Document:

ex102k881012.htm

 

 

Exhibit 10.3

 

CHANGE IN CONTROL SEVERANCE AGREEMENT

 

THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (the "Agreement") is made and entered into as of this 10th day of August, 2012 (the "Commencement Date"), by and between FIRST SAVINGS BANK NORTHWEST (which, together with any successor thereto which executes and delivers the assumption agreement provided for in Section 5(a) hereof or which otherwise becomes bound by all of the terms and provisions of this Agreement by operation of law, is hereinafter referred to as the "Savings Bank"), and Herman L. Robinson (the "Employee").

 

WHEREAS, the Employee is currently serving as Senior Vice President and Chief Lending Officer: and

 

WHEREAS, the board of directors of the Savings Bank (the "Board") recognizes that the possibility of a change in control of the Savings Bank or of its holding company, First Financial Northwest, Inc. (the "Company"), may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of key management to the detriment of the Savings Bank, the Company and its stockholders; and

 

WHEREAS, the Board believes it is in the best interests of the Savings Bank to enter into this Agreement with the Employee in order to assure continuity of management of the Savings Bank and to reinforce and encourage the continued attention and dedication of the Employee to the Employee's assigned duties without distraction in the face of potentially disruptive circumstances arising from the possibility of a change in control of the Company and/or the Savings Bank, although no such change is now contemplated; and

 

WHEREAS, the Board has approved and authorized the execution of this Agreement with the Employee;

 

NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein, it is AGREED as follows:

 

1.           Certain Definitions.

 

(a)           The term "Change in Control" means (1) an offeror other than the Company purchases shares of stock of the Company or the Savings Bank pursuant to a tender or exchange offer for such shares; (2) an event of a nature that results in the acquisition of control of the Company or the Savings Bank within the meaning of the Savings and Loan Holding Company Act under 12 U.S.C. Section 1467a (or any successor statute) and applicable regulations or requires the filing of a notice with the Federal Reserve Board or the Federal Deposit Insurance Corporation ("FDIC"); (3) any person (as the term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 ("Exchange Act")) that is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly of securities of the Company or the Savings Bank representing 25% or more of the combined voting power of the Company's or the Savings Bank's outstanding securities; (4) individuals who are members of the board of directors of the Company immediately following the Commencement Date or who are members of the Board immediately following the Commencement Date (in each case, the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the Commencement Date whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board or whose nomination for election by the Company's stockholders was approved by the nominating committee serving under an Incumbent Board, shall be considered a member of the Incumbent Board; or (5) consummation of a plan of reorganization, merger, acquisition, consolidation, sale of all or substantially all of the assets of the Company or a similar transaction in which the Company is not the resulting entity, provided that the term "Change in Control" shall not include an acquisition of securities by an employee benefit plan of the Savings Bank or the Company.

 

 

  

  

  

 

(b)           The term "Commencement Date" means the date of this Agreement.

 

(c)           The term "Consolidated Subsidiaries" means any subsidiary or subsidiaries of the Company (or its successors) that are part of the affiliated group (as defined in Section 1504 of the Internal Revenue Code of 1986, as amended (the "Code"), without regard to subsection (b) thereof) that includes the Savings Bank, including but not limited to the Company.

 

(d)           The term "Date of Termination" means the date upon which the Employee ceases to serve as an employee of the Savings Bank.

 

(e)           The term "Involuntary Termination" means the termination of the employment of Employee (i) by the Savings Bank, without his express written consent; or (ii) by the Employee by reason of a material diminution of or interference with his duties, responsibilities or benefits, including (without limitation) any of the following actions unless consented to in writing by the Employee: (1) a requirement that the Employee be based at any place other than Renton, Washington, or within a radius of 35 miles from the location of the Savings Bank's administrative offices as of the Commencement Date, except for reasonable travel on Company or Savings Bank business; (2) a material demotion of the Employee; (3) a material reduction in the number or seniority of personnel reporting to the Employee or a material reduction in the frequency with which, or in the nature of the matters with respect to which such personnel are to report to the Employee, other than as part of a Savings Bank- or Company-wide reduction in staff; (4) a reduction in the Employee's salary or a material adverse change in the Employee's perquisites, benefits, contingent benefits or vacation, other than as part of an overall program applied uniformly and with equitable effect to all members of the senior management of the Savings Bank; (5) a material permanent increase in the required hours of work or the workload of the Employee; or (6) any purported termination of the Employee's employment, except for Termination for Cause (and, if applicable, the requirements of Section 1(g) hereof), which purported termination shall not be effective for purposes of this Agreement. The term "Involuntary Termination" does not include Termination for Cause, retirement or suspension or temporary or permanent prohibition from participation in the conduct of the Savings Bank's affairs under Section 8 of the Federal Deposit Insurance Act.

 

(f)           The term "Section 409A" shall mean Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations and guidance of general applicability issued thereunder.

