exv10w1







Exhibit 10.1




FEDERAL DEPOSIT INSURANCE CORPORATION




WASHINGTON, D.C.



AND



STATE OF MICHIGAN



OFFICE OF FINANCIAL AND INSURANCE REGULATION



LANSING, MICHIGAN



	 	 	 	 	 

	 	 	 	 	 
	 

	)	 	 	 
	In the Matter of

	)	 	 	CONSENT ORDER
	 

	)	 	 	 
	 

	)	 	 	 
	COMMUNITY SHORES BANK

	)	 	 	 
	MUSKEGON, MICHIGAN

	)	 	 	FDIC-10-397b
	 

	)	 	 	 
	 

	)	 	 	 
	(STATE CHARTERED

	)	 	 	 
	INSURED NONMEMBER BANK)

	)	 	 	 
	 

	)	 	 	 
	 	 	 	 	 





     Community Shores Bank, Muskegon, Michigan (“Bank”), having been advised of its right to a
NOTICE OF CHARGES AND OF HEARING detailing the unsafe or unsound banking practices alleged to have
been committed by the Bank, and of its right to a hearing on the charges under section 8(b) of the
Federal Deposit Insurance Act (“Act”), 12 U.S.C. § 1818(b), and under section 2304 of the Banking
Code of 1999, Mich. Comp Laws § 487.12304, regarding hearings before the Office of Financial and
Insurance Regulation for the State of Michigan (“OFIR”), and having waived those rights, entered
into a STIPULATION TO THE ISSUANCE OF A CONSENT ORDER (“STIPULATION”) with representatives of the



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Federal Deposit Insurance Corporation (“FDIC”) and the OFIR dated August 25th, 2010,
whereby, solely for the purpose of this proceeding and without admitting or denying the charges of
unsafe or unsound banking practices relating to capital, asset quality, and earnings, the Bank
consented to the issuance of a CONSENT ORDER (“ORDER”) by the FDIC and OFIR.




     The FDIC and the OFIR considered the matter and decided to accept the STIPULATION.



     Having determined that the requirements for issuance of an order under 12 U.S.C. § 1818(b),
and Mich. Comp Laws § 487.12304 have been satisfied, the FDIC and the OFIR HEREBY ORDER, that the
Bank, its institution-affiliated parties, as that term is defined in section 3(u) of the Act, 12
U.S.C. § 1813(u), and its successors and assigns, take affirmative action as follows:



MANAGEMENT




     1. (a) Within one hundred twenty (120) days from the effective date of this ORDER, the Bank
shall have and retain qualified management. Management shall be provided the necessary written
authority to implement the provisions of this ORDER. The qualifications of management shall be
assessed on its ability to:




	 	(i)	 	Comply with the requirements of this ORDER;
	 
	 	(ii)	 	Operate the Bank in a safe and sound manner;




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	 	(iii)	 	Comply with applicable laws, rules, and
regulations; and
	 
	 	(iv)	 	Restore all aspects of the Bank to a safe and
sound condition, including capital adequacy, asset quality, management
effectiveness, earnings, liquidity, and sensitivity to interest rate
risk.





     (b) During the life of this ORDER, prior to the addition of any individual to the board of
directors or the employment of any individual as a senior executive officer, the Bank shall request
and obtain the written approval of the Regional Director of the FDIC’s Chicago Regional Office
(“Regional Director”) and the OFIR’s Chief Deputy Commissioner (“Chief Deputy Commissioner”). For
purposes of this ORDER, “senior executive officer” is defined as in section 32 of the Act (“section
32”), 12 U.S.C. § 1831(i), and section 303.101(b) of the FDIC Rules and Regulations, 12 C.F.R. §
303.101(b).



MANAGEMENT PLAN




     2. (a) Within thirty (30) days from the effective date of this ORDER, the Bank shall retain an
independent third party acceptable to the Regional Director and Chief Deputy Commissioner, who will
develop a written analysis and assessment of the Bank’s management needs (“Management Study”) for
the



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purpose of providing qualified management for the Bank.




     (b) The Bank shall provide the Regional Director and Chief Deputy Commissioner with a copy of
the proposed engagement letter or contract with the independent third party for review.



     (c) The Management Study shall be developed within ninety (90) days from the effective date of
this ORDER. The Management Study shall include, at a minimum:




	 	(i)	 	Identification of both the type and number of
senior executive officer positions needed to properly manage and
supervise the affairs of the Bank;
	 
	 	(ii)	 	Evaluation of all senior executive officers to
determine whether these individuals possess the ability, experience and
other qualifications required to perform present and anticipated duties,
including adherence to the Bank’s established policies and practices, and
restoration and maintenance of the Bank in a safe and sound condition;
	 
	 	(iii)	 	A plan, if necessary, to recruit and hire any
additional or replacement personnel with the requisite ability,
experience and other qualifications to fill those senior executive
officer positions identified by this paragraph of this ORDER.




