UNITED STATES OF AMERICA


 


BEFORE THE


 


BOARD OF GOVERNORS OF THE FEDERAL RESERVE
SYSTEM


 


WASHINGTON, D.C.


 


VIRGINIA BUREAU OF FINANCIAL INSTITUTIONS


 


RICHMOND, VIRGINIA


 


 


	 	 	 
	Written Agreement by and among	 	 
	 	 	 
	BANK OF VIRGINIA	 	Docket No. 09-206-WA/RB-SM
	Midlothian, Virginia	 	 
	 	 	 
	FEDERAL RESERVE BANK	 	 
	OF RICHMOND	 	 
	Richmond, Virginia	 	 
	 	 	 
	and	 	 
	 	 	 
	VIRGINIA BUREAU OF FINANCIAL	 	 
	INSTITUTIONS	 	 
	 	 	 
	Richmond, Virginia	 	 
	 	 	 


 


WHEREAS, in recognition of their common
goal to maintain the financial soundness of Bank of Virginia, Midlothian, Virginia (the “Bank”), a state chartered
bank that is a member of the Federal Reserve System, the Bank, the Federal Reserve Bank of Richmond (the “Reserve Bank”),
and the Virginia Bureau of Financial Institutions (the “Bureau”) have mutually agreed to enter into this Written Agreement
(the “Agreement”); and


 


WHEREAS, on January 13, 2010, the
board of directors, at a duly constituted meeting, adopted a resolution authorizing and directing Henry E. Richardson,
Chairman of the Board, to consent to this Agreement on behalf of the Bank, and consenting to compliance with each and every
provision of this Agreement by the Bank and its institution-affiliated parties, as defined in section 3(u) of the Federal
Deposit Insurance Act, as amended (the “FDI Act”) (12 U.S.C. § 1813(u)).


 



    	 



    	 



    

 


NOW, THEREFORE, the Bank, the Reserve Bank,
and the Bureau agree as follows:


 


Board Oversight


 


1.           Within
60 days of this Agreement, the board of directors shall submit to the Reserve Bank and the Bureau a written plan to
strengthen board oversight of the management and operations of the Bank. The plan shall, at a minimum, address, consider, and
include:


 


(a)          The
actions that the board of directors will take to improve the Bank’s condition and maintain effective control over, and supervision
of, the Bank’s major operations and activities, including but not limited to, credit risk management, processes to mitigate
risks associated with credit concentrations, investment portfolio management, and earnings;


 


(b)          the
responsibility of the board of directors to monitor management’s adherence to approved policies and procedures, and applicable
laws and regulations;


 


(c)          the
responsibilities of board of directors’ committees and the scope and frequency of committee meetings, including, but not
limited to, the loan, asset/liability, and audit committees;


 


(d)          a
description of the information and reports that will be regularly reviewed by the board of directors in its oversight of the operations
and management of the Bank, including information on the Bank’s adversely classified assets, concentrations of credits, allowance
for loan and lease losses (“ALLL”), capital, liquidity, and earnings; and


 


(e)          the
maintenance of adequate and complete minutes of all board and committee meetings, approval of such minutes, and their retention
for supervisory review.


 



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Management Review


 


2.           Within
60 days of this Agreement, the board of directors shall complete an assessment of the Bank’s management and staffing
needs and the qualifications and performance of each senior officer (the “Management Review”). The primary
purpose of the review shall be to aid in the development of a suitable management structure commensurate with the size and
complexity of the Bank that is adequately staffed by qualified personnel. The Management Review shall, at a minimum, address,
consider, and include:


 


(a)          The
identification of the type and number of officers needed to manage and supervise properly the affairs of the Bank;


 


(b)          an
evaluation of each senior officer to determine whether the individual possesses the ability, experience, and other qualifications
necessary to perform competently present and anticipated duties, including the ability to comply with applicable laws and regulations,
adhere to the Bank’s established policies and procedures, restore and maintain the Bank to a safe and sound condition, and
comply with the requirements of this Agreement; and


 


(c)          the
identification of present and future management and staffing needs for each area of the Bank, particularly in the areas of credit
risk management, loan underwriting, appraisal review, credit administration, and problem asset resolution.


 


3.           Within
30 days of completion of the Management Review, the board of directors shall submit a written management plan to the Reserve
Bank and the Bureau that includes the findings and conclusions of the Management Review and describes the specific actions
that the board of directors will take to strengthen the Bank’s management and to hire, as necessary, additional or
replacement personnel.