 

(g)           The terms "Termination for Cause" and "Terminated for Cause" mean termination of the employment of the Employee because of the Employee's personal dishonesty, willful misconduct, breach of a fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or (except as provided below) material breach of any provision of this Agreement. No act or failure to act by the Employee shall be considered willful unless the Employee acted or failed to act with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interest of the Company or the Savings Bank. The Employee shall not be deemed to have been Terminated for Cause unless and until there shall have been delivered to the Employee a copy of a resolution, duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors at a meeting of the Board duly called and held for such purpose (after reasonable notice to the Employee and an opportunity for the Employee, together with the Employee's counsel, to be heard before the Board), stating that in the good faith opinion of the Board of Directors the Employee has engaged in conduct described in the preceding sentence and specifying the particulars thereof in detail.

 

2.           Term. The term of this Agreement shall be a period of three years beginning on the Commencement Date, subject to earlier termination as provided herein. Beginning on the first anniversary of the Commencement Date, and on each anniversary thereafter, the term of this Agreement shall be extended for a period of one year in addition to the then-remaining term, provided that prior to such 

 

 

 

  

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anniversary, the Board of Directors explicitly reviews and approves the extension. Reference herein to the term of this Agreement shall refer to both such initial term and such extended terms.

 

3.           Severance Benefits.

 

(a)           If after a Change in Control, the Savings Bank shall terminate the Employee's employment other than Termination for Cause, or employment is terminated in the event of Involuntary Termination by the Employee, within 12 months following a Change in Control, the Savings Bank shall (i) pay the Employee his salary, including the pro rata portion of any incentive award, through the Date of Termination; (ii) continue to pay, for the remaining term of this Agreement, for the life, health and disability coverage that is in effect with respect to the Employee and his eligible dependents; and (iii) pay to the Employee in a lump sum in cash, within 25 days after the later of the date of such Change in Control or the Date of Termination, an amount equal to one year of the Employee's salary.

 

(b)           The Employee shall not be required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Agreement be reduced by any compensation earned by the Employee as the result of employment by another employer, by retirement benefits after the Date of Termination or otherwise. This Agreement does not constitute a contract of employment or impose on the Company or the Savings Bank any obligation to retain the Employee, to change the status of the Employee's employment, or to change the Company's or the Bank's policies regarding termination of employment.

 

(c)           If and to the extent that the compensation provided for under this Agreement is subject to Section 409A, then notwithstanding the provisions of Section 3(a) to the contrary, the payment of such compensation that is subject to Section 409A:

 

(i)           shall be payable only if the Employee's termination of employment also constitutes a "separation from service" within the meaning of Section 409A, taking into account the relevant rules and presumptions in the Section 409A regulations;

 

(ii)           shall be considered made under a "separation pay plan" (within the meaning of Section 409A) to the extent such payment may be treated as made under a separation pay plan. Any additional amounts that may be due the Employee under Section 3(a)(iii) shall be (A) considered deferred compensation for purposes of Section 409A, (B) treated as paid after all separation pay plan payments are made, and (C) subject to subparagraph (iii) below.

 

(iii)           that is considered to be deferred compensation under Section 409A shall not be paid earlier than six months after the Employee's separation from service (as defined in Section 3(c)(i) above), if the Employee is a "specified employee" (within the meaning of Section 409A). The payment that is delayed on account of the preceding sentence shall be made on the 185th day following the date of the Employee's separation from service, as herein defined.

 

The purpose of this Section 3(c) is to cause the Agreement to comply with Section 409A, and these provisions (and the Agreement) shall be administered and interpreted accordingly.

 

(d)           Temporary Suspension or Prohibition.  If the Employee is suspended and/or temporarily prohibited from participating in the conduct of the Savings Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA, 12 U.S.C. Section 1818(e)(3) and (g)(1), or pursuant to Section 30.12.040 of the Revised Code of Washington (R.C.W.), the Savings Bank's obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, the Savings Bank may in its discretion (i) pay the Employee all or part of the compensation withheld while its obligations under this Agreement were suspended, and (ii)

 

 

 

 

  

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reinstate in whole or in part any of its obligations which were suspended, all in a manner that does not violate Section 409A.

(e)           Permanent Suspension or Prohibition.  If the Employee is removed and/or permanently prohibited from participating in the conduct of the Savings Bank's affairs by an order issued under Section 8(e)(4) or (g)(1) of the FDIA, 12 U.S.C. Section 1818(e)(4) and (g)(1), or pursuant to R.C.W. Section 30.12.040, all obligations of the Savings Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the contracting parties shall not be affected.

(f)           Default of the Savings Bank.  If the Savings Bank is in default (as defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement shall terminate as of the date of default, but this provision shall not affect any vested rights of the contracting parties.

(g)           Termination by Regulators.  All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Savings Bank: (1) at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Savings Bank under the authority contained in Section 13(c) of the FDIA; or (2) by the FDIC, at the time it approves a supervisory merger to resolve problems related to operation of the Savings Bank or when the Savings Bank is determined by the Director to be in an unsafe or unsound condition.  Any rights of the parties that have already vested, however, shall not be affected by any such action.

(h)           Reductions of Benefits. Notwithstanding any other provision of this Agreement, if payments and the value of benefits received or to be received under this Agreement, together with any other amounts and the value of benefits received or to be received by the Employee, would cause any amount to be nondeductible by the Company or any of the Consolidated Subsidiaries for federal income tax purposes pursuant to or by reason of Code Section 280G, then payments and benefits under this Agreement shall be reduced (not less than zero) to the extent necessary so as to maximize the economic present value of benefits to be received by the Employee, as determined by the Compensation Committee of the Company Board of Directors as of the date of the Change in Control using the discount rate required by Code Section 280G(d)(4), without causing any amount to become nondeductible pursuant to or by reason of Code Section 280G.

