Unassociated Document


    FEDERAL
DEPOSIT INSURANCE CORPORATION

    WASHINGTON,
D.C.

    


    


    
      	 
      	 
      	 
      
	 
      	
              )

            	 
      
	
              In
      the Matter of

            	
              )

            	
              ORDER
      TO CEASE AND DESIST

            
	 
      	
              )

            	 
      
	 
      	
              )

            	 
      
	
              AMERICAN
      PATRIOT BANK

            	
              )

            	 
      
	
              GREENEVILLE,
      TENNESSEE

            	
              )

            	
              FDIC-09-163b

            
	 
      	
              )

            	 
      
	 
      	
              )

            	 
      
	
              (Insured
      State Nonmember Bank)

            	
              )

            	 
      
	 
      	
              )

            	 
      


    

     

    American
Patriot Bank, Greeneville, Tennessee (“Bank”), through its board of directors,
having been advised of its right to the issuance and service of a NOTICE OF
CHARGES AND OF HEARING detailing the unsafe or unsound banking practices and
violations of law and/or regulations alleged to have been committed by the Bank
and of its right to a hearing on the alleged charges under section 8(b) of the
Federal Deposit Insurance Act (“Act”), 12 U.S.C. § 1818(b), and having
waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF
AN ORDER TO CEASE AND DESIST (“CONSENT AGREEMENT”) with counsel for the Federal
Deposit Insurance Corporation (“FDIC”) dated May 29, 2009, whereby, solely for
the purpose of this proceeding and without admitting or denying the alleged
charges of unsafe or unsound banking practices and violations of law and/or
regulations, the Bank consented to the issuance of an ORDER TO CEASE AND DESIST
(“ORDER”) by the FDIC.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    The FDIC considered the matter and
determined that they had reason to believe that the Bank had engaged in unsafe
or unsound banking practices and had violated laws and/or
regulations.  The FDIC, therefore, accepted the CONSENT AGREEMENT and
issued the following:

     

    ORDER
TO CEASE AND DESIST

     

    IT IS ORDERED, that the Bank,
institution-affiliated parties, as that term is defined in section 3(u) of the
Act, 12 U.S.C. § 1813(u), of the Bank and its successors and assigns, cease
and desist from the following unsafe or unsound banking practices and violations
of laws and/or regulations:

     

    
      	
               
      

            	
              1.

            	
              Operating
      the Bank with an inadequate level of capital and reserves for the kind and
      quality of assets held by the Bank.

            
	 	 	 


    

    
      	
               
      

            	
              2.

            	
              Operating
      the Bank with inadequate earnings.

            
	 	 	 


    

    
      	
               
      

            	
              3.

            	
              Operating
      with excessive overhead costs.

            
	 	 	 


    

    
      	
               
      

            	
              4.

            	
              Operating
      the Bank with an excessive level of adversely classified loans or
      assets.

            
	 	 	 


    

    
      	
               
      

            	
              5.

            	
              Operating
      with an inadequate allowance for loan and lease losses for the volume,
      type and quality of loans and leases held.

            
	 	 	 


    

    
      	
               
      

            	
              6.

            	
              Failing
      to accurately reflect the condition of the Bank in published statements
      and Consolidated Reports of Condition and Income.

            
	 	 	 


    

    
      	
               
      

            	
              8.

            	
              Engaging
      in lax lending and/or lax collection practices, including, but not limited
      to:

            
	 	 	 


    

    
      	
               
      

            	
              a.
      Renewing or extending credit without adequate and appropriate supporting
      documentation.

            
	 	 


    

    
      	
               
      

            	
              b.
      Failure to obtain proper loan documentation.

            
	 	 


    

    
      	
               
      

            	
              c.
      Failure to obtain adequate collateral.

            
	 	 


    

    
      	
               
      

            	
              d.
      Failure to establish and monitor collateral margins of secured
      borrowers.

            


    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    
    

    
      	
               
      

            	
              e.
      Failure to establish and enforce adequate loan repayment
      programs.

            
	 	 


    

    
      	
               
      

            	
              f.
      Failure to obtain current and complete financial
    information.

            
	 	 


    

    
      	
               
      

            	
              g.
      Poor credit administration practices.

            
	 	 


    

    
      	
               
      

            	
              9.

            	
              Operating
      the Bank in contravention of written loan policies and
      procedures.

            
	 	 	 


    

    
      	
               
      

            	
              10.

            	
              Creating
      concentrations of credit.

            
	 	 	 


    

    
      	
               
      

            	
              11.

            	
              Operating
      the Bank without adequate supervision and direction by the Bank's board of
      directors over the management of the Bank to prevent unsafe and unsound
      banking practices and violations of laws or
regulations.

            
	 	 	 


    

    
      	
               
      

            	
              12.

            	
              Operating
      the Bank with inadequate internal routines and
controls.

            
	 	 	 


    

    
      	
               
      

            	
              13.

            	
              Operating
      the Bank without adequate liquidity or proper regard for funds management
      in light of the Bank's asset and liability mix.

