Exhibit 10.3





Exhibit 10.3




UNITED STATES OF AMERICA

Before the

OFFICE OF THRIFT SUPERVISION




	 	 	 	 	 	 	 
	 


	 	 	 	 
	 

	 	 	)	 	 	 
	In the Matter of

	 	 	)	 	 	Order No.: NE-11-05
	 

	 	 	)	 	 	 
	 

	 	 	)	 	 	 
	CARVER FEDERAL SAVINGS BANK

	 	 	)	 	 	Effective Date: February 7, 2011
	 

	 	 	)	 	 	 
	New York, New York

	 	 	)	 	 	 
	OTS Docket No. 05273

	 	 	)	 	 	 
	 

	 	 	)	 	 	 
	 


	 	 	 	 






ORDER TO CEASE AND DESIST




WHEREAS, Carver Federal Savings Bank, New York, New York, OTS Docket No. 05273
(Association), by and through its Board of Directors (Board), has executed a Stipulation and
Consent to the Issuance of an Order to Cease and Desist (Stipulation); and



WHEREAS, the Association, by executing the Stipulation, has consented and agreed to the
issuance of this Order to Cease and Desist (Order) by the Office of Thrift Supervision (OTS)
pursuant to 12 U.S.C. § 1818(b); and



WHEREAS, pursuant to delegated authority, the OTS Regional Director for the Northeast Region
(Regional Director) is authorized to issue Orders to Cease and Desist where a savings association
has consented to the issuance of an order.




Carver Federal Savings Bank

Order to Cease and Desist

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NOW, THEREFORE, IT IS ORDERED that:



Cease and Desist.



1. The Association, its institution-affiliated parties,1 and its successors and
assigns, shall cease and desist from any action (alone or with others) for or toward causing,
bringing about, participating in, counseling, or the aiding and abetting the unsafe or unsound
banking practices that resulted in:




(a) operating the Association with an inadequate level of capital protection for the
volume, type, and quality of assets held by the Association;




(b) operating the Association with an excessive level of adversely classified assets;
and




(c) operating the Association with inadequate earnings to augment capital.



2. The Association, its institution-affiliated parties, and its successors and assigns,
shall also cease and desist from any action (alone or with others) for or toward causing, bringing
about, participating in, counseling, or the aiding and abetting violations of the following
regulations:




(a) 12
C.F.R. § 560.160 (requiring evaluation and accurate classification of assets);
and




(b) 12 C.F.R. §§562.1(b); 562.2 and 563.180(a) (requiring accurate regulatory
reports).





 



	 	 	 
	1	 	The term “institution-affiliated party” is defined
at 12 U.S.C. § 1813(u).




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Capital.



3. By April 30, 2011, the Association shall have and maintain a Tier 1 (Core) Capital Ratio
equal to or greater than nine percent (9%) and a Total Risk-Based Capital Ratio equal to or
greater than thirteen percent (13%).2



4. By February 2, 2011, the Association shall submit a written plan to achieve and maintain
the Association’s capital at the levels prescribed in Paragraph 3 (Capital Plan) that is acceptable
to the Regional Director. The Capital Plan shall detail the Association’s capital preservation and
enhancement strategies with specific narrative goals.



5. Upon receipt of written notification from the Regional Director that the Capital Plan is
acceptable, the Association shall adopt, implement, and adhere to the Capital Plan. A copy of
the Capital Plan and the Board meeting minutes reflecting the Board’s adoption thereof shall be
provided to the Regional Director within ten (10) days after the Board meeting.



6. The Association shall submit a written Contingency Plan that is acceptable to the
Regional Director, within fifteen (15) days after: (a) the Association fails to meet the capital
requirements prescribed in Paragraph 3; (b) the Association fails to comply with the Capital Plan
prescribed in Paragraph 4; or (c) any written request from the Regional Director.



7. The Contingency Plan shall detail the actions to be taken, with specific time frames, to
achieve one of the following results by the later of the date of receipt of all required regulatory
approvals or sixty (60) days after the implementation of the Contingency Plan: (a) merger with, or
acquisition by, another federally insured depository institution or holding company thereof; or (b)
voluntary dissolution by filing an appropriate application with the OTS in conformity with
applicable laws, regulations, and regulatory guidance.



 




	 	 	 
	2	 	The requirement in Paragraph 3 to have and maintain a specific capital level means
that the Association may not be deemed to be
“well-capitalized” for purposes of 12 U.S.C. §1831o and
12 C.F.R. Part 565, pursuant to 12 C.F.R. §565.4(b)(l)(iv).




