**EXHIBIT 10.2**

 

FEDERAL DEPOSIT INSURANCE CORPORATION

 

WASHINGTON, D.C.

 
|                            | ) |             |
|---------------------------------|---|------------------|
| In the Matter of                | ) |             |
|                            | ) | ORDER TO         |
| ATLANTIC  SOUTHERN BANK         | ) | CEASE AND DESIST |
| MACON,  GEORGIA                 | ) |             |
|                            | ) | FDIC-09-225b     |
| (Insured  State Nonmember Bank) | ) |             |
|                            | ) |             |

 

AtlanticSouthern Bank, Macon, Georgia (“Bank”), having been advised of its right to aNOTICE OF CHARGES AND OF HEARING detailing the unsafe or unsound bankingpractices and violations of law and/or regulations alleged to have beencommitted by the Bank and of its right to a hearing on the alleged chargesunder section 8(b)(1) of the Federal Deposit Insurance Act (“Act”), 12U.S.C. § 1818(b)(1), and having waived those rights, entered into a STIPULATIONAND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST (“CONSENT AGREEMENT”)with a representative for the Legal Division of the Federal Deposit InsuranceCorporation (“FDIC”) and the Commissioner (the “Commissioner”) for the State ofGeorgia, Department of Banking and Finance (the “Department”), dated September 8,2009 whereby solely for the purpose of this proceeding and without admitting ordenying the alleged charges of unsafe or unsound banking practices andviolations of law and/or regulations, the Bank consented to the issuance of anORDER TO CEASE AND DESIST (“ORDER”) by the FDIC and the Commissioner.  The Commissioner may issue an order

 

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tocease and desist pursuant to section 7-1-91 of the Official Code of GeorgiaAnnotated, GA Code Ann. Section 7-1-91 (1985).

 

TheFDIC and the Commissioner considered the matter and determined that they havereason to believe that the Bank has engaged in unsafe or unsound bankingpractices and has committed violations of law and/or regulations.  The FDIC and the Commissioner, therefore,accepted the CONSENT AGREEMENT and issued the following:

 

**ORDER TO CEASE AND DESIST**

 

ITIS HEREBY ORDERED, that the Bank, its institution-affiliated parties, as thatterm is defined in section 3(u) of the Act, 12 U.S.C. § 1813(u), and itssuccessors and assigns cease and desist from the following unsafe and unsoundbanking practices and violations of law and/or regulation:

 

a)                                      operating witha board of directors (“Board”) that has failed to provide adequate supervisionover and direction to the management of the Bank;

 

b)                                     operating withmanagement whose policies and practices are detrimental to the Bank andjeopardize the safety of its deposits;

 

c)                                      operating withinadequate equity capital in relation to the volume and quality of assets heldby the Bank;

 

d)                                     operating witha large volume of poor quality loans;

 

e)                                      followinghazardous lending and lax collection policies and practices;

 

f)                                        operating insuch a manner as to produce operating losses;

 

g)                                     operating withprovisions for liquidity and funds management that need to be enhanced; and

 

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h)                                     operating inviolation of laws and/or regulations, and in contravention of statements ofpolicy as more fully described on pages 10 through 14 of the Report ofExamination of the Bank dated February 17, 2009 (“Report”).

 

ITIS FURTHER ORDERED, that the Bank, its institution-affiliated parties, and itssuccessors and assigns, take affirmative action as follows:

 

**BOARD OF DIRECTORS**

 

1.                                       Beginning withthe effective date of this ORDER, the Board shall increase its participation inthe affairs of the Bank, assuming full responsibility for the approval of soundpolicies and objectives and for the supervision of all of the Bank’sactivities, consistent with the role and expertise commonly expected fordirectors of banks of comparable size. This participation shall include meetings to be held no less frequentlythan monthly at which, at a minimum, the following areas shall be reviewed andapproved: reports of income and expenses; new, overdue, renewal, insider,charged-off, and recovered loans; investment activity; operating policies; andindividual committee actions.  Boardminutes shall document these reviews and approvals, including the names of anydissenting directors.

 

**COMPLIANCE WITH ORDER**

 

2.                                       Within 30 daysfrom the effective date of this ORDER, the Board shall establish a Boardcommittee (“Directors’ Committee”), consisting of at least four members, tooversee the Bank’s compliance with the ORDER. Three of the members of the Directors’ Committee shall not be officersof the Bank.  The Directors’ Committeeshall receive from Bank management monthly reports detailing the Bank’s actionswith respect to compliance with the ORDER. The Directors’ Committee shall present a report 

 

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detailingthe Bank’s adherence to the ORDER to the Board at each regularly scheduledBoard meeting.  Such report shall berecorded in the appropriate minutes of the Board’s meeting and shall beretained in the Bank’s records. Establishment of this committee does not in any way diminish theresponsibility of the entire Board to ensure compliance with the provisions ofthis ORDER.