            
	 	 	 


    

    IT IS FURTHER ORDERED, that
the Bank, its institution-affiliated parties and its successors and assigns take
affirmative action as follows:

     

    COMPLIANCE
COMMITTEE

     

    1.           Within
30 days after the effective date of this ORDER, the Bank’s board of directors
shall either establish a subcommittee of the board of directors charged with, or
shall itself assume, the responsibility of ensuring that the Bank complies with
the provisions of this ORDER.  Upon the employment of a new chief
executive officer of the Bank, a majority of the members of such committee shall
be directors not employed in any capacity by the Bank other than as a
director.  The subcommittee shall report monthly to the entire board
of directors of the Bank, and a copy of the report and any discussion related to
the report or the ORDER shall be included in the minutes of the Bank’s board of
directors’ meeting.  Nothing contained herein shall diminish the
responsibility of the entire board of directors of the Bank to ensure compliance
with the provisions of this ORDER.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    BOARD
PARTICIPATION

     

    2.           From
the effective date of this ORDER, the board shall continue to review and
approve, at a minimum, reports regarding the following areas: reports of income
and expenses; loan committee reports of new, overdue, renewal, insider,
charged-off, and recovered loans; investment activity; operating policies; and
other individual committee actions.  This participation shall include
meetings to be held no less frequently than monthly.  The Bank’s Board
minutes shall document these reviews and approvals, including the nature of any
dissenting directors.

     

    DIVIDEND
RESTRICTION

     

    3.           As
of the effective date of this ORDER, the Bank shall not declare or pay any cash
dividend without the prior written consent of the Regional Director of the
FDIC’s Dallas Region (“Regional Director”) and the Commissioner of the
Department of Financial Institutions (“Commissioner”) for the State of
Tennessee(“State”).

     

    CAPITAL
PLAN

    


    4.         
  (a)           Within
90 days after the effective date of this ORDER, the Bank shall submit a written
capital plan to the Regional Director and the Commissioner to, after
establishing an Allowance for Loan and Lease Losses, increase its Tier 1 Capital
ratio equal to or greater than 8 percent of the Bank’s Average Total Assets; to
achieve and maintain its Tier 1 Risk-Based Capital ratio equal to or greater
than 10 percent of the Bank’s Total Risk-Weighted Assets; and to achieve and
maintain its Total Risk-Based Capital ratio equal to or greater than 11 percent
of the Bank’s Total Risk Weighted Assets.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (b)           After
the Regional Director and the Commissioner respond to the capital plan, the
Bank’s board of directors shall adopt the capital plan, including any
modifications or amendments requested by the Regional Director and the
Commissioner.  Thereafter, the Bank shall immediately initiate
measures detailed in the capital plan, to the extent such measures have not
previously been initiated, to effect compliance with the plan within 30 days
after the Regional Director and the Commissioner respond to the capital
plan.

     

    (c)           Such
increase in Tier 1 Capital and any increase in Tier 1 Capital necessary to meet
the capital ratios required by this ORDER may be accomplished by:

     

    
      	
               
      

            	
              (1)

            	
              Reduction
      of assets through branch sales or loan participations,

            
	 	 	 


    

    
      	
               
      

            	
              (2)

            	
              The
      direct contribution of cash subsequent to February 17, 2009, by the
      directors and/or shareholders of the Bank or by the Bank’s holding
      company;

            
	 	 	 


    

    
      	
               
      

            	
              (3)

            	
              Receipt
      of an income tax refund or the capitalization subsequent to February 17,
      2009, of a bona fide tax refund certified as being accurate by a certified
      public accounting firm;

            
	 	 	 


    

    
      	
               
      

            	
              (4)

            	
              The
      sale of securities in the form of common stock; or

            
	 	 	 


    

    
      	
               
      

            	
              (5)

            	
              Any
      other method approved by the Regional Director and the
      Commissioner.

            
	 	 	 


    

    (d)           If
any such capital ratios are less than required by the ORDER, as determined as of
the date of any Report of Condition and Income after the date for compliance
with the capital plan, or at an examination by the FDIC or the State, the Bank
shall, within 30 days after receipt of a written notice of the capital
deficiency from the Regional Director or the Commissioner, present to the
Regional Director and the Commissioner a new capital plan to increase the Bank’s
Tier 1 Capital of the Bank or to take such other measures to bring all the
capital ratios to the percentages required by this ORDER.  After the
Regional Director and the Commissioner respond to the new capital plan, the
Bank’s board of directors shall adopt the new capital plan, including any
modifications or amendments requested by the Regional Director and the
Commissioner.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (e)           Thereafter,
the Bank shall immediately initiate measures detailed in the plan, to the extent
such measures have not previously been initiated, to increase its Capital by an
amount sufficient to bring all the Bank’s capital ratios to the percentages
required by this ORDER within 90 days after the Regional Director and the
Commissioner respond to the new capital plan.

     

    (f)           
If all or part of the increase in Tier 1 Capital required by this ORDER is to be
accomplished by the sale of new securities, the Bank’s board of directors shall
adopt and implement a plan for the sale of such additional securities, including
soliciting proxies and the voting of any shares or proxies owned or controlled
by them in favor of the plan.  Should the implementation of the plan
involve a public distribution of the Bank’s securities (including a distribution
limited only to the Bank’s existing shareholders), the Bank shall prepare
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 any 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 plan and any materials used in the sale of
the securities shall be submitted to the FDIC, Accounting and Securities
Disclosure Section, Washington, D.C. 20429, for review.  Any changes
requested to be made in the plan or the materials by the FDIC shall be made
prior to their dissemination.  If the increase in Tier 1 Capital is to
be provided by the sale of non-cumulative perpetual preferred stock, then all
terms and conditions of the issue shall be presented to the Regional Director
and the Commissioner for prior approval.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    (g)           In
complying with the provisions of this ORDER and until such time as any such
public offering is terminated, the Bank shall provide to any subscriber and/or
purchaser of the Bank’s securities written notice of any planned or existing
development or other change which is materially different from the information
reflected in any offering materials used in connection with the sale of the Bank
securities.  The written notice required by this paragraph shall be
furnished within 10 days after the date such material development or change was
planned or occurred, whichever is earlier, and shall be furnished to every
purchaser and/or subscriber who received or was tendered the information
contained in the Bank’s original offering materials.