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8. Upon receipt of written notification from the Regional Director, the Association
immediately shall implement and adhere to the Contingency Plan. The Association shall provide
the Regional Director with written status reports detailing the Association’s progress in
implementing the Contingency Plan by no later than the first
(1st) and fifteenth
(15th) of each
month following implementation of the Contingency Plan.



Concentrations of Assets.



9. Within thirty (30) days, the Association shall revise, and thereafter implement and adhere
to, its written program for identifying, monitoring, and controlling risks associated with
concentrations of assets (Assets Concentration Program) to address the corrective actions set
forth in the April 26, 2010 Report of Examination (2010 ROE) relating to concentrations of
assets. The Assets Concentration Program shall comply with all applicable laws, regulations and
regulatory guidance. The Board’s review of the Assets Concentration Program shall be
documented in the Board meeting minutes.



10. Within sixty (60) days after the end of each quarter, beginning with the quarter ending
March 31, 2011, the Board shall review the appropriateness of the Association’s concentration
limits given current conditions and the Association’s compliance with its Assets Concentration
Program. The Board’s review of the Assets Concentration Program shall be documented in the
Board meeting minutes.



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Restrictions on Lending.



11. Effective immediately, the Association shall not originate or purchase, refinance, extend,
or otherwise modify any commercial real estate loan (CRE Loan)3 without the prior
written non-objection of the Regional Director. A request for non-objection must be received by OTS at
least fifteen (15) days before a response is needed.



12. Notwithstanding the restriction at Paragraph 11 above, the Association may refinance,
modify, or extend any existing CRE Loan where (i) refinancing by a third party is not
reasonably
feasible, (ii) no new funds are advanced by the Association, and (iii) the Association
improves
the credit quality and collectability of the loan through receipt of a material principal
pay-down,
new guarantees, or new collateral and fully documents and supports the improved credit quality
and collectability of the loan in the loan file. If the Association cannot obtain a material
principal pay-down, new guarantees, or new collateral to support the refinance, modification,
or extension, then the Association, at a minimum, must document at the time of loan maturity that
the existing borrower has demonstrated the ability to make timely payments on the loan and on
other debts.



Internal Asset Review and Classification.



13. Within thirty (30) days, the Association shall revise, and thereafter implement and adhere
to, its written internal asset review (IAR) and classification program (IAR Program) to address all
corrective actions set forth in the 2010 ROE relating to internal asset review and classification
and to comply with all applicable laws, regulations and regulatory guidance. At a minimum, the IAR
Program revisions shall include:




(a) consolidation of all existing IAR guidance into one stand-alone policy;



(b) clear identification of who is responsible for performing the IAR and loan
grading process and how it will be conducted;




 




	 	 	 
	3	 	The term “Commercial Real Estate Loan” includes: (a) Acquisition, Development,
Construction or Land Loans; (b) Multifamily (5 or more) Loans;
and (c) Nonresidential Real
Estate Loans, except for loans secured by owner-occupied nonfarm
nonresidential properties
where the primary or significant source of repayment is the cash flow from ongoing operations
and activities conducted by the party, or affiliate of the party, who owns the property.




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(c) procedures designed to ensure that the IAR function is implemented independent of the
lending function; and




(d) procedures requiring a written presentation to, and Board approval of, any
instances where management rejects or proposes different asset classifications or
designations than those recommended by personnel performing the IAR.



Problem Assets.




14. By March 31, 2011, the Association shall develop, and thereafter implement and adhere to, a
detailed, written plan with specific strategies, targets and timeframes to reduce4 the
Association’s level of problem assets5 (Problem Asset Reduction Plan). The Problem Asset
Reduction Plan, at a minimum, shall include:




(a) quarterly targets for the level of problem assets as a percentage of Tier 1 (Core)
capital plus ALLL;




(b) a description of the methods for reducing the Association’s level of problem
assets to the established targets; and




(c) all relevant assumptions and projections.



The Board’s review of the Problem Asset Reduction Plan shall be documented in the Board
meeting minutes.




 







	 	 	 
	4	 	For purposes of this Paragraph, “reduce” means to collect, sell, charge off, or
improve the quality of an asset sufficient to warrant its removal from adverse criticism or
classification.
	 
	5	 	The term “problem assets” shall include all: (i) classified assets, (ii) assets
designated special mention, and (iii) nonperforming assets.




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15. Within forty-five (45) days, the Association shall develop individual written
specific
workout plans for each problem asset of Five Hundred Thousand Dollars ($500,000) or greater (Asset
Workout Plans). Thereafter, the Association shall immediately develop Asset Workout Plans for any
newly identified problem asset. The Asset Workout Plans shall comply with all applicable laws,
regulations and regulatory guidance.



