Exhibit 10.1


 


UNITED STATES OF AMERICA


DEPARTMENT OF THE TREASURY


OFFICE OF THE COMPTROLLER OF THE CURRENCY


 


	
  In the Matter of:

  	
  )

  	
   

  
	
  First
  National Community Bank

  	
  )

  	
  AA-EC-1O-65

  
	
  Dunmore,
  Pennsylvania

  	
  )

  	
   

  



 


CONSENT ORDER


 


WHEREAS, the Comptroller of the
Currency of the United States of America (“Comptroller”), through his National
Bank Examiner, has supervisory authority over First National Community Bank,
Dunmore, Pennsylvania (“Bank”);


 


WHEREAS, the Bank, by
and through its duly elected and acting Board of Directors (“Board”), has
executed a Stipulation and Consent to the Issuance of a Consent Order (“Stipulation
and Consent”), dated September 1, 2010 that is accepted by the Comptroller; and


 


WHEREAS, by this
Stipulation and Consent, which is incorporated by reference, the Bank, has
consented to the issuance of this Consent Order (“Order”) by the Comptroller.


 


NOW, THEREFORE pursuant to the authority vested in him by the
Federal Deposit Insurance Act, as amended, 12 U.S.C. § 1818, the Comptroller
hereby orders that:


 


ARTICLE
I


 


COMPLIANCE COMMITTEE


 


(1)        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 immediately 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:

  
	
  Comptroller
  of the Currency

  	
  Northern Pennsylvania
  Field Office

  
	
  250
  E Street, S.W.

  	
  Comptroller of the
  Currency

  
	
  Mail
  Stop 7-4

  	
  60 Public Square, Suite
  602

  
	
  Washington,
  DC 20219

  	
  Wilkes Barre, PA 18701

  



 


(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.


 


ARTICLE II


 


STRATEGIC PLAN


 


(1)
Within sixty (60) days, the Board shall forward to the Director pursuant to
paragraph (3) 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


 


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Director’s
written determination of no supervisory objection, the Board shall adopt and
the Bank (subject to Board review and ongoing monitoring) shall implement and
thereafter ensure adherence to the Strategic Plan. The Strategic Plan shall
establish objectives for the Bank’s overall risk profile, earnings performance,
growth, balance sheet mix, off-balance sheet activities, liability structure,
capital adequacy, reduction in the volume of nonperforming assets, product line
development, and market segments that the Bank intends to promote or develop,
together with strategies to achieve those objectives, and shall, at a minimum,
include:


 


(a)         a mission
statement that forms the framework for the establishment of strategic goals and
objectives;


 


(b)         a description
of the Bank’s targeted market(s) and an assessment of the current and projected
risks and competitive factors in its identified target market(s);


 


(c)         the strategic
goals and objectives to be accomplished;


 


(d)         specific
actions to improve Bank earnings and accomplish the identified strategic goals
and objectives;


 


(e)         identification
of Bank personnel to be responsible and accountable for achieving each goal and
objective of the Strategic Plan, including specific time frames;


 


(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


 


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risk
assessment of new product lines must be completed prior to the offering of such
product lines;


 


(i)           a description
of control systems to mitigate risks associated with planned new products,
growth, or any proposed changes in the Bank’s markets;


 


(j)           an evaluation
of the Bank’s internal operations, staffing requirements, board and management
information systems, and policies and procedures for their adequacy and
contribution to the accomplishment of the goals and objectives established in
the Strategic Plan;


 


(k)          a management
employment and succession program to promote the retention and continuity of
capable management;


 


(l)           assigned
responsibilities and accountability for the strategic planning process, new
products, growth goals, and proposed changes in the Bank’s operating environment;
and


 


(m)         a description
of systems to monitor the Bank’s progress in meeting the Strategic Plan’s goals
and objectives.


 


(2)
If the Board’s Strategic Plan under paragraph (1) of this Article is a sale or
merger of the Bank, the Strategic Plan shall, at a minimum, address the steps
that will be taken and the associated timeline to ensure that a definitive
agreement for the sale or merger is executed not later than ninety (90) days
after the receipt of the Director’s written determination of no supervisory objection
pursuant to paragraph (3) of this Article.


 


(3)
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


 


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supervisory objection from the Director, the
Board shall adopt and the Bank shall immediately implement and adhere to the
Strategic Plan.


 


(4)
At least quarterly, the Board shall cause to be prepared a written evaluation
of the Bank’s performance against the Strategic Plan. The Board shall review
the written evaluation for reasonableness and provide written approval of the
evaluation if acceptable. If the Board deems the evaluation unacceptable, the
Board shall cause the evaluation to be revised to a form that is acceptable to
the Board. Any revised evaluation must receive written Board approval. The
evaluation shall include:


 


(a)          a review of
financial reports and earnings analyses that evaluate the Bank’s actual
performance against the goals and objectives established in the Strategic Plan;


 


(b)          a written
explanation of significant differences between actual and projected balance
sheet, income statement, and expense accounts, including descriptions of
extraordinary and/or nonrecurring items; and


 


(c)          a description
of the actions the Board will require the Bank to take to address any
shortcomings and bring the Bank into compliance with the Strategic Plan.


 


(5) Within ten (10) days of
completing its evaluation, the Board shall submit a copy to the Director.


 


(6)
The Bank may not initiate any action that deviates significantly from the
Board-approved Strategic Plan without a written determination of no supervisory
objection from the Director. The Board must give the Director advance, written
notice of its intent to deviate significantly from the Strategic Plan, along
with an assessment of the impact of such change on the Bank’s condition,
including a profitability analysis and an evaluation of the adequacy of the
Bank’s organizational structure, staffing, management information systems,
internal controls, and


 


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written
policies and procedures to identify, measure, monitor, and control the risks
associated with the change in the Strategic Plan.


 


(7)
For the purposes of this Article, changes that may constitute a significant
deviation from the Strategic Plan include, but are not limited to, a change in
the Bank’s marketing strategies, marketing partners, products and services,
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.


 


ARTICLE III


 


CAPITAL PLAN AND HIGHER MINIMUMS


 


(1)
The Bank shall within ninety (90) 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 thirteen percent (13%) of risk-weighted assets;


 


(b)          Tier 1 capital
at least equal to nine percent (9%) of adjusted total assets.(2)


 






(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) The adjusted total
assets is defined in 12 C.F.R. §  3.2(a) as the average total assets
figure required to be computed for and stated in the Bank’s most recent
quarterly Consolidated Report of Condition
and Income minus end-of-quarter intangible assets, deferred tax
assets, and credit-enhancing interest-only strips, that are deducted from Tier
1 capital, and minus nonfinancial equity investments for which a Tier 1 capital
deduction is required pursuant to section 2(c)(5)  of
Appendix A of 12 C.F.R. Part 3.