     

    (h)           In
addition, the Bank shall comply with the FDIC’s Statement of Policy on
Risk-Based Capital found in Appendix A to Part 325 of the FDIC Rules and
Regulations, 12 C.F.R. Part 325, App. A.

     

    (i)         
   For purposes of this ORDER, all terms relating to capital
shall be calculated according to the methodology set forth in Part 325 of the
FDIC’s Rules and Regulations, 12 C.F.R. Part 325.

    BUDGET AND PROFIT
PLAN

    


    5.          
  (a)           Within
90 days after the effective date of this ORDER, the Bank shall formulate and
submit to the Regional Director and the Commissioner for review and comment a
written profit plan and a realistic, comprehensive budget for all categories of
income and expense for calendar year 2009.  The plan required by this
paragraph shall contain formal goals and strategies, be consistent with sound
banking practices, reduce discretionary expenses, improve the Bank’s overall
earnings and net interest income, and shall contain a description of the
operating assumptions that form the basis for major projected income and expense
components.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    (b)           The
written profit plan shall address, at a minimum:

     

    
      	
               
      

            	
              (1)

            	
              An
      analysis of the Bank’s pricing structure; and

            
	 	 	 


    

    
      	
               
      

            	
              (2)

            	
              A
      recommendation for reducing the Bank’s cost of funds and overhead
      expense.

            
	 	 	 


    

    (c)           Within
30 days after the end of each calendar quarter 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 written profit
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 when such
evaluation is undertaken.

     

    (d)           A
written profit plan and budget shall be prepared for each calendar year for
which this ORDER is in effect and shall be submitted to the Regional Director
and the Commissioner for review and comment within 30 days prior to the end of
each year.  Within 30 days after receipt of all such comments from the
Regional Director and the Commissioner and after adoption of any recommended
changes, the Bank shall approve the written profit plan and budget, which
approval shall be recorded in the minutes of a board of directors’
meeting.  Thereafter, the Bank shall implement and follow the
plan.

     

    CLASSIFIED ASSETS -
CHARGE-OFF AND PLAN FOR REDUCTION

     

    6.         
   (a)           Within
30 days after the effective date of this ORDER, the Bank shall, to the extent
that it has not previously done so, eliminate from its books, by charge-off or
collection, all assets or portions of assets classified Loss by the FDIC or the
State as a result of its examination of the Bank as of February 17,
2009.  Elimination or reduction of these assets through proceeds of
loans made by the Bank shall not be considered “collection” for the purpose of
this paragraph.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (b)           Within
30 days after the effective date of this ORDER, the Bank shall submit a written
plan to the Regional Director and the Commissioner to reduce the remaining
assets classified Doubtful and Substandard as of February 17,
2009.  The plan shall address each asset so classified with a balance
of $250,000 or greater and provide the following:

     

    
      	
               
      

            	
              (1)

            	
              The
      name under which the asset is carried on the books of the
      Bank;

            
	 	 	 


    

    
      	
               
      

            	
              (2)

            	
              Type
      of asset;

            
	 	 	 


    

    
      	
               
      

            	
              (3)

            	
              Actions
      to be taken in order to reduce the classified asset;
and

            
	 	 	 


    

    
      	
               
      

            	
              (4)

            	
              Timeframes
      for accomplishing the proposed actions.

            
	 	 	 


    

    The plan
shall also include, at a minimum:

     

    
      	
               
      

            	
              (1)

            	
              Review
      the financial position of each such borrower, including the source of
      repayment, repayment ability, and alternate repayment sources;
      and

            
	 	 	 


    

    
      	
               
      

            	
              (2)

            	
              Evaluate
      the available collateral for each such credit, including possible actions
      to improve the Bank’s collateral
position.

            


    

     

    In
addition, the Bank’s plan shall contain a schedule detailing the projected
reduction of total classified assets on a quarterly basis.  Further,
the plan shall contain a provision requiring the submission of monthly progress
reports to the Bank’s board of directors and a provision mandating a review by
the Bank’s board of directors.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (c)           The
Bank shall present the plan to the Regional Director and the Commissioner for
review.  Within 30 days after the Regional Director’s and the
Commissioner’s response, the plan, including any requested modifications or
amendments shall be adopted by the Bank’s board of directors which approval
shall be recorded in the minutes of the meeting of the Bank’s board of
directors.   The Bank shall then immediately initiate measures
detailed in the plan to the extent such measures have not been
initiated.

