#2009-140
 UNITED STATES OF AMERICA
DEPARTMENT OF THE TREASURY
COMPTROLLER OF THE CURRENCY
 In the Matter of:
    )First National Bank in Howell
    
    
    )
    
    
    AA-EC-09-64Howell, Michigan
    )
 CONSENT ORDER
     COMPLIANCE COMMITTEE




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(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; and(c)
    
    the results and status of those actions.
   Director for Special Supervision
    
    with a copy to:Office of the Comptroller of the Currency
    
    OCC Detroit Field OfficeMail Stop 7-4
    
    Omni OfficeCentre250 E Street, S.W.
    
    Suite 411Washington, DC 20219
    
    26877 Northwestern HwySouthfield, MI 48033-8418
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STRATEGIC PLAN
  (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 and actions to be taken to achieve
identified goals and objectives, including specific time frames;(d)
    
    specific actions to improve Bank earnings and asset quality, to reduce the level of
concentrations of credit and funding costs, and to reduce reliance on non-core funding;
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(e)
    
    identification of Bank personnel to be responsible and accountable for achieving each goal and
objective of the Strategic Plan, including specific time frames;(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 operating environment;(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;
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(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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CAPITAL PLAN AND HIGHER MINIMUMS
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 (a)
    
    Total capital at least equal to eleven percent (11%) of risk-weighted assets;(b)
    
    Tier 1 capital at least equal to eight and one-half percent (8.5%) of adjusted total
assets.2
  (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;
 
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    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. 7




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(c)
    
    projections of the sources and timing of additional capital to meet the
Banks future needs;(d)
    
    identification of the primary sources from which the Bank will maintain an
appropriate capital structure to meet the Banks future needs;(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; and(f)
    
    contingency plans that identify alternative methods to strengthen capital,
should the primary source(s) under paragraph (d) of this Article not be available.
  (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.
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BOARD TO ENSURE COMPETENT MANAGEMENT
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LIQUIDITY RISK MANAGEMENT PROGRAM
  (a)
    
    strategies to maintain sufficient liquidity at reasonable costs including, but not limited
to, the following:
 (i)
    
    diversification of funding sources, without significant 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)
    
    Liquidity reports shall be reviewed by the Board on at least a monthly basis,
and shall include, at a minimum, the following:
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(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;(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:
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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; and3.
    
    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.
 (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
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(iii)
    
    procedures which ensure that the Banks contingency funding
practices are consistent with the Boards guidance and risk tolerances.
   LOAN PORTFOLIO MANAGEMENT
  (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;
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(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, 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 and controls to periodically verify the existence and lien position of collateral;(e)
    
    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; a detailed project budget; time frames for project
completion; a detailed market analysis; and sales projections, including projected absorption
rates;(ii)
    
    conduct stress testing of significant project and lending parameters (e.g., changes in
interest rates, absorption rates, vacancy rates, etc.), as appropriate; and(iii)
    
    obtain current documentation sufficient to support a detailed analysis of the financial
condition of borrowers and significant guarantors.
 (f)
    
    a requirement that borrowers and/or guarantors maintain any collateral margins established in
the credit approval process;
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(g)
    
    procedures that prohibit the capitalization of accrued interest on any loan
renewal or extension;(h)
    
    procedures that prohibit, on any loan renewal, extension
or modification, the establishment of an interest reserve using the proceeds of any
Bank loan to the same borrower or guarantor;(i)
    
    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;(j)
    
    credit risk rating definitions
consistent with applicable regulatory guidance;(k)
    
    procedures for early problem
loan identification, to ensure that credits are accurately risk rated at least
monthly; and(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.
   APPRAISALS OF REAL PROPERTY
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(a)
    
    where the loans appraisal was found to violate 12 C.F.R. Part 34; or(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.
   (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(c)
    
    consistent with OCC
Advisory Letter 2003-9, Independent Appraisal and Evaluation Function (October 28, 2003).
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OTHER REAL ESTATE OWNED
  (a)
    
    detail the valuation analysis and accounting for
each OREO property, including the appraisal and all supporting documentation;(b)
    
    contain an
analysis of the OREO property, which compares the cost to carry against the financial benefits of
near term sale;(c)
    
    detail the marketing strategy and targeted time frames for disposing of each
OREO property;(d)
    
    identify the Bank officer responsible for managing and authorizing transactions
relating to each OREO property;(e)
    
    establish procedures to require periodic market valuations of
each property, and the methodology to be used;(f)
    
    establish targeted write-downs at periodic
intervals if marketing strategies are unsuccessful; and
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(g)
    
    provide for reports to the Board on the status of each OREO property and
its disposition, on at least a monthly basis.
   CONCENTRATIONS OF CREDIT
 Comptrollers
Handbook
 (a)
    
    policy guidelines
and an overall CRE and C&D lending strategy, addressing the level and nature of CRE and C&D
exposures acceptable to the institution and setting concentration limits, including limits on
commitments to individual borrowers and appropriate sub-limits (for example, by property types);(b)
    
