Document:

Exhibit 10.3

 

2011 Stock Incentive Plan

of Honeywell International Inc. and its Affiliates

 

RESTRICTED UNIT AGREEMENT, FORM 2

 

This RESTRICTED UNIT AGREEMENT
made in Morris Township, New Jersey, as of the [DAY] day of [MONTH, YEAR] (the “Award Date”) between Honeywell International
Inc. (the “Company”) and [EMPLOYEE NAME] (the “Employee”).

 

1.Grant of Award. The Company has granted you [NUMBER]
Restricted Units, subject to the provisions of this Agreement and the 2011 Stock Incentive Plan of Honeywell International Inc.
and its Affiliates (the “Plan”). The Company will hold the Restricted Units [and Additional Restricted Units (as defined
in Section 4)] in a bookkeeping account on your behalf until they become payable or are forfeited or cancelled.

 

2.Definitions. For purposes of this Agreement,
the following definitions apply:

 

		a.	“Actual Award” means the product of (i) the
Plan Payout Percentage (as determined under Section 3), and (ii) your Target Award.

 

		b.	“Compensation Peer Group” means [INSERT COMPANY
NAMES]. If there is any change in the corporate capitalization of a company in the Compensation Peer Group during a Measurement
Period (such as a stock split, corporate transaction or any partial or complete liquidation), the Committee, in its sole discretion,
may take such change into account in determining the Total Shareholder Return of that company. If any company included in the Compensation
Peer Group ceases to exist or to be publicly traded during the Measurement Period, or undergoes any other similar change, the Committee
shall determine the consequences of such event for purposes of this Agreement, including without limitation, the replacement of
such company in the Compensation Peer Group.

 

		c.	“Measurement Period” means [DESCRIBE MEASUREMENT
PERIOD].

 

		d.	“Performance Cycle” means the period beginning
on [DATE] and ending on [DATE]. 

 

		e.	“Target Award” means the number of Restricted
Units awarded to you for the Performance Cycle under Section 1 of this Agreement.

 

		f.	“Total Shareholder Return” means the ratio
of (A) a company’s share price as of the last trading day of a Measurement Period (determined using the average closing share
price over the 30 preceding trading days) plus earned dividends per share during the Measurement Period, over (B) the company’s
share price as of the first trading day of a Measurement Period (determined using the average closing share price over the 30 preceding
trading days). Dividends are assumed earned and reinvested on the ex-dividend date.

 

		g.	[INSERT ADDITIONAL BUSINESS-RELATED DEFINITIONS AS APPLICABLE]

 

3.Performance Measures. For each Measurement Period,
the Company’s Total Shareholder Return will be compared to the Total Shareholder Return of each company in the Compensation
Peer Group, and the Total Shareholder Return of the Compensation Peer Group and the Company shall be ranked. [DESCRIBE OTHER BUSINESS-RELATED
PERFORMANCE MEASURES, AS APPLICABLE]

 

The Plan Payout Percentage shall be determined
based on the following for the Performance Cycle: [DESCRIBE HOW PLAN PAYOUT PERCENTAGE IS DETERMINED].

 

4.[FOLLOWING INCLUDED AT COMMITTEE’S DISCRETION:
Dividend Equivalents. Except as otherwise determined by the Committee, in its sole discretion, you will earn Dividend Equivalents
in an amount equal to the value of any cash or stock dividends paid by the Company upon one Share of Common Stock for each unvested
Restricted Unit or Additional Restricted Unit (as defined below) credited to your bookkeeping account on a dividend record date.
At the vesting date specified in Section 6, such Dividend Equivalents shall be adjusted up or down based on your Actual Award.
In the case of cash dividends, the Company shall credit to your bookkeeping account, on each dividend payment date, an additional
number of Restricted Units (“Additional Restricted Units”) equal to (a) divided by (b), where (a) equals the total
number of unvested Restricted Units and Additional Restricted Units, if any, subject to this Agreement on such date multiplied
by the dollar amount of the cash dividend paid per Share of Common Stock on such date, and (b) equals the Fair Market Value of
a Share on such date. If a dividend is paid to holders of Common Stock in Shares, the Company shall credit to you, on each dividend
payment date, Additional Restricted Units equal to the total number of unvested Restricted Units and Additional Restricted Units
subject to this Agreement on such date multiplied by the Share dividend paid per Share of Common Stock on such date. Additional
Restricted Units are subject to the same restrictions, including but not limited to vesting, transferability and payment restrictions,
that apply to the Restricted Units to which they relate with any fractional Shares rounded up to the nearest whole Share You will
continue to earn Additional Restricted Units on unpaid Restricted Units and Additional Restricted Units that are held in your bookkeeping
account until the vested shares are paid to you.]