     

    (d)           For
purposes of the plan, the reduction of adversely classified assets as of
February 17, 2009, shall be detailed using quarterly targets expressed as a
percentage of the Bank’s Tier 1 Capital plus the Bank’s Allowance for Loan and
Lease Losses and may be accomplished by:

     

    
      	
               
      

            	
              (1)

            	
              Charge-off;

            
	 	 	 


    

    
      	
               
      

            	
              (2)

            	
              Collection;

            
	 	 	 


    

    
      	
               
      

            	
              (3)

            	
              Sufficient
      improvement in the quality of adversely classified assets so as to warrant
      removing any adverse classification, as determined by the FDIC or the
      State; or

            
	 	 	 


    

    
      	
               
      

            	
              (4)

            	
              Increase
      in the Bank’s Tier 1 Capital.

            
	 	 	 


    

    (e)           While
this ORDER is in effect, the Bank shall eliminate from its books, by charge-off
or collection, all assets or portions of assets classified Loss as determined at
any future examination conducted by the FDIC or the State.

     

    RESTRICTION ON ADVANCES TO
CLASSIFIED BORROWERS

     

    7.           
(a)           While this
ORDER is in effect, the Bank shall not extend, directly or indirectly, any
additional credit to or for the benefit of any borrower whose existing credit
has been classified Loss by the FDIC or the State as the result of its
examination of the Bank, either in whole or in part, and is uncollected, or to
any borrower who is already obligated in any manner to the Bank on any extension
of credit, including any portion thereof, that has been charged off the books of
the Bank and remains uncollected.  The requirements of this paragraph
shall not prohibit the Bank from renewing credit already extended to a borrower
after full collection, in cash, of interest due from the borrower.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (b)           While
this ORDER is in effect, the Bank shall not extend, directly or indirectly, any
additional credit to or for the benefit of any borrower whose extension of
credit is classified Doubtful and/or Substandard by the FDIC or the State as the
result of its examination of the Bank, either in whole or in part, and is
uncollected, unless the Bank’s board of directors has signed a detailed written
statement giving reasons why failure to extend such credit would be detrimental
to the best interests of the Bank.  The statement shall be placed in
the appropriate loan file and included in the minutes of the applicable Bank’s
board of directors’ meeting.

     

    ALLOWANCE
FOR LOAN AND LEASE LOSSES

    AND

    AMENDED CALL
REPORTS

    


    8.        
    (a)           The
Bank, after February 17, 2009, shall make provisions in the amount of at least
$863,000 to its Allowance for Loan and Lease Losses (“ALLL”) so as to be
reflected in its Consolidated Reports of Condition and Income for December 31,
2008.  The allowance should be funded by charges to current operating
income, and should be calculated in accordance with generally accepted
accounting standards and ALLL supervisory guidance.  After the initial
provision is made, the Bank shall thereafter maintain a reasonable
ALLL.  Prior to the end of each calendar quarter, the Bank’s board of
directors shall review the adequacy of the Bank’s ALLL.  Such reviews
shall include, at a minimum, the Bank’s loan loss experience, an estimate of
potential loss exposure in the portfolio, trends of delinquent and non-accrual
loans and prevailing and prospective economic conditions.  The minutes
of the Bank’s board of directors’ meetings at which such reviews are undertaken
shall include complete details of the reviews and the resulting recommended
increases in the ALLL.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    (b)           Within
30 days after the effective date of this ORDER, the Bank shall review
Consolidated Reports of Condition and Income filed with the FDIC for periods
ending after December 31, 2008, and amend said reports if necessary to
accurately reflect the financial condition of the Bank as of the date of each
such report.  In particular, such reports shall contain a reasonable
ALLL.  Reports filed after the effective date of this ORDER shall also
accurately reflect the financial condition of the Bank as of the reporting
date.

     

    (c)           Within
30 days after the effective date of this ORDER, the Bank must use Financial
Accounting Standards Board Statements Numbers 5 and 114 for determining the
Bank’s allowance for loan and lease losses reserve
adequacy.  Provisions for loan losses must be based on the inherent
risk in the Bank’s loan portfolio.  The directorate must document with
written reasons any decision not to require provisions for loan losses in the
board minutes.

    LOAN REVIEW
COMMITTEE

     

    9.       
     (a)           Within
30 days after the effective date of this ORDER, the Bank's board of directors
shall establish a Loan Review Committee to monitor the Bank’s loan review
activities to ensure accurate and timely loan grading, as well as the
identification and reporting of loan policy exceptions.  The Loan
Review Committee will review the external loan review reports, internal loan
review reports, past due loan reports, nonaccrual loan reports, the watch list,
and other management reports to ensure an accurate assessment of the quality of
the loan portfolio. The Loan Review Committee will report its findings to the
board of directors.  

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    (b)           The
Loan Review Committee shall be comprised of at least three (3) Independent
Directors.  The Senior Credit Officer and the Collections Officer
shall attend the meetings of the Loan Review Committee, but are not required to
be voting member of the committee.  The minutes of the Loan Review
Committee shall reflect the discussion, input, and analysis of the Senior Credit
Officer and the Collections Officer if these members do not vote, as well as the
final vote of the committee.  For purposes of this ORDER, a person who
is an Independent Director shall be any individual: (a) who is not a permanent
officer of the Bank, any subsidiary of the Bank, or any of its affiliated
organizations; (b) who does not own more than five percent of the outstanding
shares of the Bank; (c) who is not related by blood or marriage to an officer or
director of the Bank or to any shareholder owning more than five percent of the
Bank’s outstanding shares, and who does not otherwise share a common financial
interest with such officer, director, or shareholder; and (d) who is not
indebted to the Bank directly or indirectly by blood, marriage or common
financial interest, including the indebtedness of any entity in which the
individual has a substantial financial interest in an amount exceeding ten
percent of the Bank’s total Tier 1 Capital and Allowance for Loan and Lease
Losses; or (e) who is deemed to be an Independent Director for purposes of this
ORDER by the Regional Director and the Commissioner.  The addition of
any new Bank directors required by this paragraph may be accomplished, to the
extent permissible by state statute or the Bank’s bylaws, by means of
appointment or election at a regular or special meeting of the Bank’s
shareholders.

