Document:

Exhibit 10.3

    
      

    

     

    Exhibit
      10.3

     

     

    
      	
              Appalachian
                Community Bank

              Salary
                Continuation Agreement

            

    

    

    

    APPALACHIAN
      COMMUNITY BANK

    SALARY
      CONTINUATION AGREEMENT

    [As
      Amended]

    

    

    THIS
      SALARY CONTINUATION AGREEMENT, as amended (the “Agreement”) is adopted as of the
      11th day of August, 2006, by and among APPALACHIAN COMMUNITY BANK, a
      state-chartered commercial bank located in Ellijay, Georgia (the "Bank"),
      APPALACHIAN BANCSHARES, INC., the parent company of the Bank (the “Holding
      Company”), and TRACY
      R.
      NEWTON (the "Executive").

     

    The
      purpose of this Agreement is to provide to the Executive, as a member of a
      select group which contributes materially to the continued growth, development
      and future business success of the Bank and the Holding Company, the specified
      benefits, as well as incentives for continued employment with the Bank and
      Holding Company, as set forth herein. This Agreement shall be unfunded for
      tax
      purposes and for purposes of Title I of the Employee Retirement Income Security
      Act of 1974 (“ERISA”), as amended from time to time. The Bank will pay the
      benefits provided under this Agreement from its general assets.

    

    The
      Bank,
      the Holding Company and the Executive, for and in consideration of the above
      stated contributions of the Executive and other good and valuable consideration,
      do hereby agree as follows:

    

    Article
      1

    Definitions

    

    Whenever
      used in this Agreement, the following words and phrases shall have the meanings
      specified:

    

    
      	
              1.1

            	
              “Accrual
                Balance”
                means the liability that should be accrued by the Bank, under Generally
                Accepted Accounting Principles (”GAAP”), for the Bank’s obligation to the
                Executive under this Agreement, by applying the Discount Rate. Any
                amortization method, if acceptable under GAAP, may be used to determine
                the Accrual Balance. However, once chosen, the method must be consistently
                applied. The Accrual Balance for each Plan Year shall be reported
                annually
                by the Bank to the Executive in the form of Schedule
                A
                of
                this Agreement. 

            

    

    

    
      	
              1.2

            	
              “Beneficiary”
                means each designated person, or the estate of the deceased Executive,
                entitled to benefits, if any, upon the death of the Executive, and
                as
                otherwise determined pursuant to Article 3 and Article
                4.

            

    

    

    
      	
              1.3

            	
              “Beneficiary
                Designation Form”
                means the form established from time to time by the Plan Administrator
                that the Executive completes, signs and returns to the Plan Administrator
                to designate one or more
                Beneficiaries.

            

    

    

    
      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

    

    

    

    
      	
              1.4

            	
              “Change
                of Control”
                means the occurrence of any of the following
                conditions:

            

    

    

    (i)        
      Any
      “Person” [which term, for purposes of this Section 1.4, shall mean an individual
      (other than the Executive), individuals acting in concert or as a “group” under
      the Securities Exchange Act of 1934, or a corporation, partnership, trust or
      other form of entity, (other than the Holding Company, the Bank, a securities
      underwriter of the shares of the Holding Company or the Bank, a corporation
      owned by stockholders of the Holding Company in the same proportions as their
      ownership of stock in the Holding Company, or a fiduciary holding securities
      under an employee benefit plan of the Holding Company or Bank)] becomes,
      directly or indirectly, the “beneficial owner” (as defined in Rule 13d-3 under
      the Securities Exchange Act of 1934) of securities of the Holding Company or
      Bank which represent twenty-five percent (25%) or more of the voting power
      of
      the then outstanding securities of the Holding Company or Bank; or

    

    (ii)        
      Any
      Person acquires, directly or indirectly, the ability to control the election
      of
      a majority of the directors of either the Bank or the Holding Company;
      or

    

    (iii)  
          Any
      Person acquires, directly or indirectly, the ability to exercise a controlling
      influence over the management of policies of either the Holding Company or
      the
      Bank; or

    

    (iv)   
       During
      any period of two (2) consecutive years, the “Continuing Directors” (which term,
      for purposes of this Section 1.4, means these individuals who, (a) at the
      beginning of such two-year period, constitute the board of directors of either
      the Holding Company or the Bank or (b) whose election or nomination as directors
      of the Holding Company or the Bank were approved by a vote of least two-thirds
      of these previously elected directors) cease for any reason to constitute at
      least two-thirds of the board of directors of either the Holding Company or
      the
      Bank; or

    

    (v)        
      The
      consummation of a merger or statutory share exchange of the Holding Company
      or
      the Bank with any Person, other than a merger or statutory share exchange which
      would (a) result in the voting securities of the Holding Company or Bank
      outstanding immediately prior thereto, continuing to represent at least
      seventy-five percent (75%) of the combined voting power of the voting securities
      of the Holding Company, Bank or such other surviving entity, outstanding
      immediately after such merger or statutory share exchange, in substantially
      the
      same proportions as their ownership immediately prior to such merger or
      statutory share exchange, or (b) effect or implement a recapitalization of
      the
      Holding Company or Bank (or similar transaction), in which no Person acquires
      more than fifty percent (50%) of the combined voting power of the
      then-outstanding securities of the Holding Company or Bank; or

    

    
      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

    

    

    
       

      
        	
                Appalachian
                  Community Bank

                Salary
                  Continuation Agreement

              

      

      

    

     

    
 

    (vi)        
      The
      shareholders of the Holding Company or Bank approve a plan of complete
      liquidation of the Holding Company or the Bank, or an agreement for the sale
      or
      disposition by the Holding Company or the Bank of all or substantially all
      of
      the assets of the Holding Company or the Bank.

    

    
      	
              1.5

            	
              “Change
                of Control Benefit”
                means the benefit provided to the Executive under Section 2.4 of
                this
                Agreement, and as set forth in Schedule
                A
                of
                this Agreement, pursuant to the terms of this Agreement. The amount
                of the
                Change of Control Benefit, as determined under Section 2.4 and as
                set
                forth in Schedule
                A,
                is an annual amount equal to the projected annual benefit to be paid
                to
                the Executive at the Executive’s Normal Retirement Age, as set forth in
                Section 2.1.1, which annual amount shall be paid to the Executive
                in equal
                monthly payments for each of the fifteen (15) consecutive twelve
                (12)
                month periods next following the Executive’s Normal Retirement
                Age.

            

    

    

    
      	
              1.6

            	
              “Code”
                means the Internal Revenue Code of 1986, as
                amended.

            

    

    

    
      	
              1.7

            	
              “Disability”
                means the Executive’s suffering a sickness, accident or injury which has
                been determined by the insurance carrier of any individual or group
                disability insurance policy covering the Executive, or by the Social
                Security Administration, or by the Board of Executives of the Bank
                or the
                Holding Company, to be a disability rendering the Executive totally
                and
                permanently disabled. The Executive, upon the request of the Plan
                Administrator, must submit proof of Disability, satisfactory to the
                Plan
                Administrator, including, if required, the determination thereof
                by the
                insurance carrier or Social Security Administration.
                

            

    

    

    
      	
              1.8

            	
              “Disability
                Benefit”
                means the benefit provided to the Executive under Section 2.3 of
                this
                Agreement, and as set forth in Schedule
                A
                of
                this Agreement, pursuant to the terms of this Agreement. The amount
                of the
                Disability Benefit, as determined under Section 2.3 and as set forth
                in
                Schedule
                A,
                is an annual amount equal to the projected annual benefit to be paid
                to
                the Executive at the Executive’s Normal Retirement Age, as set forth in
                Section 2.1.1, which annual amount shall be paid to the Executive
                in equal
                monthly payments for each of the fifteen (15) consecutive twelve
                (12)
                month periods next following the Executive’s Normal Retirement Age.
                

            

    

    

    
      	
              1.9

            	
              “Discount
                Rate”
                means the rate used by the Plan Administrator for determining the
                Accrual
                Balance. The initial Discount Rate is seven percent (7%). However,
                the
                Plan Administrator, in its sole discretion, may adjust the Discount
                Rate
                to maintain the rate within reasonable standards according to
                GAAP.

            

    

    

    
      	
              1.10

            	
              “Early
                Termination”
                means the Termination of Employment before Normal Retirement Age,
                for
                reasons other than death, Disability, Termination for Cause or following
                a
                Change of Control.

            

    

    

    
      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

    

     

    
       

      
        	
                Appalachian
                  Community Bank

                Salary
                  Continuation Agreement

              

      

      

    

    

    

    
      	
              1.11

            	
              “Early
                Termination Benefit”
                means the benefit provided to the Executive under Section 2.2 of
                this
                Agreement, and as set forth in Schedule
                A
                of
                this Agreement, as updated annually pursuant to the terms of this
                Agreement. The amount of the Early Termination Benefit, as determined
                under Section 2.2 and as set forth in Schedule
                A,
                is a one-time, lump-sum amount to be paid to the Executive within
                thirty
                (30) days following the Executive’s Early Termination Date, or at such
                later date as may be required by applicable
                law.

            

    

    

    
      	
              1.12

            	
              “Early
                Termination Date”
                means the date on which Early Termination
                occurs.

            

    

    

    
      	
              1.13

            	
              “Effective
                Date”
                means Junel 1, 2004.

            

    

    

    
      	
              1.14

            	
              “Normal
                Retirement Age”
                means the earlier of the Executive’s 62nd birthday
                or the date upon which the Executive completes 20 years of employment
                with
                the Bank and/or Holding Company.

            

    

    

    
      	
              1.15

            	
              “Normal
                Retirement Benefit”
                means the benefit provided to the Executive pursuant to the provisions
                of
                Section 2.1 of this Agreement, and as set forth in Schedule
                A
                of
                this Agreement, as updated annually pursuant to the terms of this
                Agreement. The amount of the Normal Retirement Benefit, as determined
                under Section 2.1 and as set forth in Schedule
                A,
                is an annual amount to be paid to the Executive in equal monthly
                payments
                for each of the fifteen (15) consecutive twelve (12) month periods
                next
                following the Executive’s Normal Retirement
                Date.

            

    

    

    
      	
              1.16

            	
              “Normal
                Retirement Date”
                means the date of the Executive’s Termination of Employment (other than a
                Termination for Cause) occurring on or after the Executive’s Normal
                Retirement Age. 

            

    

    

    
      	
              1.17

            	
              “Plan
                Administrator”
                means the plan administrator described in Article
                8.

            

    

    

    
      	
              1.18

            	
              “Plan
                Year”
                means each twelve-month period commencing on the Effective
                Date.

            

    

    

    
      	
              1.19

            	
              “Termination
                for Cause”
                has that meaning set forth in Article
                5.

            

    

    

    
      	
              1.20

            	
              “Termination
                of Employment”
                means that the Executive ceases to be employed by the Bank or the
                Holding
                Company for any reason, voluntary or involuntary, other than by reason
                of
                a leave of absence approved by the Bank or the Holding
                Company.

            

    

    

    Article
      2

    Benefits
      During Lifetime

    

    
      	
              2.1

            	
              Normal
                Retirement Benefit.
                The benefit payable to the Executive under this Section 2.1 is the
                Normal
                Retirement Benefit, an annual benefit set forth in Schedule
                A
                of
                this Agreement (as updated annually) for the Plan Year during which
                the
                Executive’s Normal Retirement Date occurs. Upon the Executive’s Normal
                Retirement Date, the Bank shall pay to the Executive the Normal Retirement
                Benefit, as described in this Section 2.1, in lieu of any other benefit
                under this Article.

            

    

    

    
      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

    

     

     

    
       

      
        	
                Appalachian
                  Community Bank

                Salary
                  Continuation Agreement

              

      

      

    

    

    
      	
               

            	 

    

    
      	 	
              2.1.1

            	
              Amount
                of Benefit.
                The annual benefit under this Section 2.1 for the first Plan Year
                is One
                Hundred Fifty Thousand Dollars ($150,000). Commencing
                on the first day of the second Plan Year, and on the first day of
                each
                Plan Year thereafter, the annual benefit shall be increased three
                percent
                (3%) from the previous Plan Year, to a projected annual benefit of
                Two
                Hundred Twenty-Seven Thousand Dollars ($227,000) at the Executive’s Normal
                Retirement Age. 

