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Exhibit 10.1
 
Department of Banking and Finance
       
2990 Brandywine Road, Suite 200
   
Atlanta, Georgia 30341
 
Sonny Perdue
770-986-1633
Robert M. Braswell
Governor
www.gadbf.org
Commissioner

June 24, 2009

The Board of Directors
Habersham Bank
P. O. Box 1980
Cornelia, Georgia 30531

Dear Members of the Board:

The results of the joint visitation of Habersham Bank, conducted by the Georgia
Department of Banking and Finance (Department) and FDIC as of September 22,
2008, reveal that the condition of the bank is unsatisfactory, with the
deficiencies noted being of such magnitude that the bank's operation is
considered unsafe and unsound by the Department.

Accordingly, the Department, in consultation with the Federal Deposit Insurance
Corporation, is issuing this ORDER, pursuant to the provisions of Subsection
7-1-9I(d) of the Financial Institutions Code of Georgia, requiring the bank to
CEASE AND DESIST from the following enumerated unsafe and unsound practices and
to adopt a program of corrective program as a means to address the deficiencies.
The unsafe and unsound practices are as follows:

1          Operating with supervision and direction over the financial affairs
that has not been adequate for the current risk profile of the Bank;
2          Operating the bank with a level of capital that has not been adequate
based on the level of risk identified:
3          Operating with a large volume of assets subject to adverse
classification
4          Operating with a large volume of loan concentrations, which reflect a
lack of diversity in the loan portfolio;
5          Operating with earnings that have not been adequate; and
6          Operating with liquidity levels that need to be enhanced.

 
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This Order to Cease and Desist (ORDER) between the Georgia Department of Banking
and Finance and the Regional Director of the Federal Deposit Insurance
Corporation (Supervisory Authorities) and the Board of Directors is designed to
bring about correction of the currently identified problems of the bank by a
good faith effort on the part of the Board of Directors and bank management,
without admitting or denying the alleged charges of unsafe or unsound banking
practices and violations of law and/or regulations, to comply with each
particular paragraph of the ORDER. The program of corrective action to be
adopted is as follows,with all time periods contained herein to begin with the
effective date of the ORDER:

1. BOARD OF DIRECTORS

Within 30 days from the effective date of this ORDER, the Board of Directors
(Board) shall continue its increased participation in the affairs of the Bank,
assuming full responsibility for the approval of sound policies and objectives
and for the supervision of all of the Bank's activities, consistent with the
role and expertise commonly expected for directors of banks of comparable size.
The participation shall continue to include meetings that are held no less
frequently than monthly at which, at a minimum, the following areas shall be
reviewed and approved: reports of income and expense; liquidity and funding
reports; new, overdue, renewal, insider, charge-off, and recovered loans;
investment activity; operating policies; and individual committee actions. Board
minutes shall continue to fully document these reviews and approvals, including
the names of any dissenting directors. Additionally, any committees of the Board
that meet need to continue to maintain in complete and accurate minutes of their
meetings.

2. MANAGEMENT

a)           The Bank shall have and retain qualified management. Each member of
management shall have qualifications and experience commensurate with his or her
duties and responsibilities. Management shall include a chief executive
officer/president, a senior lending officer, and a chief financial officer
(three separate individuals.) Each member of management shall be provided
appropriate written authority from the Bank's Board to implement the provisions
of this ORDER.

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

(i)        comply with the requirements of this ORDER;
(ii)       operate the bank in a safe and sound manner;
(iii)      comply with applicable laws and regulations; and
(iv       restore all aspects of the Bank to a safe and sound condition,
including asset quality, capital adequacy, earnings, management effectiveness,
liquidity, risk management and sensitivity to market risk.

c)           During the life of this ORDER, the Bank shall notify the
Supervisory Authorities in writing when it proposes to add any individual to the
Bank's Board or employ any individual as a senior executive officer, as the term
is defined in the Federal Reserve Board's Regulation O. The notification must be
received at least 30 days before such addition or employment is intended to
become effective and should include a description of the background and
experience of the individual or individuals to be added or employed.