 

5.Payment Amount. Each Restricted Unit [and Additional
Restricted Unit] represents one (1) Share of Common Stock.

 

6.Vesting. Except as otherwise provided in Sections
8, 9 and 10 and a deferral election, the vesting and payment of Restricted Units [and related Additional Restricted Units] is contingent
upon you remaining actively employed by the Company on the applicable vesting date(s) specified below: [DESCRIBE VESTING DATE(S)].

 

Except as otherwise provided in Sections
8, 9 and 10 and a deferral election, payment will be made as soon as practicable following the vesting date, but in no event later
than 2-1/2 months after the end of the calendar year in which vesting occurs.

 

The Actual Award [and related Additional
Restricted Units] will be paid solely in Shares.

 

7.Termination of Employment. Except as otherwise
provided in this Agreement, if your Termination of Employment occurs for any reason before the vesting date(s) specified above,
any unvested Restricted Units [and Additional Restricted Units] will be forfeited and your rights with respect to any award under
this Agreement will terminate.

 

8.Death or Disability. If your Termination of Employment
occurs because of your death or you incur a Disability before the last day of the Performance Cycle, you or your estate will receive

 

 

your Target
  Award as your Actual Award for the Performance Cycle. [No Additional Restricted
  Units will be paid in this case. OR Additional Restricted Units will be calculated
  as provided in Section 4.]

 

If your Termination of Employment occurs
because of your death or you incur a Disability after the last day of the Performance Cycle but before the Actual Award is fully
paid, you or your estate will receive the remainder of your unpaid Actual Award for the Performance Cycle. [No Additional Restricted
Units will be paid in this case. OR Additional Restricted Units will be calculated as provided in Section 4.]

 

9.Full Retirement. [INCLUDE AS APPLICABLE: For
the avoidance of doubt, if your Termination of Employment occurs solely because of your Full Retirement before the last day of
the Performance Cycle, all Restricted Units [and Additional Restricted Units] will be forfeited and your rights with respect to
any award under this Agreement will terminate.

 

OR

 

If your Termination of Employment occurs solely because of
your Full Retirement before the last day of the Performance Cycle, you will receive a pro-rata payment of your Target Award as
your Actual Award equal to the product of (a) times (b), minus (c), where (a) equals the total number of Restricted Units set forth
in Section 1 above [plus the total number of Additional Restricted Units credited to you as of your Termination of Employment],
(b) equals the ratio of your complete years of service as an employee of the Company or its Affiliates between the Award Date and
your Termination of Employment, and the number of complete years of service required under this Agreement to be fully vested in
all Restricted Units [and Additional Restricted Units], and (c) equals the number of Restricted Units [and Additional Restricted
Units] that vested before your Termination of Employment.

 

OR

 

If your Termination of Employment occurs solely because of
your Full Retirement before the last day of the Performance Cycle, you will be vested in an additional number of Restricted Units
[and related Additional Restricted Units] equal to [INSERT VESTING PROVISION ON FULL RETIREMENT].]

 

[INCLUDE AS APPLICABLE: If your Termination of Employment
occurs solely because of your Full Retirement after the last day of the Performance Cycle but before the Actual Award is fully
paid, you will receive the remainder of your unpaid Actual Award for the Performance Cycle.

 

OR

 

If your Termination of Employment occurs solely because of
your Full Retirement after the last day of the Performance Cycle but before the Actual Award is fully paid, any unpaid Actual Award
will be forfeited and your rights with respect to any such Actual Award under this Agreement will terminate.

 

OR

 

If your Termination of Employment occurs solely because of
your Full Retirement after the last day of the Performance Cycle but before the Actual Award is fully paid, any unpaid Actual Award
will be paid as follows: [INSERT VESTING PROVISION ON FULL RETIREMENT].]

