Exhibit 10.3
UNITED STATES OF AMERICA
Before the
OFFICE OF THRIFT SUPERVISION

             
 
       
 
    )      
In the Matter of
    )     Order No.: NE-11-05
 
    )      
 
    )      
CARVER FEDERAL SAVINGS BANK
    )     Effective Date: February 7, 2011
 
    )      
New York, New York
    )      
OTS Docket No. 05273
    )      
 
    )      
 
       

ORDER TO CEASE AND DESIST
WHEREAS, Carver Federal Savings Bank, New York, New York, OTS Docket No. 05273
(Association), by and through its Board of Directors (Board), has executed a
Stipulation and Consent to the Issuance of an Order to Cease and Desist
(Stipulation); and
WHEREAS, the Association, by executing the Stipulation, has consented and agreed
to the issuance of this Order to Cease and Desist (Order) by the Office of
Thrift Supervision (OTS) pursuant to 12 U.S.C. § 1818(b); and
WHEREAS, pursuant to delegated authority, the OTS Regional Director for the
Northeast Region (Regional Director) is authorized to issue Orders to Cease and
Desist where a savings association has consented to the issuance of an order.
Carver Federal Savings Bank
Order to Cease and Desist
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NOW, THEREFORE, IT IS ORDERED that:
Cease and Desist.
1. The Association, its institution-affiliated parties,1 and its successors and
assigns, shall cease and desist from any action (alone or with others) for or
toward causing, bringing about, participating in, counseling, or the aiding and
abetting the unsafe or unsound banking practices that resulted in:
(a) operating the Association with an inadequate level of capital protection for
the volume, type, and quality of assets held by the Association;
(b) operating the Association with an excessive level of adversely classified
assets; and
(c) operating the Association with inadequate earnings to augment capital.
2. The Association, its institution-affiliated parties, and its successors and
assigns, shall also cease and desist from any action (alone or with others) for
or toward causing, bringing about, participating in, counseling, or the aiding
and abetting violations of the following regulations:
(a) 12 C.F.R. § 560.160 (requiring evaluation and accurate classification of
assets); and
(b) 12 C.F.R. §§562.1(b); 562.2 and 563.180(a) (requiring accurate regulatory
reports).
 

      1   The term “institution-affiliated party” is defined at 12 U.S.C. §
1813(u).

Carver Federal Savings Bank
Order to Cease and Desist
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Capital.
3. By April 30, 2011, the Association shall have and maintain a Tier 1 (Core)
Capital Ratio equal to or greater than nine percent (9%) and a Total Risk-Based
Capital Ratio equal to or greater than thirteen percent (13%).2
4. By February 2, 2011, the Association shall submit a written plan to achieve
and maintain the Association’s capital at the levels prescribed in Paragraph 3
(Capital Plan) that is acceptable to the Regional Director. The Capital Plan
shall detail the Association’s capital preservation and enhancement strategies
with specific narrative goals.
5. Upon receipt of written notification from the Regional Director that the
Capital Plan is acceptable, the Association shall adopt, implement, and adhere
to the Capital Plan. A copy of the Capital Plan and the Board meeting minutes
reflecting the Board’s adoption thereof shall be provided to the Regional
Director within ten (10) days after the Board meeting.
6. The Association shall submit a written Contingency Plan that is acceptable to
the Regional Director, within fifteen (15) days after: (a) the Association fails
to meet the capital requirements prescribed in Paragraph 3; (b) the Association
fails to comply with the Capital Plan prescribed in Paragraph 4; or (c) any
written request from the Regional Director.
7. The Contingency Plan shall detail the actions to be taken, with specific time
frames, to achieve one of the following results by the later of the date of
receipt of all required regulatory approvals or sixty (60) days after the
implementation of the Contingency Plan: (a) merger with, or acquisition by,
another federally insured depository institution or holding company thereof; or
(b) voluntary dissolution by filing an appropriate application with the OTS in
conformity with applicable laws, regulations, and regulatory guidance.
 

      2   The requirement in Paragraph 3 to have and maintain a specific capital
level means that the Association may not be deemed to be “well-capitalized” for
purposes of 12 U.S.C. §1831o and 12 C.F.R. Part 565, pursuant to 12 C.F.R.
§565.4(b)(l)(iv).

