow analysis where loans are to be repaid from
operations;

 

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  (e)   results of any FAS 114 impairment analysis;     (f)   significant
developments, including a discussion of changes since the prior CAR, if any; and
    (g)   the proposed action to eliminate the basis of criticism and the time
frame for its accomplishment, including an appropriate exit strategy.

(2) The Bank may not extend credit, directly or indirectly, including renewals,
modifications or extensions, to a borrower whose loans or other extensions of
credit are criticized in any ROE, in any internal or external loan review, or in
any list provided to management by the National Bank Examiners during any
examination, unless and until each of the following conditions is met:

  (a)   the Board, or a designated committee thereof, finds that the extension
of additional credit is necessary to promote the best interests of the Bank and
that prior to renewing, modifying or extending 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. A copy of the findings and approval of the Board or
designated committee shall be maintained in the credit file of the affected
borrower and made available for review by National Bank Examiners;     (b)   the
Bank performs a written credit and collateral analysis as required by paragraph
(1)(d) of this Article and, if necessary, the proposed action referred to in
paragraph (1)(g) of this Article is revised, as appropriate; and

 

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  (c)   the Board’s formal plan to collect or strengthen the criticized asset
will not be compromised by the extension of additional credit.

ARTICLE XIII
INTEREST RATE RISK
(1) The Board shall continue to ensure the adoption, implementation, and Bank
adherence to the Bank’s written interest rate risk policy. In maintaining this
policy, the Board shall refer to the “Interest Rate Risk” booklet of the
Comptroller’s Handbook. The policy shall continue to provide for a coordinated
interest rate risk strategy and, at a minimum, shall address:

  (a)   the establishment of adequate management reports on which to base sound
interest rate risk management decisions;     (b)   establishment and guidance of
the Bank’s strategic direction and tolerance for interest rate risk;     (c)  
implementation of effective tools to measure and monitor the Bank’s performance
and overall interest rate risk profile;     (d)   employment of competent
personnel to manage interest rate risk;     (e)   prudent limits on the nature
and amount of interest rate risk that can be taken, and strategies to reduce
excessive risk; and     (f)   periodic review of the Bank’s adherence to the
program.

(2) Upon further revision, a copy of the written program shall be forwarded to
the Director for review.
ARTICLE XIV
INFORMATION TECHNOLOGY
(1) The Board shall continue to take all steps necessary to improve the
management of the Bank’s Information Technology (“IT”) activities and to correct
each deficiency cited in the most recent Report of Examination (“ROE”) or any
supervisory communication.

 

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(2) The Board shall continue to develop, implement, and thereafter adhere to a
written, well-documented, risk-based, internal information technology audit
program. At a minimum, the IT audit program shall be performed by an independent
and qualified party, and shall include fundamental elements of a sound audit
program as described in the “Audit” booklet of the FFIEC Information Technology
Examination Handbook. The scope and frequency should be risk-based and reviewed
annually by the Board.
(3) The Board shall continue to develop, implement, and thereafter ensure
adherence to a comprehensive, written information security program to ensure the
safety and soundness of its operations and to support the Bank’s efforts to
comply with 12 C.F.R. Part 30, Appendix B, Safeguarding Customer Information.
The information security program shall include administrative, technical, and
physical safeguards to protect the security, confidentiality, and integrity of
customer information. The information security program shall be consistent with
the security process described in the “Information Security” booklet of the
FFIEC Information Technology Examination Handbook. At a minimum, the information
security program shall include:

  (a)   a corporate-wide assessment of the risks to its customer information or
customer information systems and a written report evidencing such assessment.
The assessment shall include:

  (i)   the identification of reasonably foreseeable internal and external
threats that could result in unauthorized disclosure, misuse, alteration, or
destruction of customer information of customer information systems;

 

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  (ii)   an assessment of the likelihood and potential damage of these threats,
taking into consideration the sensitivity of customer information; and     (iii)
  an assessment of the sufficiency of policies, procedures, customer information
systems, and other arrangements in place to control risks.

  (b)   a process to monitor and control the identified risks, commensurate with
the sensitivity of the information as well as the complexity and scope of bank
activities;     (c)   a test plan that provides for regular testing of key
controls, systems and procedures of its information security program. The
frequency and nature of such tests shall be determined by the risk assessment.
Such tests shall be conducted or reviewed by independent third parties or staff
independent of those who develop or maintain the information security program.

(4) The Board shall continue to develop and implement a formal enterprise-wide
business continuity process that complies with the requirements set forth in the
“Business Continuity Planning” booklet of the FFIEC Information Technology
Examination Handbook. At a minimum, the business continuity process shall
include:

  (a)   a business impact analysis that includes:

  (i)   the identification of the potential impact of uncontrolled, non-specific
events on the institution’s business processes and its customers; and     (ii)  
an estimation of the maximum downtime and acceptable levels of data, operations,
and financial losses for each business unit.

