EXHIBIT 10.1
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C.
AND
STATE OF MICHIGAN
OFFICE OF FINANCIAL AND INSURANCE REGULATION
LANSING, MICHIGAN

             
 
           
 
    )      
In the Matter of:
    )      
 
    )     STIPULATION AND CONSENT
MONARCH COMMUNITY BANK
    )     TO THE ISSUANCE OF A CONSENT
COLDWATER, MICHIGAN
    )     ORDER
 
    )      
(STATE CHARTERED)
    )     FDIC-10-190b
INSURED NONMEMBER BANK
    )      
 
    )      
 
           

     Subject to the acceptance of this STIPULATION AND CONSENT TO THE ISSUANCE
OF A CONSENT ORDER (“STIPULATION”) by the Federal Deposit Insurance Corporation
(“FDIC”) and the State of Michigan, Office of Financial and Insurance Regulation
(“OFIR”), it is hereby stipulated and agreed by and among representatives of the
FDIC, OFIR, and Monarch Community Bank, Coldwater, Michigan (“Bank”) as follows:
     1. The Bank has been advised of its right to receive a NOTICE OF CHARGES
AND OF HEARING (“NOTICE”) detailing the violations of laws and regulations and
unsafe or unsound practices alleged to have been committed by the Bank and of
its right to a hearing on the charges under section 8(b) of the Federal Deposit
Insurance Act (“Act”), 12 U.S.C. § 1818(b), and under section 2304 of the
Banking Code of 1999, Mich. Comp. Laws § 487.12304, and has knowingly waived
that right.

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     2. The Bank, solely for the purpose of this proceeding and without
admitting or denying any of the charges of violations of laws or regulations and
unsafe or unsound practices, hereby consents and agrees to the issuance of a
CONSENT ORER (“ORDER”) by the FDIC and OFIR.
     3. The Bank further stipulates and agrees that such ORDER shall be deemed
to be a consent order which has become final and unappealable, and that the
ORDER shall become effective 10 calendar days after its issuance by the FDIC and
OFIR and fully enforceable by the FDIC and OFIR pursuant to the provisions of
section 8(i) of the Act, 12 U.S.C. § 1818(i), and section 2311 of the Banking
Code of 1999, Mich. Comp. Laws § 487.12311, respectively, subject only to the
conditions set forth in paragraph 4 of this STIPULATION.
     4. In the event the FDIC and OFIR accept this STIPULATION and issue the
ORDER, it is agreed that no action to enforce the ORDER will be taken by the
FDIC in the United States District Court or the appropriate Federal Circuit
Court or by OFIR in the appropriate State Circuit Court unless the Bank, any
Bank institution-affiliated party, as that term is defined in section 3(u) of
the Act, 12 U.S.C. § 1813(u), or any of its successors or assigns, has violated
or is about to violate any provision of the ORDER.
     5. The Bank hereby waives:

  a.   The receipt of a NOTICE;     b.   All defenses and counterclaims of any
kind to this proceeding;     c.   A hearing for the purpose of taking evidence
on the allegations in the NOTICE;     d.   The filing of proposed findings of
fact and conclusions of law;     e.   A recommended decision of an
Administrative Law Judge; and

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  f.   Exceptions and briefs with respect to each recommended decision.

     Dated this 27th day of April, 2010.

                  FEDERAL DEPOSIT INSURANCE   MONARCH COMMUNITY BANK    
CORPORATION, LEGAL DIVISION   COLDWATER, MICHIGAN                              
          By:   /s/ Richard C. Rowley
 
Richard C. Rowley   By:   /s/ Harold A. Adamson
 
Harold A. Adamson         Its: Senior Regional Attorney       Its: Director    
 
                OFFICE OF FINANCIAL AND
  By:   /s/ Craig W. Dally    
INSURANCE REGULATION
     
 
Craig W. Dally                 Its: Director                       By:   /s/
Stephen R. Hilker
 
Stephen R. Hilker   By:   /s/ Donald L. Denney
 
Donald L. Denney         Its: Chief Deputy Commissioner,
Office of Financial and Insurance Services       Its: Director    
 
               
 
      By:   /s/ Richard T. Dobbins
 
Richard T. Dobbins    
 
          Its: Director    
 
               
 
      By:   /s/ James W. Gordon
 
James W. Gordon    
 
          Its: Director    
 
               
 
      By:   /s/ Karl F. Loomis
 
Karl F. Loomis    
 
          Its: Director    
 
               
 