     

    (c)  In addition, the Loan
Review Committee shall review a list of loan approvals, renewals, modifications,
extensions, and release or substitution of collateral on loans of $25,000 or
greater and a sampling of loans below that amount.  The Loan Review
Committee shall maintain minutes of its meetings, which shall include the list
of loans reviewed, together with a list of adversely rated credits identified
(to include loan grade) and a list of any exceptions to policy
identified.  Any recommendations by the committee regarding such
credits should also be included.  The requirements of this paragraph
shall not require the Loan Review Committee to review monthly amortizing loans
up for renewal that are in compliance with loan policy guidelines after full
collection, in cash, of interest due from the borrower.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    LOAN
POLICY

     

    10.           (a)           Within
60 days after the effective date of this ORDER, and annually thereafter, the
board of directors of the Bank shall review the Bank’s loan policy and
procedures for effectiveness and, based upon this review, shall make all
necessary revisions to the policy in order to strengthen the Bank’s lending
procedures and abate additional loan deterioration.  The revised
written loan policy shall be submitted to the Regional Director and the
Commissioner for review and comment upon its completion.

     

    (b)           The
initial revisions to the Bank’s loan policy required by this paragraph, at a
minimum, shall include provisions:

     

    
      	
               
      

            	
              (1)

            	
              Designating
      the Bank’s normal trade area;

            
	 	 	 


    

    
      	
               
      

            	
              (2)

            	
              Establishing
      review and monitoring procedures to ensure that all lending personnel are
      adhering to established lending procedures and that the directorate is
      receiving timely and fully documented reports on loan activity, including
      any deviations from established policy;

            
	 	 	 


    

    
      	
               
      

            	
              (3)

            	
              Requiring
      that all extensions of credit originated or renewed by the Bank be
      supported by current credit information and collateral documentation,
      including lien searches and the perfection of security interests; have a
      defined and stated purpose; and have a predetermined and realistic
      repayment source and schedule.  Credit information and
      collateral documentation shall include current financial information,
      profit and loss statements or copies of tax returns, and cash flow
      projections, and shall be maintained throughout the term of the
      loan;

            


    

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    
    

    
      	
               
      

            	
              (4)

            	
              Requiring
      loan committee review and monitoring of the status of repayment and
      collection of overdue and maturing loans, as well as all loans classified
      “Substandard” in the Report of Examination;

            
	 	 	 


    

    
      	
               
      

            	
              (5)

            	
              Requiring
      the establishment and maintenance of a loan grading system and internal
      loan watch list;

            
	 	 	 


    

    
      	
               
      

            	
              (6)

            	
              Requiring
      a written plan to lessen the risk position in each line of credit
      identified as a problem credit on the Bank’s internal loan watch
      list;

            
	 	 	 


    

    
      	
               
      

            	
              (7)

            	
              Prohibiting
      the capitalization of interest or loan-related expenses unless the Bank’s
      board of directors  formally approves such extensions of credit
      as being in the best interest of the Bank and provides detailed written
      support of its position in the Bank’s
      board  minutes;

            
	 	 	 


    

    
      	
               
      

            	
              (8)

            	
              Requiring
      that extensions of credit to any of the Bank’s executive officers,
      directors, or principal shareholders, or to any related interest of such
      person, be thoroughly reviewed for compliance with all provisions of
      Regulation O, 12 C.F.R. Part 215 and Section 337.3 of the FDIC’s Rules and
      Regulations, 12 C.F.R.
§ 337.3.

            


    

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    
    

    
      	
               
      

            	
              (9)

            	
              Requiring
      a non-accrual policy in accordance with the Federal Financial Institutions
      Examination Council’s Instructions for the Consolidated Reports of
      Condition and Income;

            
	 	 	 


    

    
      	
               
      

            	
              (10)

            	
              Requiring
      accurate reporting of past due loans to the Bank’s board of directors on
      at least a monthly basis;

            
	 	 	 


    

    
      	
               
      

            	
              (11)

            	
              Addressing
      concentrations of credit and diversification of risk, including goals for
      portfolio mix, establishment of limits within loan and other asset
      categories, and development of a tracking and monitoring system for the
      economic and financial condition of specific geographic locations,
      industries, and groups of borrowers;

            
	 	 	 


    

    
      	
               
      

            	
              (12)

            	
              Requiring
      guidelines and review of out-of-territory loans which, at a minimum, shall
      include complete credit documentation, approval by a majority of the
      Bank’s board of directors prior to disbursement of funds, and a detailed
      written explanation of why such a loan is in the best interest of the
      Bank;

            
	 	 	 


    

    
      	
               
      

            	
              (13)

            	
              Establishing
      standards for extending unsecured credit;

            
	 	 	 


    

    
      	
               
      

            	
              (14)

            	
              Incorporating
      collateral valuation requirements, including:

            
	 	 	 


    

    
      	
               
      

            	
              a.