 
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3. CAPITAL AND DIVIDENDS

a)           Beginning with the effective date of this ORDER, the Bank shall
maintain a Tier I Leveraged Capital Ratio (as defined in Part 325 of the FDIC's
Rules and Regulations) of not less than eight (8%) percent.

b)           Beginning with the effective date of this ORDER, the Bank shall
maintain a Total Risk-Based Capital ratio of at least ten (10%) percent (as
defined in Part 325 of the FDIC's Rules and Regulations).

c)           The level of the capital ratios outlined in 3(a) and 3(b) will be
maintained throughout the life of this ORDER and shall be in addition to
maintaining a fully funded Allowance for Loan and Lease Losses (ALLL). The
adequacy of the ALLL shall be satisfactory to the Supervisory Authorities, as
determined via the review of available financial information and/or at
subsequent examinations or visitations.

d)           The Bank shall not pay cash dividends or bonuses without the prior
written consent of the Supervisory Authorities.

4. REDUCTION OF CLASSIFIED ITEMS

a)           Within 60 days from the effective date of this ORDER, the Bank
shall review and if necessary, revise its written plan to provide for the
reduction of the aggregate balance of all items classified "Substandard" or
"Doubtful" in the Report of Examination, dated September 22,2008 ($37,206,000),
in accordance with the following schedule:

(i)        Within 180 days, a reduction of twenty-five percent (25%) in the
balance of loans classified "Substandard" or "Doubtful;"
(ii)       Within 360 days, a reduction of forty percent (40%) in the balance of
loans classified "Substandard" or "Doubtful;" and
(iii)      Within 540 days, a reduction of sixty percent (60%) in the balance of
loans classified "Substandard" or "Doubtful".

b)           For purposes of this paragraph, "number of days "means number of
days from the effective date of this ORDER. The requirements of this paragraph
are not to be construed as standards for future operations of the Bank.
Following compliance with the above reduction schedule, the Bank shall continue
to reduce the total volume of adversely classified items.

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

(i)        a schedule for reducing the outstanding dollar amount of each
adversely classified item (at a minimum, the schedule must show the projected
dollar balance of each adversely classified item on a quarterly basis);
(ii)       a schedule showing the projected consolidated balance of all
adversely classified items on a quarterly basis and the ratio of the
consolidated balance to the Bank's projected Tier I capital plus the ALLL;
(iii)      a provision requiring the submission of monthly written progress
reports to the Board; and
(iv)      a provision mandating that the Board review monthly progress reports,
with a notation of the review recorded in the minutes of the meeting of the
Board.

d)           The written reduction plan shall include specific actions being
taken to reduce the Bank's risk exposure in each item totaling $500,000 or more
and classified "Substandard" or "Doubtful" in the Report of Examination. For
purposes of this provision, "reduce" means to collect, charge off, or improve
the quality of an item so as to warrant its removal from adverse classification
by the Supervisory Authorities. In developing the plan mandated by this
paragraph, the Bank shall, at a minimum, and with respect to each adversely
classified item totaling $500,000 or over, review, analyze, and document the
financial position of the borrower, including source of repayment, repayment
ability, and alternative repayment sources, as well as the value and
accessibility of my pledged or assigned collateral, and any possible actions to
improve the Bank's collateral position.

e)           With 60 days from the effective date of this ORDER, the Bank shall
submit the written reduction plan to the Supervisory Authorities for review and
comment. Within 30 days from receipt of any comment from the Supervisory
Authorities, and after due consideration of any recommended changes, the Bank
shall approve the plan, which approval shall be recorded in the minutes of the
meeting of the Board. Thereafter, the Bank shall implement and fully comply with
the plan. The written reduction plan shall be monitored and progress reports
thereon shall be submitted to the Supervisory Authorities concurrently with the
other progress reports via requirements set forth in paragraph 13 of this
ORDER,.