Carver Federal Savings Bank
Order to Cease and Desist
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8. Upon receipt of written notification from the Regional Director, the
Association immediately shall implement and adhere to the Contingency Plan. The
Association shall provide the Regional Director with written status reports
detailing the Association’s progress in implementing the Contingency Plan by no
later than the first (1st) and fifteenth (15th) of each month following
implementation of the Contingency Plan.
Concentrations of Assets.
9. Within thirty (30) days, the Association shall revise, and thereafter
implement and adhere to, its written program for identifying, monitoring, and
controlling risks associated with concentrations of assets (Assets Concentration
Program) to address the corrective actions set forth in the April 26, 2010
Report of Examination (2010 ROE) relating to concentrations of assets. The
Assets Concentration Program shall comply with all applicable laws, regulations
and regulatory guidance. The Board’s review of the Assets Concentration Program
shall be documented in the Board meeting minutes.
10. Within sixty (60) days after the end of each quarter, beginning with the
quarter ending March 31, 2011, the Board shall review the appropriateness of the
Association’s concentration limits given current conditions and the
Association’s compliance with its Assets Concentration Program. The Board’s
review of the Assets Concentration Program shall be documented in the Board
meeting minutes.
Carver Federal Savings Bank
Order to Cease and Desist
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Restrictions on Lending.
11. Effective immediately, the Association shall not originate or purchase,
refinance, extend, or otherwise modify any commercial real estate loan (CRE
Loan)3 without the prior written non-objection of the Regional Director. A
request for non-objection must be received by OTS at least fifteen (15) days
before a response is needed.
12. Notwithstanding the restriction at Paragraph 11 above, the Association may
refinance, modify, or extend any existing CRE Loan where (i) refinancing by a
third party is not reasonably feasible, (ii) no new funds are advanced by the
Association, and (iii) the Association improves the credit quality and
collectability of the loan through receipt of a material principal pay-down, new
guarantees, or new collateral and fully documents and supports the improved
credit quality and collectability of the loan in the loan file. If the
Association cannot obtain a material principal pay-down, new guarantees, or new
collateral to support the refinance, modification, or extension, then the
Association, at a minimum, must document at the time of loan maturity that the
existing borrower has demonstrated the ability to make timely payments on the
loan and on other debts.
Internal Asset Review and Classification.
13. Within thirty (30) days, the Association shall revise, and thereafter
implement and adhere to, its written internal asset review (IAR) and
classification program (IAR Program) to address all corrective actions set forth
in the 2010 ROE relating to internal asset review and classification and to
comply with all applicable laws, regulations and regulatory guidance. At a
minimum, the IAR Program revisions shall include:
(a) consolidation of all existing IAR guidance into one stand-alone policy;
(b) clear identification of who is responsible for performing the IAR and loan
grading process and how it will be conducted;
 

      3   The term “Commercial Real Estate Loan” includes: (a) Acquisition,
Development, Construction or Land Loans; (b) Multifamily (5 or more) Loans; and
(c) Nonresidential Real Estate Loans, except for loans secured by owner-occupied
nonfarm nonresidential properties where the primary or significant source of
repayment is the cash flow from ongoing operations and activities conducted by
the party, or affiliate of the party, who owns the property.

Carver Federal Savings Bank
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(c) procedures designed to ensure that the IAR function is implemented
independent of the lending function; and
(d) procedures requiring a written presentation to, and Board approval of, any
instances where management rejects or proposes different asset classifications
or designations than those recommended by personnel performing the IAR.
Problem Assets.
14. By March 31, 2011, the Association shall develop, and thereafter implement
and adhere to, a detailed, written plan with specific strategies, targets and
timeframes to reduce4 the Association’s level of problem assets5 (Problem Asset
Reduction Plan). The Problem Asset Reduction Plan, at a minimum, shall include:
(a) quarterly targets for the level of problem assets as a percentage of Tier 1
(Core) capital plus ALLL;
(b) a description of the methods for reducing the Association’s level of problem
assets to the established targets; and
(c) all relevant assumptions and projections.
The Board’s review of the Problem Asset Reduction Plan shall be documented in
the Board meeting minutes.
 

      4   For purposes of this Paragraph, “reduce” means to collect, sell,
charge off, or improve the quality of an asset sufficient to warrant its removal
from adverse criticism or classification.   5   The term “problem assets” shall
include all: (i) classified assets, (ii) assets designated special mention, and
(iii) nonperforming assets.