 

**MANAGEMENT**

 

3.                                       (a)                                  Within 60 daysfrom the effective date of this ORDER, the Bank shall have and retain qualifiedmanagement.  Each member of management shall have qualifications and experiencecommensurate with his or her duties and responsibilities at the Bank.  Management shall include a chief executiveofficer, senior lending officer, and chief financial officer.  All three management officials shall have anappropriate level of experience and expertise that is needed to perform his orher duties.  Each member of managementshall be provided appropriate written authority from the Bank’s Board toimplement the provisions of this ORDER.

 

(b)                                 Thequalifications of management shall be assessed on its ability to:

 

(i)                                     Comply with the requirementsof this ORDER;

 

(ii)                                  Operate the Bank in a safeand sound manner;

 

(iii)                               Comply withapplicable laws and regulations; and

 

(iv)                              Restore all aspects of theBank to a safe and sound condition, including asset quality, earnings, capitaladequacy, earnings, management effectiveness, risk management, liquidity, and sensitivityto market risk.

 

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(c)                                  During the lifeof this ORDER, the Bank shall notify the Regional Director of the FDIC’sAtlanta Regional Office (“Regional Director”) and the Commissioner(collectively, “Supervisory Authorities”) in writing when it proposes to addany individual to the Bank’s Board or employ any individual as a seniorexecutive officer, as that term is defined in section 303.102 of the FDIC’s Rules andRegulations, 12 C.F.R. § 303.102.  Thenotification should include a description of the background and experience ofthe individual or individuals to be added or employed and must be received atleast 30 days before such addition or employment is intended to becomeeffective.  If the Regional Directorissues a notice of disapproval pursuant to section 32 of the Act, 12 U.S.C. §1831i, with respect to any proposed individual, then such individual may not beadded or employed by the Bank.

 

**CAPITAL**

 

4.                                       (a)                                  Within 90 daysfrom the effective date of this ORDER, the Bank shall have Tier 1 Capital insuch an amount as to equal or exceed 8 percent of the Bank’s total assets andtotal risk-based capital in such an amount as to equal or exceed 10 percent ofthe Bank’s total risk-weighted assets, and, thereafter, the Bank shall maintainTier 1 Capital and total risk based capital ratios equal to or exceeding 8percent and 10 percent, respectively, during the life of this ORDER.

 

(b)                                 The level ofTier 1 Capital and total risk-based capital to be maintained during the life ofthis ORDER pursuant to this paragraph shall be in addition to a fully fundedallowance for loan and lease losses (“ALLL”), the adequacy of which shall besatisfactory to the Supervisory Authorities as determined at subsequentexaminations and/or visitations.

 

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(c)                                  Any increase inTier 1 Capital and total risk-based capital necessary to meet the requirementsof this paragraph of the ORDER may be accomplished by the following:

 

(i)                                     Sale of commonstock;

 

(ii)                                  Sale ofnoncumulative perpetual preferred stock;

 

(iii)                               Directcontribution of cash by the Board, shareholders, and/or     parent holding company;

 

(iv)                              Any other meansacceptable to the Supervisory Authorities; or

 

(v)                                 Any combinationof the above means.

 

(d)                                 Any increase inTier 1 Capital necessary to meet the requirements of Paragraph 4 of this ORDERmay not be accomplished through a deduction from the Bank’s ALLL.

 

(e)                                  For thepurposes of this ORDER, the terms “Tier 1 Capital,” “total risk-based capital,”  “total assets,” and “total risk-weightedassets” shall have the meanings ascribed to them in Part 325 of the FDIC’sRules and Regulations, 12 C.F.R. Part 325.

 

**DIVIDENDS**

 

5.                                       While thisORDER is in effect, the Bank shall not declare or pay any cash dividendswithout the prior written approval of the Supervisory Authorities.

 

**LIQUIDITY AND FUNDS MANAGEMENT**

 

6.                                       (a)                                  Within 60 daysfrom the effective date of this ORDER, the Bank shall review, revise asnecessary, and implement a written plan addressing liquidity, contingentfunding, interest rate risk, and asset liability management, which plan shallinclude, at a 

 

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minimum,revisions to address all items of criticism enumerated on pages 3 — 4 ofthe Report.