5. NO ADDITIONAL CREDIT

a)           Beginning with the effective date of this ORDER, the Bank shall not
extend, directly or indirectly, any additional credit to, or for the benefit of
any borrower who has a loan or other extension of credit from the Bank that has
been charged off or classified, in whole or in part, "Loss" or "Doubtful" and is
uncollected. The requirements of this paragraph shall not prohibit the Bank from
renewing (after collection in cash of interest due from the borrower) any credit
already extended to any borrower.

b)           Additionally, during the life of this ORDER, the Bank shall not
extend, directly or indirectly, any additional credit to, or for the benefit of,
any borrower who has a loan or other extension of credit from the Bank that has
been classified, in whole or part, "Substandard" and is uncollected.

 
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c)           Paragraph 5(b) shall not apply if that Bank's failure to extend
further credit to a particular borrower would be detrimental to the best
interest of the Bank. Prior to the extending of any additional credit pursuant
to this paragraph, either in the form of a renewal, extension, or further
advance of funds, such additional credit shall be approved by a majority of the
Board, or a designated committee thereof, who shall certify, in writing:

(i)        why the failure of the Bank to extend such credit would be
detrimental to the best interests of the Bank;
(ii)       that the Bank's position would be improved thereby; and
(iii)      how the Bank's position would be improved.

The signed certification shall be made a part of the minutes of the Board or
designated committee with a copy retained in the borrower's credit file.

6. CHARGE-OFF

a)           Within 10 days from the effective date of this ORDER, the Bank
shall eliminate from its books, by charge-off or collection, all assets or
portions of assets classified "Loss" and fifty (50) percent of all assets or
portions of assets classified "Doubtful" in the Report of Examination or
visitation that have not been previously collected or charged-off. (If an asset
classified "Doubtful" is a loan or a lease, the Bank may, in the alternative,
increase its ALLL by an amount equal to fifty (50) percent of the loan or lease
classified "Doubtful"). Elimination of these assets through proceeds of other
loans made by the Bank is not considered collection for purposes of this
paragraph.

b)           Additionally, while this ORDER remains in effect, the Bank shall,
within 30 days of the receipt of any future Report of Examination or visitation
of the Bank from the FDIC or the DEPARTMENT, eliminate from its books, by
collection, charge off, or other proper entries, the remaining balance of any
assets classified "Loss" and 50 percent of those classified "Doubtful" unless
otherwise approved in writing by the Supervisory Authorities. (If an asset
classified "Doubtful" is a loan or a lease, the Bank may, in the alternative,
increase its ALLL by an amount equal to fifty (50) percent of the loan or lease
classified "Doubtful").

7. ESTABLISH/MAINTAIN ALLOWANCE FOR LOAN AND LEASE LOSSES

a)           Within 30 days from the effective date of this ORDER, the Board
shall review the adequacy of the ALLL and revise its policy for determining the
adequacy of the ALLL, and such policy shall be comprehensive. For the purpose of
this determination, the adequacy of the ALLL shall be determined after the
charge-off of all loans or other items classified "Loss." The policy shall
provide for a review of the ALLL at least once each calendar quarter. Said
review should be completed within twenty-one, (21) days after the end of each
calendar quarter, in order that the findings of the Board with respect to the
ALLL may be properly reported in the quarterly Reports of Condition and Income,
which shall be dated and reflect findings as of the most recent quarter end. The
review should focus on the results of the Bank's internal loan review, loan and
lease loss experience, trends of delinquent and non-accrual loans, an estimate
of potential loss exposure of significant credits, concentrations of credit, and
present and prospective economic conditions. A deficiency in the ALLL shall be
remedied for the calendar quarter prior to submitting the Report of Condition
and Income, by a charge to current operating earnings. The minutes of the Board
meeting at which such review is undertaken shall indicate the results of the
review. The Bank's policy for determining the adequacy of the Bank's ALLL and
its implementation shall be satisfactory to the Supervisory Authorities as
determined at subsequent examinations and/or visitations.