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          (d) The plan required by this paragraph shall be submitted to the Regional Director and Chief
Deputy Commissioner for review and comment. Within thirty (30) days of receipt of any comments
from the Regional Director or Chief Deputy Commissioner, the Bank shall incorporate any changes
required by the Regional Director or Chief Deputy Commissioner and thereafter adopt, implement, and
adhere to the plan.




BOARD PARTICIPATION




     3. (a) As of the effective date of this ORDER, the board of directors shall continue its
participation in the affairs of the Bank, assuming full responsibility for the approval of sound
policies and objectives and for the supervision of all of the Bank’s activities, consistent with
the role and expertise commonly expected for directors of Banks of comparable size. This
participation shall include meetings to be held no less frequently than monthly at which, at a
minimum, the following areas shall be reviewed and approved: reports of income and expenses; new,
overdue, renewal, insider, charged off, and recovered loans; investment activity; adoption or
modification of operating policies; individual committee reports; audit reports; internal control
reviews including management’s responses; and compliance with this ORDER. Board minutes shall
document these reviews and approvals, including the names of any dissenting directors.



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          (b) Within fifteen (15) days from the effective date of this ORDER, the Bank’s board of
directors shall have in place a program that will provide for monitoring of the Bank’s compliance
with this ORDER.




          (c) Following the required date of compliance with subparagraph (a) above, the Bank’s board of
directors shall review the Bank’s compliance with this ORDER and record its review in the minutes
of each regularly scheduled monthly board of directors’ meeting.




LOSS CHARGE-OFF




     4. As of the effective date of this Order, the Bank shall charge off from its books and
records any asset classified “Loss” in the Report of Examination dated March 1, 2010 (“ROE”) that
has not been previously collected or charged off, and shall further charge off any loan classified
“Loss” at subsequent examinations or visitations during the life of this Order within ten (10) days
of receipt of the report.



PROHIBITION OF ADDITIONAL LOANS TO CLASSIFIED BORROWERS




     5. (a) As of the effective date of this ORDER, the Bank shall not extend, directly or
indirectly, any additional credit to, or for the benefit of, any borrower who is already obligated
in any manner to the Bank on any extensions of credit (including any portion thereof) that has been
charged off the books of the



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Bank or classified “Loss” in the ROE, so long as such credit remains uncollected.




          (b) As of the effective date of this ORDER, the Bank shall not extend, directly or indirectly,
any additional credit to, or for the benefit of, any borrower whose loan or other credit has been
classified “Substandard”, “Doubtful”, or is listed for Special Mention in the ROE, and is
uncollected unless the Bank’s board of directors, or its designated committee, has adopted, prior
to such extension of credit, a detailed written statement giving the reasons why such extension of
credit is in the best interest of the Bank. A copy of the statement shall be incorporated in the
minutes of the applicable meeting of the board of directors or its designated committee. A copy of
the statement shall be placed in the appropriate loan file.



     REDUCTION OF DELINQUENCIES AND CLASSIFIED ASSETS



     6. (a) Within ninety (90) days from the effective date of this ORDER, the Bank shall implement
and adhere to, a written plan to reduce the Bank’s risk position in each asset in excess of
$250,000 which is more than ninety (90) days delinquent or classified “Substandard” in the ROE.
Each action plan shall include, but not be limited to, provisions which:




	 	(i)	 	Prohibit an extension of credit for the payment of
interest, unless the Board, or its designated committee, provides, in




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	 	 	 	writing, a detailed explanation of why the extension is in the best
interest of the Bank;
	 
	 	(ii)	 	Provide for review of the current financial
condition of each delinquent or classified borrower, including a review
of borrower cash flow and collateral value;
	 
	 	(iii)	 	Delineate areas of responsibility for loan
officers;
	 
	 	(iv)	 	Establish dollar levels to which the Bank shall
reduce delinquencies and classified assets within 6 and 12 months from
the effective date of this ORDER; and
	 
	 	(v)	 	Provide for the submission of monthly written
progress reports to the Bank’s board of directors, or its designated
committee, for review and notation in minutes of the meetings of the
board of directors or its designated committee.





     (b) As used in this paragraph, “reduce” means to: (1) collect; (2) charge off; (3) sell; or
(4) improve the quality of such assets so as to warrant removal of any adverse classification by
the FDIC and the OFIR.