 

(b)                                 The plan shallincorporate the guidance contained in Financial Bank Letter (FIL) 84-2008,dated August 26, 2008, entitled *LiquidityRisk Management*.  The planshall provide restrictions on the use of brokered and internet depositsconsistent with safe and sound banking practices.

 

(c)                                  The plan shallalso establish a strategy to:

 

(i)                                     Identify,measure, and control the nature and amount of interest rate risk the Banktakes;

 

(ii)                                  Provide aperiodic calculation of interest rate exposure at various time horizons;

 

(iii)                               Specify risklimits and target ratios; and

 

(iv)                              Define lines ofresponsibility and authority for managing risk.

 

(d)                                 A copy of the plan shall besubmitted to the Supervisory Authorities upon its completion for review andcomment.  Within 30 days from the receiptof any comments from the Supervisory Authorities, the Bank shall incorporatethose recommended changes.  Thereafter,the Bank shall implement and follow the plan, and implementation shall be in aform and manner acceptable to the Supervisory Authorities as determined atsubsequent examinations and/or visitations.

 

**BROKERED DEPOSITS**

 

7.                                       (a)                                  Upon theeffective date of this ORDER, and so long as this ORDER is in effect, the Bankshall not accept, renew, or rollover brokered deposits without obtaining abrokered deposit waiver approved by the FDIC pursuant to Section 29 of theAct, 12 

 

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U.S.C.§ 1831f.  Within 10 days of the effectivedate of this ORDER, the Bank shall submit a written plan for eliminating itsreliance on brokered deposits to the Supervisory Authorities for review andcomment.  The plan shall detail thecurrent composition of brokered deposits by maturity and explain the means bywhich such deposits will be paid.  Within30 days of receipt of all such comments from the Supervisory Authorities, andafter consideration of all such comments, the Bank shall approve the revisedplan, which approval shall be recorded in the minutes of the Boardmeeting.  Thereafter, the Bank shallimplement and fully comply with the plan. For purposes of this ORDER, brokered deposits are defined in section337.6(a)(2) of the FDIC’s Rules and Regulations, 12 C.F.R.§337.6(a)(2), to include any deposits funded by third-party agents or nomineesfor depositors, including deposits managed by a trustee or custodian when eachindividual beneficial interest is entitled to or asserts a right to federaldeposit insurance.

 

(b)                                 The Bank shallprovide a written progress report to the Supervisory Authorities detailing thelevel, source, and use of brokered deposits with specific reference to progressunder the Bank’s plan together with the progress report required by paragraph16.

 

(c)                                  The Bank shallcomply with the restrictions on the effective yields on deposits described in12 C.F.R. § 337.6(b)(4).

 

**CHARGE-OFF AND REDUCTION OF CLASSIFIED ITEMS**

 

8.                                       (a)                                  Within 30 daysfrom the effective date of this ORDER, the Bank shall eliminate from its books,by charge-off or collection, all assets or portions of assets classified “Loss”and 50 percent of all assets or portions of assets classified “Doubtful” in theReport that have not been previously collected or charged-off unless otherwise 

 

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approved in writing by the Supervisory Authorities.  Elimination or reduction of assets throughproceeds of other loans made by the Bank is not considered collection forpurposes of this provision.

 

(b)                                 Within 30 daysfrom the effective date of the ORDER, the Bank shall establish a reserve forcontingent liabilities and charge all contingent liabilities classified “Loss”in the Report to the reserve. Thereafter, the Bank shall maintain an adequate reserve for contingentliabilities as an “other liability” on the Bank’s balance sheet.

 

(c)                                  The aggregatebalance of assets classified “Substandard” in the Report in accordance with thefollowing schedule.  For purposes of this paragraph, “number of days”means number of days from the effective date of this ORDER.

 

(i)                                   Within 180 daysfrom the effective date of this ORDER, the Bank shall have reduced the assetsclassified Substandard in the Report by 20%;

 

(ii)                                Within 360 daysfrom the effective date of this ORDER, the Bank shall have reduced the assetsclassified Substandard in the Report by 40%;

 

(iii)                             Within 540 daysfrom the effective date of this ORDER, the Bank shall have reduced the assetsclassified Substandard in the Report by 60; and.

 

(iv)                            Within 720 daysfrom the effective date of this ORDER, the Bank shall have reduced the assetsclassified Substandard in the Report by 75%.

 

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(d)                                 Elimination orreduction of assets through proceeds of other loans made by the Bank to thesame borrower is not considered collection for purposes of this provision.