 


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(2)
Within sixty (60) days, the Board shall forward to the Director for his review,
pursuant to paragraph (4) of this Article, a written Capital Plan for the Bank,
consistent with the Strategic Plan pursuant to Article II, covering at least a
three-year period. At the next Board meeting following receipt of the Director’s
written determination of no supervisory objection, the Board shall adopt and
the Bank (subject to Board review and ongoing monitoring) shall implement and
thereafter ensure adherence to the Capital Plan. The Capital Plan shall
include:


 


(a)         specific plans for the
achievement and maintenance of adequate capital, which may in no event be less
than the requirements of paragraph (1) of this Article;


 


(b)         projections for growth and
capital requirements, based upon a detailed analysis of the Bank’s assets,
liabilities, earnings, fixed assets, and off-balance sheet activities;


 


(c)         projections of the sources
and timing of additional capital to meet the Bank’s future needs, as set forth
in the Strategic Plan;


 


(d)         identification of the
primary sources from which the Bank will maintain an appropriate capital
structure to meet the Bank’s future needs, as set forth in the Strategic Plan;


 


(e)         specific plans detailing how
the Bank will comply with restrictions or requirements set forth in this Order
and with 12 U.S.C. § 1831o, including the restrictions against brokered
deposits in 12 C.F.R. § 337.6; 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 the required minimum capital ratios in paragraph (1) of this
Article;


 


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(b)         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;


 


(c)          when the Bank is in
compliance with 12 U.S.C. §§ 56 and 60; and


 


(d)          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.


 


ARTICLE IV


 


BOARD AND BOARD COMMITTEE STRUCTURE


 


(1)
Within seventy-five (75) days,
the Compliance Committee shall conduct a review of the Board and the Board’s
committee structure. The review shall include an evaluation of the existing
structure and shall include:


 


(a)          an analysis of the
composition and size of the Board;


 


(b)          an analysis of all insider
transactions and a determination of whether conflicts of interest exist that
limits the effectiveness of the Board member;


 


(c)            an analysis of the type and
frequency of information provided to the Board;


 


(d)            an analysis of the number of
committees and responsibilities assigned to each;


 


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(e)         the composition of each
committee with regard to the number of members and the technical expertise
required for each committee; and


 


(f)           specific recommendations to
improve the efficiency and responsiveness of the Board and each committee.


 


Upon completion of the
review, a copy of the report shall be forwarded to the Director along with a
copy of the Board resolution making appropriate adjustments in the Board and
committee structure.


 


ARTICLE
V


 


BOARD TO ENSURE COMPETENT MANAGEMENT


 


(1)
The Board shall ensure that the Bank has competent management in place on a
full-time basis in all executive officer positions to carry out the Board’s
policies; ensure compliance with this Order; ensure compliance with applicable
laws, rules, and regulations; and manage the day-to-day operations of the Bank
in a safe and sound manner.


 


(2)
Within ninety (90) days, the Board shall prepare or cause to be prepared a
written assessment of the capabilities of the Bank’s executive officers to
perform present and anticipated duties, taking into account the findings
contained in the most recent Report of Examination, and factoring in the
officer’s past actual performance, experience, and qualifications, compared to
their position description, duties and responsibilities, with particular
emphasis on their proposed responsibilities to execute the Strategic Plan and
correct the concerns raised in the most recent Report of Examination. If the
Board causes the assessment to be prepared, the Board shall review and analyze
the written assessment for reasonableness and provide written approval of the
assessment if acceptable. Further, if the Board deems the assessment
unacceptable, the Board shall cause the assessment to be revised to a form and
content that is acceptable to the Board. Any revised assessment must receive
written Board approval. No Bank executive officer who is a


 


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member
of the Board shall participate in such preparation or review. In addition, the
assessment shall contain:


 


(a)          the identification of
present and future management and staffing requirements of each area of the
Bank;


 


(b)          detailed written job
descriptions for all executive officers;


 


(c)          an evaluation of each
officer’s performance, qualifications and abilities and a determination of
whether each of these individuals possesses the experience and other qualifications
required to perform present and anticipated duties of his/her officer position
as identified in the written job description;


 


(d)          recommendations
as to whether management or staffing changes should be made, including the need
for additions to or deletions from the current management team;


 


(e)          objectives by
which management’s effectiveness will be measured;


 


(f)           an evaluation
of current lines of authority, reporting responsibilities and delegation of
duties for all officers, including identification of any overlapping duties or
responsibilities;


 


(g)          a recommended
organization chart that clearly reflects areas of responsibility and lines of
authority for all officers, including the Bank’s president and chief executive
officer; and


 


(h)          recommendations
to correct or eliminate any other deficiencies in the supervision or
organizational structure of the Bank.


 


(3)
Upon completion, a copy of the written assessment shall be submitted to the
Director.


 


(4)
If the Board determines that an officer’s performance, skills or abilities need
improvement, the Board will, within thirty (30) days following its
determination, require the


 


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Bank
to develop and implement a written program, with specific time frames, to improve
the officer’s performance, skills and abilities.  Upon completion, a copy of the written
program shall be submitted to the Director.


 


(5) If the Board determines that
an officer will not continue in his/her position, the Board shall document the
reasons for this decision in its assessment performed pursuant to paragraph (2)
of this Article, and shall within sixty (60) days of such vacancy identify and
provide notice to the Director, pursuant to paragraph (6) of this Article, of a
qualified and capable candidate for the vacant position who shall be vested
with sufficient executive authority to ensure the Bank’s compliance with this
Order and the safe and sound operation of functions within the scope of that
position’s responsibility.


 


(6)
Prior to the appointment of any individual to an executive officer position,
the Board shall submit to the Director written notice, which notice shall
include the information set forth in 12 C.F.R. § 5.51 and the Comptroller’s Licensing Manual. The Director shall
have the power to disapprove the appointment of the proposed executive officer
in his sole discretion. 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 this Order 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. The Director’s
decision is final and is not subject to appeal.


 


(7)
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


 


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Director.
The Board shall ensure that the Bank addresses any identified deficiencies in a
manner consistent with paragraphs (4) and (5) of this Article.