      By:   /s/ Martin J. Mitchell
 
Martin J. Mitchell    
 
          Its: Director    
 
               
 
      By:   /s/ Stephen M. Ross
 
Stephen M. Ross    
 
          Its: Chairman    

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                  By:   /s/ Gordon L. Welch         Gordon L. Welch        Its:
Director           Comprising the Board of Directors of
MONARCH COMMUNITY BANK,
COLDWATER, MICHIGAN   

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FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C.
AND
STATE OF MICHIGAN
OFFICE OF FINANCIAL AND INSURANCE REGULATION
LANSING, MICHIGAN

             
 
           
 
    )      
In the Matter of:
    )      
 
    )     CONSENT ORDER
MONARCH COMMUNITY BANK
    )      
COLDWATER, MICHIGAN
    )      
 
    )      
(STATE CHARTERED)
    )     FDIC-10-190b
INSURED NONMEMBER BANK
    )      
 
    )      
 
           

     Monarch Community Bank, Coldwater, Michigan (“Bank”), having been advised
of its right to a NOTICE OF CHARGES AND OF HEARING detailing the unsafe or
unsound banking practices alleged to have been committed by the Bank, and of its
right to a hearing on the charges under section 8(b) of the Federal Deposit
Insurance Act (“Act”), 12 U.S.C. § 1818(b), and under § 2304 of the Banking Code
of 1999, Mich. Comp. Laws § 487.12304, regarding hearings before the Office of
Financial and Insurance Regulation for the State of Michigan (OFIR”), and having
waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF A
CONSENT ORDER (“STIPULATION”) with representatives of the Federal Deposit
Insurance Corporation (“FDIC”) and the OFIR dated April 27, 2010, whereby,
solely for the purpose of this proceeding and without admitting or denying the
charges of unsafe or unsound banking practices relating to capital, asset
quality, management, and earnings, the Bank consented to the issuance of a
CONSENT ORDER (“ORDER”) by the FDIC and the OFIR.

 

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     The FDIC and the OFIR considered the matter and decided to accept the
STIPULATION.
     Having determined that the requirements for issuance of an order under 12
U.S.C. § 1818(b) and Mich. Comp. Laws § 487.12304 have been satisfied, the FDIC
and the OFIR HEREBY ORDER, that the Bank, its institution-affiliated parties as
that term is defined in section 3(u) of the Act, 12 U.S.C. § 1813(u), and its
successors and assigns, take affirmative action as follows:
MANAGEMENT
     1. (a) Within ninety (90) days from the effective date of this ORDER, the
bank shall have and retain qualified management. At a minimum, such management
shall include a chief lending officer with an appropriate level of lending,
collection, and loan supervision experience for the type and quality of the
Bank’s loan portfolio. Management shall be provided the necessary written
authority to implement the provisions of this ORDER. 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, rules, and
regulations; and     (iv)   Restore all aspects of the Bank to a safe and sound
condition, including capital adequacy, asset quality, management effectiveness,
earnings, liquidity, and sensitivity to interest rate risk.

          (b) During the life of this ORDER, prior to the addition of any
individual to the board of directors or the employment of any individual as a
senior executive officer, the Bank shall request and obtain the written approval
of OFIR’s Chief Deputy Commissioner (“Chief Deputy Commissioner”). For purposes
of this ORDER, “senior executive officer” is

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defined as in section 32 of the Act (section 32”), 12 U.S.C. § 1831(1), and
section 303.101(b) of the FDIC Rules and Regulations, 12 C.F.R. § 303.101(b).
MANAGEMENT PLAN
     2. (a) Within thirty (30) days from the effective date of this ORDER, the
Bank shall retain an independent, third party acceptable to the Regional
Director of the FDIC’s Chicago Regional Office (“Regional Director”) and Chief
Deputy Commissioner, who will develop a written analysis and assessment of the
Bank’s management needs (“Management Study”) for the purpose of providing
qualified management for the Bank.
          (b) The Bank shall provide the Regional Director and Chief Deputy
Commissioner with a copy of the proposed engagement letter or contract with the
independent third party for review.
          (c) The Management Study shall be developed within ninety (90) days
from the effective date of this ORDER. The Management Study shall include, at a
minimum:

  (i)   Identification of both the type and number of officers positions needed
to properly manage and supervise the affairs of the Bank;     (ii)  
Identification and establishment of such Bank committees as are needed to
provide guidance and oversight to active management;     (iii)   Evaluation of
all senior executive management and all officers in the lending area to
determine whether these individuals possess the ability, experience and other
qualifications required to perform present and anticipated duties, including
adherence to the Bank’s established policies and practices, and restoration and
maintenance of the Bank in a safe and sound condition;