 

**NO ADDITIONAL CREDIT**

 

9.                                       (a)                                  Beginning with the effective date of thisORDER, the Bank shall not extend, directly or indirectly, any additional creditto, or for the benefit of, any borrower who has a loan or other extension ofcredit from the Bank that has been charged off or classified, in whole or in part,“Loss” or “Doubtful” and is uncollected. The requirements of this paragraph shall not prohibit the Bank fromrenewing (after collection in cash of interest due from the borrower) anycredit already extended to any borrower.

 

(b)                                 Additionally,during the life of this ORDER, the Bank shall not extend, directly orindirectly, any additional credit to, or for the benefit of, any borrower whohas a loan or other extension of credit from the Bank that has been classified,in whole or part, “Substandard” and is uncollected.  The requirements of this paragraph shall notprohibit the Bank from renewing (after collection in cash of interest due fromthe borrower) any credit already extended to any borrower.

 

(c)                                  Subparagraph 10(b) shallnot apply if the Bank’s failure to extend further credit to a particularborrower would be detrimental to the best interests of the Bank.  Prior to the extending of any additionalcredit pursuant to this paragraph, either in the form of a renewal, extension,or further advance of funds, such additional credit shall be approved by amajority of the Board, or a designated committee thereof, who shall certify, inwriting:

 

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(i)            Why the failure of the Bank to extend such creditwould be detrimental to the best interests of the Bank;

 

(ii)           That the Bank’s position would be improved thereby;including an explanatory statement of how the Bank’s position would be improved;and

 

(iii)          An appropriate workout plan has been developed andwill be implemented in conjunction with the additional credit to be extended.

 

Thesigned certification shall be made a part of the minutes of the Board ordesignated committee, and a copy of the signed certification shall be retainedin the borrower’s credit file.

 

**LENDING AND COLLECTION POLICIES**

 

10.           (a)           Within 90 days from theeffective date of this ORDER, the Bank shall review, revise as necessary, andimplement its written lending, underwriting, and collection policy to provideeffective guidance and control over the Bank’s lending function, which policyshall include, at a minimum, revisions to address criticisms andrecommendations enumerated on page 3 of the Report pertaining to theadministration of acquisition, development and construction (“ADC”) loans aswell as commercial real estate lending and specific guidelines for placingloans on a nonaccrual basis.  Inaddition, the Bank shall obtain adequate and current documentation for allloans in the Bank’s loan portfolio.  Thepolicy shall include provisions which require complete loan documentation,realistic repayment terms, and current credit information adequate to supportthe outstanding indebtedness of the borrower. Such documentation shall include 

 

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currentfinancial information, profit and loss statements, or copies of tax returns andcash flow projections.  Such policy andits implementation shall be in a form and manner acceptable to the SupervisoryAuthorities as determined at subsequent examinations and/or visitations.

 

(b)           Within 30 days from theeffective date of this ORDER, the Board shall adopt and implement a policylimiting the use of loan interest reserves. Such policy shall confine the use of interest reserves to properlyunderwritten ADC loans where development or building plans have specifictimetables that commence within a reasonable time of the loan’s approval andthat include realistic completion dates. Interest reserves shall be used only for payment of interest on ADCloans for projects that are progressing according to their timetables.  Interest reserves may be supplemented onlywith the prior written approval of the Board or a committee thereof, so long asthe approval documents a prudent reason for the supplement.

 

**CONCENTRATIONS OF CREDIT**

 

11.           Within 60 days from theeffective date of this ORDER, the Bank shall perform a risk segmentationanalysis with respect to the Concentrations of Credit listed on the Concentrationspages of the Report and any other concentration deemed important by theBank.  Concentrations should beidentified by product type, geographic distribution, underlying collateral, orother asset groups which are considered economically related and in theaggregate represent a large portion of the Bank’s Tier 1 Capital.  A copy of this analysis shall be provided tothe Supervisory Authorities and the Board agrees to develop a plan to reduceany segment of the portfolio which the Supervisory Authorities deem to be anundue concentration of credit in relation to the Bank’s Tier 1 Capital.  The plan and 

 

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itsimplementation shall be in a form and manner acceptable to the SupervisoryAuthorities as determined at subsequent examinations and/or visitations.

 

**PLAN FOR EXPENSES AND PROFITABILITY**

 

12.           (a)           Within 60 days from the effective date ofthis ORDER, the Bank shall formulate and fully implement a written plan and acomprehensive budget for all categories of income and expense.  The plan and budget required by thisparagraph shall include formal goals and strategies, consistent with soundbanking practices and taking into account the Bank’s other written policies, toimprove the Bank’s net interest margin, increase interest income, reducediscretionary expenses, control overhead, and improve and sustain earnings ofthe Bank.  The plan shall include aprojected balance sheet and a description of the operating assumptions thatform the basis for and adequately support major projected income and expensecomponents.  Thereafter, the Bank shallformulate such a plan and budget by November 30 of each subsequentyear.  Theplan and budget required by Subparagraph 12(a) of this ORDER shall beacceptable to the Supervisory Authorities as determined at subsequentexaminations and/or visitations.