(i)           Further Reductions.  Any payments made to the Employee pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. Section 1828(k) and FDIC regulation 12 C.F.R. Part 359, Golden Parachute and Indemnification Payments.

4.           Attorneys' Fees. If the Employee is purportedly Terminated for Cause and the Savings Bank denies payments and/or benefits under Section 3(a) of this Agreement on the basis that the Employee experienced Termination for Cause, but it is determined by a court of competent jurisdiction or by an arbitrator pursuant to Section 12 that cause as contemplated by Section 1(g) of this Agreement did not exist for termination of the Employee's employment, or if in any event it is determined by any such court or arbitrator that the Savings Bank has failed to make timely payment of any amounts or provision of any benefits owed to the Employee under this Agreement, the Employee shall be entitled to reimbursement for all reasonable costs, including attorneys' fees, incurred in challenging such termination of employment or collecting such amounts or benefits. Such reimbursement shall be in addition to all rights to which the Employee is otherwise entitled under this Agreement.

 

  

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5.           No Assignments.

 

(a)           This Agreement is personal to each of the parties hereto, and neither party may assign or delegate any of its rights or obligations hereunder without first obtaining the written consent of the other party; provided, however, that the Savings Bank shall require any successor or assign (whether direct or indirect, by purchase, merger, consolidation, operation of law or otherwise) to all or substantially all of the business and/or assets of the Savings Bank, by an assumption agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Savings Bank would be required to perform it if no such succession or assignment had taken place. Failure of the Savings Bank to obtain such an assumption agreement prior to the effectiveness of any such succession or assignment shall be a breach of this Agreement and shall entitle the Employee to compensation and benefits from the Savings Bank in the same amount and on the same terms that Employee would be entitled to hereunder if an event of Involuntary Termination occurred, in addition to any payments and benefits to which the Employee is entitled under Section 3 hereof. For purposes of implementing the provisions of this Section 5(a), the date on which any such succession becomes effective shall be deemed the Date of Termination.

 

(b)           This Agreement and all rights of the Employee hereunder shall inure to the benefit of and be enforceable by the Employee's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. In the event of the death of the Employee, unless otherwise provided herein, all amounts payable hereunder shall be paid to the Employee's devisee, legatee, or other designee or, if there be no such designee, to the Employee's estate.

 

6.           Deferred Payments. If following a termination of the Employee, the aggregate payments to be made by the Savings Bank under this Agreement and all other plans or arrangements maintained by the Company or any of the Consolidated Subsidiaries would exceed the limitation on deductible compensation contained in Section 162(m) of the Code in any calendar year, any such amounts in excess of such limitation shall be mandatorily deferred with interest thereon at 4.0% per annum to a calendar year such that the amount to be paid to the Employee in such calendar year, including deferred amounts, does not exceed such limitation, provided, however, that such deferral shall not extend past when the deferred amount must be paid pursuant to Section 409A.

 

7.           Delivery of Notices. For the purposes of this Agreement, all notices and other communications to any party hereto shall be in writing and shall be deemed to have been duly given when delivered or sent by certified mail, return receipt requested, postage prepaid, addressed as follows:

 

 

	If to the Employee: 	
Herman L. Robinson

	 	
At the address last appearing

	 	
on the personnel records of

	 	
the Employee

	 	 
	 	 
	If to the Savings Bank: 	
First Savings Bank Northwest

	 	
201 Wells Avenue South

	 	
Renton, Washington 98057

	 	
Attention: Secretary

 

or to such other address as such party may have furnished to the other in writing in accordance herewith, except that a notice of change of address shall be effective only upon receipt.

 

8.           Amendments. No amendments or additions to this Agreement shall be binding unless in writing and signed by both parties, except as herein otherwise provided or as necessary to avoid a violation of Section 409A, in which case the amendment may be made by the Savings Bank or its delegate.

 

 

 

  

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9.             Headings. The headings used in this Agreement are included solely for convenience and shall not affect, or be used in connection with, the interpretation of this Agreement.

 

10.           Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

 

11.           Governing Law. This Agreement shall be governed by the laws of the State of Washington to the extent that federal law does not govern.

 

12.           Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by binding arbitration, conducted before a panel of three arbitrators in a location selected by the Employee within 100 miles of such Employee's job location with the Savings Bank, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrators' award in any court having jurisdiction.

 

* * * * *

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

 

THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.