 

[No Additional Restricted Units will be paid in this case.
OR Additional Restricted Units will be calculated as provided in Section 4.]

 

[INCLUDE AS APPLICABLE: Notwithstanding the preceding sentence,
if you are a “specified employee” under Section 409A of the Code as of the date your Termination of Employment occurs
due to Full Retirement, payment for vested Restricted Units [and Additional Restricted Units] will be made on the first business
day of the first calendar month that begins after the six-month anniversary of your Termination of Employment, or, if earlier,
your death.

 

Subject to a deferral election, if (i) you are eligible for
Full Retirement on the Award Date or you become eligible for Full Retirement before the last vesting date described in Section
6 of this Agreement and (ii) your Termination of Employment does not occur before the last vesting date described in Section 6
of this Agreement, payment for vested Restricted Units [and Additional Restricted Units] will be made as soon as practicable following
the applicable vesting date described in Section 6 of this Agreement but in no event later than the last day of the calendar year
in which each such vesting date occurs.]

 

10.Change in Control. If a Change in Control of
the Company occurs before the last day of the Performance Cycle, you will be deemed to have earned your Target Award [and Additional
Restricted Units] as your Actual Award. If a Change in Control of the Company occurs after the last day of the Performance Cycle
but before the Actual Award is fully paid, you will receive the unpaid remainder of your Actual Award [and Additional Restricted
Units] for the Performance Cycle.

 

[Subject to the terms of a deferral election,]
you will receive the award due in a single sum payment no later than the earlier of 90 days after the date of the Change in Control
or two and one-half months after the end of the calendar year in which the Change in Control occurs. Such single sum payment will
be in cash or Shares, as determined by the Committee.

 

11.[FOLLOWING INCLUDED AT COMMITTEE’S DISCRETION:
Deferral of Payment. If you would like to defer payment on the Restricted Units and related Additional Restricted Units,
you may do so in writing on the deferral form provided with this grant setting forth your desired payment schedule. The deferral
shall not be permitted if, within the determination of the Company, such deferral would result in a violation of Section 409A of
the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations promulgated thereunder. If the deferral
is not permitted, then payment shall be made as provided in this Agreement. All Additional Restricted Units shall be subject to
the same deferral restrictions as the Restricted Units to which they relate.]

 

12.Transfer of Awards. You may not transfer the
Restricted Units, [Additional Restricted Units] or any interest in such Units except by will or the laws of descent and distribution
or except as otherwise permitted by the Committee and as specified in the Plan. Any other attempt to dispose of your interest shall
be null and void.

 

13.Withholdings. The Company or your local employer
shall have the power and the right to deduct or withhold, or require you to remit to the Company or to your local employer, prior
to any issuance or delivery of Shares on Restricted Units [or Additional Restricted Units], an amount sufficient to satisfy taxes
imposed under the laws of any country, state, province, city or other jurisdiction, including but not limited to income taxes,
capital gain taxes, transfer taxes, and social security contributions, and National Insurance Contributions, that are required
by law to be withheld as determined by the Company or your local employer.

 

14.Requirements for and Forfeiture
of Award.

		a.	General. The Award is expressly contingent upon
you complying with the terms, conditions and definitions contained in this Section 14 and in any other agreement (including but
not limited to Section 11 of the Stock Option Award Agreement for the Option granted on February 25, 2011, if applicable) that
governs your noncompetition with Honeywell, your nonsolicitation of Honeywell’s employees, customers, suppliers, business
partners and vendors, and/or your conduct with respect to Honeywell’s trade secrets and proprietary and confidential information.

		b.	Remedies. 

		1.	You expressly agree and acknowledge that the forfeiture
provisions of subsection 14.b.3. of this Agreement shall apply if, from the Award Date until the date that is twenty-four (24)
months after your Termination of Employment for any reason, you enter into an employment, consultation or similar agreement or
arrangement (including any arrangement for service as an agent, partner, stockholder, consultant, officer or director) with any
entity or person engaged in a business in which Honeywell is engaged if the business is competitive (in the sole judgment of the
Committee) with Honeywell and the Committee has not approved the agreement or arrangement in writing.