 
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8. REDUCE CONCENTRATIONS OF CREDIT

a)           Within 90 days from the effective date of the ORDER, the Bank shall
perform a risk segmentation analysis with respect to the Concentrations of
Credit listed in the visitation and any other concentration deemed important by
the Bank. Concentrations should be identified by product type, geographic
distribution, underlying collateral or other asset groups which are considered
economically related and in the aggregate represent 100 percent or more of the
Bank's total capital. A copy of this analysis will be provided to the
Supervisory Authorities for review and comment. Upon receiving comments from the
Regional Director and/or the Commissioner, the Board agrees to develop a plan to
reduce any segment of the portfolio that the Regional Director and/or
Commissioner deem to be an undue concentration of credit in relation to the
Bank's capital account. The plan and its implementation shall be in a form and
manner acceptable to the Supervisory Authorities as determined via the review of
available financial information and/or at subsequent examinations or
visitations.

9. LOAN REVIEW PROGRAM

a)           Within 60 days from the effective date of this ORDER, the Bank
shall adopt an effective system of loan review and grading. This can be
accomplished by either a dedicated staff member or by hiring an outside
consultant. At a minimum, the loan review function should address the following
objectives:

(i)        To promptly identify loans with well defined credit weaknesses so
that timely action can be taken to minimize credit loss;
(ii)       To provide essential information for determining the adequacy of the
ALLL;
(iii)      To identify relevant trends affecting the collectability of the loan
portfolio and isolate potential problem areas;

 
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(iv)      To evaluate the activities of the lending personnel;
(v)       To assess the adequacy of, and adherence to, loan policies and
procedures, and to monitor compliance with relevant laws and regulations;
(vi)      To provide the board of directors and senior management with an
objective assessment of the overall portfolio quality; and
(vii)     To provide management with information related to credit quality that
can be used for financial and regulatory reporting purposes.

10. PLAN FOR EXPENSES/PROFITABILITY

a)           Within 90 days from the effective date of this ORDER, the Bank
shall revise and fully implement a written profit plan and a comprehensive
budget for all categories of income and expense. The profit plan and budget
required by this paragraph shall include formal goals and strategies, consistent
with sound banking practices and taking into account the Bank's other written
policies, to improve the Bank's net interest margin, increase interest income,
reduce discretionary expenses, and improve and sustain the earnings of the Bank.
The plan shall include a description of the operating assumptions that form the
basis for, and adequately support, major projected income and expense
components. Thereafter, the Bank shall formulate a profit plan and budget by
November 30 of each subsequent year.

b)           The profit plan and budget required by subparagraph 10(a) of this
ORDER, shall be submitted to the Supervisory Authorities for review and comment.
Upon receipt of any regulatory commentary, the Board shall fully implement the
plan within 30 days.

c)           Following the end of each calendar quarter, the Board shall
evaluate the Bank's actual performance in relation to the profit plan and budget
required by subparagraph 10(a) of this ORDER and shall record the results of the
evaluation, and any actions taken by the Bank, in the minutes of the Board
meeting at which such evaluation is undertaken.

11. LIQUIDITY AND FUNDS MANAGEMENT

a)           Beginning with the effective date of this ORDER, Bank management
shall continue to review the Bank's liquidity position daily to ensure that the
Bank has sufficient liquid assets or sources of liquidity to meet current and
anticipated liquidity needs. This review shall continue to include an analysis
of the Bank's projected sources and uses of funds over the next operating
quarter on a rolling basis (cash flow analysis). The results of this review
shall be presented to the Board for review each month, with the review noted in
the Board minutes.