 



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4.           Within
60 days of this Agreement, the Bank shall submit to the Reserve Bank and the Bureau an acceptable written plan to strengthen
credit risk management practices. The plan shall, at a minimum, address, consider, and include:


 


(a)          The
responsibility of the board of directors to establish appropriate risk tolerance guidelines and risk limits;


 


(b)          periodic
review and revision of risk exposure limits to address changes in market conditions;


 


(c)          timely
and accurate identification and quantification of credit risk within the loan portfolio;


 


(d)          strategies
to minimize credit losses and reduce the level of problem assets; and


 


(e)          enhanced
stress testing of loan portfolio segments. Concentrations of Credit


 


5.           Within
60 days of this Agreement, the Bank shall submit to the Reserve Bank and the Bureau an acceptable written plan to strengthen
the Bank’s management of commercial real estate (“CRE”) concentrations, including steps to reduce the risk
of concentrations. The plan shall, at a minimum, include:


 


(a)          Procedures
to identify, limit, and manage concentrations of credit that are consistent with the Interagency Guidance on Concentrations in
Commercial Real Estate Lending, Sound Risk Management Practices, dated December 12, 2006 (SR 07-1);


 


(b)          a
schedule for reducing and the means by which the Bank will reduce the level of CRE concentrations, and timeframes for
achieving the reduced levels; and


 



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(c)          enhanced
monitoring and reporting of CRE concentrations to management and the board of directors.


 


Lending and Credit Administration


 


6.           Within
60 days of this Agreement, the Bank shall submit to the Reserve Bank and the Bureau an acceptable written lending and credit
administration program that shall, at a minimum, address, consider, and include:


 


(a)          A
description of the specific types and volume of loans that may be made by the Bank, including out-of-area loans, and an appropriate
portfolio mix of loan types;


 


(b)          for
each type of credit extended by the Bank, including, but not limited to, home equity loans, underwriting standards that include
the establishment of appropriate loan-to-value ratios and appropriate collateral;


 


(c)          standards
for renewing, extending, or modifying existing loans; and


 


(d)          enhancements
to the appraisal policy that include, but are not limited to:


 


(i)           specific
appraisal standards to be included in the appraiser engagement letter; and


 


(ii)           revised
appraisal review procedures to ensure the quality of appraisals.


 


Loan Review


 


7.           Within
60 days of this Agreement, the Bank shall submit to the Reserve Bank and the Bureau an acceptable written program for the
ongoing review and grading of the Bank’s loan portfolio by a qualified independent party or by qualified staff that is
independent of the Bank’s lending function. The program shall, at a minimum, address, consider, and include:


 


(a)          The
scope and frequency of the loan review;


 


(b)          standards
and criteria for assessing the credit quality of the loans;


 



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(c)          application
of loan grading standards and criteria to the loan portfolio; and


 


(d)          quarterly
written reports to the board of directors that identify the status of those loans that are adversely graded and the prospects for
full collection or strengthening of the quality of any such loans.


 


Asset Improvement


 


8.           (a)           The Bank
shall not, directly or indirectly, extend or renew any credit to or for the benefit of any borrower, including any
related interest of the borrower, who is obligated to the Bank in any manner on any extension of credit or portion thereof
that has been charged off by the Bank or classified, in whole or in part, “loss” in the report of the examination
of the Bank conducted by the Reserve Bank that commenced on August 3, 2009 (“Report of Examination”) or in any
subsequent report of examination, as long as such credit remains uncollected.


 


(b)          The
Bank shall not, directly or indirectly, extend or renew any credit to or for the benefit of any borrower, including any
related interest of the borrower, whose extension of credit has been classified “doubtful” or
“substandard” in the Report of Examination or in any subsequent report of examination, without the prior approval
of the board of directors. The board of directors shall document in writing the reasons for the extension of credit or
renewal, specifically certifying that: (i) the extension of credit is necessary to protect the Bank’s interest in the
ultimate collection of the credit already granted or (ii) the extension of credit is in full compliance with the Bank’s
written loan policy, is adequately secured, and a thorough credit analysis has been performed indicating that the extension
or renewal is reasonable and justified, all necessary loan documentation has been properly and accurately prepared and filed,
the extension of credit will not impair the Bank’s interest in obtaining repayment of the already outstanding credit,
and the board of directors reasonably believes that the extension of credit or renewal will be repaid according to its terms.
The written certification shall be made a part of the minutes of the board of directors meetings, and a copy of the signed
certification, together with the credit analysis and related information that was used in the determination, shall be
retained by the Bank in the borrower’s credit file for subsequent supervisory review. For purposes of this Agreement,
the term “related interest” is defined as set forth in section 215.2(n) of Regulation 0 of the Board of Governors
(12 C.F.R. § 215.2(n)).