		2.	In addition to the relief described in subsection 14.b.3
of this Agreement and any other agreement that governs your noncompetition with Honeywell, your nonsolicitation of Honeywell’s
employees, customers, suppliers, business partners and vendors, and/or your conduct with respect to Honeywell’s trade secrets
and proprietary and confidential information, if the Committee determines, in its sole judgment, that you have violated the terms
of any such agreement, (i) any Restricted Units [and Additional Restricted Units] that have not vested under this Agreement shall
immediately be cancelled, and you shall forfeit any rights you have with respect to such Units as of the date of the Committee’s
determination, and (ii) you shall immediately deliver to the Company Shares equal in value to the Restricted Units [and Additional
Restricted Units] you received prior to the date of the Committee’s determination.

		3.	If the Committee determines, in its sole judgment, that
you have engaged in an act that violates subsection 14.b.1. of this Agreement, (i) any Restricted Units [and Additional Restricted
Units] that have not vested under this Agreement shall immediately be cancelled, and you shall forfeit any rights you have with
respect to such Units as of the date of the Committee’s determination, and (ii) you shall immediately deliver to the Company
Shares equal in value to the Restricted Units [and Additional Restricted Units] you received during the period beginning six (6)
months prior to your Termination of Employment and ending on the date of the Committee’s determination. 

		4.	Notwithstanding anything in the Plan or this Agreement
to the contrary, you acknowledge that the Company may be entitled or required by law, Company policy or the requirements of an
exchange on which the Shares are listed for trading, to recoup compensation paid to you pursuant to the Plan, and you agree to
comply with any Company request or demand for recoupment. 

15.Restrictions on Payment of Shares. Payment of
Shares for your Restricted Units [and Additional Restricted Units] is subject to the conditions that, to the extent required at
the time of 

 

exercise,
  (i) the Shares underlying the Restricted Units [and Additional Restricted Units]
  shall be duly listed, upon official notice of redemption, upon the New York
  Stock Exchange, and (ii) a Registration Statement under the Securities Act
  of 1933 with respect to the Shares shall be effective. The Company shall not
  be required to deliver any Common Stock until all applicable federal and state
  laws and regulations have been complied with and all legal matters in connection
  with the issuance and delivery of the Shares have been approved by counsel
  for the Company.

 

16.Adjustments.Any adjustments to the Restricted
Units [and Additional Restricted Units] will be governed by Section 5.3 of the Plan.

 

17.Disposition of Securities. By accepting the
Award, you acknowledge that you have read and understand (i) the Company’s policy, and are aware of and understand your obligations
under applicable securities laws in respect of trading in the Company’s securities and (ii) the Company’s stock ownership
guidelines as they apply to this Award. The Company shall have the right to recover, or receive reimbursement for, any compensation
or profit you realize on the disposition of Shares received for Restricted Units [or Additional Restricted Units] to the extent
that the Company has a right of recovery or reimbursement under applicable securities laws.

 

18.Plan Terms Govern. The vesting and redemption
of Restricted Units [or Additional Restricted Units], the disposition of any Shares received for Restricted Units [or Additional
Restricted Units], the treatment of gain on the disposition of these Shares, and the treatment of Dividend Equivalents are subject
to the provisions of the Plan and any rules that the Committee may prescribe. The Plan document, as may be amended from time to
time, is incorporated into this Agreement. Capitalized terms used in this Agreement have the meaning set forth in the Plan, unless
otherwise stated in this Agreement. In the event of any conflict between the terms of the Plan and the terms of this Agreement,
the Plan shall control. By accepting the Award, you acknowledge that the Plan and the Plan prospectus, as in effect on the date
of this Agreement, have been made available to you for your review. Without limiting the generality of the foregoing, you agree
that all determinations made by the Committee of Total Shareholder Return and the Company’s ranking within the Compensation
Peer Group shall be final, binding and conclusive on you in accordance with Article III of the Plan.

 

19.Personal Data.

 

		a.	By entering into this Agreement, and as a condition of
the grant of the Restricted Units, you expressly consent to the collection, use, and transfer of personal data as described in
this Section to the full extent permitted by and in full compliance with applicable law. 