            	
              Maximum
      loan-to-collateral-value limitations;

            
	 	 	 


    

    
      	
               
      

            	
              b.

            	
              A
      requirement that the valuation be completed prior to a commitment to lend
      funds;

            
	 	 	 


    

    
      	
               
      

            	
              c.

            	
              A
      requirement for periodic updating of valuations; and

            
	 	 	 


    

    
      
        	
              	
                d.

              	
                A
      requirement that the source of valuations be documented in Bank
      records;

              


      

    

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    
    

    
      	
               
      

            	
              (15)

            	
              Establishing
      standards for initiating collection efforts;

            
	 	 	 


    

    
      	
               
      

            	
              (16)

            	
              Establishing
      guidelines for timely recognition of loss through
    charge-off;

            
	 	 	 


    

    
      	
               
      

            	
              (17)

            	
              Prohibiting
      the extension of a maturity date, advancement of additional credit or
      renewal of a loan to a borrower whose obligations to the Bank were
      classified “Substandard,” “Doubtful,” or “Loss,” whether in whole or in
      part, as of February 17, 2009, or by the FDIC or State in a subsequent
      Report of Examination, without the full collection in cash of accrued and
      unpaid interest, unless the loans are well secured and/or are supported by
      current and complete financial information, and the renewal or extension
      has first been approved in writing by a majority of the Bank’s board of
      directors;

            
	 	 	 


    

    
      	
               
      

            	
              (18)

            	
              Establishing
      officer lending limits and limitations on the aggregate level of credit to
      any one borrower which can be granted without the prior approval of the
      Bank’s board of directors;

            
	 	 	 


    

    
      	
               
      

            	
              (19)

            	
              Requiring
      that collateral appraisals be completed prior to the making of secured
      extensions of credit, and that periodic collateral valuations be performed
      for all secured loans listed on the Bank’s internal watch list, criticized
      in any internal or outside audit report of the Bank, or criticized in any
      Report of Examination of the Bank by the FDIC or the
  State;

            


    

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    
    

    
      	
               
      

            	
              (20)

            	
              Prohibiting
      the issuance of standby letters of credit unless the letters of credit are
      well secured and/or are supported by current and complete financial
      information;

            
	 	 	 


    

    
      	
               
      

            	
              (21)

            	
              Establishing
      limitations on the maximum volume of loans in relation to total assets;
      and

            
	 	 	 


    

    
      	
               
      

            	
              (22)

            	
              Establishing
      review and monitoring procedures to ensure compliance with FDIC’s
      regulation on appraisals pursuant to Part 323 of the FDIC’s Rules and
      Regulations, 12 C.F.R. Part 323.

            
	 	 	 


    

     

    (c)           The
Bank shall submit the foregoing policies to the Regional Director and the
Commissioner for comment.  After the Regional Director and the
Commissioner has/have responded to the policies, the Bank’s board of directors
shall adopt the policies as amended or modified by the Regional Director and the
Commissioner.  The policies will be implemented immediately to the
extent that they are not already in effect at the Bank.

     

    CONCENTRATIONS – PLAN FOR
REDUCTION

     

    11.           (a)           Within
60 days after the effective date of this ORDER, the Bank shall formulate and
submit to the Regional Director and the Commissioner for review and comment a
written plan to reduce the industry concentration of Construction and
Development loans identified during the FDIC examination of the Bank started on
February 17, 2009.   The plan shall establish comprehensive
policies and procedures to govern Commercial Real Estate and Construction and
Development lending programs so as to ensure compliance with the joint
guidance contained in
FIL 104-2006, Guidance on Concentrations in Commercial
Real Estate
Lending, Sound Risk Management Practices, which was issued on December 12, 2006.
Policies and procedures shall address, at a minimum: assessment procedures to
identify concentrations in these lending segments, reports to the Board
outlining the concentrations and associated risks, acceptable risk limits and
sub limits, risk mitigation strategies, market analysis requirements, portfolio
stress testing including sensitivity analysis, and an analysis of capital levels
where additional capital may be required due to these
concentrations.  Such plan shall prohibit any additional advances that
would increase the concentrations or create new concentrations and shall
include, but not be limited to:

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              (1)

            	
              Dollar
      levels to which the Bank shall reduce each concentration;
    and

            
	 	 	 


    

    
      	
               
      

            	
              (2)

            	
              Provisions
      for the submission of monthly written progress reports to the Bank’s board
      of directors for review and notation in minutes of the meetings of the
      board of directors.

            
	 	 	 


    

    (b)           For
purposes of the plan, “reduce” means to:

     

    
      	
               
      

            	
              (1)

            	
              Charge-off;

            
	 	 	 


    

    
      	
               
      

            	
              (2)

            	
              Collect;

            
	 	 	 


    

    
      	
               
      

            	
              (3)

            	
              Sell;
      or

            
	 	 	 


    

    
      	
               
      

            	
              (4)

            	
              Increase
      Tier 1 Capital.