 



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9.           (a)           Within
60 days of this Agreement, the Bank shall submit to the Reserve Bank and the Bureau an acceptable written plan designed to
improve the Bank’s position through repayment, amortization, liquidation, additional collateral, or other means on each
loan or other asset in excess of $500,000, including OREO, that: (i) is past due as to principal or interest more than 90
days as of the date of this Agreement; (ii) is on the Bank’s problem loan list; or (iii) was adversely classified in
the Report of Examination. In developing the plan for each loan, the Bank shall, at a minimum, review, analyze, and document
the financial position of the borrower, including source of repayment, repayment ability, and alternative repayment sources,
as well as the value and accessibility of any pledged or assigned collateral, and any possible actions to improve the
Bank’s collateral position.


 


(b)          Within
30 days of the date that any additional loan or other asset in excess of $500,000, including OREO: (i) becomes past due as to
principal or interest for more than 90 days; (ii) is on the Bank’s problem loan list; or (iii) is adversely classified
in any subsequent report of examination of the Bank, the Bank shall submit to the Reserve Bank and the Bureau an acceptable
written plan to improve the Bank’s position on such loan or asset.


 


(c)          Within
30 days after the end of each calendar quarter thereafter, the Bank shall submit a written progress report to the Reserve
Bank and the Bureau to update each asset improvement plan, which shall include, at a minimum, the carrying value of the loan
or other asset and changes in the nature and value of supporting collateral, along with a copy of the Bank’s current
problem loan list, extension report, and past due/non-accrual report. The board of directors shall review the progress
reports before submission to the Reserve Bank and the Bureau and shall document the review in the minutes of the board of
directors’ meetings.


 



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Allowance for Loan and Lease Losses


 


10.          (a)           Within
10 days of this Agreement, the Bank shall eliminate from its books, by charge-off or collection, all assets or portions of
assets classified “loss” in the Report of Examination that have not been previously collected in full or charged
off. Thereafter the Bank shall, within 30 days from the receipt of any federal or state report of examination, charge off all
assets classified “loss” unless otherwise approved in writing by the Reserve Bank and the Bureau.


 


(b)          Within
60 days of this Agreement, the Bank shall review and revise its ALLL methodology consistent with relevant supervisory
guidance, including the Interagency Policy Statements on the Allowance for Loan and Lease Losses, dated July 2, 2001 (SR
01-17 (Sup)) and December 13, 2006 (SR 06-17), and the findings and recommendations regarding the ALLL set forth in the
Report of Examination, and submit a description of the revised methodology to the Reserve Bank and the Bureau. The revised
ALLL methodology shall be designed to maintain an adequate ALLL and shall address, consider, and include, at a minimum, the
reliability of the Bank’s loan grading system, the volume of criticized loans, concentrations of credit, the current
level of past due and nonperforming loans, past loan loss experience, evaluation of probable losses in the Bank’s loan
portfolio, including adversely classified loans, and the impact of market conditions on loan and collateral valuations and
collectibility.


 



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(c)          Within
60 days of this Agreement, the Bank shall submit to the Reserve Bank and the Bureau an acceptable written program for the
maintenance of an adequate ALLL. The program shall include policies and procedures to ensure adherence to the revised ALLL
methodology and provide for periodic reviews and updates to the ALLL methodology, as appropriate. The program shall also
provide for a review of the ALLL by the board of directors on at least a quarterly calendar basis. Any deficiency found in
the ALLL shall be remedied in the quarter it is discovered, prior to the filing of the Consolidated Reports of Condition and
Income, by additional provisions. The board of directors shall maintain written documentation of its review, including the
factors considered and conclusions reached by the Bank in determining the adequacy of the ALLL. During the term of this
Agreement, the Bank shall submit to the Reserve Bank and the Bureau, within 30 days after the end of each calendar quarter, a
written report regarding the board of directors’ quarterly review of the ALLL and a description of any changes to the
methodology used in determining the amount of ALLL for that quarter.


 


Capital Plan


 


11.          Within
60 days of this Agreement, the Bank shall submit to the Reserve Bank and the Bureau an acceptable written plan to maintain
sufficient capital at the Bank. The plan shall, at a minimum, address, consider, and include the Bank’s current and
future capital requirements, including:


 


(a)          The
Bank’s current and future capital needs, including compliance with the Capital Adequacy Guidelines for State
Member Banks: Risk-Based Measure and Tier 1 Leverage Measure, Appendices A and B of Regulation H of the Board of Governors
(12 C.F.R. Part 208, App. A and B);


 



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(b)          the
adequacy of the Bank’s capital, taking into account the volume of classified credits, concentrations of credit, ALLL, current
and projected asset growth, and projected retained earnings; and


 


(c)          the
source and timing of additional funds to fulfill the Bank’s future capital requirements.