            

    

    

    
      	 	
              2.1.2

            	
              Payment
                of Benefit.
                The Bank shall pay the Normal Retirement Benefit to the Executive
                in equal
                monthly installments, commencing on the first day of the month following
                the Executive’s Normal Retirement Date. This annual benefit shall be paid
                to the Executive for each of the fifteen (15) consecutive twelve
                (12)
                month periods next following the Executive’s Normal Retirement Date, for a
                total of 180 consecutive equal monthly
                payments.

            

    

    

    
      	
              2.2

            	
              Early
                Termination Benefit.
                Upon the Executive’s Early Termination, the Bank shall pay to the
                Executive the Early Termination Benefit, as described in this Section
                2.2,
                in lieu of any other benefit under this
                Article.

            

    

    

    
      	 	
              2.2.1

            	
              Amount
                of Benefit.
                The benefit payable to the Executive under this Section 2.2 is the
                Early
                Termination Benefit, a one-time, lump-sum amount set forth on Schedule
                A
                of
                the Agreement (as updated annually) for the Plan Year during which
                the
                Executive’s Early Termination Date occurs. The amount of the Early
                Termination Benefit payable to the Executive in any Plan year shall
                be
                equal to the Executive’s Accrual Balance accrued under this Agreement for
                such Plan Year.

            

    

    

    
      	 	
              2.2.2

            	
              Payment
                of Benefit.
                The Bank shall pay the Early Termination Benefit to the Executive,
                as a
                one-time, lump-sum amount, within thirty (30) days following the
                Executive’s Early Termination Date, or at such later date as may be
                required by applicable law.

            

    

    

    
      	
              2.3

            	
              Disability
                Benefit.
                Upon the Executive’s Termination of Employment due to Disability prior to
                Normal Retirement Age, the Bank shall pay to the Executive the benefit
                described in this Section 2.3, in lieu of any other benefit under
                this
                Article.

            

    

    

    
      	 	
              2.3.1

            	
              Amount
                of Benefit.
                The benefit payable to the Executive under this Section 2.3 is the
                Disability Benefit, an annual benefit set forth on Schedule
                A
                of
                the Agreement (as updated annually) for the Plan Year during which
                the
                Termination of Employment occurs. The annual amount of the Disability
                Benefit payable to the Executive hereunder shall be equal to the
                annual
                amount of Executive’s Normal Retirement Benefit determined under this
                Agreement for the Plan Year in which the Executive’s Termination of
                Employment occurs.

            

    

    

    
      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

    

    

     

    
       

      
        	
                Appalachian
                  Community Bank

                Salary
                  Continuation Agreement

              

      

      

    

    

    
      	 	
              2.3.2

            	
              Payment
                of Benefit.
                The Bank shall pay the Disability Benefit to the Executive in equal
                monthly installments, commencing with the month following the Executive’s
                Normal Retirement Age. This annual benefit shall be paid to the Executive
                for each of the fifteen (15) consecutive twelve (12) month periods
                next
                following the Executive’s Normal Retirement Age, for a total of 180
                consecutive equal monthly payments.

            

    

    

    
      	
              2.4

            	
              Change
                of Control Benefit.
                Upon a Change of Control followed by the Executive’s Termination of
                Employment (other than a Termination for Cause), the Bank shall pay
                to the
                Executive the Change of Control Benefit, as described in this Section
                2.4,
                in lieu of any other benefit under this Article.
                

            

    

     

    
      	 	
              2.4.1

            	
              Amount
                of Benefit.
                The benefit under this Section 2.4 is the Change of Control Benefit,
                an
                annual benefit in the amount set forth on Schedule
                A
                of
                this Agreement (as updated annually) for the Plan Year during which
                Termination of Employment occurs. 

            

    

    

    
      	 	
              2.4.2

            	
              Payment
                of Benefit. 
                The Bank shall pay the Change of Control Benefit to the Executive
                in equal
                monthly installments commencing with the month following the Executive’s
                Normal Retirement Age. This annual benefit shall be paid to the Executive
                for each of the next fifteen (15) consecutive years next following
                the
                Executive’s Normal Retirement Age, for a total of 180 consecutive equal
                monthly payments.

            

    

    

    
      	
              2.5

            	
              Failure
                to be Nominated or Reelected.
                Upon the failure of the Executive to be terminated or reelected as
                a
                director of either of the Bank or the Holding Company (for any reason
                other than for a Termination for Cause), the Bank shall pay to the
                Executive the benefit described in this Section
                2.5.

            

    

    

    
      	 	
              2.5.1

            	
              Amount
                of Benefit.
                The benefit payable under this Section 2.5 is an annual benefit in
                an
                amount equal to the projected annual benefit to be paid to the Executive
                at the Executive’s Normal Retirement Age, as set forth in Section 2.1.1 of
                this Agreement.

            

    

    

    
      	 	
              2.5.2.

            	
              Payment
                of Benefit.
                The benefit payable under this Section 2.5 shall be paid to the Executive
                in equal monthly installments commencing with the month following
                the
                Executive’s Normal Retirement Age. This annual benefit shall be paid to
                the Executive for each of the fifteen (15) consecutive years next
                following the Executive’s Normal Retirement Age, for a total of 180
                consecutive equal monthly payments.

            

    

    

    

    
      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

    

     

    
       

      
        	
                Appalachian
                  Community Bank

                Salary
                  Continuation Agreement

              

      

      

    

    Article
      3

    Death
      Benefits

    

    
      	
              3.1

            	
              Death
                During Active Employment.
                If the Executive dies while in the active employment of the Bank
                and the
                Holding Company, the Bank shall pay to the Beneficiary the benefit
                described in this Section 3.1. This benefit shall be paid in lieu
                of the
                benefits under Article 2.

            

    

    

    
      	 	
              3.1.1

            	
              Amount
                of Benefit.
                The benefit under this Section 3.1 is the Pre-Retirement Death Benefit,
                an
                annual benefit set forth on Schedule
                A
                of
                this Agreement for the Plan Year in which the Executive dies, in
                an amount
                equal to the projected annual benefit to be paid to the Executive
                at the
                Executive’s Normal Retirement Age, as set forth in Section 2.1.1 of this
                Agreement. 

            

    

    

    
      	 	
              3.1.2

            	
              Payment
                of Benefit.
                The Bank shall pay the Pre-Retirement Death Benefit, to the Beneficiary
                in
                equal monthly installments, commencing with the month following the
                Executive’s death. The Pre-Retirement Death Benefit shall be paid to the
                Beneficiary (as provided under this Article 3 and Article 4) for
                a period
                of fifteen (15) consecutive twelve (12) month periods next following
                the
                death of the Executive, for a total of 180 consecutive equal monthly
                payments.

            

    

    

    
      	
              3.2

            	
              Death
                During Payment of a Benefit.
                If the Executive dies after any benefit payments have commenced under
                Article 2 of this Agreement, but before receiving all such payments,
                the
                Bank shall pay the remaining benefits to the Beneficiary at the same
                time
                and in the same amounts that would have been paid to the Executive
                had the
                Executive survived.

            

    

    

    
      	
              3.3

            	
              Death
                After Termination of Employment But Before Payment of a Benefit
                Commences. If
                the Executive is entitled to any benefit payments under Article 2
                of this
                Agreement, but dies prior to the commencement of said benefit payments,
                the Bank shall pay the same benefit payments to the Beneficiary that
                the
                Executive was entitled to prior to death, except that the benefit
                payments
                shall commence on the first day of the month following the date of
                the
                Executive’s death.

            

    

    

    
      	
              3.4

            	
              Death
                of a Beneficiary prior to Full Payment of Benefit.
                If a Beneficiary dies prior to receipt of the full benefits to be
                paid to
                the Beneficiary under this Agreement, the remaining benefit payments,
                otherwise payable to the Beneficiary under the terms of this Agreement,
                shall be paid to the personal representative of the estate of the
                Beneficiary. The personal representative of the estate of the Beneficiary,
                and any beneficiary to whom such benefits are paid by or from the
                Beneficiary’s estate, shall each be a “Beneficiary” for purposes of this
                Agreement.

            

    

    
      	
               

            	 

    

    

    
      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

    

    

    
       

      
        	
                Appalachian
                  Community Bank

                Salary
                  Continuation Agreement

              

      

      

 

    

    Article
      4

    Beneficiaries

    

    
      	
              4.1

            	
              Beneficiary
                Designation.
                The Executive shall have the right, at any time, to designate a
                Beneficiary(ies) to receive any benefits payable under this Agreement
                upon
                the death of the Executive. The Beneficiary designated under this
                Agreement may be the same as or different from the beneficiary designation
                under any other benefit plan of the Bank in which the Executive
                participates. 

            

    

    

    
      	
              4.2

            	
              Beneficiary
                Designation: Change.
                The Executive shall designate a Beneficiary by completing and signing
                the
                Beneficiary Designation Form, and delivering it to the Plan Administrator
                or its designated agent. The Executive's Beneficiary designation
                shall be
                deemed automatically revoked if the Beneficiary predeceases the Executive
                or if the Executive names a spouse as Beneficiary and the marriage
                is
                subsequently dissolved. The Executive shall have the right to change
                a
                Beneficiary by completing, signing and otherwise complying with the
                terms
                of the Beneficiary Designation Form and the Plan Administrator’s rules and
                procedures, as in effect from time to time. Upon the acceptance by
                the
                Plan Administrator of a new Beneficiary Designation Form, all Beneficiary
                designations previously filed shall be cancelled. The Plan Administrator
                shall be entitled to rely on the last Beneficiary Designation Form
                filed
                by the Executive and accepted by the Plan Administrator prior to
                the
                Executive’s death.

            

    

    

    
      	
              4.3

            	
              Acknowledgment.
                Except as otherwise specifically provided in this Agreement, no
                designation or change in designation of a Beneficiary shall be effective
                until received, accepted and acknowledged in writing by the Plan
                Administrator, or its designated
                agent.

            

    

    

    
      	
              4.4

            	
              No
                Beneficiary Designation.
                If the Executive dies without a valid beneficiary designation, or
                if all
                designated Beneficiaries predecease the Executive, then the Executive’s
                spouse, if married to Executive at the date of Executive’s death, shall be
                the designated Beneficiary. If the Executive has no spouse at the
                Executive’s date of death, the benefits shall be made to the personal
                representative of the Executive's estate. The personal representative
                of
                the Executive’s estate and any beneficiary to whom such benefits are paid
                by or from the Executive’s estate, shall each be a “Beneficiary” for
                purposes of this Agreement.

            

    

    
      	
               

            	 

    

    
      	
              4.5

            	
              Facility
                of Payment.
                If the Plan Administrator determines in its discretion that a benefit
                is
                to be paid to a minor, to a person declared incompetent, or to a
                person
                incapable of handling the disposition of that person’s property, the Plan
                Administrator may direct payment of such benefit to the guardian,
                legal
                representative or person having the care or custody of such minor,
                incompetent person or incapable person. The Plan Administrator may
                require
                proof of incompetence, minority or guardianship as it may deem appropriate
                prior to distribution of the benefit. Any payment of a benefit shall
                be a
                payment for the account of the Executive and the Executive’s Beneficiary,
                as the case may be, and shall be a complete discharge of any liability
                under the Agreement for such payment
                amount.