 

		b.	You understand that your local employer holds, by means
of an automated data file, certain personal information about you, including, but not limited to, name, home address and telephone
number, date of birth, social insurance number, salary, nationality, job title, any shares or directorships held in the Company,
details of all restricted units or other entitlement to shares awarded, canceled, exercised, vested, unvested, or outstanding in
your favor, for the purpose of managing and administering the Plan (“Data”). 

 

		c.	You further understand that part or all of your Data may
be also held by the Company or its Affiliates, pursuant to a transfer made in the past with your consent, in respect of any previous
grant of restricted units or awards, which was made for the same purposes of managing and administering of previous award/incentive
plans, or for other purposes. 

 

		d.	You further understand that your local employer will transfer
Data to the Company or its Affiliates among themselves as necessary for the purposes of implementation, administration, and management
of your participation in the Plan, and that the Company or its Affiliates may transfer data among themselves, and/or each, in turn,
further transfer Data to any third parties assisting the Company in the implementation, administration, and management of the Plan
(“Data Recipients”). 

 

		e.	You understand that the Company or its Affiliates, as well
as the Data Recipients, are or may be located in your country of residence or elsewhere, such as the United States. You authorize
the Company or its Affiliates, as well as the Data Recipients, to receive, possess, use, retain, and transfer Data in electronic
or other form, for the purposes of implementing, administering, and managing your participation in the Plan, including any transfer
of such Data, as may be required for the administration of the Plan and/or the subsequent holding of Shares on your behalf, to
a broker or third party with whom the Shares may be deposited. 

 

		f.	You understand that you may show your opposition to the
processing and transfer of your Data, and, may at any time, review the Data, request that any necessary amendments be made to it,
or withdraw your consent herein in writing by contacting the Company. You further understand that withdrawing consent may affect
your ability to participate in the Plan.

 

20.Discretionary Nature and Acceptance of Award. By
accepting this Award, you agree to be bound by the terms of this Agreement and acknowledge that:

 

		a.	The Company (and not your local employer) is granting your
Restricted Units [and Additional Restricted Units]. Furthermore, this Agreement is not derived from any preexisting labor relationship
between you and the Company, but rather from a mercantile relationship. 

 

		b.	The Company may administer the Plan from outside your country
of residence and United States law will govern all Restricted Units [and Additional Restricted Units] granted under the Plan. 

 

		c.	Benefits and rights provided under the Plan are wholly
discretionary and, although provided by the Company, do not constitute regular or periodic payments. 

 

		d.	The benefits and rights provided under the Plan are not
to be considered part of your salary or compensation under your employment with your local employer for purposes of calculating
any severance, resignation, redundancy or other end of service payments, vacation, bonuses, long-term service awards, indemnification,
pension or retirement benefits, or any other payments, benefits or rights of any kind. You waive any and all rights to compensation
or damages as a result of the termination of employment with your local employer for any reason whatsoever insofar as those rights
result, or may result, from the loss or diminution in value of such rights under the Plan or your ceasing to have any rights under,
or ceasing to be entitled to any rights under, the Plan as a result of such termination.

 

		e.	The grant of Restricted Units [and Additional Restricted
Units] hereunder, and any future grant of Restricted Units [or Additional Restricted Units] under the Plan, is entirely voluntary,
and at the complete discretion of the Company. Neither the grant of the Restricted Units [, Additional Restricted Units] nor any
future grant by the Company

 

		 	will be deemed to create any obligation to make any future grants, whether or not such a reservation
is explicitly stated at the time of such a grant. The Company has the right, at any time and/or on an annual basis, to amend, suspend
or terminate the Plan; provided, however, that no such amendment, suspension, or termination will adversely affect your rights
hereunder. 

 

		f.	The Plan will not be deemed to constitute, and will not
be construed by you to constitute, part of the terms and conditions of employment. Neither the Company nor your local employer
will incur any liability of any kind to you as a result of any change or amendment, or any cancellation, of the Plan at any time.

 

		g.	Participation in the Plan will not be deemed to constitute,
and will not be deemed by you to constitute, an employment or labor relationship of any kind with the Company.