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  (iv)   Evaluation of all senior executive officers’ compensation, including
salaries, director fees, and other benefits;     (v)   A plan to recruit and
hire any additional or replacement personnel with the requisite ability,
experience and other qualifications to fill those officers or staff member
positions identified by this paragraph of this ORDER;

          (d) The plan required by this paragraph shall be submitted to the
Regional Director and Chief Deputy Commissioner for review and comment. Within
thirty (30) days of receipt of any comments from the Regional Director or Chief
Deputy Commissioner the Bank shall incorporate any changes required by the
Regional Director or Chief Deputy Commissioner and thereafter adopt, implement,
and adhere to the plan.
BOARD PARTICIPATION
     3. (a) As of the effective date of this ORDER, the board of directors shall
increase its 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. This
participation shall include meetings to be held no less frequently than monthly
at which, at a minimum, the following areas shall be reviewed and approved:
reports of income and expenses; new, overdue, renewal, charged off, and
recovered loans; adoption or modification of operating policies; individual
committee reports; audit reports; internal control reviews including management
responses, and compliance with this ORDER. Board minutes shall document these
reviews and approvals, including the names of any dissenting directors.

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          (b) Within fifteen (15) days from the effective date of this ORDER,
the Bank’s board of directors shall have in place a program that will provide
for monitoring of the Bank’s compliance with this ORDER.
          (c) Following the required date of compliance with subparagraph
(a) above, the Bank’s board of directors shall review the Bank’s compliance with
this ORDER and record its review in the minutes of each regularly scheduled
monthly board of directors’ meeting.
CAPITAL
     4. (a) Within ninety (90) days from the effective date of this ORDER, the
Bank shall have and maintain its level of Tier 1 capital as a percentage of its
total assets (“capital ration”) at a minimum of nine (9.0%) percent and its
level of qualifying total capital as a percentage of risk-weighted assets
(“total risk based capital ratio”) at a minimum of eleven (11.0%) percent. For
purposes of this ORDER, Tier 1 capital, qualifying total capital, total assets,
and risk-weighted assets shall be calculated in accordance with Part 325 of the
FDIC Rules and Regulations (“Part 325”), 12 C.F.R. Part 325.
          (b) If, while this ORDER is in effect, the Bank increases capital by
the sale of new securities, the board of directors of the Bank shall adopt and
implement a plan for the sale of such additional securities, including the
voting of any shares owned or proxies held by or controlled by them in favor of
said plan. Should the implementation of the plan involve public distribution of
Bank securities, including a distribution limited only to the Bank’s existing
shareholders, the Bank shall prepare detailed offering materials fully
describing the securities being offered, including an accurate description of
the financial condition of the Bank and the circumstances giving rise to the
offering, and other material disclosures necessary to comply with Federal
securities laws. Prior to the implementation of the plan and, in any event, not
less

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than twenty (20) days prior to the dissemination of such materials, the
materials used in the sale of the securities shall be submitted to the FDIC
Registration and Disclosure Section, 550 17th Street, N.W., Washington, D.C.
20429 and to the Commissioner, Office of Financial and Insurance Regulation for
the State of Michigan, 611 Ottawa Street, Lansing, Michigan 48933, for their
review. Any changes requested to be made in the materials by the FDIC or the
OFIR shall be made prior to their dissemination.
          (c) In complying with the provisions of this paragraph, the Bank shall
provide to any subscriber and/or purchaser of Bank securities written notice of
any planned or existing development or other changes which are materially
different from the information reflected in any offering materials used in
connection with the sale of Bank securities. The written notice required by this
paragraph shall be furnished within ten (10) calendar days of the date any
material development or change was planned or occurred, whichever is earlier,
and shall be furnished to every purchaser and/or subscriber of the Bank’s
original offering materials.
LOSS CHARGE-OFF
     5. As of the effective date of this Order the Bank shall charge off from
its books and records any loan classified “Loss” in the Report of Examination
dated January 4, 2010 (“ROE”) that has not been previously collected or charged
off, and shall further charge off any loan classified “Loss” at subsequent
examinations or visitations during the life of this ORDER within ten (10) days
of receipt of the report.
PROHIBITION OF ADDITIONAL LOANS TO CLASSIFIED BORROWERS
     6. (a) As of 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 is already obligated in any manner to the Bank on any extensions of
credit (including any portion thereof) that has