            

    

    

    
      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

    

     

     

    
       

      
        	
                Appalachian
                  Community Bank

                Salary
                  Continuation Agreement

              

      

      
 

    

    

    Article
      5

    General
      Limitations

    

    
      	
              5.1
                

            	
              Termination
                for Cause.
                Notwithstanding any provision of this Agreement to the contrary,
                the Bank
                shall not pay any benefit under this Agreement if the board of directors
                or shareholders of either the Bank or the Holding company terminates
                the
                Executive's employment for:

            

    

    

    
      	 	
              (a)
                

            	
              Gross
                negligence or gross neglect of duties to the
                Bank;

            

    

    

    
      	 	
              (b)
                

            	
              Commission
                of a felony or of a gross misdemeanor involving moral turpitude;
                

            

    

    

    
      	 	
              (c)
                

            	
              Fraud
                or willful violation of any law or significant Bank policy committed
                in
                connection with the Executive's employment and resulting in a material
                adverse effect on the Bank; or

            

    

    

    
      	 	
              (d)
                

            	
              Issuance
                of an order for removal of the Executive by the banking regulators
                of the
                Bank or the Holding Company.

            

    

    

    
      	
              5.2

            	
              Suicide
                or Misstatement.
                The Bank shall not pay any benefit under this Agreement if the Executive
                commits suicide within two years after the Effective Date. In addition,
                the Bank shall not pay any benefit under this Agreement if the Executive
                has made any material misstatement of fact on any application for
                life
                insurance owned by the Bank on the Executive’s
                life.

            

    

    

    
      	
              5.3

            	
              Competition
                After Termination of Employment.
                The Bank shall not pay any benefit under this Agreement if the Executive,
                without the prior written consent of the Bank or, if earlier, within
                1
                year from the Executive’s Termination of Employment, engages in, directly
                or indirectly, as a sole proprietor, as a partner in a partnership,
                or as
                a holder of more than five percent (5%) of the voting shares in a
                corporation, or becomes associated with, in the capacity of employee,
                director, officer, principal, agent or trustee, any enterprise conducted
                within a 25-mile radius of any office of the Bank existing at the
                time of
                the Executive’s Termination of Employment, which enterprise is, or may
                deemed to be, competitive with the business of banking carried on
                by the
                Bank as of the date of the Executive’s Termination of Employment. 
                This section shall not apply to a Termination of Employment (other
                than a
                Termination for Cause) following a Change of Control or to an Early
                Termination which was involuntary on the part of the
                Executive.

            

    

    

    Article
      6

    Claims
      And Review Procedures

    

    
      	
              6.1

            	
              Claims
                Procedure.
                An Executive or Beneficiary (“claimant”) who has not received benefits
                under the Agreement that he or she believes should be paid shall
                make a
                claim for such benefits as follows:

            

    

    

    
      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

    

     

    
       

      
        	
                Appalachian
                  Community Bank

                Salary
                  Continuation Agreement

              

      

      

 

    

    
      	 	
              6.1.1

            	
              Initiation
                - Written Claim.
                The claimant initiates a claim by submitting to the Plan Administrator
                a
                written claim for the benefits.

            

    

    

    
      	 	
              6.1.2

            	
              Timing
                of Plan Administrator Response.
                The Plan Administrator shall respond to such claimant within 90 days
                after
                receiving the claim. If the Plan Administrator determines that special
                circumstances require additional time for processing the claim, the
                Plan
                Administrator can extend the response period by an additional 90
                days by
                notifying the claimant in writing, prior to the end of the initial
                90-day
                period, that an additional period is required. The notice of extension
                must set forth the special circumstances and the date by which the
                Plan
                Administrator expects to render its
                decision.

            

    

    

    
      	 	
              6.1.3

            	
              Notice
                of Decision.
                If the Plan Administrator denies part or all of the claim, the Plan
                Administrator shall notify the claimant in writing of such denial.
                The
                Plan Administrator shall write the notification in a manner calculated
                to
                be understood by the claimant. The notification shall
                include:

            

    

    

    (a) The
      specific reasons for the denial;

    (b) A
      reference to the specific provisions of the Agreement on which the denial is
      based;

    (c) A
      description of any additional information or material necessary for the claimant
      to perfect the claim and an explanation of why it is needed; and

    (d) A
      description of the applicable review procedures and the time limits applicable
      to such procedures. 

    

    
      	
              6.2

            	
              Review
                Procedure.
                If the Plan Administrator denies part or all of the claim, the claimant
                shall have the opportunity for a full and fair review by the Plan
                Administrator of the denial, as
                follows:

            

    

    

    
      	 	
              6.2.1

            	
              Initiation
                - Written Request.
                To initiate the review, the claimant, within 60 days after receiving
                the
                Plan Administrator’s notice of denial, must file with the Plan
                Administrator a written request for
                review.

            

    

    

    
      	 	
              6.2.2

            	
              Additional
                Submissions - Information Access.
                The claimant shall then have the opportunity to submit written comments,
                documents, records and other information relating to the claim. The
                Plan
                Administrator shall also provide the claimant, upon request and free
                of
                charge, reasonable access to, and copies of, all documents, records
                and
                other information relevant to the claimant’s claim for
                benefits.

            

    

    

    
      	 	
              6.2.3

            	
              Considerations
                on Review.
                In considering the review, the Plan Administrator shall take into
                account
                all materials and information the claimant submits relating to the
                claim,
                without regard to whether such information was submitted or considered
                in
                the initial benefit determination.

            

    

    

    
      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

    

     

    
       

      
        	
                Appalachian
                  Community Bank

                Salary
                  Continuation Agreement

              

      

      

 

    

    

    
      	 	
              6.2.4

            	
              Timing
                of Plan Administrator Response.
                The Plan Administrator shall respond in writing to such claimant
                within 60
                days after receiving the request for review. If the Plan Administrator
                determines that special circumstances require additional time for
                processing the claim, the Plan Administrator can extend the response
                period by an additional 60 days by notifying the claimant in writing,
                prior to the end of the initial 60-day period, that an additional
                period
                is required. The notice of extension must set forth the special
                circumstances and the date by which the Plan Administrator expects
                to
                render its decision.

            

    

    

    
      	 	
              6.2.5

            	
              Notice
                of Decision.
                The Plan Administrator shall notify the claimant in writing of its
                decision on review. The Plan Administrator shall write the notification
                in
                a manner calculated to be understood by the claimant. The notification
                shall include: 

            

    

    

    (a) The
      specific reasons for the denial;

    (b) A
      reference to the specific provisions of the Agreement on which the denial is
      based; and

    (c) A
      statement that the claimant is entitled to receive, upon request and free of
      charge, reasonable access to, and copies of, all documents, records and other
      information relevant to the claimant’s claim for benefits. 

    

    Article
      7

    Amendments
      and Termination

    

    This
      Agreement may be amended or terminated only by a written agreement signed by
      the
      Bank and the Executive. Provided, however, if the Bank’s Board of Directors
      determines that the Executive is no longer a member of a select group of
      management or highly compensated employees, as that phrase applies to ERISA,
      for
      reasons other than death, Disability or retirement, the Bank may amend or
      terminate this Agreement. Upon such amendment or termination, the Bank shall
      pay
      benefits to the Executive as if Early Termination occurred on the date of such
      amendment or termination, regardless of whether Early Termination actually
      occurs. Additionally, the Bank may also amend this Agreement to conform with
      written directives to the Bank from its banking regulators.

    

    Article
      8

    Administration
      of Agreement

    

    
      	
              8.1

            	
              Plan
                Administrator Duties.
                This Agreement shall be administered by a Plan Administrator which
                shall
                consist of the Board, or such committee or person(s) as the Board
                shall
                appoint. The Executive may be a member of the Plan Administrator.
                The Plan
                Administrator shall also have the discretion and authority to (i)
                make,
                amend, interpret and enforce all appropriate rules and regulations
                for the
                administra-tion of this Agreement and (ii) decide or resolve any
                and all
                ques-tions including interpretations of this Agreement, as may arise
                in
                connection with the Agreement.

            

    

    

    
      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

    

    

    
       

      
        	
                Appalachian
                  Community Bank

                Salary
                  Continuation Agreement

              

      

      
 

    

    

    
      	
              8.2

            	
              Agents.
                In the administration of this Agreement, the Plan Administrator may
                employ
                agents and delegate to them such administrative duties as it sees
                fit,
                (including acting through a duly appointed representative), and may
                from
                time to time consult with counsel who may be counsel to the
                Bank.

            

    

    

    
      	
              8.3

            	
              Binding
                Effect of Decisions.
                The decision or action of the Plan Administrator with respect to
                any
                question arising out of or in connection with the administration,
                interpretation and application of the Agreement and the rules and
                regulations promulgated hereunder shall be final and conclusive and
                binding upon all persons having any interest in the Agreement. No
                Executive or Beneficiary shall be deemed to have any right, vested
                or
                nonvested, regarding the continued use of any previously adopted
                assumptions, including but not limited to the Discount
                Rate.

            

    

    

    
      	
              8.4

            	
              Indemnity
                of Plan Administrator.
                The Bank shall indemnify and hold harmless the members of the Plan
                Administrator against any and all claims, losses, damages, expenses
                or
                liabilities arising from any action or failure to act with respect
                to this
                Agreement, except in the case of willful misconduct by the Plan
                Administrator or any of its
                members.

            

    

    

    
      	
              8.5

            	
              Bank
                Information.
                To enable the Plan Administrator to perform its functions, the Bank
                shall
                supply full and timely information to the Plan Administrator on all
                matters relating to the date and circum-stances of the retirement,
                Disability, death, or Termination of Employment of the Executive,
                and such
                other pertinent information as the Plan Administrator may reasonably
                require.

            

    

    

    
      	
              8.6

            	
              Annual
                Statement.
                The Plan Administrator shall provide to the Executive, within 120
                days
                after the end of each Plan Year, in the form of Schedule
                A
                of
                this Agreement, a statement setting forth the benefits payable under
                this
                Agreement. It is hereby agreed that such annual statement, in the
                form of
                Schedule
                A,
                shall be incorporated into, and thereby shall be a part of, this
                Agreement.

            

    

    

    Article
      9

    Miscellaneous

    

    
      	
              9.1

            	
              Binding
                Effect.
                This Agreement shall bind the Executive, the Company and the Bank,
                and
                their beneficiaries, survivors, executors, successors, administrators
                and
                transferees.

            

    

    

    
      	
              9.2

            	
              No
                Guarantee of Employment.
                This Agreement is not a policy or contract regarding the continued
                employment of the Executive, as a director of the Bank and/or the
                Holding
                Company. It does not give the Executive the right to remain as an
                employee
                or director of the Bank or the Holding Company, nor does it interfere
                with
                the right of the Bank or the Holding Company, or their respective
                shareholders, to remove the Executive from office. It also does not
                require the Executive to remain a director of the Bank or Holding
                Company
                nor interfere with the Executive's right to terminate employment
                with the
                Bank or Holding Company at any
                time.

            

    

    

    
      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

    

     

     

    
       

      
        	
                Appalachian
                  Community Bank

                Salary
                  Continuation Agreement

              

      

      
 

    

    

    
      	
              9.3

            	
              Non-Transferability.
                Benefits under this Agreement cannot be sold, transferred, assigned,
                pledged, attached or encumbered in any
                manner.

            

    

    

    
      	
              9.4

            	
              Tax
                Withholding.
                The Bank shall withhold any taxes that, in its reasonable judgment,
                are
                required to be withheld from the benefits provided under this Agreement.
                The Executive acknowledges that the Bank’s sole liability regarding taxes
                is to forward any amounts withheld to the appropriate taxing
                authority(ies).

            

    

    

    
      	
              9.5

            	
              Applicable
                Law.
                The Agreement and all rights hereunder shall be governed by the laws
                of
                the State of Georgia, except to the extent preempted by the laws
                of the
                United States of America. Further, the parties intend for this Agreement,
                including the payment of benefits hereunder, to comply with the provisions
                of Section 409A of the Internal Revenue Code of 1986, as said Section
                may
                be amended from time to time, and, therefore, hereby agree that the
                provisions of this Agreement and the benefits payable hereunder shall
                be,
                and hereby are, modified, but only to the extent necessary, to achieve
                compliance therewith. 