 

 

	Attest: 	FIRST SAVINGS BANK NORTHWEST
	 	 
	 	 
	 	 
	/s/Gary F. Kohlwes                               	/s/Victor Karpiak                                                                    
	Gary F. Kohlwes, Secretary 	By:           Victor Karpiak 
	 	
Its:           President and Chief Executive Officer

	 	 
	 	 
	 	 
	 	
EMPLOYEE

	 	 
	 	
/s/Herman L. Robinson                                                 

	 	
Herman L. Robinson

	 	
Chief Lending Officer

 

 

 

 

 

6form8kexh_081412.htm

UNITED STATES OF AMERICA

DEPARTMENT OF THE TREASURY

COMPTROLLER OF THE CURRENCY

 

 

 

	
In the Matter of:

Atlantic Coast Bank,

Jacksonville, Florida

	
)

)

)

	
AA-EC-­­­12-104

 

CONSENT ORDER

 

 

 

WHEREAS, the Comptroller of the Currency of the United States of America ("Comptroller” or “OCC”), through his authorized representative, has supervisory authority over Atlantic Coast Bank, Jacksonville, Florida ("Bank");

WHEREAS, the Bank, by and through its duly elected and acting Board of Directors ("Board"), has executed a Stipulation and Consent to the Issuance of a Consent Order ("Stipulation"), dated August 10, 2012, that is accepted by the Comptroller through his authorized representative; and

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

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

 

ARTICLE I

COMPLIANCE COMMITTEE

 

(1)      Within ten (10) days, the Board shall appoint a Compliance Committee of at least three (3) directors, none of whom shall be an employee or controlling shareholder of the Bank or any of its affiliates (as the term “affiliate” is defined in 12 U.S.C. § 371c(b)(1)), or a family member of any such person.  Upon appointment, the names of the members of the Compliance Committee and, in the event of a change of the membership, the name of any new member shall be submitted in writing to the Director for Special Supervision (“Director”).  The Compliance Committee shall be responsible for monitoring and coordinating the Bank's adherence to the provisions of this Order.

  

  

  

 

(2)      The Compliance Committee shall meet at least monthly.

(3)      Within thirty (30) days and every thirty (30) days thereafter, the Compliance Committee shall submit a written progress report to the Board, setting forth in detail:

	
  

	
(a)

	
a description of the actions needed to achieve full compliance with each Article of this Order, Bank personnel responsible for implementing the corrective actions and the time frames for completion;

	
  

	
(b)

	
actions taken to comply with each Article of this Order; and

	
  

	
(c)

	
the results and status of those actions.

(4)      The Board shall forward a copy of the Compliance Committee's monthly report, with any additional comments by the Board, to the Director within ten (10) days of receiving such report.

 

ARTICLE II

STRATEGIC PLAN

 

(1)      Within ninety (90) days, the Board shall prepare and forward to the Director for his review, pursuant to paragraph (3) of this Article, a written Strategic Plan for the Bank that is acceptable to the Director, covering at least a two year period.  The Strategic Plan shall establish objectives for the Bank's overall risk profile, earnings performance, growth, balance sheet mix, off-balance sheet activities, liability structure, capital and liquidity adequacy, together with strategies to achieve those objectives, and shall, at a minimum, include:

	
  

	
(a)

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

  

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(b)

	
the strategic goals and objectives to be accomplished, including key financial indicators and risk tolerances;

	
  

	
(c)

	
an assessment of the Bank’s strengths, weaknesses, opportunities, and threats that impact strategic goals and objectives;

	
  

	
(d)

	
an identification and prioritization of initiatives and opportunities, including timeframes that take into account the requirements of this Order;

	
  

	
(e)

	
a financial forecast including projections for major balance sheet and income statement accounts, targeted financial ratios, and growth over the period covered, with a description of the assumptions used to determine financial projections and growth targets;

	
  

	
(f)

	
a description of the Bank’s targeted market(s), competitive factors in its identified target market(s), and a description of control systems to mitigate risks in the Bank's markets;

	
  

	
(g)

	
an assessment of the present and planned product lines (assets and liabilities) and the identification of appropriate risk management systems to identify, measure, monitor, and control risks within the product lines;

	
  

	
(h)

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

	
  

	
(i)

	
assigned responsibilities and accountability for the strategic planning process; and

	
  

	
(j)

	
a description of systems and metrics designed to monitor the Bank's progress in meeting the Strategic Plan's goals and objectives.

  

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(2)      If the Board's Strategic Plan under paragraph one (1) of this Article includes a proposed sale or merger of the Bank, the Strategic Plan shall, at a minimum, address the steps that will be taken and the associated timeline to ensure that within ninety (90) days after the receipt of the Director’s written determination of no supervisory objection to the Strategic Plan, the Bank executes a definitive agreement.

(3)      Prior to adoption by the Board, a copy of the Strategic Plan, and any subsequent amendments or revisions, shall be submitted to the Director for review and prior written determination of no supervisory objection.  At the next Board meeting following receipt of the Director’s written determination of no supervisory objection, the Board shall adopt and the Bank, subject to Board review and ongoing monitoring, shall immediately implement and thereafter ensure adherence to the Strategic Plan.

(4)      The Bank may not initiate any action that deviates significantly from the Strategic Plan (that has received a written determination of no supervisory objection from the Director and that has been adopted by the Board) without a written determination of no supervisory objection from the Director.  The Board must give the Director at least thirty (30) days advance written notice of its intent to deviate significantly from the Strategic Plan, along with an assessment of the impact of such change on the Bank's condition, including a profitability analysis and an evaluation of the adequacy of the Bank's organizational structure, staffing, management information systems, internal controls, and written policies and procedures to identify, measure, monitor, and control the risks associated with the change in the Strategic Plan.  For the purposes of this Article, changes that may constitute a significant deviation from the Strategic Plan include, but are not limited to, a change in the Bank’s marketing strategies, products and services, marketing partners, underwriting practices and standards, credit administration, account

  

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 management, collection strategies or operations, fee structure or pricing, accounting processes and practices, or funding strategy, any of which, alone or in the aggregate, may have a material impact on the Bank’s operations or financial performance; or any other changes in personnel, operations, or external factors that may have a material impact on the Bank’s operations or financial performance.