 


ARTICLE VI


 


CONFLICT OF INTEREST POLICY


 


(1) Within
sixty (60) days, the Board shall adopt, implement, and thereafter ensure Bank
adherence to a written, comprehensive conflict of interest policy applicable to
the Bank’s and the Bank’s holding company’s directors, principal shareholders,
executive officers, and affiliates (as defined in 12 C.F.R. Part 215)
(collectively “Insiders”), Insiders’ immediate family members (such as
spouses, siblings, and children), and Insiders’ and their immediate family
members’ related interests (as defined in 12 C.F.R. Part 215), and
employees of the Bank For purposes of this Article, Insiders, Insiders’
family members and Insiders’ and their immediate family members’ related
interests, and employees shall be defined as “Covered Persons.” The policy, in
addition to defining a conflict of interest, shall address:


 


(a)                               avoidance of
conflicts of interest and breaches of fiduciary duty, and the appearance of
conflicts of interest;


 


(b)                              involvement in
the loan approval process of Covered Persons who may benefit directly or
indirectly from the decision to grant credit;


 


(c)                               disclosure of
actual and potential conflicts of interest to the Board, and periodic
disclosure of related interests;


 


(d)                              requirements
for arms-length dealing in any transactions by Covered Persons involving the
Bank’s sale, purchase, or rental of property and services;


 


(e)                               disclosure of
any Covered Person’s material interest in the business of a borrower, an
applicant, or other customer of the Bank; and


 


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(f)                              restrictions on
and disclosure of receipt of anything of value by Covered Persons, directly or
indirectly, from borrowers, loan applicants, other customers, or suppliers of
the Bank.


 


(2) Upon
adoption, a copy of this conflict of interest policy shall be forwarded to the
Director.


 


(3) Within
ninety (90) days from the effective date of this Order, the Compliance
Committee shall conduct a review of the Bank’s existing relationships with it
and its holding company’s Covered Persons for the purpose of identifying
relationships not in conformity with the policy. The Board shall ensure that:


 


(a)                               any
nonconforming relationships are brought into conformity with the policy within
one hundred twenty (120) days from the effective date of this Order; and


 


(b)                              that within one
hundred twenty (120) days from the effective date of this Order the Bank is
properly reimbursed for:


 


(i)                                   any excessive or improper
payments to Covered Persons; and


 


(ii)                                any excessive or improper
payments for services provided by Covered Persons.


 


Thereafter, the Board shall
review all proposed transactions, or modifications of existing relationships,
between the Bank and any of its or its holding company’s Covered Persons.
Documentation supporting these reviews shall be in writing and preserved in the
Bank.


 


ARTICLE VII


 


BANK
SECRECY ACT - PROGRAM


 


(1) Within
sixty (60) days, the Board shall develop, implement, and thereafter ensure Bank
adherence to a written program of policies and procedures to provide for
compliance with the Bank Secrecy Act (“BSA”), as amended (31 U.S.C. § 5311 et
seq.), the regulations


 


13

















 


promulgated
thereunder at 31 C.F.R. Part 103, as amended, and 12 C.F.R. Part 21,
Subparts B and C, and the rules and regulations of the Office of Foreign
Assets Control (“OFAC”) (collectively referred to as the “Bank Secrecy Act” or “BSA”)
and for the appropriate identification and monitoring of transactions that pose
greater than normal risk for compliance with the BSA. This program shall
include, at a minimum, the following:


 


(a)                               a system of
internal controls, independent testing and auditing to ensure ongoing
compliance with the Bank Secrecy Act;


 


(b)                              operating
procedures for the opening of new accounts that provide for collecting
customers’ identifying information, verifying customers’ identities,
maintaining identification records, and the identification and monitoring of
high risk accounts;


 


(c)                               adequate
controls and comprehensive procedures to ensure that all suspicious and large
currency transactions are identified and reported;


 


(d)                              a comprehensive
training program for all appropriate operational and supervisory personnel to
ensure their awareness of and compliance with the requirements of the Bank
Secrecy Act, including the currency reporting and monetary instrument and funds
transfer recordkeeping requirements, and the reporting requirements associated
with Suspicious Activity Reports (“SARs”) pursuant to 12 C.F.R. Part 21,
Subpart B; and


 


(e)                               an independent
BSA Officer and supporting staff with sufficient experience, skills, training, and
authority to perform assigned duties and responsibilities.


 


(f)                                 policies and
procedures for identifying, monitoring, investigating and resolving
transactions that pose greater than normal risk for compliance with the BSA,
including a written, institution-wide, ongoing BSA Risk Assessment that


 


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accurately
identifies the BSA/AML risks posed to the Bank after consideration of all
pertinent information.


 


ARTICLE VIII


 


BANK SECRECY ACT - ACCOUNT OPENING AND ONGOING MONITORING


 


(1) Within
sixty (60) days, the Board shall develop, implement, and thereafter ensure Bank
adherence to account-opening procedures for all accounts by requiring:


 


(a)                               identification
of all account owners and beneficial owners in compliance with 31 C.F.R. §
103.121 and the Interagency Statement on Beneficial Ownership Information (OCC
2010-11);


 


(b)                              identification
of the officers, directors, major shareholders or partners, as applicable, of
business accounts;


 


(c)                               documentation
of the following information for all deposit account customers:


 


(i)                                   any relevant financial
information concerning the customer;


 


(ii)                                the type of business
conducted by the customer;


 


(iii)                            the customer’s
source of income or wealth; and


 


(iv)                            any other due diligence
required by this Order, the BSA Officer or the Bank.


 


(2) The
Bank shall obtain the information required in paragraph (1) of this Article before
opening, renewing or modifying an existing customer’s account and the Bank
shall have a policy for not opening an account while verifying a customer’s
identity or other risks, or if the Bank is not able to form a reasonable belief
that it knows the true identity of a customer.


 


(3) The
Bank shall not open any account for a customer and shall close any existing account
of a customer if the information available to the Bank indicates that the
customer’s relationship with the Bank would be detrimental to the reputation of
the Bank.


 


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(4) Within
sixty (60) days, the Board shall develop, implement, and thereafter ensure Bank
maintenance of an integrated, accurate system for all Bank areas to produce
periodic reports designed to identify unusual or suspicious activity, including
patterns of activity, to monitor and evaluate unusual or suspicious activity,
and to maintain accurate information needed to produce these reports.