            

    

    

    
      	
              9.6

            	
              Unfunded
                Arrangement.
                The Executive and Beneficiary (and any other parties with rights
                under
                this Agreement) are general unsecured creditors of the Bank for the
                payment of benefits under this Agreement. The benefits represent
                the mere
                promise by the Bank to pay such benefits. The rights to benefits
                are not
                subject in any manner to anticipation, alienation, sale, transfer,
                assignment, pledge, encumbrance, attachment, or garnishment by creditors.
                Any insurance on the Executive's life is a general asset of the Bank
                to
                which the Executive and Beneficiary have no preferred or secured
                claim.

            

    

    

    
      	
              9.7

            	
              Reorganization. Neither
                the Bank nor the Holding Company shall merge or consolidate into
                or with
                another company or bank, or reorganize, or sell substantially all
                of its
                assets to another company or bank, firm, or person unless such succeeding
                or continuing company, bank, firm, or person agrees to assume and
                discharge the obligations of the Bank and Holding Company under this
                Agreement. Upon the occurrence of such event, the terms “Bank” and
                “Holding Company”, as used in this Agreement, shall also be deemed to
                refer to the successor or survivor company or
                bank.

            

    

    

    
      	
              9.8

            	
              Entire
                Agreement. This
                Agreement constitutes the entire agreement between and among the
                Bank, the
                Holding Company and the Executive as to the subject matter hereof.
                No
                rights are granted to the Executive by virtue of this Agreement other
                than
                those specifically set forth
                herein.

            

    

    

    
      	
              9.9

            	
              Interpretation.
                Wherever the fulfillment of the intent and purpose of this Agreement
                requires, and the context will permit, the use of the masculine gender
                includes the feminine and use of the singular includes the
                plural.

            

    

    

    
      	
              9.10

            	
              Alternative
                Action.
                In the event it shall become impossible for the Bank, the Holding
                Company
                or the Plan Administrator to perform any act required by this Agreement,
                the Bank, the Holding Company or Plan Administrator may in its discretion
                perform such alternative act as most nearly carries out the intent
                and
                purpose of this Agreement and is in the best interests of the
                Bank.

            

    

    

    
      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

    

     

    
       

      
        	
                Appalachian
                  Community Bank

                Salary
                  Continuation Agreement

              

      

      
 

    

    

    
      	
              9.11

            	
              Headings.
                Article and section headings are for convenient reference only and
                shall
                not control or affect the meaning or construction of any of its
                provisions.

            

    

    

    
      	
              9.12

            	
              Validity.
                In case any provision of this Agreement shall be illegal or invalid
                for
                any reason, said illegality or invalidity shall not affect the remaining
                parts hereof, but this Agreement shall be construed and enforced
                as if
                such illegal and invalid provision has never been inserted
                herein.

            

    

    

    
      	
              9.13

            	
              Notice.
                Any notice or filing required or permitted to be given to the Bank
                or Plan
                Administrator under this Agreement shall be sufficient if in writing
                and
                hand-delivered, or sent by registered or certified mail, to the address
                below: 

            

    

     

    
      	
              Appalachian
                Community Bank

            
	
              829
                Industrial Blvd.

            
	
              Ellijay,
                Georgia 30540

            

    

     

    Such
      notice shall be deemed given as of the date of delivery or, if delivery is
      made
      by mail, as of the date shown on the postmark on the receipt for registration
      or
      certification.

    

    Any
      notice or filing required or permitted to be given to the Executive under this
      Agreement shall be sufficient if in writing and hand-delivered, or sent by
      mail,
      to the last known address of the Executive.

    

    

    IN
      WITNESS WHEREOF, the Executive and a duly authorized representative of each
      of
      the Bank and Holding Company have signed this Agreement on the 11th day of
      August, 2006.

    

    

      
        	 	
                “EXECUTIVE:”

              
	 	 
	 	
                /s/
                  Tracy R. Newton

              
	 	
                 Tracy
                  R. Newton, 

              
	 	
                Chief
                  Executive Officer

              
	 	 
	 	 
	 	
                “BANK:”

              
	 	 
	 	
                Appalachian
                  Community Bank

              
	 	 
	 	
                By: /s/
                   Joseph T. Moss, Jr.

              
	 	 
	 	
                Title:
                  Chief Operating
                  Officer

              

      

    

    

    

    
      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

    

    

    
       

      
        	
                Appalachian
                  Community Bank

                Salary
                  Continuation Agreement

              

      

      

    

    

    

    
      	 	
              “HOLDING
                COMPANY:”

            
	 	 
	 	
              Appalachian
                Bancshares, Inc.

            
	 	 
	 	
              By:
                Joseph T. Moss, Jr.

            
	 	 
	 	
              Title: 
                Chief Operating Officer

            

    

     

     

     

     

    
 

    
      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

    

    

     

    
       

      
        	
                Appalachian
                  Community Bank

                Salary
                  Continuation Agreement

                BENEFICIARY
                  DESIGNATION
                  FORM

              

      

      

    

     

    I
      designate the following as beneficiary of benefits under the Agreement payable
      following my death:

    

    Primary: _______________________________________________________________________

    

    _____________________________________________________________________________

    

    Contingent: ____________________________________________________________________

    

    _____________________________________________________________________________

    

    Note:
      To name a trust as beneficiary, please provide the name of the trustee(s) and
      the exact
      name and date of the trust agreement.

    

    I
      understand that I may change these beneficiary designations by delivering a
      new
      written designation to the Plan Administrator. I further understand that the
      designations will be automatically revoked if the beneficiary predeceases me,
      or, if I have named my spouse as beneficiary and our marriage is subsequently
      dissolved.

    

    
      	
              Name:        
                    _______________________________

            	 
	 	 
	
              Signature:     _______________________________

            	
              Date:     _______

            

    

    

    

    
      
        	
                SPOUSAL
                  CONSENT (Required if Spouse not named beneficiary):

                

                I
                  consent to the beneficiary designation above, and acknowledge that
                  if I am
                  named beneficiary and our marriage is subsequently dissolved, the
                  designation will be automatically revoked.

                

                Spouse
                  Name: _______________________________

                

                Signature: __________________________________      
                  Date: _______

              

      

    

     

    

    

    

    Received
      by the Plan Administrator this ________ day of ___________________,
      20___.

    

    By: _________________________________

    

    Title: ________________________________

    

    
      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

    

     

    
       

      
        	
                Appalachian
                  Community Bank

                Salary
                  Continuation Agreement

              

      

      

    

    SCHEDULE
      A

    
 

    
      (For
        the Plan year Ending May 30, 20__)

    

    
      	
              Executive
                Name

            	
              
                Tracy
                  R. Newton

              

            	 	
              Plan
                Anniversary Date

            	
              06/01

            
	
              Normal
                Retirement Age

            	
              *

            	 	
              Normal
                Retirement Date (Estimated)

            	 

    

     

     

     

    
      	
              Discount
                Rate

            	
              Plan
                Year Ending

            	
              Accrual
                Balance

            	
              Normal
                Retirement 

              Benefit

              (annual
                benefit

              Amount)

            	
              Early
                Termination Benefit

              (one-time,
                lump-sum benefit amount)

            	
              **

              Disability
                Benefit

              (annual
                benefit amount)

            	
              **

              Change
                of Control Benefit

              (annual
                benefit amount)

            	
              **

              Pre-retirement
                Death Benefit

              (annual
                benefit amount)

            
	
              7%

            	 	
              $

            	
              $

            	
              $

            	
              $

            	
              $

            	
              $

            

    

     

     

    

     

    

     

    The
      parties to this Salary Continuation Agreement hereby further agree that this
      Schedule
      A
      shall be
      updated annually to include any changes in the Accrual Balance and the various
      benefit levels described hereon. Further, this Schedule
      A,
      as it
      now exists and as it may be further updated, is and shall continue to be a
      part
      of this Salary Continuation Agreement.

    

    

    *The
      earlier of Age 62 or the Age at which a Executive completes 20 years of
      employment as a director of the Bank and/or the Holding
      Company.

    

    **This
      annual benefit amount to be entered here for the Executive should be the
      projected annual benefit amount set forth in Section 2.1.1 of the
      Agreement.Exhibit 10.21

    
      

    

     

    Exhibit
      10.21

    

    AGREEMENT
      BY AND BETWEEN

    Albany
      Bank and Trust, N.A.

    Albany,
      Georgia

    and

    The
      Comptroller of the Currency

    

    Albany
      Bank and Trust, N.A., Albany, Georgia (“Bank”) and the Comptroller of the
      Currency of the United States of America (“Comptroller”) wish to protect the
      interests of the depositors, other customers, and shareholders of the Bank,
      and,
      toward that end, wish the Bank to operate safely and soundly and in accordance
      with all applicable laws, rules and regulations.

    The
      Comptroller, through his National Bank Examiner, has examined the Bank and
      identified deficiencies in the Bank's operations including unsafe and unsound
      banking practices and violations of law. His findings are contained in the
      Report of Examination dated October 3, 2005 (“ROE”).

    In
      consideration of the above premises, it is agreed, between the Bank, by and
      through its duly elected and acting Board of Directors (“Board”), and the
      Comptroller, through his authorized representative, that the Bank shall operate
      at all times in compliance with the articles of this Agreement.

    ARTICLE
      I -- JURISDICTION

    (1)    This
      Agreement shall be construed to be a “written agreement entered into with the
      agency” within the meaning of 12 U.S.C. § 1818(b)(1).

    (2)    This
      Agreement shall be construed to be a “written agreement between such depository
      institution and such agency” within the meaning of 12 U.S.C.
§ 1818(e)(1) and 12 U.S.C. § 1818(i)(2).

    

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    

    (3)    This
      Agreement shall be construed to be a “formal written agreement” within the
      meaning of 12 C.F.R. § 5.51(c)(6)(ii). See
      12 U.S.C. § 1831i.

    (4)    This
      Agreement shall be construed to be a “written agreement” within the meaning of
      12 U.S.C. § 1818(u)(1)(A). 

    (5)    All
      reports or plans which the Bank or Board has agreed to submit to the Assistant
      Deputy Comptroller (ADC) pursuant to this Agreement shall be forwarded
      to:

    Tommy
      Tucker

    Assistant
      Deputy Comptroller

    Birmingham
      Office

    100
      Concourse Parkway, Suite 240

    Birmingham,
      Alabama 35244

    

    ARTICLE
      II -- COMPLIANCE COMMITTEE

    

    (1)    Within
      thirty (30) days of the date of this Agreement, the Board shall appoint a
      Compliance Committee of at least three (3) directors, all of
      which
      shall be outside directors (i.e., not employees of the Bank or any of its
      affiliates, as the term “affiliate” is defined in 12 U.S.C.
§ 371c(b)(1). 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 ADC. The Compliance Committee
      shall
      be responsible for monitoring and coordinating the Bank's adherence to the
      provisions of this Agreement.

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

    (3)    Within
      sixty (60) days of the date of this Agreement 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 action needed to achieve full compliance with each
Article
      of this Agreement;

    

    
      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

    

    

    (b)    actions
      taken to comply with each Article of this Agreement; and

    (c)    the
      results and status of those actions.

    (4)    The
      Board
      shall forward a copy of the Compliance Committee's report, with any additional
      comments by the Board, to the ADC within fifteen (15) days of receiving such
      report.

    ARTICLE
      III -- BOARD TO ENSURE COMPETENT MANAGEMENT

    (1)    Within
      ninety (90) days, the Board shall ensure that the Bank has competent management
      in place on a full-time basis in its Chief Executive Officer, President, and
      Senior Loan Officer positions to carry out the Board’s policies, ensure
      compliance with this Agreement, applicable laws, rules and regulations, and
      manage the day-to-day operations of the Bank in a safe and sound manner.

    (2)    Within
      sixty (60) days, the Board shall review the capabilities of the Bank’s
      management to perform present and anticipated duties and the Board will
      determine whether management changes will be made, including the need for
      additions to or deletions from current management.