(5)      At least monthly, the Board shall review financial reports and earnings analyses that evaluate the Bank's performance against the goals and objectives established in the Strategic Plan, as well as the Bank's written explanation of significant differences between the actual and projected balance sheet, income statement, and expense accounts, including descriptions of extraordinary and/or nonrecurring items.

(6)      At least quarterly, the Board shall prepare a written evaluation of the Bank's performance against the Strategic Plan and shall include a description of the actions the Board will require the Bank to take to address any shortcomings, which shall be documented in the Board meeting minutes.  The Board shall forward a copy of these quarterly reports to the Director within ten (10) days of completion of its review.

(7)      The Board shall review and update the Strategic Plan at least annually, no later than January 31 of each year, beginning on January 31, 2014, and more frequently if necessary or if requested by the Director in writing.

  

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(8)      Until the Strategic Plan required under this Article has been submitted by the Bank for the Director’s review, has received a written determination of no supervisory objection from the Director, and is being implemented by the Bank, the Bank shall not significantly deviate from the products, services, asset composition and size, funding sources, corporate structure, operations, policies, procedures, and markets of the Bank that existed before this Consent Order without first obtaining the Director’s prior written determination of no supervisory objection to such significant deviation.  Any request to the Director for prior written determination of no supervisory objection to a significant deviation must be submitted to the Director at least 30 days in advance of the significant deviation, along with an assessment of the impact of such change on the Bank’s condition, including a profitability analysis and an evaluation of the adequacy of the Bank’s organizational structure, staffing, management information systems, internal controls, and written policies and procedures to identify, measure, monitor, and control the risks associated with the change.

 

ARTICLE III

CAPITAL PLAN AND HIGHER MINIMUMS

 

(1)       By December 31, 2012, the Bank shall achieve and thereafter maintain the following minimum capital ratios (as defined in 12 C.F.R. Parts 165 and 167):

	
  

	
(a)

	
total risk-based capital at least equal to thirteen percent (13%) of risk-weighted assets;

	
  

	
(b)

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

  

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(2)      The requirement in this Order to meet and maintain a specific capital level means that the Bank may not be deemed to be “well capitalized” for purposes of 12 U.S.C. § 1831o and 12 C.F.R. §165.4(b)(1)(iv).  Accordingly, the Bank must comply with the brokered deposits restrictions contained in 12 C.F.R. § 337.6.

(3)      Within sixty (60) days, the Board shall develop and implement an effective internal capital planning process to assess the Bank’s capital adequacy in relation to its overall risks and to ensure maintenance of appropriate capital levels, which shall in no event be less than the requirements of paragraph one (1) of this Article.  The capital planning process shall be consistent with OCC Bulletin 2012-16 (Guidance for Evaluating Capital Planning and Adequacy) (June 7, 2012), and shall ensure the integrity, objectivity, and consistency of the process through adequate governance.  The Board shall document the initial capital planning process and review the capital planning process at least annually or more frequently if requested by the Director in writing.

(4)      Within ninety (90) days, the Board shall forward to the Director for his review, pursuant to paragraph six (6) of this Article, a written Capital Plan for the Bank, consistent with the Strategic Plan pursuant to Article II, covering at least a two year period.  The written Capital Plan shall, at a minimum:

	
  

	
(a)

	
include specific plans for the maintenance of adequate capital, which shall in no  event be less than the requirements of paragraph one (1) of this Article;

	
  

	
(b)

	
identify and evaluate all material risks;

	
  

	
(c)

	
determine the Bank’s capital needs in relation to material risks and strategic direction;

  

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(d)

	
identify and establish a strategy to maintain capital adequacy and strengthen capital if necessary and establish a contingency or back-up capital plan commensurate with the Bank’s overall risk and complexity;

	
  

	
(e)

	
include detailed quarterly financial projections; and

	
  

	
(f)

	
include specific plans detailing how the Bank will comply with restrictions or requirements set forth in this Order that will have an impact on the Bank’s capital.

(5)      The Bank may declare or pay a dividend or make a capital distribution only:

	
  

	
(a)

	
when the Bank is in compliance with  its approved Capital Plan and would remain in compliance with its approved Capital Plan immediately following the declaration or payment of any dividend or capital distribution; and

	
  

	
(b)

	
following the approval of the Director, pursuant to 12 C.F.R. Part 163, Subpart E.

(6)      Prior to adoption by the Board, a copy of the Bank’s written Capital Plan shall be submitted to the Director for prior written determination of no supervisory objection.  The Board shall review and update the Bank's written Capital Plan at least annually, no later than January 31 of each year, beginning on January 31, 2014, and more frequently if required by the Director in writing.  Revisions to the Bank's written Capital Plan shall be submitted to the Director for a prior written determination of no supervisory objection.  At the next Board meeting following receipt of the Director’s written determination of no supervisory objection, the Board shall thereafter adopt and the Bank, subject to Board review and ongoing monitoring, shall immediately implement and thereafter ensure adherence to the written Capital Plan and any amendments or revisions thereto.