 

(b)           Following the end of eachcalendar quarter, the Board shall evaluate the Bank’s actual performance inrelation to the plan and budget required by Subparagraph 12(a) of thisORDER and shall record the results of the evaluation, and any actions taken bythe Bank, in the minutes of the Board meeting at which such evaluation isundertaken.

 

**VIOLATIONS OF LAW AND**

**CONTRAVENTIONS OF STATEMENTS OFPOLICY**

 

13.             Within60 days from the effective date of this ORDER, the Bank shall eliminate and/orcorrect all violations of law and/or regulation and contraventions ofstatements of policy, which are more fully set out on pages 10 through 14of the Report.  In addition, 

 

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the Bank shall take all necessary steps to ensurefuture compliance with all applicable laws, regulations, statements of policy,and regulatory guidance.

 

**SPECIAL MENTION**

 

14.           Within 60 days from theeffective date of this ORDER, the Bank shall develop a plan to correct alldeficiencies in the assets listed for “Special Mention”.  The Bank shall immediately submit the plan tothe Supervisory Authorities for review and comment.  Within 30 days from receipt of any commentfrom the Supervisory Authorities, and after due consideration of anyrecommended changes, the Bank shall approve the plan, which approval shall berecorded in the minutes of the Board meeting. Thereafter, the Bank shall implement and fully comply with the plan.

 

**DISCLOSURE**

 

15.           Following the effective dateof this ORDER, the Bank shall send to its shareholders or otherwise furnish adescription of this ORDER in conjunction with the Bank’s next shareholdercommunication and also in conjunction with its notice or proxy statementpreceding the Bank’s next shareholder meeting. The description shall fully describe the ORDER in all materialrespects.  The description and anyaccompanying communication, statement, or notice shall be sent to the FDIC,Division of Supervision and Consumer Protection, Accounting and SecuritiesDisclosure Section, 550 17th Street, N.W., Room F-6066,Washington, D.C. 20429 and the Commissioner, Georgia Department of Banking andFinance, 2990 Brandywine Rd., Suite 200, Atlanta, Georgia 30341-5565, atleast fifteen (15) days prior to dissemination to shareholders.  Any changes requested to be made by the FDICand Commissioner shall be made prior to dissemination of the description,communication, notice, or statement.

 

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**PROGRESS REPORTS**

 

16.           Within 30 days of the end ofthe first quarter following the effective date of this ORDER, and within 30days of the end of each quarter thereafter, the Bank shall furnish writtenprogress reports to the Supervisory Authorities detailing the form and mannerof any actions taken to secure compliance with this ORDER and the resultsthereof.  Such reports shall include acopy of the Bank’s Report of Condition and the Bank’s Report of Income.  Such reports may be discontinued when thecorrections required by this ORDER have been accomplished and the SupervisoryAuthorities have released the Bank in writing from making further reports.

 

ThisORDER shall become effective immediately on the date of its issuance.  The provisions of this ORDER shall remaineffective and enforceable except to the extent that, and until such time as,any provisions of this ORDER shall have been modified, terminated, suspended,or set aside by the FDIC.

 

Pursuantto delegated authority.

 

Datedat Atlanta, Georgia, this 11th day of September, 2009.

 

 
|   | /s/ Doreen R. Eberley                            |
|--------|--------------------------------------------------|
|   | Doreen R. Eberley                                |
|   | Acting  Regional Director                        |
|   | Division  of Supervision and Consumer Protection |
|   | Atlanta Region                                   |
|   | Federal Deposit Insurance  Corporation           |

 

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TheGeorgia Department of Banking and Finance (“Department”), having duly approvedthe foregoing ORDER, and the Bank, through its Board, agree that the issuanceof said ORDER by the FDIC shall be binding as between the Bank and the GeorgiaCommissioner of Banking and Finance to the same degree and to the same legaleffect that such ORDER would be binding if the Department had issued a separateORDER that included and incorporated all of the provisions of the foregoingORDER, pursuant to section 7-1-91 of the Official Code of Georgia Annotated, GACode Ann. § 7-1-91 (1985).

 

Datedthis 11th of September, 2009.

 

 
|   | /s/  Robert M. Braswell            |
|--------|------------------------------------|
|   | Robert  M. Braswell                |
|   | Commissioner                       |
|   | Department of Banking and  Finance |
|   | State of Georgia                   |

 

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