    (3)    For
      incumbent officers in the positions mentioned in this Article, the Board shall
      within sixty (60) days assess each of these officers’ experience, other
      qualifications and performance compared to the position’s description, duties
      and responsibilities. 

    (4)    If
      the
      Board determines that an officer will continue in his/her position but that
      the
      officer’s depth of skills needs improvement, the Board will, within ninety (90)
      days, develop and implement a written program, with specific time frames, to
      improve the officer’s supervision and management of the Bank. At a minimum the
      written program shall include:

    (a)    an
      education program designed to ensure that the officer has skills
      and abilities
      necessary to supervise effectively;

    

    
      
        
          
          

        

        
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    (b)    a
      program
      to improve the effectiveness of the officer;

    (c)    objectives
      by which the officer’s effectiveness will be measured; and

    (d)    a
      performance appraisal program for evaluating performance according to
the
      position’s description and responsibilities and for measuring performance
      against the Bank’s goals and objectives.

    Upon
      completion, a copy of the written program shall be submitted to the
      ADC.

    (5)    If
      a
      position mentioned in this Article is vacant now or in the future, including
      if
      the Board realigns an existing officer’s responsibilities and a position
      mentioned in this Article becomes vacant, the Board shall within ninety (90)
      days of such vacancy appoint a capable person to the vacant position who shall
      be vested with sufficient executive authority to ensure the Bank’s compliance
      with this Agreement and the safe and sound operation of functions within the
      scope of that position’s responsibility.

    (6)    Prior
      to
      the appointment of any individual to an executive officer position, the Board
      shall submit to the ADC the following information:

    (a)    the
      information sought in the “Changes in Directors and Senior
      Executive Officers”
      and “Background Investigations” booklets of the Comptroller’s Licensing
      Manual,
      together with a legible fingerprint card for the proposed
      individual;

    (b)    a
      written
      statement of the Board's reasons for selecting the proposed officer;
      and

    (c)    a
      written
      description of the proposed officer's duties and responsibilities.

    

    
      
        
          
          

        

        
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    (7)    The
      ADC
      shall have the power to disapprove the appointment of the proposed new officer.
      However, the lack of disapproval of such individual shall not constitute an
      approval or endorsement of the proposed officer.

    (8)    The
      requirement to submit information and the prior disapproval provisions of this
      Article are based on the authority of 12 U.S.C. § 1818(b)(6)(E) and do
      not require the Comptroller to complete his/her review and act on any such
      information or authority within ninety (90) days.

    ARTICLE
      IV -- ALLOWANCE FOR LOAN AND LEASE LOSSES

    (1)    The
      Board
      shall review the adequacy of the Bank's Allowance for Loan and Lease Losses
      (“Allowance”) and shall establish a program for the maintenance of an adequate
      Allowance. This review and program shall be designed in light of the comments
      on
      maintaining a proper Allowance found in the “Allowance for Loan and Lease
      Losses” booklet of the Comptroller’s
      Handbook,
      and
      shall focus particular attention on the following factors: 

    (a)    results
      of the Bank's internal loan review;

    (b)    results
      of the Bank's external loan review;

    (c)    an
      estimate of inherent loss exposure on each credit in excess of
      seventy-five
      thousand dollars ($75,000);

    (d)    loan
      loss
      experience;

    (e)    trends
      of
      delinquent and nonaccrual loans; 

    (f)    concentrations
      of credit in the Bank; and,

    (g)    present
      and prospective economic conditions.

    (2)    The
      program shall provide for a review of the Allowance by the Board at least once
      each calendar quarter. Any deficiency in the Allowance shall be remedied in
      the
      quarter it 

    

    
      
        
          
          

        

        
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    is
      discovered, prior to the filing of the Consolidated Reports of Condition and
      Income, by additional
      provisions from earnings. Written documentation shall be maintained indicating
      the factors considered and conclusions reached by the Board in determining
      the
      adequacy of the Allowance.

    (3)    A
      copy of
      the Board's program shall be submitted to the ADC for review and prior written
      determination of no supervisory objection. Upon receiving a determination of
      no
      supervisory objection from the ADC, the Bank shall implement and adhere to
      the
      program. 

    ARTICLE
      V -- CAPITAL PLAN AND HIGHER MINIMUMS

    (1)    The
      Bank
      shall achieve by September 30, 2006, and thereafter maintain the following
      capital levels (as defined in 12 C.F.R. Part 3):

    (a)    Tier
      1
      capital at least equal to eleven percent (11%) of risk-weighted assets;

    (b)    Tier
      1
      capital at least equal to eight percent (8%) of adjusted total
      assets.

    (2)    The
      requirement in this Agreement 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. Part 6 pursuant to 12 C.F.R.
§ 6.4(b)(1)(iv). 

    (3)    Within
      ninety (90) days, the Board shall develop, implement, and thereafter ensure
      Bank
      adherence to a three year capital program. The program shall
      include:

    (a)    specific
      plans for the maintenance of adequate capital that may in no event be
      less
      than the requirements of subparagraph (1);

    (b)    projections
      for growth and capital requirements based upon a detailed analysis
      of the Bank's assets, liabilities, earnings, fixed assets, and off-balance
      sheet activities;

    

    
      
        
          
          

        

        
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    (c)    projections
      of the sources and timing of additional capital to meet the Bank's
      current and future needs; 

    (d)    the
      primary source(s) from which the Bank will strengthen its
      capital structure
      to meet the Bank's needs;

    (e)    contingency
      plans that identify alternative methods should the primary source(s)
      under (d) above not be available; and

    (f)    a
      dividend policy that permits the declaration of a dividend only:

    (i)     when
      the
      Bank is in compliance with its approved capital program;
      

    (ii)    when
      the
      Bank is in compliance with 12 U.S.C. §§ 56 and 60; and,

    (iii)    with
      the
      prior written determination of no supervisory objection by the
      ADC.

    (4)     Upon
      receiving a determination of no supervisory objection from the ADC, the Bank
      shall implement and adhere to the dividend policy.

    (5)    Upon
      completion, the Bank's capital program shall be submitted to the ADC for prior
      determination of no supervisory objection. Upon receiving a determination of
      no
      supervisory objection from the ADC, the Bank shall implement and adhere to
      the
      capital program. The Board shall review and update the Bank's capital program
      on
      an annual basis, or more frequently if necessary. Copies of the reviews and
      updates shall be submitted to the ADC.

    ARTICLE
      VI -- CREDIT AND COLLATERAL EXCEPTIONS

    (1)    Within
      sixty (60) days the Board shall obtain current and satisfactory credit
      information on all loans lacking such information, including those listed in
      the
      ROE, in any subsequent Report of Examination, in any internal or external loan
      review, or in any listings of

    

    
      
        
          
          

        

        
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    loans
      lacking such information provided to management by the National Bank Examiners
      at the conclusion of an examination.

    (2)    Within
      sixty (60) days the Board shall ensure proper collateral documentation is
      maintained on all loans and correct each collateral exception listed in the
      ROE,
      in any subsequent Report of Examination, in any internal or external loan
      review, or in any listings of loans lacking such information provided to
      management by the National Bank Examiners at the conclusion of an
      examination.

    (3)    Effective
      immediately, the Bank may grant, extend, renew, alter or restructure any loan
      or
      other extension of credit only
      after:

    (a)    documenting
      the specific reason or purpose for the extension of credit;

    (b)    identifying
      the expected source of repayment in writing;

    (c)    structuring
      the repayment terms to coincide with the expected source of repayment;

    (d)    obtaining
      and analyzing current and satisfactory credit information, including
      cash flow analysis, where loans are to be repaid from operations;

    (i)    Failure
      to obtain the information in (3)(d) shall require a majority of
      the
      full Board (or a delegated committee thereof) to certify in writing
      the specific reasons why obtaining and analyzing the  information
      in (3)(d) would be detrimental to the best interests of the
      Bank,
      and,

    (ii)    A
      copy of
      the Board certification shall be maintained in the credit of
      the
      affected borrower(s). The certification will be reviewed by
      this
      Office in subsequent examinations of the Bank; 

    

    
      
        
          
          

        

        
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    (e)    documenting,
      with adequate supporting material, the value of collateral      and
      properly perfecting the Bank's lien on it where applicable.

    ARTICLE
      VII -- CREDIT RISK

    (1)    Within
      sixty (60) days, the Board shall develop, implement, and thereafter ensure
      Bank
      adherence to a written program to reduce the high level of credit risk in the
      Bank.

    (2)    The
      program shall include, but not be limited to:

    (a)    procedures
      to strengthen credit underwriting, particularly in the commercial
      real estate loan portfolio;

    (b)    procedures
      to strengthen management of loan operations and to maintain
      an adequate, qualified staff in all lending functional areas;

    (c)    procedures
      for strengthening collections; and

    (d)    an
      action
      plan to control loan growth.

    The
      Board
      shall promptly submit a copy of the program to the ADC.

    (3)    At
      least
      quarterly, the Board shall prepare a written assessment of the bank’s credit
      risk, which shall evaluate the Bank’s progress under the aforementioned program.
      The Board shall submit a copy of this assessment to the ADC.

    ARTICLE
      VIII -- INTEREST RATE RISK POLICY

    

    (1)    Within
      sixty (60) days, the Board shall adopt, implement, and thereafter ensure Bank
      adherence to a written interest rate risk policy. In formulating this policy,
      the Board shall refer to the “Interest Rate Risk” booklet of the Comptroller’s
      Handbook.
      The
      policy shall provide for a coordinated interest rate risk strategy and, at
      a
      minimum, address:

    (a)    the
      establishment of adequate management reports on which to base
      sound interest
      rate risk management decisions; 

    

    
      
        
          
          

        

        
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    (b)    establishment
      and guidance of the Bank’s strategic direction and tolerancefor
      interest rate risk;

    (c)    implementation
      of effective tools to measure and monitor the Bank’s performance
      and overall interest rate risk profile;

    (d)    employment
      of competent personnel to manage interest rate risk;

    (e)    prudent
      limits on the nature and amount of interest rate risk that can be taken;
      and,

    (f)    periodic
      review of the Bank's adherence to the policy.

    (2)    Upon
      adoption, a copy of the written policy shall be forwarded to the ADC for
      review.

    ARTICLE
      IX -- INTERNAL AUDIT

    (1)    Within
      sixty (60) days, the Board shall adopt, implement, and thereafter ensure Bank
      adherence to an independent, internal audit program sufficient to:

    (a)    detect
      irregularities and weak practices in the Bank's operations;

    (b)    determine
      the Bank's level of compliance with all applicable laws, rules and
      regulations;

    (c)    assess
      and report the effectiveness of policies, procedures, controls, and management
      oversight relating to accounting and financial reporting;

    (d)    evaluate
      the Bank's adherence to established policies and procedures, with particular
      emphasis directed to the Bank's adherence to its loan policies concerning
      underwriting standards and problem loan identification and classification;

    

    
      
        
          
          

        

        
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    (e)    review
      and provide an opinion regarding whether regulatory reports beginning
      with the quarter ending June 30, 2006, contain “material misstatements”
      within thirty (30) days of filing; for purposes of this Article,
      “material misstatements” has the same meaning as the term is used
      in
      the SEC’s Staff Accounting Bulletin No. 99 on Materiality (“SAB  99”).
      

    (f)    adequately
      cover all areas; and

    (g)   establish
      an annual audit plan using a risk based approach sufficient to achieve
      these objectives.

    (2)    As
      part
      of this audit program, the Board shall evaluate the audit reports of any party
      providing services to the Bank, and shall assess the impact on the Bank of
      any
      audit deficiencies cited in such reports.

    (3)    The
      Board
      shall ensure that the audit function is supported by an adequately staffed
      department or outside firm, with respect to both the experience level and number
      of the individuals employed.