     (c) A copy of each action plan required by this paragraph



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shall be submitted to the Regional Director and Chief Deputy Commissioner.




     (d) While this ORDER remains in effect, each action plan shall be revised to include assets of
$250,000 or more which become more than ninety (90) days delinquent after the effective date of
this ORDER or are adversely classified at any subsequent examinations.



LENDING AND COLLECTION POLICIES




     7. Within sixty (60) days from the effective date of this ORDER, the Bank shall adopt and
implement a floor plan lending policy to address the recommendations in the ROE, and shall improve
specific procedures for valuing loans and other real estate that are collateralized by residential
plat developments. Copies of the policies and procedural revisions thereto required by this
paragraph shall be submitted to the Regional Director and Chief Deputy Commissioner.



CAPITAL




     8. (a) Within ninety (90) days from the effective date of this ORDER, the Bank shall have and
maintain its level of Tier 1 capital as a percentage of its total assets (“capital ratio”) at a
minimum of eight and one half (8.5%) percent and its level of qualifying total capital as a
percentage of risk-weighted assets (“total risk based capital ratio”) at a minimum of eleven (11%)
percent. For purposes of this ORDER, Tier 1



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capital, qualifying total capital, total assets, and risk-weighted assets shall be calculated
in accordance with Part 325 of the FDIC Rules and Regulations (“Part 325”), 12 C.F.R. Part 325.




     (b) If, while this ORDER is in effect, the Bank increases capital by the sale of new
securities, the board of directors of the Bank shall adopt and implement a plan for the sale of
such additional securities, including the voting of any shares owned or proxies held by or
controlled by them in favor of said plan. Should the implementation of the plan involve public
distribution of Bank securities, including a distribution limited only to the Bank’s existing
shareholders, the Bank shall prepare detailed offering materials fully describing the securities
being offered, including an accurate description of the financial condition of the Bank and the
circumstances giving rise to the offering, and other material disclosures necessary to comply with
Federal securities laws. Prior to the implementation of the plan and, in any event, not less than
20 days prior to the dissemination of such materials, the materials used in the sale of the
securities shall be submitted to the FDIC Registration and Disclosure Section, 550 17th Street,
N.W., Washington, D.C. 20429 and to the Commissioner, Office of Financial and Insurance Regulation
for the State of Michigan, 611 Ottawa Street, Lansing, Michigan 48933, for their review.



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Any changes requested to be made in the materials by the FDIC or the OFIR shall be made prior to
their dissemination.




          (c) In complying with the provisions of this paragraph, the Bank shall provide to any
subscriber and/or purchaser of Bank securities written notice of any planned or existing
development or other changes which are materially different from the information reflected in any
offering materials used in connection with the sale of Bank securities. The written notice
required by this paragraph shall be furnished within ten (10) calendar days of the date any
material development or change was planned or occurred, whichever is earlier, and shall be
furnished to every purchaser and/or subscriber of the Bank’s original offering materials.



DIVIDEND RESTRICTION




     9. As of the effective date of this ORDER, the Bank shall not declare or pay any dividend
without the prior written consent of the Regional Director and Chief Deputy Commissioner.



PROFIT PLAN AND BUDGET




     10. (a) Within ninety (90) days from the effective date of this ORDER, the Bank shall adopt,
implement, and adhere to a written profit plan and a realistic, comprehensive budget for all
categories of income and expense for calendar year 2011. The plan required by this paragraph shall
contain formal goals and strategies, consistent with sound banking practices, to



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reduce discretionary expenses and to improve the Bank’s overall earnings, and shall contain a
description of the operating assumptions that form the basis for major projected income and expense
components, and identify the major areas in, and means by which, earnings will be improved.




     (b) At each monthly board meeting following completion of the profit plan and budget required
by this paragraph, the Bank’s board of directors shall evaluate the Bank’s actual performance in
relation to the plan and budget, record the results of the evaluation, and note any actions taken
by the Bank in the minutes of the board of directors’ meeting at which such evaluation is
undertaken.



     (c) A written profit plan and budget shall be prepared for each calendar year for which this
ORDER is in effect.



     (d) Copies of the plans and budgets required by this paragraph shall be submitted to the
Regional Director and Chief Deputy Commissioner.



ALLOWANCE FOR LOANS AND LEASE LOSSES




     11. (a) After the effective date of this ORDER, and prior to the submission of all Reports of
Condition and Income required by the FDIC, the board of directors of the Bank shall review the
adequacy of the Bank’s ALLL, provide for an adequate ALLL, and accurately report the same. The
minutes of the board meeting at which such review is undertaken shall indicate the



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findings of the review, the amount of increase in the ALLL recommended, if any, and the basis
for determination of the amount of ALLL provided. In making these determinations, the board of
directors shall consider the FFIEC Instructions for the Reports of Condition and Income and any
analysis of the Bank’s ALLL provided by the FDIC or OFIR.