16. Within sixty (60) days after the end of each quarter, beginning with the quarter
ending March 31, 2011, the Association shall submit a quarterly written asset status report
(Quarterly Asset Report) to the Board. The Board’s review of the Quarterly Asset Report shall be
documented in the Board meeting minutes. The Quarterly Asset Report shall include, at a minimum:




(a) the current status of all Asset Workout Plans;




(b) a comparison of problem assets to Tier 1 (Core) capital plus ALLL and Total Risk-Based
capital;




(c) a comparison of problem assets at the current quarter end with the preceding quarter;




(d) a breakdown of problem assets by type and risk factor (e.g. Acquisition, Development,
Construction and Land Loans, Multifamily Loans and Nonresidential Real Estate Loans);




(e) an assessment of the Association’s compliance with the Problem Asset Reduction Plan;



(f) a discussion of the actions taken during the preceding quarter to reduce the
Association’s level of problem assets; and




(g) any recommended revisions or updates to the Problem Asset Reduction Plan.



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17. Within sixty-five (65) days after the end of each quarter, a copy of the Quarterly Asset
Report shall be provided to the Regional Director.



Financial Reporting.




18. Effective immediately, the Association shall ensure that its financial reports and statements
are timely and accurately prepared and filed in compliance with applicable laws, regulations, and
regulatory guidance including, but not limited to, 12 C.F.R. Part 562 and the Thrift Financial
Report (TFR) instructions.



19. Within thirty (30) days, the Association’s internal audit function shall: (a) perform a special
review of the Association’s information and data gathering system surrounding the preparation of
TFR’s, with a particular focus on the reporting deficiencies identified in the 2010 ROE, and (b)
prepare and present to the Board a report summarizing its findings, together with recommended
corrective actions to address identified deficiencies.



20. Beginning with its independent audit for the fiscal year ending March 31, 2011, and for each
successive fiscal year end, the Association shall comply with the requirements of: (i) 12 C.F.R. §
363.2(b)(3) (component of management report requiring assessment and statement of internal control
structure and procedures) and (ii) 12 C.F.R. § 363.3(b) (examination attestation, and report
separately on the assertion of management concerning the effectiveness of the institution’s
internal control structure and procedures for financial reporting) as if its total assets exceeded
$1 billion. The Association shall specify, as part of the audit engagement letter, that the
independent auditors will provide such services as part of the independent audit report.



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Growth.




21. Effective immediately, the Association shall not increase its total assets during any quarter
in excess of an amount equal to net interest credited on deposit liabilities during the prior
quarter without the prior written notice of non-objection of the
Regional Director.



Dividends and Other Capital Distributions.




22. Effective immediately, the Association shall not declare or pay dividends or make any other
capital distributions, as that term is defined in 12 C.F.R. § 563.141, without receiving the prior
written approval of the Regional Director in accordance with applicable regulations and regulatory
guidance. The Association’s written request for approval shall be submitted to the Regional
Director at least thirty (30) days prior to the anticipated date of the proposed declaration,
dividend payment or distribution of capital.



Brokered Deposits.




23. Effective immediately, the Association shall comply with the requirements of 12 C.F.R. §
337.6(b). The Association shall provide to the Regional Director a copy of any waiver request
submitted to the Federal Deposit Insurance Corporation (FDIC).



Transactions with Affiliates.




24. Effective immediately, the Association shall not engage in any new transaction with an
affiliate unless, with respect to each such transaction, the Association has complied with the
notice requirements set forth in 12 C.F.R. § 563.41(c)(4), which shall include the information set
forth in 12 C.F.R. § 563.41(c)(3). The Board shall ensure that any transaction with an affiliate
for which notice is submitted pursuant to this Paragraph, complies with the requirements of 12
C.F.R. § 563.41 and Regulation W, 12 C.F.R. Part 223.



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Third Party Contracts.



25. Effective immediately, the Association shall not enter into any arrangement or contract
with a third party service provider that is significant to the overall operation or financial
condition of the Association6 or outside the Association’s normal course of business
unless, with respect to each such contract, the Association has: (a) provided the Regional
Director with a minimum of thirty (30) days prior written notice of such arrangement or contract
and a written determination that the arrangement or contract complies with the standards and
guidelines set forth in Thrift Bulletin 82a (TB 82a); and (b) received written notice of
non-objection from the Regional Director.



Directorate and Management Changes.



26. Effective immediately, the Association shall comply with the prior notification requirements
for changes in directors and Senior Executive
Officers7 set forth in 12 C.F.R. Part 563,
Subpart H.



Golden Parachute Payments.



27. Effective immediately, the Association shall not make any golden parachute payment8
unless, with respect to each such payment, the Association has complied with the requirements
of 12 C.F.R. Part 359.