Carver Federal Savings Bank
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15. Within forty-five (45) days, the Association shall develop individual
written specific workout plans for each problem asset of Five Hundred Thousand
Dollars ($500,000) or greater (Asset Workout Plans). Thereafter, the Association
shall immediately develop Asset Workout Plans for any newly identified problem
asset. The Asset Workout Plans shall comply with all applicable laws,
regulations and regulatory guidance.
16. Within sixty (60) days after the end of each quarter, beginning with the
quarter ending March 31, 2011, the Association shall submit a quarterly written
asset status report (Quarterly Asset Report) to the Board. The Board’s review of
the Quarterly Asset Report shall be documented in the Board meeting minutes. The
Quarterly Asset Report shall include, at a minimum:
(a) the current status of all Asset Workout Plans;
(b) a comparison of problem assets to Tier 1 (Core) capital plus ALLL and Total
Risk-Based capital;
(c) a comparison of problem assets at the current quarter end with the preceding
quarter;
(d) a breakdown of problem assets by type and risk factor (e.g. Acquisition,
Development, Construction and Land Loans, Multifamily Loans and Nonresidential
Real Estate Loans);
(e) an assessment of the Association’s compliance with the Problem Asset
Reduction Plan;
(f) a discussion of the actions taken during the preceding quarter to reduce the
Association’s level of problem assets; and
(g) any recommended revisions or updates to the Problem Asset Reduction Plan.
Carver Federal Savings Bank
Order to Cease and Desist
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17. Within sixty-five (65) days after the end of each quarter, a copy of the
Quarterly Asset Report shall be provided to the Regional Director.
Financial Reporting.
18. Effective immediately, the Association shall ensure that its financial
reports and statements are timely and accurately prepared and filed in
compliance with applicable laws, regulations, and regulatory guidance including,
but not limited to, 12 C.F.R. Part 562 and the Thrift Financial Report
(TFR) instructions.
19. Within thirty (30) days, the Association’s internal audit function shall:
(a) perform a special review of the Association’s information and data gathering
system surrounding the preparation of TFR’s, with a particular focus on the
reporting deficiencies identified in the 2010 ROE, and (b) prepare and present
to the Board a report summarizing its findings, together with recommended
corrective actions to address identified deficiencies.
20. Beginning with its independent audit for the fiscal year ending March 31,
2011, and for each successive fiscal year end, the Association shall comply with
the requirements of: (i) 12 C.F.R. § 363.2(b)(3) (component of management report
requiring assessment and statement of internal control structure and procedures)
and (ii) 12 C.F.R. § 363.3(b) (examination attestation, and report separately on
the assertion of management concerning the effectiveness of the institution’s
internal control structure and procedures for financial reporting) as if its
total assets exceeded $1 billion. The Association shall specify, as part of the
audit engagement letter, that the independent auditors will provide such
services as part of the independent audit report.
Carver Federal Savings Bank
Order to Cease and Desist
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Growth.
21. Effective immediately, the Association shall not increase its total assets
during any quarter in excess of an amount equal to net interest credited on
deposit liabilities during the prior quarter without the prior written notice of
non-objection of the Regional Director.
Dividends and Other Capital Distributions.
22. Effective immediately, the Association shall not declare or pay dividends or
make any other capital distributions, as that term is defined in 12 C.F.R. §
563.141, without receiving the prior written approval of the Regional Director
in accordance with applicable regulations and regulatory guidance. The
Association’s written request for approval shall be submitted to the Regional
Director at least thirty (30) days prior to the anticipated date of the proposed
declaration, dividend payment or distribution of capital.
Brokered Deposits.
23. Effective immediately, the Association shall comply with the requirements of
12 C.F.R. § 337.6(b). The Association shall provide to the Regional Director a
copy of any waiver request submitted to the Federal Deposit Insurance
Corporation (FDIC).
Transactions with Affiliates.
24. Effective immediately, the Association shall not engage in any new
transaction with an affiliate unless, with respect to each such transaction, the
Association has complied with the notice requirements set forth in 12 C.F.R. §
563.41(c)(4), which shall include the information set forth in 12 C.F.R. §
563.41(c)(3). The Board shall ensure that any transaction with an affiliate for
which notice is submitted pursuant to this Paragraph, complies with the
requirements of 12 C.F.R. § 563.41 and Regulation W, 12 C.F.R. Part 223.
Carver Federal Savings Bank
Order to Cease and Desist
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Third Party Contracts.
25. Effective immediately, the Association shall not enter into any arrangement
or contract with a third party service provider that is significant to the
overall operation or financial condition of the Association6 or outside the
Association’s normal course of business unless, with respect to each such
contract, the Association has: (a) provided the Regional Director with a minimum
of thirty (30) days prior written notice of such arrangement or contract and a
written determination that the arrangement or contract complies with the
standards and guidelines set forth in Thrift Bulletin 82a (TB 82a); and
(b) received written notice of non-objection from the Regional Director.
Directorate and Management Changes.
26. Effective immediately, the Association shall comply with the prior
notification requirements for changes in directors and Senior Executive
Officers7 set forth in 12 C.F.R. Part 563, Subpart H.
Golden Parachute Payments.
27. Effective immediately, the Association shall not make any golden parachute
payment8 unless, with respect to each such payment, the Association has complied
with the requirements of 12 C.F.R. Part 359.
 