 


(a)                               the Bank’s
system shall be able to identify and link related accounts to evaluate patterns
of activity;


 


(b)                              the periodic
reports shall include reports on all high risk accounts that are
newly-established, renewed or modified, including the following information:


 


(i)                                   the name of the customer;


 


(ii)                                the officers, directors and
major shareholder of any corporate customer and the partners of any partnership
customer;


 


(iii)                             any other accounts
maintained by the customer and, as applicable, its officers, directors, major
shareholders or partners;


 


(iv)                            a detailed analysis of the
due diligence performed on the customer and, as applicable, its officers, directors,
major shareholders or partners;


 


(v)                               any related
accounts of the customer at the Bank;


 


(vi)                           any action the
Bank has taken on the account;


 


(vii)                        the purpose and
balance of the account; and


 


(viii)                      any unusual activity for
each account or any significant deviations from expected activity as set forth
in the Bank’s customer due diligence file.


 


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(c)                               The periodic
reports shall include reports on any law enforcement inquiry directed to the
Bank and any action taken by the Bank on the affected accounts.


 


(5) Within sixty (60) days, the
Board shall develop, implement, and thereafter ensure Bank adherence to a
written program of policies and procedures to provide for the Bank’s monitoring
of suspicious cash, monetary instruments, wire transfers, and other activities
for all types of transactions, accounts, customers, products, and services. At
a minimum, this written program shall establish:


 


(a)                               reviews of cash
purchases of monetary instruments;


 


(b)                              periodic
analysis of aggregate cash, monetary instrument, and wire activity;


 


(c)                               periodic
analysis of Currency Transaction Report filings;


 


(d)                              appropriate
reviews of accounts or customers for which the Bank has received law
enforcement inquiries;


 


(e)                               reviews of high
risk transactions, accounts, customers, products, services, and geographic
areas; and


 


(f)                                 submission of
SARs, as appropriate, based on these reviews and analyses.


 


(6) Within
sixty (60) days, the Board shall develop, implement, and thereafter ensure Bank
adherence to comprehensive procedures to identify and report to appropriate
management personnel:


 


(a)                               frequent or
large volume cash deposits or wire transfers or book entry transfers to or from
offshore or domestic entities or individuals;


 


(b)                              wire transfers
or book entry transfers that are deposited into several accounts;


 


(c)                               receipt and
disbursement of wire transfers or book entry transfers without an apparent bona fide business reason;


 


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(d)                           receipt and
disbursement of wire transfers or book entry transfers that are suspicious or
when they are inconsistent with the customer due diligence information and the
customer’s business; and


 


(e)                               receipt and
disbursement of currency or monetary instruments when they are inconsistent
with the customer due diligence information and the customer’s business;


 


(7) The
BSA officer or his or her designee shall periodically review, not less than
each calendar year, all customer due diligence information and relevant account
transaction information for all high risk accounts and the related accounts of
those customers to determine whether the customer due diligence information is
sufficient and whether the account activity is consistent with the customers
business and stated purpose of the account.


 


(8) The
term “related accounts,” as referenced in this Article, shall be broadly
construed and shall include the following accounts:


 


(a)                               all accounts
for which there are common signatories, officers, directors, addresses,
taxpayer identification numbers, or phone numbers that can be reasonably
identified;


 


(b)                              all accounts of
a customer’s immediate relatives by blood, marriage or adoption (e.g., spouses,
children, parents, siblings, uncles, and aunts) that can be reasonably
identified;


 


(c)                               all accounts of
any corporation, joint enterprise, partnership or any undertaking whatsoever
that can be reasonably identified as controlled by or operated substantially in
the interest of any Bank customer; “control” includes direct or indirect
ownership often percent (10%) or more of the stock, capital, or equity of any
such undertaking; and “substantial interest” shall mean derivation in any


 


18

















 


manner
of income of ten thousand dollars ($10,000) or more per annum from the
operation of any such undertaking;


 


(d)                              all accounts
where the Bank’s customer can be reasonably identified as exercising control or
authority over the account holder; and


 


(e)                               any account(s) so
designated by the Director.


 


ARTICLE IX


 


BANK
SECRECY ACT - AUDIT


 


(1) Within
sixty (60) days of the date of this Order, the Board shall ensure that the BSA
audit function is supported by an adequately staffed department or outside
firm, with respect to expertise, experience and number of the individuals
employed.


 


(2) Within
sixty (60) days, the Board, shall adopt, implement, and thereafter ensure Bank
adherence to an independent BSA audit program, to include at a minimum:


 


(a)                               a review and
evaluation of the BSA program and policies;


 


(b)                              transactional
testing and verification of data for higher risk accounts;


 


(c)                               periodic
testing of the adequacy of internal controls designed to ensure compliance with
the provisions of the BSA in all areas of the Bank;


 


(d)                              findings and
recommendations on the Bank’s internal controls addressing compliance with BSA,
including related regulatory reporting;


 


(e)                               a review of
prior account activity at the Bank, including deposit accounts, loan
transactions, wire activity, certified check activity, Currency Transaction
Report activity (including structuring) and traveler’s check activity, for
accounts that pose greater than normal risk for compliance with the BSA, in
order to ascertain any unusual or suspicious transactions that may have
occurred at the Bank during this period;


 


19

















 


(f)                               a review of BSA
training efforts and an evaluation of their effectiveness; and;


 


(g)                              an evaluation
of the competency of the BSA Officer.


 


(3) The
Board shall ensure that the audit program is independent. The persons
responsible for implementing the BSA audit program described above shall report
directly to the Board which shall have the sole power to direct their
activities. All reports prepared by the audit staff shall be filed directly
with the Board and not through any intervening party.


 


(4) All
audit reports shall be in writing and supported by adequate workpapers, which
must be provided to the Bank. The Board shall ensure that immediate actions are
undertaken to remedy deficiencies cited in audit reports, and that auditors
maintain a written record describing those actions.


 


(5) The audit staff shall have
access to any records necessary for the proper conduct of its activities.
National Bank Examiners shall have access to all reports and work papers of the
audit staff and any other parties working on its behalf.


 


(6) Upon
adoption, a copy of the internal audit program shall be promptly submitted to
the Director.


 


ARTICLE X


 


BANK SECRECY ACT - BSA OFFICER


 


(1) Within
sixty (60) days, the Board shall prepare or cause to be prepared a written
assessment of the capabilities of the Bank’s BSA Officer to perform present and
anticipated duties, taking into account the findings contained in the most
recent Report of Examination. If the Board causes the assessment to be
prepared, the Board shall review and analyze the written assessment for
reasonableness and provide written approval of the assessment if acceptable.
Further, if the Board deems the assessment unacceptable, the Board shall cause
the assessment to be revised to a form and content that is acceptable to the
Board. Any revised assessment must


 


20

















 


receive
written Board approval. The Board shall determine whether any changes are
needed regarding the Bank’s BSA Officer, including the responsibilities,
authority, structure, independence or skills of the BSA Officer. In particular,
the Board shall ensure that the BSA Officer has sufficient training, authority,
and skills to perform his/her assigned responsibilities.