 



	 	 	 
	6	 	A contract will be considered significant to the overall operation or financial
condition of the Association where the annual contract amount equals or exceeds two percent (2%) of
the Association’s total capital, where there is a foreign service provider, or where it involves
information technology that is critical to the Association’s daily operations without regard to the
contract amount.
	 
	7	 	The term “Senior Executive Officer” is defined at 12 C.F.R. § 563.555.
	 
	8	 	The term “golden parachute payment” is defined at 12 C.F.R. § 359. l(f).






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Employment Contracts and Compensation Arrangements.




28. Effective immediately, the Association shall not enter into, renew, extend, or revise any
contractual arrangement relating to compensation or benefits for any Senior Executive Officer or
director of the Association, unless it first provides the Regional Director with not less than
thirty (30) days prior written notice of the proposed transaction. The notice to the Regional
Director shall include a copy of the proposed employment contract or compensation arrangement or a
detailed, written description of the compensation arrangement to be offered to such officer or
director, including all benefits and perquisites. The Board shall ensure that any contract,
agreement or arrangement submitted to the Regional Director fully complies with the requirements
of 12 C.F.R. Part 359, 12 C.F.R. §§ 563.39 and 563.161(b), and 12 C.F.R. Part 570 — Appendix A.



Board Oversight of Compliance with Order.




29. Effective immediately, the Board shall monitor and coordinate the Association’s compliance with
the provisions of this Order and the completion of all corrective actions required in the 2010 ROE.
The Board shall review and adopt all plans, policies and procedures required by this Order prior to
submission to the OTS.



30. Within fifty-five (55) days after the end of each quarter, beginning with the quarter ending
March 31, 2011, the Association shall prepare a written compliance progress report for the Board
(Compliance Tracking Report). The Compliance Tracking Report shall, at a minimum:




(a) separately list each corrective action required by this Order and the 2010 ROE;




(b) identify the required or anticipated completion date for each corrective action; and




(c) discuss the current status of each corrective action, including the action(s) taken or
to be taken to comply with each corrective action.




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31. Within sixty (60) days after the end of each quarter, beginning with the quarter ending March
31, 2011, the Board shall review the Compliance Tracking Report and all reports required
to be prepared by this Order. Following its review, the Board shall adopt a resolution: (a)
certifying that each director has reviewed the Compliance Tracking Report and all required
reports; and (b) documenting any corrective actions adopted by the Board. A copy of the Compliance
Tracking Report and the Board resolution shall be provided to the Regional Director within five
(5) days after the Board meeting.



32. Nothing contained herein shall diminish the responsibility of the entire Board to ensure the
Association’s compliance with the provisions of this Order.



Violations of Law.



33. Within sixty (60) days, the Association shall ensure that all violations of law and/or
regulation discussed in the 2010 ROE are corrected and that adequate policies, procedures and
systems are established or revised and thereafter implemented to prevent future violations.



Effective
Date, Incorporation of Stipulation.




34. This Order is effective on the Effective Date as shown on the first page. The Stipulation is
made a part hereof and is incorporated herein by this reference.



Duration.




35. This Order shall remain in effect until terminated, modified, or suspended by written
notice of such action by the OTS, acting by and through its authorized representatives.



Time Calculations.




36. Calculation of time limitations for compliance with the terms of this Order run from the
Effective Date and shall be based on calendar days, unless otherwise noted.



37. The Regional Director, or an OTS authorized representative, may extend any of the deadlines set
forth in the provisions of this Order upon written request by the Association that includes reasons
in support for any such extension. Any OTS extension shall be made in writing.



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Submissions and Notices.




38. All submissions, including any reports, to the OTS that are required by or contemplated by
this Order shall be submitted within the specified timeframes.



39. Except as otherwise provided herein, all submissions, requests, communications, consents or
other documents relating to this Order shall be in writing and sent by first class U.S. mail (or
by reputable overnight carrier, electronic facsimile transmission or hand delivery by messenger)
addressed as follows:




	 	(a)	 	To the OTS:

Michael E. Finn, Regional Director

Office of Thrift Supervision
 Harborside
Financial Center Plaza Five 
Suite 1600

Jersey City, New Jersey 07311
	 
	 	(b)	 	To the Association:

Deborah C. Wright, Chairman of the Board

Carver Federal Savings Bank

75 West 125th Street

New York, New York 10027-4512





No Violations Authorized.



40. Nothing in this Order or the Stipulation shall be construed as allowing the Association,
its Board, officers, or employees to violate any law, rule, or regulation.



IT IS SO ORDERED.




	 	 	 	 	 
	 	OFFICE OF THRIFT SUPERVISION

 	 
	 	By:  	/s/
 	 
	 	 	Michael E. Finn 	 
	 	 	Regional Director, Northeast Region


Date: See Effective Date on page 1 	 



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Order to Cease and Desist

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