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been charged off the books of the Bank or classified “Loss” in the ROE, so long
as such credit remains uncollected.
          (b) As of 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 whose loan or other credit has been classified “Substandard”,
“Doubtful”, or is listed for Special Mention in the ROE, and is uncollected
unless the Bank’s board of directors has adopted, prior to such extension of
credit, a detailed written statement giving the reasons why such extension of
credit is in the best interest of the Bank. A copy of the statement shall be
signed by each Director, and incorporated in the minutes of the applicable board
of directors’ meeting. A copy of the statement shall be placed in the
appropriate loan file.
REDUCTION OF DELINQUENCIES AND CLASSIFIED ASSETS
     7. (a) Within sixty (60) days from the effective date of this ORDER, the
Bank shall adopt, implement, and adhere to, a written plan to reduce the Bank’s
risk position in each asset in excess of $250,000 which is more than sixty
(60) days delinquent or classified “Substandard” or “Doubtful” in the ROE The
plan shall include, but not be limited to, provisions which:

  (i)   Prohibit an extension of credit for the payment of interest, unless the
Board provides, in writing, a detailed explanation of why the extension is in
the best interest of the Bank;     (ii)   Provide for review of the current
financial condition of each delinquent or classified borrower, including a
review of borrower cash flow and collateral value;     (iii)   Delineate areas
of responsibility for loan officers;

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  (iv)   Establish dollar levels to which the Bank shall reduce delinquencies
and classified assets within six and 12 months from the effective date of this
ORDER; and     (v)   Provide for the submission of monthly written progress
reports to the Bank’s board of directors for review and notation in minutes of
the meetings of the board of directors.

          (b) As used in this paragraph, “reduce” means to: (i) collect;
(2) charge off; (3) sell, or (4) improve the quality of such assets so as to
warrant removal of any adverse classification by the FDIC and the OFIR.
          (c) A copy of the plan required by this paragraph shall be submitted
to the Regional Director and Chief Deputy Commissioner.
          (d) While this ORDER remains in effect, the plan shall be revised to
include assets which become more than sixty (60) days delinquent after the
effective date of this ORDER or are adversely classified at any subsequent
examinations.
LENDING AND COLLECTION POLICIES
     8. (a) Within sixty (60) days from the effective date of this ORDER, the
Bank shall revise, adopt, and implement written lending and collection policies
to provide effective guidance and control over the Bank’s lending function,
which policies shall include specific guidelines for preparing cash flow
analyses and debt service coverage ratios, and implementing procedures to ensure
adequate real estate valuations are prepared. In addition, the Bank shall obtain
adequate and current documentation for all loans in the Bank’s loan portfolio.

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          (b) The revisions to the Bank’s loan policy and practices, required by
this paragraph, at a minimum, shall address the lending and collection concerns
discussed in the ROE.
          (c) Copies of the policies and revisions thereto required by this
paragraph shall be submitted to the Regional Director and Chief Deputy
Commissioner.
LOAN REVIEW AND GRADING SYSTEM
     9. Within sixty (60) days from the date of this ORDER, the Bank shall
implement revised comprehensive loan grading and review procedures. The
procedures shall require such loan grading and review will be performed by a
qualified individual who is not a member of the lending staff. The loan review
shall at a minimum:
          (a) Require periodic confirmation of the accuracy and completeness of
the watch list and all risk grades assigned by the Bank’s loan officers;
          (b) Identify loans or relationships that warrant special attention of
management;
          (c) Identify violations of law, rules, or regulations and credit and
collateral documentation exceptions and track corrective measures;
          (d) Identify and review of the Bank’s methodology for calculating the
ALLL and its adequacy based upon the assigned factor values and impaired credits
as outlined under Financial Accounting Standards Board Accounting Standards
Codification (“FASB ASC”) Subtopic 450-10 and FASB ASC Subtopic 310-10 (which
now supersedes prior FAS 5 and 114 guidelines); and
          (e) Identify loans not in conformance with the Bank’s loan policy.

