Exhibit 10.1





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:


 


30









 






	 	(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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