  

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(7)      At least quarterly, the Board shall prepare a written evaluation of the Bank’s performance against the written Capital Plan and shall include a description of the actions the Board will require the Bank to take to address any deficiencies, which shall be documented in the Board meeting minutes. The Board shall forward a copy of the quarterly evaluations to the Director within ten (10) days of completion of the evaluation.

(8)      If the Bank’s written Capital Plan is based on a complete or partial recapitalization of the Bank through a stock offering, the written Capital Plan shall: (i) identify the names of investors who have submitted paid-in stock subscriptions that are irrevocable pursuant to terms of the stock offering and pursuant to applicable law; (ii) specify the amount of capital to be raised through the stock offering that is (alone or combined with other sources of capital) consistent with the capital levels in the written Capital Plan; (iii) provide an explanation of actions taken to comply with all applicable securities laws and to obtain any necessary shareholder approvals; and (iv) include a time line with specific and targeted deadlines for completing all steps necessary to successfully close the offering.

(9)      If the Bank’s written Capital Plan outlines a sale or merger of the Bank, the written Capital Plan shall, at a minimum, address the steps that will be taken and the associated timeline to ensure that within ninety (90) days after the receipt of the Director’s written determination of no supervisory objection to the written Capital Plan, a definitive agreement for the sale or merger is executed.

  

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(10)           If the Bank fails to maintain capital ratios as required by paragraph one (1) of this Article, fails to submit a Capital Plan pursuant to paragraph four (4), or fails to implement a written Capital Plan to which the Director has provided a written determination of no supervisory objection, then the Bank may, in the Director’s sole discretion, be deemed undercapitalized for purposes of this Order.  The Bank shall take such corrective measures as the OCC may direct in writing from among the provisions applicable to undercapitalized depository institutions under 12 U.S.C. § 1831o(e) and 12 C.F.R. Part 165.  For purposes of this requirement, an action “necessary to carry out the purpose of this section” under 12 U.S.C. § 1831o(e)(5) shall include restoration of the Bank’s capital to the minimum ratios required by paragraph one (1) of this Article, and any other action deemed necessary by the OCC to address the Bank’s capital deficiency or the safety and soundness of its operations.

 

ARTICLE IV

LIQUIDITY RISK MANAGEMENT PROGRAM

 

(1)      Within thirty (30) days, the Board shall revise and maintain a comprehensive liquidity risk management program which assesses, on an ongoing basis, the Bank's current and projected funding needs, and ensures that sufficient funds or access to funds exist to meet those needs.  Such a program must include effective methods to achieve and maintain sufficient liquidity and to measure and monitor liquidity risk, to include at a minimum:

	
  

	
(a)

	
strategies to maintain sufficient liquidity at reasonable costs including, but not limited to, the following:

          (i) better diversification of funding sources, reducing reliance on high cost providers;

  

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(ii)

	
increasing liquidity through such actions as obtaining additional capital, placing limits on asset growth, aggressive collection of problem loans and recovery of charged-off assets, and asset sales; and

	
  

	
(iii)

	
monitoring the projected impact on reputation, economic and credit conditions in the Bank's market(s).

	
  

	
(b)

	
The preparation of liquidity reports which shall be reviewed by the Board on at least a monthly basis, to include, at a minimum, the following:

	
  

	
(i)

	
a certificate of deposit maturity schedule, including separate line items for brokered deposits and uninsured deposits, depicting maturities on a weekly basis for the next two months and monthly for the following four months, which schedule shall be updated at least weekly;

	
  

	
(ii)

	
a schedule of all funding obligations, including structured borrowings, unfunded loan commitments, outstanding lines of credit and outstanding letters of credit, showing the obligations that can be drawn immediately, and on a weekly basis for the next two months and monthly for the following four months, which schedule shall be prepared and updated at least weekly;

	
  

	
(iii)

	
a listing of funding sources, prepared and updated on a weekly basis for the next two months and monthly for the following four months, including federal funds sold; unpledged assets and assets available for sale; and borrowing lines by lender, including original amount, remaining availability, type and book value of collateral pledged, terms, and maturity date, if applicable;

  

11

  

 

 

	
  

	
(iv)

	
a monthly sources and uses of funds report for a minimum period of six months, updated monthly, which reflects known and projected changes in asset and liability accounts, and the assumptions used in developing the projections.  Such reports shall include, at a minimum:

	
  

	
1.

	
the funding obligations and sources required by (b) and (c) of this paragraph;

	
  

	
2.

	
projected additional funding sources, including loan payments, loan sales/participations, or deposit increases; and

	
  

	
3.

	
projected additional funding requirements from a reduction in deposit accounts including uninsured and brokered deposits, inability to acquire federal funds purchased, or availability limitations or reductions associated with borrowing relationships.