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DIVIDEND RESTRICTION
     10. As of the effective date of this ORDER, the Bank shall not declare or
pay any dividend without the prior written consent of the Regional Director and
Chief Deputy Commissioner.
ALLOWANCE FOR LOANS AND LEASE LOSSES
     11. (a) After the effective date of this ORDER, and prior to the submission
of all Reports of Condition and Income required by the FDIC, the board of
directors of the Bank shall review the adequacy of the Bank’s ALLL, provide for
an adequate ALLL, and accurately report the same. The minutes of the board
meeting at which such review is undertaken shall indicate the findings of the
review, the amount of increase in the ALLL recommended, if any, and the basis
for determination of the amount of ALLL provided. In making these
determinations, the board of directors shall consider the FFIEC Instructions for
the Reports of Condition and Income and any analysis of the Bank’s ALLL provided
by the FDIC or OFIR.
          (b) ALLL entries required by this paragraph shall be made prior to any
capital determinations required by this ORDER.
PROFIT PLAN AND BUDGET
     12. (a) Within sixty (60) days from the effective date of this ORDER, the
Bank shall adopt, implement, and adhere to a written profit plan and a
realistic, comprehensive budget for all categories of income and expense for
calendar year 2010. The plans required by this paragraph shall contain formal
goals and strategies, consistent with sound banking practices, to reduce
discretionary expenses and to improve the Bank’s overall earnings, and shall
contain a description of the operating assumptions that form the basis for major
projected income and

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expense components, and identify the major areas in, and means by which,
earnings will be improved.
          (b) At each monthly board meeting following completion of the profit
plans and budgets required by this paragraph, the Bank’s board of directors
shall evaluate the Bank’s actual performance in relation to the plan and budget,
record the results of the evaluation, and note any actions taken by the Bank in
the minutes of the board of directors’ meeting at which such evaluation is
undertaken.
          (c) A written profit plan and budget shall be prepared for each
calendar year for which this ORDER is in effect.
          (d) Copies of the plans and budgets required by this paragraph shall
be submitted to the Regional Director and Chief Deputy Commissioner.
CONCENTRATION OF CREDIT
     13. (a) Within sixty (60) days from the effective date of this ORDER, the
Bank shall formulate, adopt and implement a written plan to manage
concentrations of credit in a safe and sound manner. At a minimum the plan must
provide for written procedures for the ongoing measurement and monitoring of
concentrations of credit, and a limit on concentrations commensurate with the
Bank’s capital position, safe and sound banking practices, and the overall risk
profile of the Bank.
          (b) A copy of the plan required by this paragraph shall be submitted
to the Regional Director and Chief Deputy Commissioner.
REDUCTION OF BROKERED DEPOSITS
     14. (a) Within sixty (60) days, the Bank will formulate and submit to the
Regional Director and Chief Deputy Commissioner for review a written plan to
reduce the

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Bank’s reliance on brokered deposits as defined in Part 337 of the FDIC Rules
and Regulations. Such plan shall detail the volume and maturities of the Bank’s
existing brokered deposits. The plan shall include, but not be limited to:

  (i)   Target dollar levels for each quarter over the next eight (8) quarters;
    (ii)   Specific strategies for funding the existing brokered deposits as
they mature; and     (iii)   Provision for the submission of monthly written
progress reports to the Bank’s board of directors for review and notation in the
minutes of the board of directors’ meetings.

NOTIFICATION TO SHAREHOLDER
     15. Following The effective date of this ORDER, the Bank shall send to its
shareholder a copy of this ORDER: (1) in conjunction with the Bank’s next
shareholder communication; or (2) in conjunction with its notice or proxy
statement preceding the Bank’s next shareholder meeting.
PROGRESS REPORTS
     16. Within thirty (30) days from the end of each calendar quarter following
the effective date of this ORDER, the Bank shall furnish to the Regional
Director and Chief Deputy Commissioner written progress reports signed by each
member o the Bank’s board of directors, detailing the actions taken to secure
the compliance with the ORDER and the results thereof.
     The effective date of this ORDER shall be the date of issuance by the FDIC
and the OFIR.
     The provisions of this ORDER shall be binding upon the Bank, its
institution-affiliated parties, and any successors and assigns thereof.

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     The provisions of this ORDER shall remain effective and enforceable except
to the extent that, and until such time as, any provision has been modified,
terminated, suspended, or set aside by the FDIC and the OFIR.
     Pursuant to delegated authority.
     Dated: May 6, 2010

       
/s/ M. Anthony Lowe
  /s/ Stephen R. Hilker  
 
     
M. Anthony Lowe
  Stephen R. Hilker  
Regional Director
  Chief Deputy Commissioner  
Chicago Regional Office
  Office of Financial and Insurance Regulation  
Federal Deposit Insurance Corporation
  State of Michigan  

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