 


(2) Within
sixty (60) days of the date of this Order, the Board shall prepare or cause to
be prepared a written assessment of the capabilities of the Bank’s BSA Officer’s
supporting staff to perform present and anticipated duties, taking into account
the findings contained in the most recent Report of Examination. If the Board
causes the assessment to be prepared, the Board shall review and analyze the
written assessment for reasonableness and provide written approval of the
assessment if acceptable. Further, if the Board deems the assessment
unacceptable, the Board shall cause the assessment to be revised to a form and
content that is acceptable to the Board. Any revised assessment must receive
written Board approval. The Board shall determine whether any changes are
needed regarding the Bank’s BSA Officer’s supporting staff, including the
responsibilities, authority, structure, independence, competencies, or
capabilities of the BSA Officer’s supporting staff.


 


(3) Within
ninety (90) days, the Board shall submit to the Director, a copy of the
assessments prepared pursuant to paragraphs (1) and (2) of this
Article, along with a written action plan to implement needed changes and to
address and correct any deficiencies identified in the assessments.


 


ARTICLE XI


 


LOAN PORTFOLIO MANAGEMENT


 


(1) Within
sixty (60) days, the Board shall adopt and the Bank (subject to Board review
and ongoing monitoring) shall implement and thereafter ensure adherence to a
written credit


 


21
















 


policy
to improve the Bank’s loan portfolio management. The credit policy shall
include (but not be limited to):


 


(a)                               a description
of the types of credit information required from borrowers and guarantors,
including (but not limited to) annual audited statements, interim financial
statements, personal financial statements, and tax returns with supporting
schedules;


 


(b)                              procedures that
require any extension of credit (new, maturity extension, or renewal) is made
only after obtaining and validating current credit information about the
borrower and any guarantor sufficient to fully assess and analyze the borrower’s
and guarantor’s cash flow, debt service requirements, contingent liabilities,
and global liquidity condition, and only after the credit officer prepares a
documented credit analysis;


 


(c)                               procedures that
require any extension of credit (new, maturity extension, or renewal) is made
only after obtaining and documenting the current valuation of any supporting
collateral, confirming the Bank’s lien can be perfected for new extensions of
credit or verifying the Bank’s lien position for existing extensions of credit,
and that reasonable limits are established on credit advances against
collateral, based on a consideration of (but not limited to) a realistic
assessment of the value of collateral, the ratio of loan to value, and overall
debt service requirements;


 


(d)                              procedures to
ensure that loans made for the purpose of constructing or developing real
estate include (but are not limited to) requirements to:


 


22

















 


(i)                                     obtain and
evaluate detailed project plans; detailed project budget; time frames for
project completion; detailed market analysis; and sales projections, including
projected absorption rates;


 


(ii)                                  conduct stress
testing of significant project and lending; and


 


(iii)                               obtain current
documentation sufficient to support a detailed analysis of the financial
condition of borrowers and significant guarantors.


 


(e)                               a requirement
that borrowers and/or guarantors maintain any collateral margins established in
the credit approval process;


 


(f)                                 procedures that
prohibit the capitalization of accrued interest on any loan renewal or
extension;


 


(g)                              procedures that
prohibit, on any loan renewal, extension or modification, the establishment of
a new interest reserve using the proceeds of any Bank loan to the same borrower
or guarantor;


 


(h)                              procedures to
ensure that all exceptions to the credit policy shall be clearly documented on
the loan offering sheet, problem loan report, and other MIS; and approved by
the Board or a committee thereof before the loan is funded or renewed;


 


(i)                                  credit risk
rating definitions consistent with applicable regulatory guidance;


 


(j)                                  procedures for
early problem loan identification, to ensure that credits are accurately risk
rated at least monthly;


 


(k)                               procedures
governing the identification and accounting for nonaccrual loans that are
consistent with the requirements contained in the Call Report Instructions;


 


(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; and


 


23

















 


(m)                               retail past due
account management procedures that comply with 0CC Bulletin 2000-20 (Uniform
Retail Credit Classification and Account Management Policy).


 


(2) The
Board shall ensure that Bank personnel performing credit analyses are
adequately trained in cash flow analysis, particularly analysis using
information from tax returns, and that processes are in place to ensure that
additional training is provided as needed.


 


(3) Within
sixty (60) days the Board shall establish a written performance appraisal and
salary administration process for loan officers that adequately considers
performance relative to job descriptions, policy compliance, documentation
standards, accuracy in credit grading, and other loan administration matters.


 


(4) The
Board shall, at least on an annual basis, review the policy developed pursuant
to this Article, and revise it as appropriate.


 


ARTICLE XII


 


CREDIT AND COLLATERAL EXCEPTIONS


 


(1) Except
as otherwise provided herein, the Bank shall obtain current and complete credit
information on all loans lacking such information, including those listed in
the most recent Report of Examination (within sixty (60) days from the
effective date of this Order), in any subsequent Report (within sixty (60) days
from the issuance of such Report), in any internal or external loan review
(within sixty (60) days from the completion of such review), or in any listings
of loans lacking such information provided to management by the National Bank
Examiners (within sixty (60) days from receipt of such listing). The Bank shall
maintain a list of any credit exceptions that have not been corrected within
the timeframe discussed above. This list shall include an explanation of the
actions taken to correct the exception, the reasons why the exception has not yet
been corrected, and a plan to correct the exception.


 


24

















 


(2) Except
as otherwise provided herein, the Bank shall ensure proper collateral
documentation is maintained on all loans and correct each collateral exception
listed in the most recent Report of Examination (within sixty (60) days from
the effective date of this Order), in any subsequent Report (within sixty (60)
days from the issuance of such Report), in any internal or external loan review
(within sixty (60) days from the completion of such review), or in any listings
of loans lacking such information provided to management by the National Bank
Examiners (within sixty (60) days from the receipt of such listing). The Bank
shall maintain a list of any collateral exceptions that have not been corrected
within the timeframe discussed above. This list shall include an explanation of
the actions taken to correct the exception, the reasons why the exception has
not yet been corrected, and a plan to correct the exception.