 

21.Limitations. Nothing in this Agreement or the
Plan gives you any right to continue in the employ of the Company or any of its Affiliates or to interfere in any way with the
right of the Company or any Affiliate to terminate your employment at any time. Payment of your Restricted Units [and Additional
Restricted Units] is not secured by a trust, insurance contract or other funding medium, and you do not have any interest in any
fund or specific asset of the Company by reason of this Award or the account established on your behalf. You have no rights as
a shareowner of the Company pursuant to the Restricted Units [and Additional Restricted Units] until Shares are actually delivered
to you.

 

22.Incorporation of Other Agreements. This Agreement
and the Plan constitute the entire understanding between you and the Company regarding the Restricted Units. This Agreement supersedes
any prior agreements, commitments or negotiations concerning the Restricted Units [and Additional Restricted Units].

 

23.Severability. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity or enforceability of the other provisions of the Agreement, which
shall remain in full force and effect. Moreover, if any provision is found to be excessively broad in duration, scope or covered
activity, the provision shall be construed so as to be enforceable to the maximum extent compatible with applicable law.

 

24.Governing Law. The Plan, this Agreement, and
all determinations made and actions taken under the Plan or this Agreement shall be governed by the internal substantive laws,
and not the choice of law rules, of the State of Delaware and construed accordingly, to the extent not superseded by applicable
federal law.

 

25.Agreement Changes. The Company reserves the
right to change the terms of this Agreement and the Plan without your consent to the extent necessary or desirable to comply with
the requirements of Code section 409A, the Treasury regulations and other guidance thereunder.

 

26.Acknowledgements. By accepting this Agreement,
you agree to the following: (i) you have carefully read, fully understand and agree to all of the terms and conditions described
in this Agreement, the Plan, the Plan’s prospectus and all accompanying documentation; and (ii) you understand and agree
that this Agreement and the Plan constitute the entire understanding between you and the Company regarding the Restricted Units,
and that any prior agreements, commitments or negotiations concerning the Restricted Units are replaced and superseded.

 

27.Award Acceptance. To retain this Award, you
must accept it by signing the Agreement below and, by signing this Agreement, you shall be deemed to consent to the application
of the terms 

 

and conditions
  set forth in this Agreement and the Plan. If you do not wish to accept this
  Award, you must contact Honeywell International Inc., Executive Compensation/AB-1D,
  101 Columbia Road, Morristown, New Jersey 07962 in writing within thirty (30)
  days of the Award Date.

 

 

I Accept:

 

 

____________________________________

Signature Dateex10agreement.htm

AGREEMENT BY AND BETWEEN

Beacon Federal

Syracuse, NY

and

The Comptroller of the Currency

 

Beacon Federal, Syracuse, NY (“Association”) 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 Association, and, toward that end, wish the Association to operate safely and soundly and in accordance with all applicable laws, rules and regulations.

 

The Comptroller has found unsafe and unsound banking practices relating to asset quality and credit risk management at the Association.

 

In consideration of the above premises, it is agreed, between the Association, by and through its duly elected and acting Board of Directors (“Board”), and the Comptroller, through his authorized representative, that the Association 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 “written agreement” within the meaning of 12 U.S.C. § 1818(u)(1)(A).

 

 

  

  

  

 

 

 

(4)           This Agreement shall be construed to be a “formal written agreement” within the meaning of 12 C.F.R. § 163.555.0F1 See 12 U.S.C. § 1831i.

 

(5)           This Agreement shall cause the Association to not be eligible for “expedited treatment” pursuant to 12 C.F.R. § 116.5, unless otherwise informed in writing by the Comptroller. Among other things, this means that the Association shall not declare or pay dividends or make any other capital distributions, as that term is defined in 12 C.F.R. § 163.141, without first filing an application pursuant to 12 C.F.R. § 163.143(a) and receiving the prior written approval of the OCC.

