exv10w10






#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-09-64
	Howell, Michigan

 


	)	 	 	 






CONSENT ORDER




     The Comptroller of the Currency of the United States of America (“Comptroller”), through his
National Bank Examiner, has supervisory authority over First National Bank in Howell, Howell, MI
(“Bank”).



     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 September 24, 2009, that is accepted by the Comptroller. 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.



     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) Within ten (10) days, the Board shall appoint a Compliance Committee of at least three (3)
directors, none of whom shall be employees or controlling shareholders 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.




     (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 submit 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; and
	 
	 	(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

	 	with a copy to:
	Office of the Comptroller of the Currency

	 	OCC Detroit Field Office
	Mail Stop 7-4

	 	Omni OfficeCentre
	250 E Street, S.W.

	 	Suite 411
	Washington, DC 20219

	 	26877 Northwestern Hwy
	 

	 	Southfield, MI 48033-8418






     (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 (4) of this Article, a 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 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.





     (2) 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 sheets, income statements, 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.



     (3) 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.



     (4) Prior to adoption by the Board, a copy of the 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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     (5) 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 at least 30 days 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.



     (6) 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 Board shall within one hundred 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 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





     (2) By September 24, 2009, the Board shall forward to the Director for his review, pursuant to
paragraph (4) of this Article, a written 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;







 




			
	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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	 	(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.





     (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 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) The Bank may make the Capital Plan as required by paragraph (2) of this Article, and the
Capital Restoration Plan (“CRP”) required by the OCC’s Confirmation of Undercapitalized PCA Capital
Category Letter dated August 10, 2009, one document, provided that the document/plan meets the
requirement of both the CRP and the Capital Plan.



     (6) If the Director determines, in his sole judgment, that the Bank has failed to submit an
acceptable Capital Plan as required by paragraph (2) of this Article, or has failed to implement or
adhere to a Capital Plan to which the Director has taken no supervisory objection pursuant to
paragraph (4) of this Article; then within thirty (30) days of receiving written notice from the
Director of such a determination, the Bank shall 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.



     (7) 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 ninety (90) 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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     (8) 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 one hundred twenty (120) days, the Board 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 (“ROE”), 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 ROE. Upon
completion, a copy of the written assessment shall be submitted to the Director.



     (3) If the Board determines that an executive officer’s performance, skills or abilities needs
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 make the



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necessary improvements. Upon completion, a copy of the written program shall be submitted to the
Director.




     (4) If the Board determines that an executive 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, in
each case 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 assessment required under paragraph (2) of this Article shall constitute the annual



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assessment for calendar year 2009. The Board shall ensure that the Bank addresses any identified
deficiencies in a manner consistent with paragraphs (3) and (4) of this Article.




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)	 	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; 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.






	 	(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.





     (2) Upon completion, 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.



ARTICLE VI




LOAN PORTFOLIO MANAGEMENT



     (1) Within sixty (60) days, the Board shall review the current written credit policy of the
Bank to ensure it is designed to result in improvements to the Bank’s loan portfolio management and
that it includes all elements and requirements set forth in this paragraph (1) and shall adopt any
revisions necessary to meet such objectives. Thereafter, the Bank (subject to Board review and
ongoing monitoring) shall implement and ensure adherence to the credit policy. 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;





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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.





     (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.



ARTICLE VII




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:



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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.





     (2) Appraisals required by this Article shall be ordered within thirty (30) days following the
event triggering the appraisal requirement, for delivery to the Bank within sixty (60) days of
ordering.



     (3) Within ninety (90) 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
	 
	 	(c)	 	consistent with OCC
Advisory Letter 2003-9, “Independent Appraisal and Evaluation Function” (October 28, 2003).




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     (4) Written documentation supporting each appraisal review and analysis shall be
retained in the loan file, along with the appraisal.



ARTICLE VIII




OTHER REAL ESTATE OWNED



     (1) Within forty-five (45) days from the effective date of this Order, the Board shall adopt,
implement, and thereafter ensure Bank adherence to a written action plan for each parcel of Other
Real Estate Owned (“OREO”), to ensure that these assets are accounted for and managed in accordance
with 12 U.S.C. § 29 and 12 C.F.R. Part 34. Further, upon transfer of an asset to OREO, the Board
shall adopt, implement, and thereafter ensure Bank adherence to a written action plan for the OREO,
to ensure that the asset is accounted for and managed in accordance with 12 U.S.C. § 29 and 12
C.F.R. Part 34. At a minimum, the plans shall:




	 	(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.