 


12.          The
Bank shall notify the Reserve Bank and the Bureau, in writing, no more than 30 days after the end of any quarter in which any of
the Bank’s capital ratios (total risk-based, Tier 1, or leverage) fall below the approved plan’s minimum ratios. Together
with the notification, the Bank shall submit an acceptable capital plan that details the steps it will take to increase the Bank’s
capital ratios to or above the approved plan’s minimums.


 


Conflicts of Interest Policy


 


13.          Within
90 days of this Agreement, the Bank shall submit to the Reserve Bank and the Bureau a written code of ethics and conflicts of interest
policy that applies to all directors, officers, and employees of the Bank (“Covered Persons”) that sets out the fiduciary
duties of all Covered Persons and the avoidance of conflicts of interest. The policy, at a minimum, shall address, consider, and
include:


 


(a)          The
duty of care and loyalty owed by Covered Persons to the Bank;


 


(b)          the
avoidance of conflicts of interest and the appearance of a conflict of interest;


 


(c)          a
requirement that a Covered Person disclose in writing to the board of directors any actual or potential conflict of interest;


 


(d)          a
prohibition on the involvement of a Covered Person in the approval or renewal of any loan to such Covered Person or related interest
thereof;


 



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(e)          internal
controls that monitor compliance with the code of ethics and conflicts of interest policy and report any noncompliance or exceptions
to the approved policy to the board of directors; and


 


(f)          training
for all Covered Persons regarding the code of ethics and conflicts of interest policy.


 


Strategic Plan and Budget


 


14.          (a)          Within
90 days of this Agreement, the Bank shall submit to the Reserve Bank and the Bureau a strategic plan to improve the
Bank’s earnings and a budget for 2010. The written plan and budget shall include, but not be limited to:


 


(i)          identification
of the major areas where, and means by which, the board of directors will seek to improve the Bank’s operating performance;


 


(ii)          a
realistic and comprehensive budget for calendar year 2010, including income statement and balance sheet projections; and


 


(iii)          a
description of the operating assumptions that form the basis for, and adequately support, major projected income, expense, and
balance sheet components.


 


(b)          A
strategic plan and budget for each calendar year subsequent to 2010 shall be submitted to the Reserve Bank and the Bureau at
least 30 days prior to the beginning of that calendar year.


 


Liquidity and Funds Management


 


15.          Within
60 days of this Agreement, the Bank shall submit to the Reserve Bank and the Bureau an acceptable written plan designed to
improve management of the Bank’s liquidity position and funds management practices. The plan shall, at a minimum,
address, consider, and include:


 



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(a)          Measures
to enhance the monitoring, measurement, and reporting of the Bank’s liquidity to the board of directors; and


 


(b)          specific
liquidity targets and parameters and the maintenance of sufficient liquidity to meet contractual obligations and unanticipated
demands.


 


16.          Within
60 days of this Agreement, the Bank shall submit to the Reserve Bank and the Bureau an acceptable revised written contingency funding
plan that, at a minimum, identifies available sources of liquidity and includes adverse scenario planning.


 


Regulatory Reports


 


17.          The
Bank shall immediately take steps to ensure that all required regulatory reports filed with the Federal Reserve and the Federal
Financial Institutions Examination Council accurately reflect the Bank’s financial condition and are filed in accordance
with the applicable instructions for preparation.


 


Dividends


 


18.          (a)          The
Bank shall not declare or pay any dividends without the prior written approval of the Reserve Bank, the Director of the
Division of Banking Supervision and Regulation of the Board of Governors, and the Bureau.


 


(b)          Any
request to declare or pay dividends must be consistent with the Board of Governors’ Policy Statement on the Payment of
Cash Dividends by State Member Banks and Bank Holding Companies, dated November 14, 1985 (Federal Reserve Regulatory Service,
4-877 at page 4-323). All requests for prior approval shall be received by the Reserve Bank and the Bureau at least 30 days
prior to the proposed dividend declaration date and shall contain, at a minimum, current and projected information on
earnings, capital, asset quality, and loan loss reserve needs of the Bank.


 



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Compliance with Laws and Regulations


 


19.          (a)          In
appointing any new director or senior executive officer, or changing the responsibilities of any senior executive officer
so that the officer would assume a different senior executive officer position, the Bank shall comply with the notice
provisions of section 32 of the FDI Act (12 U.S.C. § 1831i) and Subpart H of Regulation Y of the Board of Governors (12
C.F.R. §§ 225.71 et seq.).