 

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

 

Daniel L. Bailey

Assistant Deputy Comptroller

Syracuse Field Office

5000 Brittonfield Parkway, Suite 102

East Syracuse, NY 13057

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, of which no more than one (1) shall be an employee or controlling shareholder of the Association or any of its affiliates (as the term

  

1 In order to facilitate the Office of the Comptroller of the Currency’s (OCC) enforcement and administration of former Office of Thrift Supervision (OTS) rules and to make appropriate changes to these rules to reflect OCC supervision of federal savings associations as of the transfer date, the OCC republished, with nomenclature and other technical changes, the OTS regulations formerly found in Chapter V of Title 12 of the Code of Federal Regulations. The republished regulations are codified with the OCC’s regulations in Chapter I at parts 100 through 197 (“Republished Regulations”), effective on July 21, 2011. The
Republished Regulations supersede the OTS regulations in Chapter V for purposes of OCC supervision and regulation of federal savings associations. OTS Integration Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act; Interim Final Rule, 76 Fed.Reg. 48,950 (Aug. 9, 2011). References in this document are to the Republished Regulations at 12 C.F.R. Chapter I.

  

2

  

“affiliate” is defined in 12 U.S.C. § 371c(b)(1)), or a family member of any such person. Upon appointment, the names of the members of the Compliance Committee and, in the event of a change of the membership, the name of any new member shall be submitted in writing to the Assistant Deputy Comptroller. The Compliance Committee shall be responsible for monitoring and coordinating the Association’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 quarterly 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;

	
  

	
(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 Assistant Deputy Comptroller within ten (10) days of receiving such report.

 

ARTICLE III

ENSURE COMPETENT BOARD AND MANAGEMENT

 

 (1)           Within sixty (60) days, the Board shall review and assess the qualifications of each senior executive officer (as the term “senior executive officer” is defined in 12 C.F.R. § 163.555(4)) and ensure that the Association has competent management in place on a full-time basis in all senior executive officer positions, including President, Chief Operating Officer, Chief Financial Officer, Chief Lending Officer, Chief Credit Officer and commercial lending 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
Association in a safe and sound manner. The Board may use the services of a third-party consultant to assist the Board in its review, provided that the third-party consultant is not affiliated with any Board member and the Board has received prior approval from the OCC. The Board shall:

 

 

  

3

  

 

	
  

	
(a)

	
review the capabilities of the Association’s senior executive officers to perform present and anticipated duties and the Board will determine whether management changes will be made;

	
  

	
(b)

	
assess each of these officers’ experience, other qualifications and performance compared to the position’s description, duties and responsibilities; and

	
  

	
(c)

	
address whether all critical managerial responsibilities and risk areas are covered by the current senior executive officers’ job descriptions and adjust the job descriptions as necessary.

 

(2)           If the Board determines that an officer subject to assessment under Paragraph (1) of this Article will continue in his or her position but that the officer’s depth of skills needs improvement, the Board will within thirty (30) days of such determination develop and implement a written program, with specific time frames, to improve the officer’s supervision and management of the Association. 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;

	
  

	
(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 Association’s goals and objectives.

 

 

  

4

  

 

Upon completion, a copy of the written program shall be submitted to the Assistant Deputy Comptroller.

 

(3)           Within sixty (60) days, the Board shall review and assess the qualifications of each director and ensure that the Association has a competent Board of Directors in place.  The Board may use the services of a third-party consultant to assist the Board in its review, provided that the third-party consultant is not affiliated with any Board member and the Board has received prior approval from the OCC.

 

(4)           If a position referenced in Paragraph (1) of this Article is vacant now or in the future, including if the Board realigns an existing officer’s responsibilities and a position referenced in Paragraph (1) of this Article becomes vacant, the Board shall within sixty (60) days of such vacancy appoint (subject to the receipt of prior regulatory non-objection under Paragraph (5) of this Article) a capable person to the vacant position who shall be vested with sufficient executive authority to ensure the Association’s compliance with this Agreement and the safe and sound operation of functions within the scope of that position’s
responsibility.

 

(5)           Prior to the appointment of any individual to a senior executive officer position or as a director, the Board shall submit to the Assistant Deputy Comptroller the following information:

 

	
  

	
(a)

	
a written notice as required by 12 C.F.R. Part 163, Subpart H (Notice of Change of Director or Senior Executive Officer);

	
  

	
(b)

	
the information specified in Section 720 of the OTS Applications Handbook (Officer and Director Approvals);

	
  

	
(c)

	
a written statement of the Board’s reasons for selecting the proposed officer or director; and

	
  

	
(d)

	
a written description of the proposed officer or director’s duties and responsibilities.