            
	 	 	 


    

    (c)           After
the Regional Director and the Commissioner have responded to the plan, the
Bank’s board of directors shall adopt the plan as amended or modified by the
Regional Director and the Commissioner.  The plan shall be implemented
immediately to the extent that the provisions of the plan are not already in
effect at the Bank.

     

    SPECIAL MENTION AND
TECHNICAL EXCEPTIONS

     

    12.           Within
60 days after the effective date of this ORDER, the Bank shall correct all
deficiencies in the loans listed for Special Mention in the Report of
Examination as of February 17, 2009.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    BANK
MANAGEMENT

     

    13.           (a)           Within
90 days after the effective date of this ORDER, the Bank shall retain a bank
consultant acceptable to the Regional Director and the
Commissioner.  The consultant shall develop a written analysis and
assessment of the Bank’s management and staffing needs (“Management Plan”) for
the purpose of providing qualified management for the Bank.

     

    (b)           The
Bank shall provide the Regional Director and the Commissioner with a copy of the
proposed engagement letter or contract with the consultant for review before it
is executed.  The contract or engagement letter, at a minimum, should
include:

     

    
      	
               
      

            	
              (1)

            	
              A
      description of the work to be performed under the contract or engagement
      letter;

            
	 	 	 


    

    
      	
               
      

            	
              (2)

            	
              The
      responsibilities of the consultant;

            
	 	 	 


    

    
      	
               
      

            	
              (3)

            	
              An
      identification of the professional standards covering the work to be
      performed;

            
	 	 	 


    

    
      	
               
      

            	
              (4)

            	
              Identification
      of the specific procedures to be used when carrying out the work to be
      performed;

            
	 	 	 


    

    
      	
               
      

            	
              (5)

            	
              The
      qualifications of the employee(s) who are to perform the
    work;

            
	 	 	 


    

    
      	
               
      

            	
              (6)

            	
              The
      time frame for completion of the work;

            
	 	 	 


    

    
      	
               
      

            	
              (7)

            	
              Any
      restrictions on the use of the reported findings; and

            
	 	 	 


    

    
      	
               
      

            	
              (8)

            	
              A
      provision for unrestricted examiner access to work
  papers.

            


    

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    (c)           The
Management Plan shall be developed within 120 days after the effective date of
this ORDER.  The Management Plan shall include, at a
minimum:

    
      	
               
      

            	
              (1)

            	
              Identification
      of both the type and number of officer positions needed to properly manage
      and supervise the affairs of the Bank;

            
	 	 	 


    

    
      	
               
      

            	
              (2)

            	
              Identification
      and establishment of such Bank committees as are needed to provide
      guidance and oversight to active management;

            
	 	 	 


    

    
      	
               
      

            	
              (3)

            	
              Evaluation
      of all Bank officers and staff members 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;
  and

            
	 	 	 


    

    
      	
               
      

            	
              (4)

            	
              A
      plan to recruit and hire any additional or replacement personnel with the
      requisite ability, experience and other qualifications to fill those
      officer or staff member positions identified in the Management
      Plan.

            
	 	 	 


    

    (d)           The
Management Plan shall be submitted to the Regional Director and the Commissioner
for review and comment upon its completion.  Within 30 days from the
receipt of any comments from the Regional Director and the Commissioner, and
after the adoption of any recommended changes, the Bank shall approve the
Management Plan, and record its approval in the minutes of the board of
directors’ meeting.  Thereafter, the Bank, its directors, officers,
and employees shall implement and follow the Management Plan and/or any
subsequent modification.

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    STRATEGIC
PLAN

     

    14.           (a)           Within
120 days after the effective date of this ORDER, the Bank shall prepare and
adopt a comprehensive strategic plan.  The strategic 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.

     

    (b)           The
written strategic plan shall address, at a minimum:

     

    
      	
               
      

            	
              (1)

            	
              Strategies
      for pricing policies and asset/liability management;

            
	 	 	 


    

    
      	
               
      

            	
              (2)

            	
              Plans
      for sustaining adequate liquidity, including back-up lines of credit to
      meet any unanticipated deposit withdrawals;

            
	 	 	 


    

    
      	
               
      

            	
              (3)

            	
              Goals
      for reducing problem loans;

            
	 	 	 


    

    
      	
               
      

            	
              (4)

            	
              Plans
      for attracting and retaining qualified individuals to fill vacancies in
      the lending and accounting functions;

            
	 	 	 


    

    
      	
               
      

            	
              (5)

            	
              Financial
      goals, including pro forma statements for asset growth (either negative or
      positive), capital adequacy, and earnings;

            
	 	 	 


    

    
      	
               
      

            	
              (6)

            	
              Formulation
      of a mission statement and the development of a strategy to carry out that
      mission.

            
	 	 	 


    

    (c)           The
Bank shall submit the strategic plan to the Regional Director and the
Commissioner for review and comment.  After consideration all of such
comments, the Bank shall approve the plan, which approval shall be recorded in
the minutes of the Bank’s board of directors’ meeting.  Thereafter,
the Bank shall implement and follow the strategic plan.

     

    (d)           Within
30 days after the end of each calendar quarter following the adoption of the
Strategic Plan, the Bank’s board of directors shall evaluate the Bank’s
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 Bank’s board of directors’ meeting at which such evaluation is
undertaken.