     (2) Upon adoption, the Board shall submit a copy of the plans to the Director, and
shall provide to the Director a copy of the monthly status reports required in paragraph (1)(g).



ARTICLE IX




CONCENTRATIONS OF CREDIT



     (1) Within ninety (90) days, the Board shall adopt and the Bank (subject to Board review and
ongoing monitoring) shall implement and thereafter ensure adherence to a written commercial real
estate (“CRE”) and construction & development (“C&D”) concentration management program (including
appropriate revisions to existing policies and procedures), designed to manage the risk in the
Bank’s CRE and C&D loan portfolios in accordance with the guidelines in OCC Bulletin 2006-46,
“Concentration in Commercial Real Estate Lending, Sound Risk Management Practices” (December 6,
2006), and “Commercial Real Estate and Construction Lending,” Booklet A-CRE of the Comptroller’s
Handbook. The program shall include (but not be limited to) the following:




	 	(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).




21









 











     (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 X




CREDIT AND COLLATERAL EXCEPTIONS



     (1) The Bank shall obtain current and complete credit information on all loans lacking such
information, including those listed in the most recent ROE (within sixty (60) days from the
effective date of this Order), in any subsequent ROE (within sixty (60) days from the issuance of
such ROE), 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); provided that, if the Bank is unable to obtain current and complete credit
information on all such loans, then the Bank shall maintain a list of any such 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) The Bank shall ensure proper collateral documentation is obtained and maintained on all
loans and correct each collateral exception listed in the most recent ROE (within sixty (60) days
from the effective date of this Order), in any subsequent ROE (within sixty (60) days from the
issuance of such ROE), 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); provided that, if the Bank is unable to obtain or maintain
proper collateral documentation or correct any such collateral exception, then the Bank shall



22









 




maintain a list of any such 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.




     (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.





     (4) Failure to obtain the information required by subparagraph (3)(d) of this Article shall
require a majority of the full Board (or a designated committee thereof) to certify in writing the
specific reasons why obtaining and analyzing the required information in (3)(d) would be
detrimental to the best interests of the Bank. A copy of the Board certification shall be
maintained in the credit file of the affected borrower(s).



23









 





ARTICLE XI




LOAN REVIEW



     (1) Within thirty (30) days, the Board shall establish an effective, independent, and on-going
loan review program to review, at least semi-annually, 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:




	 	(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.




24









 











     (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.



ARTICLE XII




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;




25









 






	 	(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 filing 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.



     (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 XIII




CRITICIZED ASSETS



     (1) Within forty-five (45) 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 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 (or a designated committee) and the Director
monthly. Each CAR shall cover an entire credit relationship and include, at a minimum, analysis and
documentation of the following:



26









 






	 	(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.





     (2) The Bank shall not extend credit, directly or indirectly, including renewals, extensions,
or capitalization of accrued interest, 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 extending any additional credit (including renewals, extensions, or capitalization of
accrued interest), a majority of the full




27









 






	 	 	 	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.





ARTICLE XIV




VIOLATIONS OF LAW



     (1) The Board shall require and the Bank shall immediately take all necessary steps to correct
each violation of law, rule, or regulation, if any, cited in the most recent ROE, any subsequent
ROE, or brought to the Board’s or Bank’s attention in writing by management, regulators, auditors,
loan review, or other compliance efforts. Within ninety (90) days after any such violation is cited
or brought to the Board’s attention, the Bank shall provide to the Board a list of any violations
that have not been corrected. This list shall include an explanation of the actions taken to
correct the violation, the reasons why the violation has not yet been corrected, and a plan to
correct the violation by a specified time.



     (2) If the OCC determines that the procedures currently in place to prevent violations
of law are ineffective or that additional procedures are necessary, the Board shall require, within



28









 




sixty (60) days following the OCC’s determination, the Bank to develop, implement, and thereafter
ensure adherence to:





	 	(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.





     (3) Upon adoption, the Board shall forward a copy of these policies and procedures to
the Director.



ARTICLE XV




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
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 XVI




CLOSING



     (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.



29









 





     (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.



     (4) The provisions of this Order are effective upon issuance of this Order by the Comptroller,
through his authorized representative whose hand 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 or the Board is required to ensure
adherence to, and undertake to perform certain obligations of the Bank, it is intended to mean that
the Board shall:




	 	(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.