          (b) ALLL entries required by this paragraph shall be made prior to any capital determinations
required by this ORDER.



LIQUIDITY PLAN




     12. Within ninety (90) days of the effective date of this ORDER, the Bank shall adopt a
written contingency funding plan (“Liquidity Plan”). The Liquidity Plan shall identify sources of
liquid assets to meet the Bank’s contingency funding needs over time horizons of six (6) months,
twelve (12) months, and eighteen (18) months. At a minimum, the Liquidity Plan shall be prepared
in conformance with the Liquidity Risk Management Guidance found at FIL-84-2008 and include
provisions to address the issues identified in the ROE. The plan required by this paragraph shall
be submitted to the Regional Director and Chief Deputy Commissioner for review.



REDUCTION OF BROKERED DEPOSITS




     13. Within sixty (60) days, the Bank will formulate and submit to the Regional Director and
Chief Deputy Commissioner for review a written plan to reduce the Bank’s reliance on



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brokered deposits as defined in Part 337 of the FDIC Rules and Regulations. Such plan shall
detail the volume and maturities of the Bank’s existing brokered deposits. The plan shall include,
but not be limited to:





	 	(i)	 	Target dollar levels for each quarter over the
next eight (8) quarters;
	 
	 	(ii)	 	Specific strategies for funding the existing
brokered deposits as they mature; and
	 
	 	(iii)	 	Provision for the submission of monthly
written progress reports to the Bank’s board of directors for review
and notation in the minutes of the board of directors’ meetings.





STRATEGIC PLAN




     14. (a) Within ninety (90) days from the effective date of this ORDER, the Bank shall
formulate, adopt, and implement a realistic, comprehensive strategic plan. The plan required by
this paragraph shall contain an assessment of the Bank’s current financial condition and market
area, and a description of the operating assumptions that form the basis for major projected income
and expense components. The written strategic plan shall address, at a minimum:




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	 	(i)	 	Strategies for pricing policies and asset/liability management; and




	 	(ii)	 	Financial goals, including pro forma statements for
asset growth, capital adequacy, and earnings.





          (b) Within thirty (30) days from the end of each calendar quarter following the effective date
of this ORDER, the Bank’s board of directors shall evaluate the Bank’s actual performance in
relation to the strategic plan required by this paragraph and record the results of the evaluation,
and any actions taken by the Bank, in the minutes of the board of directors’ meeting at which such
evaluation is undertaken.




          (c) The strategic plan required by this ORDER shall be revised thirty (30) days prior to the
end of each calendar year during which this ORDER is in effect. Thereafter the Bank shall approve
the revised plan, which approval shall be recorded in the minutes of a board of directors’ meeting,
and the Bank shall implement and adhere to the revised plan.




          (d) Copies of the plan and revisions thereto required by this paragraph shall be submitted to
the Regional Director and the Chief Deputy Commissioner for review.




NOTIFICATION TO SHAREHOLDER




     15. Within thirty (30) days from the effective date of this ORDER, the Bank shall send a copy
of this ORDER, or otherwise furnish a description of this ORDER, to its parent



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holding company. The description shall fully describe the ORDER in all material aspects.




PROGRESS REPORTS




     16. Within thirty (30) days from the end of each calendar quarter following the effective date
of this ORDER, the Bank shall furnish to the Regional Director and Chief Deputy Commissioner
written progress reports approved by the board of directors, or its designated committee, detailing
the actions taken to secure compliance with the ORDER and the results thereof.



     The effective date of this ORDER shall be the date of issuance by the FDIC and the OFIR.



     The provisions of this ORDER shall be binding upon the Bank, its institution-affiliated
parties, and any successors and assigns thereof.




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     The provisions of this ORDER shall remain effective and enforceable except to the extent
that, and until such time as, any provision has been modified, terminated, suspended, or set aside
by the FDIC and the OFIR.



     Pursuant to delegated authority.



     Dated: September 2, 2010.



	 	 	 	 	 

	/s/ M. Anthony Lowe

	 	 	 	/s/ Stephen R. Hilker
	 

	 	 	 	 
	M. Anthony Lowe

	 	 	 	Stephen R. Hilker
	Regional Director

	 	 	 	Chief Deputy Commissioner
	Chicago Regional Office

	 	 	 	Office of Financial and
	Federal Deposit Insurance

	 	 	 	Insurance Regulation for the
	Corporation

	 	 	 	State of Michigan






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