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    (e)           The
strategic plan required by this ORDER shall be revised and submitted to the
Regional Director and the Commissioner for review and comment 30 days after the
end of each calendar year for which this ORDER is in effect.  Within
30 days after receipt of all such comments from the Regional Director and the
Commissioner and after consideration of all such comments, the Bank shall
approve the revised plan, which approval shall be recorded in the minutes of the
Bank’s board of directors’ meeting.  Thereafter, the Bank shall
implement the revised plan.

     

    CORRECTION OF
VIOLATIONS

     

    15.           (a)           Within
60 days after the effective date of this ORDER, the Bank shall eliminate and/or
correct all violations of law and regulation noted in the Report of
Examination.

     

    (b)           Within
90 days after the effective date of this ORDER, the Bank shall implement
procedures to ensure future compliance with all applicable laws and
regulations.

     

    (c)           Within
60 days after the effective date of this ORDER, the Bank shall address any
contraventions of policy noted in the Report of Examination.

     

    INTERNAL AUDIT CONTROL
PROGRAM

     

    16.           
Within 60 days after the effective date of this ORDER, the Bank’s board of
directors shall enhance its program for internal audit and
control.  The audit program shall provide procedures to test the
validity and reliability of operating systems, procedural controls, and
resulting records, and shall comply with the Interagency Policy Statement on the
Internal Audit Function and its Outsourcing.  The internal auditor
shall report quarterly to the Bank’s board of directors.  The report
and any comments made by the directors regarding the internal auditor’s report
shall be noted in the minutes of the Bank’s board of directors’
meeting.

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

    LIQUIDITY/ASSET/LIABILITY
MANAGEMENT

     

    17.           (a)           Within
60 days after the effective date of this ORDER, the Bank shall develop and
submit to the Regional Director and the Commissioner for review and comment a
written plan addressing liquidity and the Bank’s relationship of volatile
liabilities to temporary investments.  Annually thereafter, while this
ORDER is in effect, the Bank shall review this plan for adequacy and, based upon
such review, shall make necessary revisions to the plan to strengthen funds
management procedures and maintain adequate provisions to meet the Bank’s
liquidity needs.  The initial plan shall include, at a minimum,
provisions:

     

    
      	
               
      

            	
              (1)

            	
              Establishing
      a reasonable range for its net non-core funding ratio as computed in the
      Uniform Bank Performance Report;

            
	 	 	 


    

    
      	
               
      

            	
              (2)

            	
              Identifying
      the source and use of borrowed and/or volatile funds;

            
	 	 	 


    

    
      	
               
      

            	
              (3)

            	
              Requiring
      the retention of securities and/or other identified categories of
      investments that can be liquidated within one day in amounts sufficient
      (as a percentage of the Bank’s total assets) to ensure the maintenance of
      the Bank’s liquidity posture at a level consistent with short- and
      long-term liquidity objectives;

            
	 	 	 


    

    
      	
               
      

            	
              (4)

            	
              Establishing
      a minimum liquidity ratio and defining how the ratio is to be
      calculated;

            
	 	 	 


    

    
      	
               
      

            	
              (5)

            	
              Establishing
      contingency plans by identifying alternative courses of action designed to
      meet the Bank’s liquidity needs;

            


    

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

    
    

    
      	
               
      

            	
              (6)

            	
              Addressing
      the use of borrowings (i.e., seasonal credit needs, match funding mortgage
      loans, etc.) and providing for reasonable maturities commensurate with the
      use of the borrowed funds; addressing concentration of funding sources;
      and addressing pricing and collateral requirements with specific allowable
      funding channels (i.e., brokered deposits, internet deposits, Fed funds
      purchased and other correspondent borrowings);
  and

            


    

     

    (b)           Within
30 days after the receipt of all such comments from the Regional Director and
the Commissioner, and after revising the plan as necessary, the Bank shall adopt
the plan, which adoption shall be recorded in the minutes of a board of
directors’ meeting.  Thereafter, the Bank shall implement the
plan.

     

    PROGRESS
REPORTS

     

    18.           Within
30 days after the end of each calendar quarter following the effective date of
this ORDER, the Bank shall furnish to the Regional Director and the Commissioner
written progress reports signed by each member of the Bank’s board of directors,
detailing the actions taken to secure compliance with the ORDER and the results
thereof.  Such reports may be discontinued when the corrections
required by this ORDER have been accomplished and the Regional Director and the
Commissioner have released, in writing, the Bank from making further
reports.

     

    NOTIFICATION

     

    19.           Following
the effective date of this ORDER, the Bank shall send to its parent holding
company or otherwise furnish a description of this ORDER in conjunction with the
Bank's next shareholder communication with such holding company.

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    This ORDER shall be binding upon the
Bank, its successors and assigns, and all institution-affiliated parties of the
Bank.  The provisions of this ORDER shall remain effective and
enforceable except to the extent that, and until such time as, any provision of
this ORDER shall have been modified, terminated, superseded, or set aside by the
FDIC.

     

    This
ORDER will become effective upon its issuance by the FDIC.

     

    Pursuant
to delegated authority.

     

    Dated
this 3rd day of
June, 2009.

    


    


     

    
      	 	

              /s/ Thomas J.
      Dujenski                           
      

              Thomas
      J. Dujenski

              Regional
      Director

              Dallas
      Region

              Division
      of Supervision and Consumer Protection

              Federal
      Deposit Insurance Corporation

            


    

    
 

    
      
        
        

      

      
        26