30









 











     (6) This Order is intended to be, and shall be construed to be, a final order issued pursuant
to 12 U.S.C. § 1818(b), and expressly does not form, and may not be construed to form, a contract
binding on the Comptroller or the United States.



     (7) 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 24th day of September 2009.




	 	 	 
	signed
	 	 
	 
	 	 
	 

Ronald G. Schneck

	 	 
	Director for Special Supervision
	 	 






31









 





UNITED STATES OF AMERICA

DEPARTMENT OF THE TREASURY

COMPTROLLER OF THE CURRENCY




	 	 	 	 	 	 	 
	 

In the Matter of:

	 	 	)	 	 	 
	First National Bank in Howell

	 	 	)	 	 	AA-EC-09-64
	Howell, Michigan

	 	 	)	 	 	 
	 


	 	 	 	 	 	 






STIPULATION AND CONSENT TO THE ISSUANCE

OF A CONSENT ORDER




     The Comptroller of the Currency of the United States of America (“Comptroller”) intends to
initiate cease and desist proceedings against First National Bank in Howell, Howell, Michigan
(“Bank”), pursuant to 12 U.S.C. § 1818(b), through the issuance of a Notice of Charges, for unsafe
and unsound banking practices relating to supervision of the Bank.



     The Bank, in the interest of compliance and cooperation, consents to the issuance of a
Consent Order, dated September 23, 2009 (“Order”).



     In consideration of the above premises, the Comptroller, through his authorized
representative, and the Bank, through its duly elected and acting Board of Directors, hereby
stipulate and agree to the following:



ARTICLE I




JURISDICTION



     (1) The Bank is a national banking association chartered and examined by the Comptroller
pursuant to the National Bank Act of 1864, as amended, 12 U.S.C.
§ 1 et seq.



     (2) The Comptroller is
“the appropriate Federal banking agency” regarding the Bank, pursuant to 12 U.S.C. §§ 1813(q) and
1818(b).



     (3) The Bank is an “insured depository institution” within the meaning of 12 U.S.C.
§ 1818(b)(1).



     (4) As a result of this Order:




	 	(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




 









 






	 	 	 	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.





ARTICLE II




AGREEMENT



     (1) The Bank, without admitting or denying any wrongdoing, hereby consents and
agrees to the issuance of the Order by the Comptroller.



     (2) The Bank further agrees that said Order shall be deemed an “order issued with the consent
of the depository institution,” as defined in 12 U.S.C. § 1818(h) (2), and consents and agrees that
said Order shall become effective upon its issuance and shall be fully enforceable by the
Comptroller under the provisions of 12 U.S.C. § 1818(i). Notwithstanding the absence of mutuality
of obligation, or of consideration, or of a contract, the Comptroller may enforce any of the
commitments or obligations herein undertaken by the Bank under his supervisory powers, including 12
U.S.C. § 1818(i), and not as a matter of contract law. The Bank expressly acknowledges that neither
the Bank nor the Comptroller has any intention to enter into a contract.



2









 





     (3) The Bank also expressly acknowledges that no officer or employee of the Comptroller has
statutory or other authority to bind the United States, the U.S. Treasury Department, the
Comptroller, or any other federal bank regulatory agency or entity, or any officer or employee of
any of those entities to a contract affecting the Comptroller’s exercise of his supervisory
responsibilities.



ARTICLE III




WAIVERS



     (1) The Bank, by signing this Stipulation and Consent, hereby waives:




	 	(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.





ARTICLE IV




OTHER ACTION



     (1) The Bank agrees that the provisions of this Stipulation and Consent shall not inhibit,
estop, bar, or otherwise prevent the Comptroller from taking any other action affecting the Bank
if, at any time, the Comptroller deems it appropriate to do so to fulfill the responsibilities
placed upon him by the several laws of the United States of America.



3









 





     IN TESTIMONY WHEREOF, the undersigned, authorized by the Comptroller as his
representative, has hereunto set his hand on behalf of the Comptroller.



	 	 	 	 	 
	Signed

	 	 	 	9/24/2009
	 

	 	 	 	 
	Ronald G. Schneck

	 	 	 	Date
	Director, Special Supervision Division
	 	 	 	 






4









 






     IN TESTIMONY WHEREOF, the undersigned, as the duly elected and acting Board of Directors of
the Bank, have hereunto set their hands on behalf of the Bank.



	 	 	 	 	 	 	 	 	 
	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___
	 

	 	 
	 	 	 	 	 	 






5