 


(b)          The
Bank shall comply with the restrictions on indemnification and severance payments of section 18(k) of the FDI Act (12 U.S.C.
§ 1828(k)) and Part 359 of the Federal Deposit Insurance Corporation’s regulations (12 C.F.R. Part 359).


 


Compliance with the Agreement


 


20.          (a)          Within
10 days of this Agreement, the board of directors shall appoint a committee (the “Compliance Committee”) to
monitor and coordinate the Bank’s compliance with the provisions of this Agreement. The Compliance Committee shall
include a majority of outside directors who are not executive officers or principal shareholders of the Bank, as defined in
sections 215.2(e)(1) and 215.2(m)(1) of Regulation O of the Board of Governors (12 C.F.R. §§ 215.2(e)(1) and
215.2(m)(1)). At a minimum, the Compliance Committee shall meet at least monthly, keep detailed minutes of each meeting, and
report its findings to the board of directors of the Bank.


 


(b)          Within
30 days after the end of each calendar quarter following the date of this Agreement, the Bank shall submit to the Reserve
Bank and the Bureau written progress reports detailing the form and manner of all actions taken to secure compliance with
this Agreement and the results thereof.


 



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Approval and Implementation of Plans, Programs, and Policy


 


21.          (a)          The
Bank shall submit written plans, programs, and policy that are acceptable to the Reserve Bank and the Bureau within the
applicable time periods set forth in paragraphs 4, 5, 6, 7, 9, 10(c), 11, 12, 13, 15, and 16 of this Agreement.


 


(b)          Within
10 days of approval by the Reserve Bank and the Bureau, the Bank shall adopt the approved plans, programs, and policy. Upon
adoption, the Bank shall promptly implement the approved plans, programs, and policy, and thereafter fully comply with
them.


 


(c)          During
the term of this Agreement, the approved plans, programs, and policy shall not be amended or rescinded without the prior
written approval of the Reserve Bank and the Bureau. Communications


 


22.          All
communications regarding this Agreement shall be sent to:


 


	 	(a)	A. Linwood Gill, III
	 	 	Vice President
	 	 	Federal Reserve Bank of Richmond
	 	 	P.O. Box 27622
	 	 	Richmond, Virginia 23261-7622


 


	 	(b)	John M. Crockett
	 	 	Deputy Commissioner
	 	 	Virginia Bureau of Financial Institutions
	 	 	P.O. Box 640
	 	 	Richmond, Virginia 23218-0640
	 	 	 
	 	(c)	Frank Bell, III
	 	 	President and Chief Executive Officer
	 	 	Bank of Virginia
	 	 	P.O. Box 5658
	 	 	Midlothian, Virginia 23112


 



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Miscellaneous


 


23.          Notwithstanding
any provision of this Agreement, the Reserve Bank and the Bureau may, in their sole discretion, grant written extensions of time
to the Bank to comply with any provision of this Agreement.


 


24.          The
provisions of this Agreement shall be binding upon the Bank and its institution-affiliated parties, in their capacities as such,
and their successors and assigns.


 


25.          Each
provision of this Agreement shall remain effective and enforceable until stayed, modified, terminated, or suspended in writing
by the Reserve Bank and the Bureau.


 


26.          The
provisions of this Agreement shall not bar, estop, or otherwise prevent the Board of Governors, the Reserve Bank, the Bureau, or
any other federal or state agency from taking any other action affecting the Bank or any of its current or former institution-affiliated
parties and their successors and assigns.


 


27.          Pursuant
to section 50 of the FDI Act (12 U.S.C. § 1831aa), this Agreement is enforceable by the Board of Governors under section 8
of the FDI Act (12 U.S.C. § 1818).


 


IN WITNESS WHEREOF, the parties have caused
this Agreement to be executed as of the 14th day of January, 2010.


 


	BANK OF VIRGINIA	 	FEDERAL RESERVE BANK OF

 RICHMOND
	 	 	 
	By:	/s/ Henry E. Richardson	 	By:	/s/ A. Linwood Gill, III
	 	Henry E. Richardson	 	 	A. Linwood Gill, III
	 	 	 	 	Vice President
	 	 	 	 
	 	 	 	VIRGINIA BUREAU OF FINANCIAL INSTITUTIONS
	 	 	 	 
	 	 	 	By:	/s/ E. Joseph Face, Jr. 
	 	 	 	 	E. Joseph Face, Jr. Commissioner


 








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