    (4)    The
      Board
      shall ensure that the audit program is independent. The persons responsible
      for
      implementing the internal audit program described above shall report directly
      to
      the Board, which shall have the sole power to direct their activities. All
      reports prepared by the audit staff shall be filed directly with the Audit
      Committee of the Board and not through any intervening party. All audit reports
      shall be in writing. The Board shall ensure that immediate actions are
      undertaken to remedy deficiencies cited in audit reports, and that auditors
      maintain a written record describing those actions.

    

    
      
        
          
          

        

        
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    (5)    The
      audit
      staff shall have access to any records necessary for the proper conduct of
      its
      activities. National bank examiners shall have access to all reports and work
      papers of the audit staff and any other parties working on its behalf.

    (6)    Upon
      adoption, a copy of the internal audit program shall be promptly submitted
      to
      the ADC.

    ARTICLE
      X -- INVESTMENT POLICY

    (1)    Within
      sixty (60) days, the Board shall review and revise the Bank's investment policy
      and implement the revised policy, and thereafter ensure Bank adherence to the
      policy. The policy shall contain the basic elements of a sound investment policy
      consistent with regulatory guidance provided in An
      Examiner’s Guide to Investment Products and Practices
      (Dec.,
      1992), 12 C.F.R. Part 1, and OCC Bulletin 98-20 (Apr. 27, 1998) and shall
      include:

    (a)    an
      investment portfolio strategy that is consistent with Board approved
Bank
      asset and liability management policies and interest rate risk tolerances;

    (b)    individual
      and committee investment portfolio purchase and sale authority;

    (c)    approval
      procedures that will include dollar size limits, quality limitations,
maturity
      limitations, and concentration or diversification guidelines;

    (d)    a
      requirement that investment securities be supported by adequate credit
and
      interest rate risk measurement information as described in the “Interest
      Rate Risk” booklet of the Comptroller’s
      Handbook and
      in
      OCC Bulletin
      98-20 (Apr. 27, 1998);

    (e)    required
      reviews and use of securities dealers;

    

    
      
        
          
          

        

        
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    (f)    periodic
      reports to and approval by the Board for all investment portfolio purchases
      and sales and strategy changes; and

    (g)    monthly
      review by the Board's investment committee of the Bank's investment
      portfolio activity to ensure adherence to the investment policy and
      to
      applicable banking and securities laws and regulations.

    (2)    The
      revised investment policy shall be implemented and a copy shall be forwarded
      to
      the ADC.

    ARTICLE
      XI -- LOAN REVIEW

    (1)    The
      Board
      shall employ or designate a sufficiently experienced and qualified person(s)
      or
      firm to ensure the timely and independent identification of problem loans and
      leases.

    (2)    Within
      sixty (60) days from the effective date of this Agreement, the Board shall
      establish an effective, independent and on-going loan review system to review,
      at least quarterly, the Bank's loan and lease portfolios to assure the timely
      identification and categorization of problem credits. The system shall provide
      for a written report to be filed with the Board after each review and shall
      use
      a loan and lease grading system consistent with the guidelines set forth in
      Rating Credit Risk, A-RCR, of the Comptroller’s
      Handbook.
      Such
      reports shall, at a minimum, include:

    (a)    conclusions
      regarding the overall quality of the loan and lease portfolios;

    (b)    the
      identification, type, rating, and amount of problem loans and
      leases;

    (c)    the
      identification and amount of delinquent loans and leases;

    (d)    the
      identification of credit and collateral documentation exceptions;

    (e)    the
      identification of loans meeting the criteria for nonaccrual status;

    

    
      
        
          
          

        

        
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    (f)    the
      identification and status of credit related violations of law, rule or
regulation;

    (g)    the
      identification of loans and leases not in conformance with the Bank's
lending
      and leasing policies, including approved exceptions to the Bank’s lending
      and leasing policies;

    (h)    the
      identity of the loan officer who originated or is responsible for each
loan
      reported in accordance with subparagraphs (b) through (g) of this paragraph;

    (i)    the
      identification of concentrations of credit; and

    (j)    the
      identification of loans and leases to executive officers, directors,
      principal shareholders (and their related interests) of the Bank.

    (3)    The
      Board
      shall evaluate the loan review report(s) and shall ensure that immediate,
      adequate, and continuing remedial action, if appropriate, is taken upon all
      findings noted in the report(s).

    (4)    A
      copy of
      the reports submitted to the Board, as well as documentation of the action
      taken
      by the Bank to collect or strengthen assets identified as problem credits,
      shall
      be preserved in the Bank. 

    ARTICLE
      XII -- LENDING POLICY

    (1)    Within
      sixty (60) days, the Board shall review and revise the Bank's written loan
      policy. In revising this policy, the Board shall refer to “Loan Portfolio
      Management” booklet of the Comptroller’s
      Handbook.
      This
      policy shall incorporate, but not necessarily be limited to, the
      following: 

    

    
      
        
          
          

        

        
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    (a)    a
      description of acceptable types of loans;

    (b)    a
      provision that current and satisfactory credit information will be obtained
      on each borrower;

    (c)    maturity
      scheduling related to the anticipated source of repayment, the purpose
      of the loan, and the useful life of the collateral;

    (d)    maximum
      ratio of loan value to appraised value or acquisition costs of collateral
      securing the loan;

    (e)    collection
      procedures, to include follow-up efforts, that are systematically and
      progressively stronger;

    (f)    a
      pricing
      policy that takes into consideration costs, general overhead, and probable
      loan losses, while providing for a reasonable margin of profit;

    (g)    a
      definition of the Bank's trade area;

    (h)    guidelines
      and limitations for loans originating outside of the Bank's trade area;

    (i)    a
      limitation on aggregate outstanding loans in relation to other balance
sheet
      accounts;

    (j)    distribution
      of loans by category;

    (k)    a
      prohibition regarding the use of brokered deposits to fund loan growth or
support
      criticized loans;

    (l)    guidelines
      for loans to insiders, including a statement that such loans will not
      be
      granted on terms more favorable than those offered to similar outside
      borrowers;

    (m)    guidelines
      and limitations on concentrations of credit; 

    

    
      
        
          
          

        

        
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    (n)    a
      limitation on the type and size of loans that may be made by loan officers
      without prior approval by the Board or a committee established by the
      Board
      for this purpose;

    (o)    measures
      to correct the deficiencies in the Bank's lending procedures noted
      in
      any ROE; and,

    (p)    guidelines
      designed to improve Board oversight of the loan approval process,
      specifically with regard to credits exhibiting significant risk. 
At
      a
      minimum, the policy shall:

    (i)    establish
      dollar limits on extensions of credit to any one borrower,
      above which the prior approval of the Board, or a  committee
      thereof, would be required;

    (ii)         
       establish
      dollar limits on aggregate extensions of credit to any
      one
      borrower, above which any new extensions of  credit
      to
      that borrower, regardless of amount, would require the
      prior
      approval of the Board, or a committee thereof; and

    (iii)       
       require
      that all credits which deviate from the Bank’s normal
      course of business, including all credits which deviate from the
      Bank’s written strategic plan, receive the prior approval of the Board,
      or
      a committee thereof;

    (iv)       
       require
      that all new, renewed, extended, restructured or altered credits
      in excess of fifty thousand dollars ($50,000) which deviate from
      the
      Bank’s lending policy receive the prior approval of the Board,
      or
      a committee thereof. A copy of the Board or committee 

    

    
      
        
          
          

        

        
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    approval
      shall be maintained in the credit file of the affected borrower(s),
      and shall state the reason for deviating from the lending policy
      to
      include an assessment of why the deviation is in the best interest
      of the bank. 

    (v)     require
      that all new, renewed, extended, restructured or altered credits
      in the amount of fifty thousand dollars ($50,000) or less which
      deviate from the Bank’s lending policy receive the prior written
      approval of the bank’s senior lending officer. A copy of the written
      approval shall be maintained in the credit file of the affected borrower(s),
      and shall state the reason for deviating from the lending policy
      to
      include an assessment of why the deviation is in the best interest
      of the bank.

    (q)    guidelines
      consistent with Banking Circular 255, setting forth the criteria under
      which renewals of extensions of credit may be approved. At a  minimum
      the policy shall:

    (i)    ensure
      that renewals are not made for the sole purpose of reducing the
      volume of loan delinquencies; and

    (ii)    provide
      guidelines and limitations on the capitalization of interest:

    (r)    charge-off
      guidelines, by type of loan or other asset, including Other Real Estate
      Owned, addressing the circumstances under which a charge-off would
      be
      appropriate and ensuring the recognition of losses within  the
      quarter
      of discovery; and 

    

    
      
        
          
          

        

        
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    (s)    guidelines
      for periodic review of the Bank's adherence to the
      revised lending policy.

    (2)    Upon
      adoption, the policy shall be implemented, the Board shall thereafter ensure
      Bank adherence to the policy, and a copy of the policy shall be forwarded to
      the
      ADC for review.

    ARTICLE
      XIII -- LIQUIDITY

    (1)    The
      Board
      shall immediately increase the liquidity of the Bank to a level that is
      sufficient to sustain the Bank's current operations and to withstand any
      anticipated or extraordinary demand against its funding base. Such actions
      may
      include, but are not necessarily limited to:

    (a)    selling
      assets;

    (b)    obtaining
      lines of credit from the Federal Reserve Bank;

    (c)    obtaining
      lines of credit from correspondent banks;

    (d)    recovering
      charged-off assets; and

    (e)    injecting
      additional equity capital.

    (2)    The
      Board
      shall review the Bank's liquidity on a monthly basis. Such reviews shall
      consider: 

    (a)    a
      maturity schedule of certificates of deposit, including large uninsured
deposits;

    (b)    the
      volatility of demand deposits including escrow deposits;

    (c)    the
      amount and type of loan commitments and standby letters of credit;

    (d)    an
      analysis of the continuing availability and volatility of present funding
sources;

    

    
      
        
          
          

        

        
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    (e)    an
      analysis of the impact of decreased cash flow from the Bank's loan portfolio
      resulting from delinquent and non-performing loans;

    (f)    an
      analysis of the impact of decreased cash flow from the sale of loans or
loan
      participations; and

    (g)    geographic
      disbursement of and risk from brokered deposits.

    (3)    The
      Board
      shall take appropriate action to ensure adequate sources of liquidity in
      relation to the Bank's needs. Monthly reports shall set forth liquidity
      requirements and sources and establish a contingency plan. Copies of these
      reports shall be forwarded to the ADC in the Bank’s monthly report to the
      ADC.

    ARTICLE
      XIV -- LOAN PORTFOLIO MANAGEMENT

    (1)    The
      Board
      shall, within sixty (60) days, develop, implement, and thereafter ensure Bank
      adherence to a written program to improve the Bank's loan portfolio management.
      The program shall include, but not be limited to:

    (a)    procedures
      to ensure satisfactory and perfected collateral documentation;

    (b)    procedures
      to ensure that extensions of credit are granted, by renewal or otherwise,
      to any borrower only
      after
      obtaining and analyzing current and satisfactory
      credit information;

    (c)    procedures
      to ensure conformance with loan approval requirements;

    (d)    a
      system
      to track and analyze exceptions;

    (e)    procedures
      to ensure conformance with Call Report instructions;

    (f)    procedures
      to ensure the accuracy of internal management information systems;

    

    
      
        
          
          

        

        
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    (g)    a
      performance appraisal process, including performance appraisals, job
descriptions,
      and incentive programs for loan officers, which adequately consider
      their performance relative to policy compliance, documentation standards,
      accuracy in credit grading, and other loan administration matters;
      and

    (h)    procedures
      to track and analyze concentrations of credit, significant economic
      factors, and general conditions and their impact on the credit quality
      of the Bank’s loan and lease portfolios.

    Upon
      completion, a copy of the program shall be forwarded to the ADC.