    procedures and controls to monitor compliance with the Banks lending policies and the
Strategic Plan;
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(c)
    
    procedures to identify and quantify the nature and level of risk presented by CRE and C&D
concentrations, including review of reports describing changes in conditions in the Banks CRE and
C&D markets;(d)
    
    procedures to periodically review and revise, as appropriate, CRE and C&D risk
exposure limits and sub-limits to conform to any changes in the institutions strategies and to
respond to changes in market conditions;(e)
    
    periodic portfolio-level stress tests or sensitivity
analysis to quantify the impact of changing economic conditions on asset quality, earnings, and
capital;(f)
    
    ongoing market analyses for the various property types and geographic markets
represented in its portfolio;(g)
    
    appropriate strategies for managing CRE and C&D concentration
levels, including a contingency plan to reduce or mitigate concentrations in the event of adverse
CRE or C&D market conditions; and(h)
    
    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 (for example, revise limits or
change underwriting criteria) 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).
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CREDIT AND COLLATERAL EXCEPTIONS
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(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.
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LOAN REVIEW
 Comptrollers Handbook
 (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.
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ALLOWANCE FOR LOAN AND LEASE LOSSES
 Comptrollers Handbook
 (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;
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(h)
    
    concentrations of credit in the Bank; and(i)
    
    present and projected economic and market conditions.
    CRITICIZED ASSETS
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(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;(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.
  (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 extending any additional credit (including renewals, extensions, or capitalization of
accrued interest), a majority of the full
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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(c)
    
    the Boards formal plan to collect or strengthen the criticized
asset will not be compromised by the extension of additional credit.
  VIOLATIONS OF LAW
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(a)
    
    specific procedures to prevent future violations as cited in the ROE; and(b)
    
    general procedures addressing compliance management that incorporate internal control systems
and education of employees regarding laws, rules, and regulations applicable to their areas of
responsibility.
   ADMINISTRATIVE APPEALS AND EXTENSIONS OF TIME
    CLOSING
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(a)
    
    authorize and adopt such actions on behalf of the Bank as may be necessary for
the Bank to perform its obligations and undertakings under the terms of this Order;(b)
    
    require the
timely reporting by Bank management of such actions directed by the Board to be taken under the
terms of this Order;(c)
    
    follow up on any non-compliance with such actions in a timely and
appropriate manner; and(d)
    
    require corrective action be taken in a timely manner of any
non-compliance with such actions.
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th
 signedRonald G. SchneckDirector for Special Supervision
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UNITED STATES OF AMERICA
DEPARTMENT OF THE TREASURY
COMPTROLLER OF THE CURRENCY
 In the Matter of:
    
    
    )First National Bank in Howell
    
    
    )
    
    
    AA-EC-09-64Howell, Michigan
    
    
    )
 STIPULATION AND CONSENT TO THE ISSUANCE
OF A CONSENT ORDER
     JURISDICTION
 et seq
    (a)
    
    the Bank is not an eligible bank pursuant to 12 C.F.R. § 5.3(g)(4) for the
purposes of 12 C.F.R. Part 5 regarding rules, policies and procedures for




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corporate activities, and is not an eligible Bank pursuant to 12 C.F.R. §
24.2(e)(4) for the purposes of 12 C.F.R. Part 24 regarding public welfare
investments, unless, in either case, the Bank is informed in writing by the
Comptroller;(b)
    
    the Bank is subject to the limitation of 12 C.F.R. § 5.51(c)(6)(ii)
for the purposes of 12 C.F.R. § 5.51 requiring OCC approval of a change in directors
and senior executive officers, unless otherwise informed in writing by the
Comptroller; and(c)
    
    the Bank is subject to the limitation on golden parachute and
indemnification payments provided by 12 C.F.R. § 59.1(f)(1)(ii)(C) and 12 C.F.R. §
5.51(c)(6)(ii), unless otherwise informed in writing by the Comptroller.
  AGREEMENT
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WAIVERS
  (a)
    
    the issuance of a Notice of Charges pursuant to 12 U.S.C. § 1818(b);(b)
    
    any and
all procedural rights available in connection with the issuance of the Order;(c)
    
    all rights to a hearing and a final agency decision pursuant to 12 U.S.C. § 1818(i)
or 12 C.F.R. Part 19;(d)
    
    all rights to seek any type of administrative or judicial
review of the Order; and(e)
    
    any and all rights to challenge or contest the validity
of the Order.
  OTHER ACTION
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Signed
    
    
    
    9/24/2009Ronald G. Schneck
    
    
    
    DateDirector, Special Supervision Division
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NAMES:
    
    SIGNATURES:


    
    DATES:Barbara Draper
    
    
    
    ____ signed
    
    
    
    ___9/23/09___Ronald Long
    
    
    
   ____ signed
    
    
    
    ___9/23/09___Randolph E. Rudisill
    
    
    
   ____ signed
    
    
    
    ___9/23/09___R. Michael Yost
    
    
    
   ____ signed
    
    
    
    ___9/23/09___
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