  (b)   a risk assessment process that includes;

 

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  (i)   the prioritization of potential business disruptions based upon severity
and likelihood of occurrence;

  (ii)   a gap analysis comparing the institution’s existing business resumption
plans, if any, to what is necessary to achieve recovery time and point
objectives; and

  (iii)   an analysis of threats based upon the impact on the institution, its
customers, and the financial markets.

  (c)   a risk management process that includes the development of a written,
enterprise-wide business continuity plan (BCP); and

  (d)   a risk monitoring process that includes:

  (i)   testing of the BCP on at least an annual basis;     (ii)   independent
audit and review of the BCP;

  (iii)   updating the BCP based upon changes to personnel and the internal and
external environments.

(5) The Board shall provide a quarterly written progress report on each of the
requirements of this Article to the Director.
ARTICLE XV
MANAGEMENT INFORMATION SYSTEMS
(1) The Board shall continue to develop, implement, and thereafter ensure Bank
adherence to a written program establishing an effective management information
system (MIS) which facilitates risk identification, establishes controls, and
delivers accurate information for timely review. In so doing, the Board shall
identify the Bank’s specific information requirements and establish effective
reporting mechanisms to guide decisions. The program shall include procedures
for:

 

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  (a)   expediting the timely delivery of current information;     (b)  
establishing controls to ensure the accuracy and confidentiality of information;
    (c)   ensuring that data are processed and compiled uniformly to facilitate
meaningful trend analysis, and provide for future systems changes;     (d)  
producing complete and relevant information in a summarized form, for Board and
management reports, to permit effective decision making;     (e)   identifying,
recording, and tracking missing, incomplete, or imperfect loan and collateral
documentation, including lacking or outdated appraisals and operating statements
on real estate projects;     (f)   generating periodic reports, on at least a
monthly basis which identify emerging problem loans, identified problem loans,
Other Real Estate Owned (OREO), and foreclosed assets;     (g)   maintaining a
system by which the Board, or a delegated committee of the Board, can identify
at the time of extension of credit, the aggregate customer liability
relationship of that customer with the Bank;     (h)   maintaining a system to
calculate each concentration as a percentage of total capital;     (i)  
producing the information, which is listed in the ROE, that is necessary to
effectively supervise the credit portfolio.

(2) As part of the Board’s ongoing responsibility to ensure that the Bank has an
effective MIS, the Board shall continue to designate a senior officer to
coordinate the execution of this program.

 

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ARTICLE XVI
ADMINISTRATIVE APPEALS AND EXTENSIONS OF TIME
(1) If the Bank requires an extension of any timeframe within this Order, the
Board shall submit a written request to the Director asking for relief. 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 a provision and that require an extension of a timeframe within
this Order.
(2) All such requests shall be accompanied by relevant supporting documentation,
and any other facts upon which the Bank relies. The Director’s decision
concerning a request is final and not subject to further review.
ARTICLE XVII
OTHER PROVISIONS
(1) Although the Bank is required to submit certain proposed actions and
programs for the review or prior written determination of no supervisory
objection of the Director, the Board has the ultimate responsibility for proper
and sound management of the Bank and the completeness and accuracy of the Bank’s
books and records.
(2) It is expressly and clearly understood that if, at any time, the Comptroller
deems it appropriate in fulfilling the responsibilities placed upon him by the
several laws of the United States of America to undertake any action affecting
the Bank, nothing in this Order shall in any way inhibit, estop, bar, or
otherwise prevent the Comptroller from so doing.
(3) Except as otherwise expressly provided herein, any time limitations imposed
by this Order shall begin to run from the effective date of this Order.

 

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(4) The provisions of this Order are effective upon issuance of this Order by
the Comptroller, through his authorized representative whose signature appears
below, and shall remain effective and enforceable, except to the extent that,
and until such time as, any provisions of this Order shall have been amended,
suspended, waived, or terminated in writing by the Comptroller.
(5) In each instance in this Order in which the Bank and/or the Board is
required to take action, the Board shall, at a minimum:

  (a)   authorize and direct measures necessary to take the required action;    
(b)   require Bank management to make timely reports to the Board on the status
of, and compliance with, the required action; and     (c)   take appropriate
corrective measures for any failure to carry out the required action.

(6) This Order is intended to be, and shall be construed to be, a final order
issued pursuant to 12 U.S.C. § 1818, and expressly does not form, and may not be
construed to form, a contract binding on the Comptroller or the United States.
(7) The Bank entered into a Formal Agreement dated September 30, 2008. This
Order replaces the Formal Agreement in its entirety and therefore, the
September 30, 2008 Formal Agreement is hereby terminated.
(8) The terms of this Order, 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.
IT IS SO ORDERED, this fourth day of November, 2009.

                /s/ Henry Fleming       Henry Fleming      Director for Special
Supervision Division       

 

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