    (2)    Within
      sixty (60 ) days, the Board shall develop, implement, and thereafter ensure
      Bank
      adherence to systems which provide for effective monitoring of:

    (a)    early
      problem loan identification to assure the timely identification and rating
      of
      loans and leases based on lending officer submissions;

    (b)    statistical
      records that will serve as a basis for identifying sources of  problem
      loans and leases by industry, size, collateral, division, group, indirect
      dealer, and individual lending officer;

    (c)    previously
      charged-off assets and their recovery potential;

    (d)    compliance
      with the Bank's lending policies and laws, rules, and regulations
      pertaining to the Bank's lending function;

    (e)    adequacy
      of credit and collateral documentation; and

    (f)    concentrations
      of credit.

    (3)    Beginning
      August 31, 2006, on a monthly basis, management will provide the Board with
      written reports including, at a minimum, the following information:

    

    
      
        
          
          

        

        
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    (a)    the
      identification, type, rating, and amount of problem loans and
      leases;

    (b)    the
      identification and amount of delinquent loans and leases;

    (c)    credit
      and collateral documentation exceptions;

    (d)    the
      identification and status of credit related violations of law, rule or
regulation;

    (e)    the
      identity of the loan officer who originated each loan reported in accordance
      with subparagraphs (a) through (d) of this Article and Paragraph;

    (f)    an
      analysis of concentrations of credit, significant economic factors, and
general
      conditions and their impact on the credit quality of the Bank’s loan
and
      lease
      portfolios;

    (g)    the
      identification and amount of loans and leases to executive officers,
directors,
      principal shareholders (and their related interests) of the Bank; and

    (h)    the
      identification of loans and leases not in conformance with the Bank's
lending
      and leasing policies, and exceptions to the Bank’s lending and leasing
      policies.

    ARTICLE
      XV -- MANAGEMENT FEES TO AFFILIATES

    (1)    Prior
      to
      the payment of any management and other fees to any affiliate of the Bank as
      defined in 12 U.S.C. § 221a and 12 U.S.C. § 371c
      (“Affiliate”), the Board, or delegated committee of the Board, shall document
      and support, in writing, that such fees:

    (a)    are
      reasonable;

    (b)    have
      a
      direct relationship to, and are based solely upon, the fair value of
goods
      and
      services received by the Bank; and

    

    
      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

    

    

    (c)    compensate
      the Affiliate only for providing goods and services which meet
      the
      legitimate needs of the Bank.

    (2)    All
      documentation supporting the payment of management and other fees to an
      Affiliate, shall be preserved in the Bank.

    ARTICLE
      XVI -- TRANSACTIONS BETWEEN AFFILIATES

    (1)    The
      Bank
      may, directly or indirectly, pay money or its equivalent to or for the benefit
      of, or extend credit in any form to or for the benefit of, its affiliates,
      or
      transfer assets between the Bank and its affiliates, or enter into or engage
      in
      any transaction that obligates the Bank to do the same only after:

    (a)    the
      Board
      has conducted an independent review of the action, which review
      is
      documented in writing; and, 

    (b)    the
      Board
      has determined in writing that it is advantageous for the Bank to engage
      in
      such action, and
      that the
      action complies with all applicable laws,
      rules, regulations, and Comptroller’s issuances, including, but not limited
      to 12 C.F.R. Part 223.

    (2)    For
      purposes of this Article, “affiliate” shall have the meaning set forth in and
      12 C.F.R. Part 223.

    ARTICLE
      XVII -- STRATEGIC PLAN

    (1)    Within
      one hundred and twenty (120) days, the Board shall adopt, implement, and
      thereafter ensure Bank adherence to a written strategic plan for the Bank
      covering at least a three-year period. The strategic plan shall establish
      objectives for the Bank's overall risk profile, 

    
      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

    

    

    earnings
      performance, growth, balance sheet mix, off-balance sheet activities, liability
      structure, capital adequacy, reduction in the volume of nonperforming assets,
      product line development and
      market segments that the Bank intends to promote or develop, together with
      strategies to achieve those objectives and, at a minimum, include:

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

    (b)    an
      assessment of the Bank's present and future operating environment;

    (c)    the
      development of strategic goals and objectives to be accomplished over
the
      short
      and long term;

    (d)    an
      identification of the Bank’s present and future product lines (assets and
liabilities)
      that will be utilized to accomplish the strategic goals and objectives
      established in (1 )(c) of this Article;

    (e)    an
      evaluation of the Bank's internal operations, staffing requirements,
board
      and
      management information systems and policies and procedures for
      their
      adequacy and contribution to the accomplishment of the goals and
      objectives developed under (1)(c) of this Article;

    (f)    a
      management employment and succession program to promote the retention
      and continuity of capable management; 

    (g)    product
      line development and market segments that the Bank intends to promote
      or develop;

    (h)    an
      action
      plan to improve bank earnings and accomplish identified strategic
      goals and objectives, including individual responsibilities, accountability
      and specific time frames;

    

    
      
        
          
          

        

        
          23

          
            

          

        

        
          
          

        

      

    

    

    (i)    a
      financial forecast to include projections for major balance sheet and
income
      statement accounts and desired financial ratios over the period covered
      by the strategic plan;

    (j)    control
      systems to mitigate risks associated with planned new products, growth,
      or any proposed changes in the Bank’s operating environment; specific
      plans to establish responsibilities and accountability for the strategic
      planning process, new products, growth goals, or proposed changes
      in the Bank’s operating environment; and

    (k)    systems
      to monitor the Bank’s progress in meeting the plan’s goals and objectives.

    (2)    Upon
      adoption, a copy of the plan shall be forwarded to the ADC for review and prior
      written determination of no supervisory objection. Upon receiving a
      determination of no supervisory objection from the ADC, the Bank shall implement
      and adhere to the strategic plan. 

    ARTICLE
      XVIII -- BOOKS AND RECORDS

    (1)    The
      Board
      shall immediately take all necessary actions to ensure that, within thirty
      (30)
      days, the Bank’s books, records and management information systems (MIS) are in
      a complete and accurate condition.

    (2)    Within
      sixty (60) days, the Board shall submit to the ADC an action plan detailing
      how
      the Board will maintain the Bank’s books, records and MIS in a complete and
      accurate condition, setting forth a timetable for the plan. In the event the
      ADC
      recommends changes to the action plan, the Board shall immediately incorporate
      those changes into the plan.

    (3)    The
      Board
      shall ensure that the Bank’s books, records and MIS are maintained in a complete
      and accurate condition.

    

    
      
        
          
          
C

        
          24

          
            

          

        

        
          
          

        

      

    

    

    ARTICLE
      XIX -- INFORMATION TECHNOLOGY

    (1)    The
      Board
      shall immediately take all steps necessary to improve the management of the
      Bank’s Information Technology (“IT”) activities and to correct each deficiency
      cited in the Report of Examination (“ROE”) or any supervisory
      communication.

    (2)    Within
      sixty (60) days, the Board shall ensure that the information technology manager
      has the necessary skills and experience to supervise effectively the IT
      area.

    (3)    Within
      sixty (60) days, the Board shall develop, implement, and thereafter adhere
      to a
      written, well-documented, risk-based, internal IT audit program. At a minimum,
      the IT audit program shall be performed by an independent and qualified party,
      and shall include fundamental elements of a sound audit program as described
      in
      the “Audit” booklet of the FFIEC
      Information Technology Examination Handbook.

    (4)    Within
      sixty (60) days, the Board shall develop, implement, and thereafter ensure
      adherence to a comprehensive, written information security program to ensure
      the
      safety and soundness of its operations and to support the Bank’s efforts to
      comply with 12 C.F.R. Part 30, Appendix B, Safeguarding Customer Information.
      The information security program shall include administrative, technical, and
      physical safeguards to protect the security, confidentiality, and integrity
      of
      customer information. The information security program shall be consistent
      with
      the security process described in the “Information Security” booklet of the
FFIEC
      Information Technology Examination Handbook.
      At a
      minimum, the information security program shall include: 

    (a)    a
      corporate-wide assessment of the risks to its customer information or
customer
      information systems and a written report evidencing such assessment.
      The assessment shall include:

    

    
      
        
          
          

        

        
          25

          
            

          

        

        
          
          

        

      

    

    

    (i)    the
      identification of reasonably foreseeable internal and external threats
      that could result in unauthorized disclosure, misuse, alteration,
      or destruction of customer information or customer information
      systems;

    (ii)    an
      assessment of the likelihood and potential damage of these threats,
      taking into consideration the sensitivity of customer information;
      and 

    (iii)    an
      assessment of the sufficiency of policies, procedures, customer information
      systems, and other arrangements in place to control risks.

    (b)    a
      process
      to monitor and control the identified risks, commensurate with the
      sensitivity of the information as well as the complexity and scope of 
bank
      activities;

    (c)    a
      test
      plan that provides for regular testing of key controls, systems and procedures
      of its information security program. The frequency and nature of
      such
      tests shall be determined by the risk assessment. Such tests shall be
      conducted or reviewed by independent third parties or staff independent
of
      those
      who develop or maintain the information security program.

    (5)    Within
      sixty (60) days, the Board shall develop, implement, and thereafter adhere
      to, a
      written program to oversee and manage risks associated with outsourcing any
      services to third party servicers, including technology service providers and
      vendors. This third party management program shall be consistent with OCC
      Bulletin 2001-47, “Third Party 

    
      
        
          
          

        

        
          26

          
            

          

        

        
          
          

        

      

    

     

    Relationships,” dated November 1, 2001, and OCC Advisory
      Letter 2000-12, “Risk Management of Outsourcing Technology Services” dated
      November 28, 2000.

    (6)    Within
      sixty (60) days, the Board shall develop and implement a formal enterprise-wide
      business continuity process that complies with the requirements set forth in
      the
“Business Continuity Planning” booklet of the FFIEC
      Information Technology Examination Handbook.
      At a
      minimum, the business continuity process shall include:

    (a)    a
      business impact analysis that includes:

    (i)    the
      identification of the potential impact of uncontrolled, non-specific
      events on the institution’s business processes and its customers;
      and 

    (ii)    an
      estimation of the maximum allowable downtime and acceptable levels
      of
      data, operations, and financial losses.

    (b)    a
      risk
      assessment process that includes:

    (i)    the
      prioritization of potential business disruptions based upon severity
      and likelihood of occurrence; 

    (ii)        
      a
      gap
      analysis comparing the institution’s existing business resumption
      plans, if any, to what is necessary to achieve recovery time
      and
      point objectives; and

    (iii)      
      an
      analysis of threats based upon the impact on the institution, its customers,
      and the financial markets, not just the nature of the treat.

    (c)    a
      risk
      management process that includes the development of a written, enterprise-wide
      business continuity plan (BCP); and

    

    
      
        
          
          

        

        
          27

          
            

          

        

        
          
          

        

      

    

     

    
      (d)    a
        risk
        monitoring process that includes:

      (i)    testing
        of the BCP on at least an annual basis;

    

    (ii)    independent
      audit and review of the BCP; and

    (iii)   updating
      the BCP based upon changes to personnel and the internal and
      external environments. 

    (7)    The
      Board
      shall provide a quarterly written progress report on each of the requirements
      of
      this Article to the ADC.

    (8)    The
      Board
      shall ensure that the Data Center has processes, personnel and control systems
      sufficient to ensure implementation of and adherence to the procedures and
      programs developed pursuant to this Article.

    ARTICLE
      XX -- DEPENDENCE ON CREDIT SENSITIVE LIABILITIES

    (1)    Within
      forty-five (45) days the Bank shall improve the Bank’s liquidity position and
      maintain adequate sources of stable funding given the Bank’ s anticipated
      liquidity and funding needs. Such actions shall include, but not be limited
      to:

    (a)    reduction
      of wholesale or credit sensitive liabilities and/or increase of liquid
      assets; and

    (b)    revision
      of the Bank's strategic plan in light of the requirement of this Article.