	
  

	
(c)

	
Maintenance of a contingency funding plan that, on a monthly basis, forecasts funding needs, and funding sources under different stress scenarios which represent management's best estimate of balance sheet changes that may result from a liquidity or credit event.  The contingency funding plan shall comply with OCC Bulletin 2010-13, Interagency Policy Statement on Funding and Risk Management and include:

	
  

	
(i)

	
specific plans detailing how the Bank will comply with restrictions or requirements set forth in this Order and the restrictions against brokered deposits in 12 C.F.R. §337.6;

  

12

  

 

	
  

	
(ii)

	
the preparation of reports which identify and quantify all sources of funding and funding obligations under best case and worst case scenarios, including asset funding, liability funding and off-balance sheet funding; and

	
  

	
(iii)

	
procedures which ensure that the Bank's contingency funding practices are consistent with the Board's guidance and risk tolerances.

(2)      The Board shall submit a copy of the comprehensive liquidity risk management program, along with the reports required by this Article, to the Director.

 

ARTICLE V

PROBLEM ASSET MANAGEMENT

 

(1)      Within sixty (60) days, the Board shall revise its Problem Asset Reduction Plan (“PARP”) which shall be designed to eliminate the basis of criticism of those assets criticized as “doubtful,” “substandard,” or “special mention” in the most recent OCC Report of Examination, as of September 30, 2011 (“2011 ROE”), in any subsequent ROE, by any internal or external loan review, or in any list provided to management by OCC examiners during any examination.  The PARP shall include:

	
  

	
(a)

	
sufficient staff having the qualifications, skills, and experience to effectively manage and resolve problem assets;

	
  

	
(b)

	
adequate management information systems to measure the status of problem assets; and

  

13

  

 

	
  

	
(c)

	
the development of Asset Workout Plans (“AWPs”) identifying all credit relationships and other assets totaling in aggregate five hundred thousand dollars ($500,000) or more, criticized as “doubtful,” “substandard,” or “special mention,” which must be updated and submitted to the Board or a committee designated by the Board monthly and to the Director quarterly.

(2)      Upon completion, the Board shall thereafter adopt and the Bank, subject to Board review and ongoing monitoring, shall immediately implement and thereafter ensure adherence to the revised PARP.

(3)      Each AWP shall cover an entire credit relationship and other assets, and include, at a minimum, analysis and documentation of the following:

	
  

	
(a)

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

	
  

	
(b)

	
the expected primary and secondary sources of repayment, and an analysis of the adequacy of the repayment source;

	
  

	
(c)

	
the appraised value of supporting collateral, along with the date and source of the appraisal, and the position of the Bank’s lien on such collateral, as well as other necessary documentation to support the current collateral valuation;

	
  

	
(d)

	
an analysis of current and complete credit information, including a global cash flow analysis where loans are to be repaid from operations;

	
  

	
(e)

	
results of an impairment analysis as required under Accounting Standards Codification (“ASC”) Topic 310;

  

14

  

 

 

	
  

	
(f)

	
accurate risk ratings consistent with the classification standards contained in the “Rating Credit Risk” booklet of the Comptroller’s Handbook (April 2001);

	
  

	
(g)

	
appropriate accrual status pursuant to the FFIEC Instructions for the Preparation of Consolidated Reports of Condition and Income;

	
  

	
(h)

	
significant developments, including a discussion of changes since the prior AWP, if any; and

	
  

	
(i)

	
the proposed action to eliminate the basis of criticism and the time frame for its accomplishment, including, if appropriate, an exit strategy.

(4)      The Bank shall not extend credit, directly or indirectly, including renewals, modifications, or extensions, to a borrower whose loans or other extensions of credit are subject to an AWP and are criticized in any ROE, or in any internal or external loan review, or in any list provided to management by the OCC Examiners during any examination, unless and until a majority of the Board, or a designated committee thereof, determines in writing that each of the following conditions are met:

	
  

	
(a)

	
the extension of additional credit is necessary to promote the best interests of the Bank;

	
  

	
(b)

	
a written collateral analysis is performed; and

	
  

	
(c)

	
the Board’s AWP for that borrower will not be compromised by the extension of additional credit.

  

15

  

 

(5)      At least quarterly, the Board or a committee thereof shall review and evaluate the effectiveness of the PARP and the AWPs.  The Board’s review shall include an assessment of the Bank’s compliance with the PARP and the AWPs.  Written documentation of the factors considered and conclusions reached by the Board in determining the Bank’s compliance and progress reducing the level of problem assets shall be maintained.

 

ARTICLE VI

CONCENTRATION RISK MANAGEMENT

 

 

(1)       Within sixty (60) days, the Board shall revise its written concentration management program for identifying, monitoring, and controlling risks associated with  asset and liability concentrations, including off-balance sheet commitments.  The management of credit concentrations must be consistent with the guidance set forth in OCC  Bulletin 2006-46:  Concentrations in Commercial Real Estate Lending,  Sound Risk Management Practices:  Interagency Guidance on CRE Concentration Management(December 6, 2006) and the “Concentrations of Credit” booklet of the Comptroller’s Handbook (December 13, 2011).  The program shall include, but is not limited to, the following:

 

 

	
(a)

	
policy guidelines addressing the level and nature of exposures acceptable to the institution and setting concentration limits, including appropriate sub-limits;

 

	
(b)

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

 

	
(c)

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

 

  

16

  

 

 

 

 

	
(d)

	
quarterly portfolio-level stress tests or sensitivity analysis to quantify the impact of changing economic conditions on asset quality, earnings, and capital;

 