 


(3) Effective
immediately, the Bank may grant, extend, renew, alter or restructure any loan
or other extension of credit only after:


 


(a)                               documenting the
specific reason or purpose for the extension of credit;


 


(b)                              identifying the
expected source of repayment in writing;


 


(c)                               structuring the
repayment terms to coincide with the expected source of repayment;


 


(d)                              documenting,
with adequate supporting material, the value of collateral and properly
perfecting the Bank’s lien on it where applicable; and


 


(e)                               obtaining and
analyzing current and complete credit information, including cash flow
analysis, where loans are to be repaid from operations and global cash flow
analysis, where loan repayment is expected from other sources such as
Guarantors, unless


 


(i)                                   a majority of the full Board
(or a designated committee thereof) certifies in writing the specific reasons
why obtaining and


 


25

















 


analyzing
this information would be detrimental to the best interests of the Bank; and


 


(ii)                                a copy of the Board
certification is maintained in the credit file of the affected borrower(s).


 


ARTICLE XIII


 


LOAN
REVIEW


 


(1) Within
sixty (60) days, the Board shall establish an effective, independent, and
ongoing loan review program to review, at least quarterly, the Bank’s loan and
lease portfolios, to assure the timely identification and categorization of
problem credits. The program shall provide for a written report to be filed
with the Board promptly after each review, and the program 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)                               the loan review
scope and coverage parameters;


 


(b)                              conclusions
regarding the overall quality of the loan and lease portfolios;


 


(c)                               the
identification, type, rating, and amount of problem loans and leases;


 


(d)                              the identification
and amount of delinquent loans and leases;


 


(e)                               credit and
collateral documentation exceptions;


 


(f)                                 loans meeting
the criteria for non-accrual status;


 


(g)                              the
identification and status of credit-related violations of law, rule, or
regulation;


 


(h)                              loans and
leases in nonconformance with the Bank’s lending and leasing policies, and
exceptions to the Bank’s lending and leasing policies.


 


(i)                                  the identity of
the loan officer(s) of each loan reported in accordance with subparagraphs
(b) through (h); and


 


26

















 


(j)                                concentrations
of credit.


 


(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). The Board shall also ensure
that the Bank preserves documentation of any actions to collect or strengthen
assets identified as problem credits.


 


ARTICLE XIV


 


ALLOWANCE
FOR LOAN AND LEASE LOSSES


 


(1) The
Board shall immediately require and the Bank shall implement and thereafter
adhere to a program for the maintenance of an adequate Allowance for Loan and
Lease Losses (“ALLL”). The program shall be consistent with the comments on
maintaining a proper ALLL found in the Interagency Policy Statement on the ALLL
contained in OCC Bulletin 2006-47 (December 13, 2006) and with “Allowance
for Loan and Lease Losses,” booklet A-ALLL of the Comptroller’s Handbook, and shall incorporate the following:


 


(a)                               internal risk
ratings of loans;


 


(b)                              results of the
Bank’s independent loan review;


 


(c)                               criteria for
determining which loans will be reviewed under Financial Accounting Standard (“FAS”)
114, how impairment will be determined, and procedures to ensure that the
analysis of loans complies with FAS 114 requirements;


 


(d)                              criteria for
determining FAS 5 loan pools
and an analysis of those loan pools;


 


(e)                               recognition of
non-accrual loans in conformance with generally accepted accounting principles
(“GAAP”) and regulatory guidance;


 


(f)                                 loan loss
experience;


 


(g)                              trends of
delinquent and non-accrual loans;


 


(h)                              concentrations
of credit in the Bank; and


 


27

















 


(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 Bank
Examiners.


 


(3) A
copy of the Board’s ALLL program, and any subsequent revisions to the program,
shall be submitted to the Director.


 


ARTICLE XV


 


CRITICIZED ASSETS


 


(1) Within
sixty (60) days, the Board shall adopt and the Bank (subject to Board review
and ongoing monitoring) shall implement and thereafter ensure adherence to a
written program designed to protect the Bank’s interest in those assets
criticized in the most recent Report of Examination (“ROE”), in any subsequent
ROE, by any internal or external loan review, or in any list provided to
management by the National Bank Examiners during any examination as “doubtful,”
“substandard,” or “special mention.” The program shall include the development
of Criticized Asset Reports (“CARs”) identifying all credit relationships and
other assets totaling in aggregate five hundred thousand dollars ($500,000) or
more, criticized as “doubtful,” “substandard,” or “special mention.” The CARs
must be updated and submitted to the Board and the Directors monthly. Each CAR
shall cover an entire credit relationship and include, at a minimum, analysis
and documentation of the following:


 


(a)                               the origination
date and any renewal or extension dates, amount, purpose of the loan, and the
originating and current loan officer(s);


 


28

















 


(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 may not extend credit, directly or indirectly, including renewals,
modifications or extensions, to a borrower whose loans or other extensions of
credit are criticized in any ROE, in any internal or external loan review, or
in any list provided to management by the National Bank Examiners during any
examination, unless and until each of the following conditions is met:


 


(a)                               the Board, or a
designated committee thereof, finds that the extension of additional credit is
necessary to promote the best interests of the Bank and that prior to renewing,
modifying or extending any additional credit, a majority of the full Board (or
designated committee) approves the credit extension and records, in writing,
why such extension is necessary to promote the best interests of the Bank. A
copy of the findings and approval of the Board or designated committee


 


29

















 


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 paragraphs 1(c) and
(1)(d) of this Article and, if necessary, the proposed action
referred to in paragraph (1)(g) of this Article is revised, as
appropriate.


 


ARTICLE XVI


 


OTHER
REAL ESTATE OWNED - ACTION PLANS


 


(1) Within
sixty (60) days, the Board shall adopt, implement, and thereafter ensure Bank
adherence to action plans for each parcel of OREO to ensure that these assets
are managed in accordance with 12 U.S.C. § 29 and 12 C.F.R. Part 34,
Subpart E. At a minimum, the plans shall:


 


(a)                               identify the
Bank officer(s) responsible for managing and authorizing transactions
relating to the OREO properties;


 


(b)                              include proper
accounting procedures for OREO properties from transfer to the Bank;


 


(c)                               contain
procedures to require timely appraisals pursuant to 12 C.F.R. § 34.85 and 12
C.F.R. Part 34, Subpart C;


 


(d)                              contain an
analysis of each OREO property that compares the cost to carry against the
financial benefits of near-term sale;


 


(e)                               detail the
marketing strategies for each parcel;


 


(f)                                 identify
targeted time frames for disposing of each parcel of OREO;


 


(g)                              establish
procedures to require periodic market valuations of each property, and the
methodology to be used; and


 


(h)                              provide for reports
to the Board on the status of OREO properties on at least a quarterly basis.