 
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b)           Within 60 days from the effective date of this ORDER, the Bank
shall develop or revise, adopt, and implement a written liquidity contingency
funding plan. The written liquidity contingency funding plan shall incorporate
the applicable guidance contained in Financial Institution Letter (FIL) 84-2008
dated August 26, 2008, entitled Liquidity Risk Management. The liquidity
contingency plan shall provide restrictions on the use of Brokered and Internet
deposits consistent with safe and sound banking practices. Such plan shall be
submitted to the Supervisory Authorities for review and approval, and its
implementation shall be in a form and manner acceptable to the Supervisory
Authorities.

c)           While the ORDER is in effect and the Bank maintains an "Adequately
Capitalized" capital position or better (for Prompt Corrective Action "PCA"
purposes), the Bank may not accept, renew, or roll over brokered deposits
without applying and receiving a brokered deposit waiver from the FDIC under
Part 337 of the FDIC's Rules and Regulations, 12 C.F.R. Part 337. If the Bank's
capital position declines to below "Adequately Capitalized" status for PCA
purposes, the Bank may not accept, renew, or roll over any brokered deposits.

12. DISCLOSURE

a)           Following the effective date of this ORDER, the Bank shall send to
its shareholders or otherwise furnish a description of this ORDER in conjunction
with the Bank's next shareholder communication and also in conjunction with its
notice or proxy statement preceding the Bank's next shareholder meeting. The
description shall fully describe the ORDER in all material respects. The
description and any accompanying communication, statement, or notice shall be
sent to the FDIC, Division of Supervision and Consumer Protection, Accounting
and Securities Registration Disclosure Section, 550 17th Street, N.W., Room F
6066, Washington, D.C. 20429, and to the Commissioner, Department of Banking and
Finance, 2990 Brandywine Road, Suite 200, Atlanta, Georgia 30341 to review at
least twenty (20) days prior to dissemination to shareholders. Any changes
requested to be made by the Supervisory Authorities shall be made prior to
dissemination of the description, communication, notice, or statement.

13. PROGRESS REPORTS

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

 
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This ORDER shall become effective ten (10) days from the date of its issuance.
The provisions of this ORDER shall remain effective and enforceable except to
the extent that, and until such time as, any provisions of this ORDER shall have
been modified, terminated, suspended, or set aside by the Supervisory
Authorities.

This Order is issued under the provision of Section 7-1-91 (d) of the Financial
Institutions Code of Georgia.

This the 30th day of June, 2009.

/s/ Robert M. Braswell
 
Robert M. Braswell
Commissioner of the State of Georgia
Department of Banking and Finance

The undersigned, as Regional Director of the Federal Deposit Insurance
Corporation's Atlanta Regional Office, acknowledges this Cease and Desist Order
issued by the Georgia Department of Banking and Finance and considers its
acceptance as representing a commitment to the Federal Deposit Insurance
Corporation from the Board of Directors of Habersham Bank, Clarkesville,
Georgia, to make a good faith effort to comply with the terms of this Agreement.

Acting Regional Director
 
/s/ Doreen R. Eberley
 

Doreen R. Eberley
Acting Regional Director
Atlanta Region
Federal Deposit Insurance Corporation

 
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The undersigned Directors of Habersham Bank, Clarkesville, Georgia, acknowledge
receipt of and agree to make a good faith effort to comply with the terms and
conditions of this ORDER.

/s/ Edward D. Ariail
 
Edward D. Ariail
     
/s/ Thomas A. Arrendale, III
 
Thomas A Arrendale, III
     
/s/ Bonnie S. Bowling
 
Bonnie S. Bowling
     
/s/ Ben F. Cheek, III
 
Ben F. Cheek, III
     
/s/ Michael Owen
 
Michael Owen
     
/s/ Michael Martin
 
Michael Martin
     
/s/ James A. Stapleton, Jr.
 
James A. Stapleton, Jr.
     
/s/ David D. Stovall
 
David D. Stovall
     
/s/ Calvin R. Wilbanks
 
Calvin R. Wilbanks
 

 

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