	
(e)

	
appropriate strategies for managing concentration levels, including a contingency plan to reduce or mitigate concentrations deemed imprudent for the Bank’s earnings, capital, or in the event of adverse market conditions, including strategies to reduce the current concentrations to Board established limits, and a restriction on purchasing BOLI until such time as the BOLI exposure has been reduced below the regulatory concentration guideline of 25 percent of total capital as set forth in OCC Bulletin 2004-56:  Bank Owned Life Insurance:  Interagency Statement on the Purchase and Risk Management of Life Insurance; and

 

	
(f)

	
quarterly reports to the Board which shall at a minimum include the following:

 

 

	
 

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

 

	
 

	
ii.    a summary of the Bank’s market analysis;

 

	
 

	
iii.  discussion of recommended strategies when concentrations approach or exceed Board-approved limits; and

 

	
 

	
iv.  a summary of changes in risk levels by concentration type and subtype.

 

 

      (2)  Upon completion, the Board shall thereafter adopt and the Bank, subject to Board review and ongoing monitoring, shall immediately implement and thereafter ensure adherence to the revised written concentration risk management program.

 

 

  

17

  

 

 

 

 

     (3)  Upon completion, the Board shall forward a copy of the program required in paragraph one (1) of this Article, and any concentration reports, studies, or analysis to the Director.

 

 

	
  

	 

ARTICLE VII

VIOLATIONS OF LAW

 

(1)      The Board shall immediately take all necessary steps to ensure that Bank management corrects each violation of law, rule or regulation cited in the 2011 ROE and in any subsequent Report of Examination, or brought to the Board’s or Bank’s attention in writing by management, regulators, auditors, loan review, or other compliance efforts.

(2)      Within sixty (60) days, the Board shall adopt, implement, and thereafter ensure Bank adherence to specific procedures to prevent future violations of law, rule or regulation as cited in the 2011 ROE and shall adopt, implement, and ensure Bank adherence to general procedures addressing compliance management which incorporate internal control systems and education of employees regarding laws, rules and regulations applicable to their areas of responsibility.

(3)      Within sixty (60) days of receipt of any subsequent Report of Examination which cites violations of law, rule, or regulation, the Board shall adopt, implement, and thereafter ensure Bank adherence to specific procedures to prevent future violations as cited in the ROE and shall adopt, implement, and ensure Bank adherence to general procedures addressing compliance management which incorporate internal control systems and education of employees regarding laws, rules and regulations applicable to their areas of responsibility.

  

18

  

 

(4)      Upon adoption, a copy of these procedures shall be forwarded to the Director.

(5)      The Board shall ensure that it provides the necessary oversight and has the processes, personnel, and control systems to ensure implementation of and adherence to the program developed pursuant to this Article.

 

ARTICLE VIII

OTHER PROVISIONS

 

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

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

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

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

  

19

  

 

(5)      If the Bank requires suspension or waiver of any provision or an extension of any timeframe within this Order, the Board shall submit a written request to the Director asking for relief.  Any written requests submitted pursuant to this Article shall include a statement setting forth in detail, with relevant supporting documentation, the special facts and circumstances that support a suspension or waiver of any provision or an extension of a timeframe within this Order.

(6)      The Director’s decision concerning a request submitted pursuant to paragraph five (5) of this Article is final and not subject to further review.

(7)      In each instance in this Order in which the Bank or the Board is required to ensure adherence to, and undertake to perform certain obligations of the Bank, it is intended to mean that the Board shall:

	
  

	
(a)

	
authorize and adopt such actions on behalf of the Bank as may be necessary for the Bank to perform its obligations and undertakings under the terms of this Order;

	
  

	
(b)

	
require the timely reporting by Bank management of such actions directed by the Board to be taken under the terms of this Order;

	
  

	
(c)

	
follow up on any non-compliance with such actions in a timely and appropriate manner; and

	
  

	
(d)

	
require corrective action be taken in a timely manner of any non-compliance with such actions.

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

  

20

  

 

 

(9)      The Office of Thrift Supervision (“OTS”) issued a Supervisory Agreement to the Bank on December 10, 2010 (“2010 Supervisory Agreement”).  This Order replaces the 2010 Supervisory Agreement in its entirety and, therefore, the 2010 Supervisory Agreement is hereby terminated.  Provided however, no provision in this Order shall bar or otherwise limit any enforcement action the OCC may choose to initiate, in its discretion, against the Bank or its IAPs for any failure to comply with the 2010 Supervisory Agreement while it was effective.

 

(10)           All reports or plans that the Bank or Board has agreed to submit to the Director pursuant to this Order shall be forwarded, by overnight delivery and via email, to the following:

 

	
Director for Special Supervision

	  	
with a copy to:

	
Comptroller of the Currency

	  	
Assistant Deputy Comptroller

	
250 E Street, S.W.

	  	
Jacksonville Field Office

	
Mail Stop 2-7

	  	
8375 Dix Ellis Trail, Suite 403

	
Washington, DC  20219

	  	
Jacksonville, FL 32256

 

(11)           The terms of this Order, including this paragraph, are not subject to amendment or modification by any extraneous expression, prior agreements, or prior arrangements between the parties, whether oral or written.

 

IT IS SO ORDERED, this 10th day of August, 2012.

 

 

 

/s/ Michael R. Brickman      

Michael R. Brickman

Director for Special Supervision

 

 

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