 


30

















 


(2) Upon
adoption, the Board shall submit copies of the action plans and the quarterly
reports required by paragraph (1)(h) to the Director.


 


ARTICLE XVII


 


CONCENTRATIONS
QF CREDIT


 


(1) Within
ninety (90) days, the Board shall cause to have developed, implemented, and
thereafter ensure Bank adherence to a written concentration management program
consistent with OCC Bulletin 2006-46. The Board shall review and provide
written approval of the concentration of credit policy developed under this
paragraph. The program shall include, but not be limited to, the following:


 


(a)                               policy
guidelines to address the level and nature of exposures acceptable to the
institution and that set concentration limits, including limits on commitments
to individual borrowers and appropriate sub-limits;


 


(b)                              procedures to
identify and quantify the nature and level of risk presented by concentrations,
including review of reports describing changes in conditions in the Bank’s
markets;


 


(c)                               procedures to
periodically review and revise, as appropriate, risk exposure limits and
sub-limits to conform to any changes in the institution’s strategies and to respond
to changes in market conditions;


 


(d)                              periodic
portfolio-level stress tests or sensitivity analyses to quantify the impact of
changing economic conditions on asset quality, earnings, and capital;


 


(e)                               appropriate
strategies for managing concentration levels, including a contingency plan to
reduce or mitigate concentrations in the event of adverse market conditions;
and


 


(f)                                 periodic
reports to the Board, to include the following, as appropriate:


 


31
















 


(i)                     a summary of
concentration levels, by type and subtype;


 


(ii)                  a synopsis of
the Bank’s market analysis;


 


(iii)               a discussion of
recommended strategy when concentrations approach or exceed Board-approved
limits;


 


(iv)              a synopsis of
changes in risk levels by concentration type and subtype, with discussion of
recommended changes in credit administration procedures (for example,
underwriting practices, risk rating, monitoring, and training).


 


(2) The
Board shall forward a copy of the program required in paragraph (1) above,
and any concentration reports, studies, or analyses to the Director.


 


ARTICLE XVIII


 


RECOGNITION
OF OTHER-THAN-TEMPORARY IMPAIRMENT


 


(1) Within
sixty (60) days, the Board shall revise and implement an other-than-temporary
impairment (“OTTI”) policy that ensures that the Bank’s quarterly
other-than-temporary impairment (“OTTI”) analysis process identifies and
measures OTTI in accordance with GAAP and supervisory guidance, including
Financial Accounting Standards Board (“FASB”) Staff Positions FAS 115-2 and FAS
124-2, OCC Bulletin 2009-11 dated April 17, 2009, “Other-than-Temporary
Impairment Accounting” and Call Report Instructions. Policy revisions shall
include, but are not limited to:


 


(a)                               a review
process and thresholds for the length of time and the extent to which the fair
value of a security has been less than cost. Once the threshold is triggered,
the Bank’s policy would require further review for OTTI and a documented
assessment;


 


32

















 


(b)                           identification
of factors to be considered when estimating whether a credit loss exists and
the period over which the debt security is expected to recover;


 


(c)                               requiring
written support for management decisions where a decline in fair value below amortized
cost is considered temporary;


 


(d)                              identification
of the methodology used in determining the credit and non-credit components of
OTTI including details on processes used, key assumptions, sources validating
assumptions, etc;


 


(e)                               documenting and
supporting the reasonableness of assumptions used in the Bank’s OTTI valuation
models; and


 


(f)                                 establishing an
independent review and validation process to ensure that the Bank’s methodology
and process for assessing securities for OTTI and for determining the credit
and non-credit components of OTTI on debt securities is reviewed and validated
by an independent qualified party at least annually.


 


(2) A
written OTTI report shall be filed with the Board after each quarterly review.
The Board shall evaluate the OTTI report(s) and shall ensure that
immediate, adequate, and continuing remedial action is taken upon all findings
noted in the report(s).


 


(3) A
copy of the reports submitted to the Board, as well as documentation of the
action taken by the Bank to address the findings noted in the report(s) shall
be preserved in the Bank.


 


ARTICLE XIX


 


LIQUIDITY
RISK MANAGEMENT


 


(1) Within
sixty (60) days the Bank shall take action to maintain adequate sources of
stable funding given the Bank’s anticipated liquidity and funding needs. Such
actions shall include, but not be limited to:


 


33

















 


(a)                              reduction of
wholesale or credit sensitive liabilities and/or increase of liquid assets; and


 


(b)                              implementation
of and adherence to a policy on the Bank’s use of wholesale or credit sensitive
liabilities.


 


(2) The
Board shall review the Bank’s liquidity on a monthly basis. Such reviews shall
consider:


 


(a)                               a maturity
schedule of certificates of deposit;


 


(b)                              the volatility
of demand deposits including escrow deposits;


 


(c)                               the amount and
type of loan commitments and standby letters of credit;


 


(d)                              an analysis of
the continuing availability and volatility of present funding sources;


 


(e)                               an analysis of
the impact of decreased cash flow from the Bank’s loan portfolio resulting from
delinquent and non-performing loans;


 


(f)                                 an analysis of
the impact of decreased cash flow from the sale of loans or loan
participations; and


 


(g)                              geographic
disbursement of and risk from brokered deposits, including those from deposit
placement programs.


 


(3) The
Board shall take appropriate action to ensure adequate sources of liquidity in
relation to the Bank’s needs. Monthly reports shall set forth liquidity
requirements and sources and establish a contingency funding plan. Copies of
these reports shall be forwarded to the Director.


 


ARTICLE XX


 


INTERNAL
AUDIT


 


(1) Within
sixty (60) days, the Board shall adopt, implement, and thereafter ensure Bank
adherence to an independent, internal audit program sufficient to:


 


(a)                               detect
irregularities and weak practices in the Bank’s operations;


 


34

















 


(b)                             determine the
Bank’s level of compliance with all applicable laws, rules and
regulations;


 


(c)                               assess and
report the effectiveness of policies, procedures, controls, and management
oversight relating to accounting and financial reporting;


 


(d)                              evaluate the
Bank’s adherence to established policies and procedures, with emphasis directed
to the Bank’s adherence to its loan policies concerning underwriting standards
and problem loan identification and classification;


 


(e)                               adequately
cover all areas; and


 


(f)                                 establish an
annual audit plan using a risk based approach sufficient to achieve these
objectives.


 


(2) As
part of this audit program, the Board or its Audit Committee shall evaluate the
audit reports of any party providing audit services to the Bank, and shall
assess the impact on the Bank of any audit deficiencies cited in such reports.