    ARTICLE
      XXI -- CONFLICT OF INTEREST POLICY

    (1)    Within
      sixty (60) days, the Board shall adopt, implement, and thereafter ensure Bank
      adherence to a written, comprehensive conflict of interest policy applicable
      to
      the Bank’s and the Bank’s holding company’s directors, principal shareholders,
      executive officers, affiliates, and

    

    
      
        
          
          

        

        
          28

          
            

          

        

        
          
          

        

      

    

     

    employees (collectively “Insiders”) and related interests of
      such Insiders. The policy, in addition to defining a conflict of interest,
      shall
      address:

    (a)    avoidance
      of conflicts of interest and breaches of fiduciary duty, and the appearance
      of conflicts of interest;

    (b)    involvement
      in the loan approval process of Insiders who may benefit directly
      or indirectly from the decision to grant credit;

    (c)    disclosure
      of actual and potential conflicts of interest to the Board, and periodic
      disclosure of "related interests" as defined by 12 C.F.R. Part
      215;

    (d)    requirements
      for arms-length dealing in any transactions by Insiders, or their
      related organizations, involving the Bank's sale, purchase, or rental of 
property
      and services;

    (e)    disclosure
      of any Insider’s material interest in the business of a
      borrower, an
      applicant, or other customer of the Bank; and

    (f)    restrictions
      on and disclosure of receipt of anything of value by Insiders, directly
      or indirectly, from borrowers, loan applicants, other customers, or suppliers
      of the Bank.

    (2)    Upon
      adoption, a copy of this conflict of interest policy shall be forwarded to
      the
      ADC for review.

    (3)    Within
      sixty (60) days, the Compliance Committee shall conduct a review of the Bank's
      existing relationships with its and its holding company’s directors, executive
      officers, affiliates, principal shareholders, employees and their related
      interests for the purpose of identifying relationships not in conformity with
      the policy. The Board shall ensure that:

    

    
      
        
          
          

        

        
          29

          
            

          

        

        
          
          

        

      

    

     

    
      (a)    any
        nonconforming relationships are brought into conformity with the policy
        within thirty (30) days; and

      (b)    that
        within thirty (30) days the Bank is properly reimbursed for:

    

    (i)    any
      excess or improper payments to Insiders and their related interests;
      and,

    (ii)   any
      excess or improper payments for services provided by Insiders and
      their
      related interests.

    (4)    Thereafter,
      the Board shall review all proposed transactions, or modifications of existing
      relationships, between the Bank and any of its or its holding company’s
      directors, executive officers, affiliates, principal shareholders, employees
      and
      their related interests.  (5) Documentation
      supporting these reviews shall be in writing and preserved in the Bank.

    ARTICLE
      XXII -- INTERNAL CONTROLS

    (1)    Within
      sixty (60) days from the effective date of this Agreement, the Board shall
      adopt, implement, and thereafter ensure Bank adherence to sound internal control
      policies and procedures.

    (2)    Internal
      controls shall include, but not be limited to:

    (a)    approval
      of more than one bank employee or signature of a supervising bank
      employee for the processing of general ledger tickets;

    (b)    procedures
      to ensure that loan officers cannot use personal funds to make payments
      on a borrower’s loans or cover the borrower’s overdrafts; 

    (c)    procedures
      to ensure purpose and disbursement of loan proceeds as noted in
      loan
      documents is consistent with actual use of proceeds; 

    

    
      
        
          
          

        

        
          30

          
            

          

        

        
          
          

        

      

    

     

    
      (d)    procedures
        and management information systems to identify and monitor suspected
        check kiting activities on a daily basis; 

      (e)    independent
        and objective process to request and approve expense payments,
        particularly those to reimburse Covered Persons, including supporting
        invoices or receipts which readily identify the expense as  “business
        related”; and,

    

    (f)    independent
      and objective process to monitor the validity of charges on bank
      credit cards, especially those issued to executive officers, which should
      include supporting receipts or other documentation to justify the business
      purpose of the charge, prior to payment of expenses. 

    ARTICLE
      XXIII -- OVERDRAFT POLICY

    (1)    Within
      sixty (60) days, the Board shall adopt, implement, and thereafter ensure Bank
      adherence to a written policy concerning the extension of overdrafts that shall
      include, at a minimum:

    (a)    conditions
      and circumstances under which overdrafts will be allowed, taking
      into consideration the requirements of 12 U.S.C. § 375b;

    (b)    charges
      that will be levied against depositors using overdrafts;

    (c)    conditions
      and circumstances under which overdrafts will be permitted to principal
      shareholders or the related interests (as that term is defined in 12 C.F.R.
      Part 215) of executive officers, directors or principal shareholders;
      and

    (d)    conditions
      and circumstances under which overdrafts will be charged off.

    (2)    Upon
      adoption, a copy of this policy shall be forwarded to the ADC.

    

    
      
        
          
          

        

        
          31

          
            

          

        

        
          
          

        

      

    

     

     

    
      ARTICLE
        XXIV -- INSIDER TRANSACTIONS & RECORDKEEPING

      (1)    Effective
        immediately, the Board shall maintain adequate, centralized records of all
        Business Transactions subject to this Agreement in a form and manner that
        will
        enable easy, independent review. These records shall identify all Insiders
        and
        shall also:

    (a)    specify
      the names of the parties to the transaction other than the Bank,

    (b)    state
      the
      relationship of the parties to the Bank,

    (c)    provide
      a
      brief description of the transaction and its terms, and

    (d)    provide
      a
      notation of the approval of the transaction by the Board  including
      the vote of each director and the bases for any dissenting or abstaining
      votes.

    (2)    The
      Board
      shall require each executive officer, director and principal shareholder to
      provide at least annually and in writing, a listing of the preceding parties'
      respective Related Interests as defined in 12 C.F.R. Part 215. The list of
      these persons' Related Interests shall be maintained by the Board and any
      changes to these listings of Related Interests shall be promptly reported to
      the
      Board and reflected in the centralized records.

    ARTICLE
      XXV -- 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 ROE and in
      any
      subsequent Report of Examination. The progress reports required by this
      Agreement shall include the date and manner in which each correction has been
      effected during that reporting period.

    (2)    Within
      sixty (60) days, the Board shall adopt, implement, and thereafter ensure Bank
      adherence to specific procedures to prevent future violations as cited in the
      ROE and shall 

     

    
      
        
          
          

        

        
          32

          
            

          

        

        
          
          

        

      

    

     

    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)    Upon
        adoption, a copy of these procedures shall be forwarded to the ADC.

      ARTICLE
        XXVI -- CLOSING

      

    

    (1)    Although
      the Board has agreed to submit certain programs and reports to the ADC for
      review or prior written determination of no supervisory objection, the Board
      has
      the ultimate responsibility for proper and sound management of the
      Bank.

    (2)    The
      Board
      shall ensure that the Bank has processes, personnel, and control systems to
      ensure implementation of and adherence to the program developed pursuant to
      this
      Agreement.

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

    (4)    Any
      time
      limitations imposed by this Agreement shall begin to run from the effective
      date
      of this Agreement. Such time requirements may be extended in writing by the
      ADC
      for good cause upon written application by the Board.

    (5)    The
      provisions of this Agreement shall be effective upon execution by the parties
      hereto and its provisions shall continue in full force and effect unless or
      until such provisions are amended in writing by mutual consent of the parties
      to
      the Agreement or excepted, waived, or terminated in writing by the
      Comptroller.

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

     

    (6)    In
      each
      instance in this Agreement in which 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 Agreement; 

    (b)    require
      the timely reporting by Bank management of such actions directed by
      the
      Board to be taken under the terms of this Agreement; 

    (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 noncompliance
      with such actions. 

    (7)    This
      Agreement is intended to be, and shall be construed to be, a supervisory
“written agreement entered into with the agency” as contemplated by 12 U.S.C. §
1818(b)(1), and expressly does not form, and may not be construed to form,
      a
      contract binding on the Comptroller or the United States. Notwithstanding the
      absence of mutuality of obligation, or of consideration, or of a contract,
      the
      Comptroller may enforce any of the commitments or obligations herein undertaken
      by the Bank under his supervisory powers, including 12 U.S.C. § 1818(b)(1),
      and not as a matter of contract law. The Bank expressly acknowledges that
      neither the Bank nor the Comptroller has any intention to enter into a contract.
      The Bank also expressly acknowledges that no officer or employee of the Office
      of the Comptroller of the Currency has statutory or other authority to bind
      the
      United States, the U.S. Treasury Department, the Comptroller, or any other
      federal bank regulatory agency or entity, or any officer or employee
      of

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

     

    any
      of those entities to a contract affecting the
      Comptroller’s exercise of his supervisory responsibilities. The terms of this
      Agreement, 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.

    IN
      TESTIMONY WHEREOF,
      the
      undersigned, authorized by the Comptroller, has hereunto set his hand on behalf
      of the Comptroller.

    

    

    

    

      
        	
                 
                  /s/ Tommy Tucker

                
                  

                

                Tommy
                  Tucker

                Assistant
                  Deputy Comptroller

                Birmingham
                  Office

              	 	
                 
                  July 27, 2006

                
                  

                

                Date

              

      

    

    

     

    

    

    

    

    

    

    

     

    

    
      
        
          
          

        

        
          35

          
            

          

        

        
          
          

        

      

    

    

    AND
      IN FURTHER TESTIMONY WHEREOF,
      the
      undersigned, as the duly elected and acting Board of Directors of the Bank,
      have
      hereunto set their hands on behalf of the Bank.

    

    

    
      	
              
                 
                  /s/ Bob Beauchamp

              

              
                

              

              Bob
                Beauchamp

            	 	
               
                July 27, 2006

              
                

              

              Date

            
	 	 	 
	
              
                 
                  /s/ Keith Beckham

              

              
                

              

              Keith
                Beckham

            	 	
               
                July 27, 2006

              
                

              

              Date

            
	 	 	 
	
               
/s/
                Bennett Cotten

              
                
Bennett
                Cotten

            	 	
               
                July 27, 2006

              
                

              

              Date

            
	 	 	 
	
              
                /s/
                  Glenn Dowling

              

              
                

              

              Glenn
                Dowling

            	 	
               
                July 27, 2006

              
                

              

              Date

            
	 	 	 
	
              
                 
                  /s/ Mary Helen Dykes

              

              
                

              

              Mary
                Helen Dykes

            	 	
               
                July 27, 2006

              
                

              

              Date

            
	 	 	 
	
              
                 
                  /s/ Charles M. Jones, III

              

              
                

              

              Charles
                M. Jones, III

            	 	
               
                July 27, 2006

              
                

              

              Date

            
	 	 	 
	
              
                 
                  /s/ Van Knowles

              

              
                

              

              Van
                Knowles

            	 	
               
                July 27, 2006

              
                

              

              Date

            
	 	 	 
	
              
                 
                  /s/ Rick Langley

              

              
                

              

              Rick
                Langley

            	 	
               
                July 27, 2006

              
                
Date

            
	 	 	 
	
              
                 
                  /s/ Bill McAfee

              

              
                

              

              Bill
                McAfee

            	 	
               
                July 27, 2006

              
                

              

              Date

            
	 	 	 
	
              
                 
                  /s/ Mark Shoemaker

              

              
                

              

              Mark
                Shoemaker

            	 	
               
                July 27, 2006

              
                

              

              Date

            
	 	 	 
	
              
                 
                  /s/ Jane Anne Sullivan

              

              
                

              

              Jane
                Anne Sullivan

            	 	
               
                July 27, 2006

              
                

              

              Date

            
	 	 	 
	
              
                 
                  /s/ Jay Ventulett

              

              
                

              

              Jay
                Ventulett

            	 	
               
                July 27, 2006

              
                

              

              Date

            
	 	 	 
	
              
                 
                  /s/ Larry Willson

              

              
                

              

              Larry
                Willson

            	 	
               
                July 27, 2006

              
                

              

              
                Date

              

            
	 	 	 
	
              
                  /s/ James Woods

              

              
                

              

              James Woods

            	 	
               
                July 27, 2006

              
                

              

              Date

            

    

     

    
36

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