      6   A contract will be considered significant to the overall operation or
financial condition of the Association where the annual contract amount equals
or exceeds two percent (2%) of the Association’s total capital, where there is a
foreign service provider, or where it involves information technology that is
critical to the Association’s daily operations without regard to the contract
amount.   7   The term “Senior Executive Officer” is defined at 12 C.F.R. §
563.555.   8   The term “golden parachute payment” is defined at 12 C.F.R. §
359. l(f).

Carver Federal Savings Bank
Order to Cease and Desist
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Employment Contracts and Compensation Arrangements.
28. Effective immediately, the Association shall not enter into, renew, extend,
or revise any contractual arrangement relating to compensation or benefits for
any Senior Executive Officer or director of the Association, unless it first
provides the Regional Director with not less than thirty (30) days prior written
notice of the proposed transaction. The notice to the Regional Director shall
include a copy of the proposed employment contract or compensation arrangement
or a detailed, written description of the compensation arrangement to be offered
to such officer or director, including all benefits and perquisites. The Board
shall ensure that any contract, agreement or arrangement submitted to the
Regional Director fully complies with the requirements of 12 C.F.R. Part 359, 12
C.F.R. §§ 563.39 and 563.161(b), and 12 C.F.R. Part 570 — Appendix A.
Board Oversight of Compliance with Order.
29. Effective immediately, the Board shall monitor and coordinate the
Association’s compliance with the provisions of this Order and the completion of
all corrective actions required in the 2010 ROE. The Board shall review and
adopt all plans, policies and procedures required by this Order prior to
submission to the OTS.
30. Within fifty-five (55) days after the end of each quarter, beginning with
the quarter ending March 31, 2011, the Association shall prepare a written
compliance progress report for the Board (Compliance Tracking Report). The
Compliance Tracking Report shall, at a minimum:
(a) separately list each corrective action required by this Order and the 2010
ROE;
(b) identify the required or anticipated completion date for each corrective
action; and
(c) discuss the current status of each corrective action, including the
action(s) taken or to be taken to comply with each corrective action.
Carver Federal Savings Bank
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31. Within sixty (60) days after the end of each quarter, beginning with the
quarter ending March 31, 2011, the Board shall review the Compliance Tracking
Report and all reports required to be prepared by this Order. Following its
review, the Board shall adopt a resolution: (a) certifying that each director
has reviewed the Compliance Tracking Report and all required reports; and
(b) documenting any corrective actions adopted by the Board. A copy of the
Compliance Tracking Report and the Board resolution shall be provided to the
Regional Director within five (5) days after the Board meeting.
32. Nothing contained herein shall diminish the responsibility of the entire
Board to ensure the Association’s compliance with the provisions of this Order.
Violations of Law.
33. Within sixty (60) days, the Association shall ensure that all violations of
law and/or regulation discussed in the 2010 ROE are corrected and that adequate
policies, procedures and systems are established or revised and thereafter
implemented to prevent future violations.
Effective Date, Incorporation of Stipulation.
34. This Order is effective on the Effective Date as shown on the first page.
The Stipulation is made a part hereof and is incorporated herein by this
reference.
Duration.
35. This Order shall remain in effect until terminated, modified, or suspended
by written notice of such action by the OTS, acting by and through its
authorized representatives.
Time Calculations.
36. Calculation of time limitations for compliance with the terms of this Order
run from the Effective Date and shall be based on calendar days, unless
otherwise noted.
37. The Regional Director, or an OTS authorized representative, may extend any
of the deadlines set forth in the provisions of this Order upon written request
by the Association that includes reasons in support for any such extension. Any
OTS extension shall be made in writing.
Carver Federal Savings Bank
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Submissions and Notices.
38. All submissions, including any reports, to the OTS that are required by or
contemplated by this Order shall be submitted within the specified timeframes.
39. Except as otherwise provided herein, all submissions, requests,
communications, consents or other documents relating to this Order shall be in
writing and sent by first class U.S. mail (or by reputable overnight carrier,
electronic facsimile transmission or hand delivery by messenger) addressed as
follows:

  (a)   To the OTS:
Michael E. Finn, Regional Director
Office of Thrift Supervision
Harborside Financial Center Plaza Five
Suite 1600
Jersey City, New Jersey 07311     (b)   To the Association:
Deborah C. Wright, Chairman of the Board
Carver Federal Savings Bank
75 West 125th Street
New York, New York 10027-4512

No Violations Authorized.
40. Nothing in this Order or the Stipulation shall be construed as allowing the
Association, its Board, officers, or employees to violate any law, rule, or
regulation.
IT IS SO ORDERED.

            OFFICE OF THRIFT SUPERVISION
      By:   /s/         Michael E. Finn        Regional Director, Northeast
Region

Date: See Effective Date on page 1   

Carver Federal Savings Bank
Order to Cease and Desist
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