 


(3) The
Board shall ensure that the audit function is supported by an adequately
staffed department or outside firm, with respect to both the experience level
and number of the individuals employed.


 


(4) The
Board shall ensure that the audit program is independent. The persons
responsible for implementing the internal audit program described above shall
report directly to the Board or its Audit Committee, which shall have the sole
power to direct their activities. All reports prepared by the audit staff shall
be in writing and filed directly with the Board or its Audit Committee and not
through any intervening party.


 


(5) The Board shall ensure that
immediate actions are undertaken to remedy deficiencies cited in audit reports,
and maintain a written record describing the deficiency, the projected
corrective action, and the status of the corrective action.


 


35

















 


(6) The
audit staff shall evaluate in writing the effectiveness of the corrective
action and recommend additional corrective actions, as necessary.


 


(7) Upon
adoption, a copy of the internal audit program shall be submitted to the
Director.


 


ARTICLE XXI


 


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 cited in the most recent
ROE, any subsequent Report of Examination, or brought to the Board’s or Bank’s
attention in writing by management, regulators, auditors, loan review, or other
compliance efforts. Within sixty (60) days after the 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) Within
sixty (60) days, the Board shall adopt and the Bank (subject to Board review
and ongoing monitoring) shall 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 procedures to the Director.


 


ARTICLE XXII


 


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


 


36

















 


pursuant
to this Article shall include a statement setting forth in detail the
special circumstances that prevent the Bank from complying with a provision and
that require an extension of a timeframe within this Order.


 


(2) All
such requests shall be accompanied by relevant supporting documentation, and
any other facts upon which the Bank relies. The Director’s decision concerning
a request is final and not subject to further review.


 


ARTICLE XXIII


 


OTHER PROVISIONS


 


(1) Although
the Bank is required to submit certain proposed actions and programs for the
review or prior written determination of no supervisory objection of the
Director, the Board has the ultimate responsibility for proper and sound
management of the Bank and the completeness and accuracy of the Bank’s books
and records.


 


(2) It
is expressly and clearly understood that if, at any time, the Comptroller deems
it appropriate in fulfilling the responsibilities placed upon him by the
several laws of the United States of America to undertake any action affecting
the Bank, nothing in this Order shall in any way inhibit, estop, bar, or otherwise
prevent the Comptroller from so doing.


 


(3) Except
as otherwise expressly provided herein, any time limitations imposed by this
Order shall begin to run from the effective date of this Order.


 


(4) The
provisions of this Order are effective upon issuance of this Order by the
Comptroller, through his authorized representative whose signature appears
below, and shall remain effective and enforceable, except to the extent that,
and until such time as, any provisions of this Order shall have been amended, suspended,
waived, or terminated in writing by the Comptroller.


 


(5) In each instance in this
Order in which the Board or a Board committee is required to ensure adherence
to and undertake to perform certain obligations of the Bank,


 


37

















 


including
the obligation to implement plans, policies or other actions, it is intended to
mean that the Board or Board committee 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.


 


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


 


(7) The
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 1st day of September, 2010.


 


 


	
  /s/ Henry Fleming

  	
   

  
	
  Henry Fleming

  	
   

  
	
  Director

  	
   

  
	
  Special Supervision
  Division

  	
   

  



 


38
















 


UNITED STATES OF AMERICA


DEPARTMENT OF THE TREASURY


OFFICE OF THE  COMPTROLLER OF THE CURRENCY


 


	
  In the Matter of:

  	
   

  	
  )

  	
   

  	
   

  
	
  First National Community
  Bank

  	
   

  	
  )

  	
   

  	
  AA-EC-10-65

  
	
  Dunmore, Pennsylvania

  	
   

  	
  )

  	
   

  	
   

  



 


STIPULATION AND
CONSENT TO THE ISSUANCE


OF A CONSENT ORDER


 


WHEREAS, the
Comptroller of the Currency of the United States of America (“Comptroller” or “OCC”)
intends to initiate cease and desist proceedings against First National
Community Bank, Dunmore, Pennsylvania (“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, among other issues, asset quality, management,
credit risk management, and for its failure to maintain a system of internal
controls to assure ongoing compliance with the Bank Secrecy Act, 31 U.S.C. §
5311 et seq., in violation of 12
C.F.R. § 21.21, and for its failure to file Suspicious Activity Reports in
violation of 12 C.F.R. § 21.11;


 


WHEREAS, the Bank, in
the interest of compliance and cooperation, and without admitting or denying
any wrongdoing, consents to the issuance of a Consent Order, dated September 1,
2010  (“Order”) by executing this
Stipulation and Consent to the Issuance of a Consent Order;


 


NOW THEREFORE, 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).


 


ACKNOWLEDGMENTS


 


(1)
The Bank acknowledges 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 acknowledges 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. 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, 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)
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
II


 


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


 


2

















 


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 III


 


CLOSING PROVISIONS


 


(1)
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.


 


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


 


 


	
  /s/ Henry Fleming

  	
   

  	
   

  	
  September 1, 2010

  
	
  Henry Fleming

  	
   

  	
  Date

  	
   

  
	
  Director, Special
  Supervision Division

  	
   

  	
   

  	
   

  



 


3

















 


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.


 


 


	
  /s/ Michael J. Cestone,
  Jr.

  	
   

  	
   

  	
  August 25, 2010

  
	
  Michael J. Cestone, Jr.

  	
   

  	
   

  	
  Date

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  /s/ Joseph Coccia

  	
   

  	
   

  	
  August 25, 2010

  
	
  Joseph Coccia

  	
   

  	
   

  	
  Date

  
	
   

  	
   

  	
   

  	
   

  
	
  /s/ William P. Conaboy

  	
   

  	
   

  	
  August 25, 2010

  
	
  William P. Conaboy

  	
   

  	
   

  	
  Date

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  /s/ Dominick L. DeNaples

  	
   

  	
   

  	
  August 25, 2010

  
	
  Dominick L. DeNaples

  	
   

  	
   

  	
  Date

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  /s/ Louis DeNaples, Jr.

  	
   

  	
   

  	
  August 25, 2010

  
	
  Louis DeNaples, Jr.

  	
   

  	
   

  	
  Date

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  /s/ Joseph J. Gentile

  	
   

  	
   

  	
  August 25, 2010

  
	
  Joseph J. Gentile

  	
   

  	
   

  	
  Date

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  /s/ John P. Moses

  	
   

  	
   

  	
  August 25, 2010

  
	
  John P. Moses

  	
   

  	
   

  	
  Date

  



 


4