 

 

  

5

  

 

(6)           The Assistant Deputy Comptroller shall have the power to disapprove the appointment of the proposed senior executive officer or the proposed director. However, the failure to exercise such veto power shall not constitute an approval or endorsement of the proposed executive officer.

 

ARTICLE IV

CAPITAL PLAN

 

(1)           Within one hundred and twenty (120) days, the Board shall develop, and upon receiving a determination of no supervisory objection in accordance with Paragraph (2) of this Article, implement and thereafter ensure Association adherence to a three year capital program, consistent with the Association’s business plan as required by Article V. The program shall include:

 

	
  

	
(a)

	
specific plans for the maintenance of adequate capital in relation to the Association’s risk profile;

	
  

	
(b)

	
projections for growth and capital requirements based upon a detailed analysis of the Association’s assets, liabilities, earnings, fixed assets, and off-balance sheet activities;

	
  

	
(c)

	
projections of the sources and timing of additional capital to meet the Association’s current and future needs;

	
  

	
(d)

	
the primary source(s) from which the Association will strengthen its capital structure to meet the Association’s needs; and

	
  

	
(e)

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

 

 

  

6

  

 

 

(2)           Upon completion, the Association’s capital program shall be submitted to the Assistant Deputy Comptroller for prior determination of no supervisory objection. Upon  receiving a determination of no supervisory objection from the Assistant Deputy Comptroller, the Board shall adopt and the Association shall immediately implement and adhere to the capital program within the one hundred and twenty (120) day period outlined in Paragraph (1) of this Article. The Board shall review and update the Association’s capital program on an annual basis, or more frequently if necessary. Copies of the reviews and updates shall be submitted to
the Assistant Deputy Comptroller.

 

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

 

ARTICLE V

BUDGET/BUSINESS PLAN

 

(1)           Within one hundred and twenty (120) days of the date of this Agreement, the Board shall develop, and upon receiving a determination of no supervisory objection in accordance with Paragraph (2) of this Article, implement and thereafter ensure Association adherence to a written three-year business plan that shall include a projection of major balance sheet and income statement components. The business plan shall also include a written profit plan and a detailed budget. Specifically, the business plan shall describe:

 

 

  

7

  

 

 

	
  

	
(a)

	
the Board’s general business philosophy, strategic goals and objectives for the three-year period, and the means by which the Association will achieve those goals and objectives together with specific time frames;

	
  

	
(b)

	
a detailed description of all material activities and related risks that the Association intends to engage in during the term of the business plan;

	
  

	
(c)

	
a budget that corresponds to the business plan’s goals and objectives, and a system to monitor the Association’s performance in comparison to the budget.

 

(2)           The Association shall submit a copy of the business plan to the Assistant Deputy Comptroller for review and written determination of no supervisory objection.  Upon receiving a determination of no supervisory objection from the Assistant Deputy Comptroller, the Association shall immediately implement and adhere to the business plan within the one hundred and twenty (120) day period outlined in Paragraph (1) of this Article.

 

(3)           The Association shall submit to the Assistant Deputy Comptroller for its review and prior determination of no supervisory objection, with at least sixty (60) days advance, written notice, its intent to deviate significantly from the business plan.

 

	
  

	
(a)

	
For purposes of this Article, changes that may constitute a significant deviation from the business plan include, but are not limited to, any significant deviations from the Association’s business plan relating to: (i) marketing strategies, marketing partners, acquisition channels; (ii) underwriting practices and standards, account management strategies and test programs; (iii) collection strategies, partners or operations; (iv) accounting processes and practices; (v) funding strategy; or (vi) any other changes in personnel, operations or external factors that may have a material impact on the Association’s operations or financial performance.

	
  

	
(b)

	
Prior to making any changes that significantly deviate from the Association’s business plan, the Board shall perform an evaluation of the adequacy of the Association’s organizational structure, staffing, management information systems, internal controls and written policies and procedures to identify, measure, monitor, and control the risks associated with the product or service. The evaluation shall include an assessment of the impact of such change on the Association’s condition, including a profitability analysis.

 

 

  

8

  

 

ARTICLE VI

BUSINESS CONTINUITY PLAN

 

(1)           Within ninety (90) days of the date of this Agreement, the Board shall develop, implement, and thereafter ensure the Association’s adherence to a written Corporate Business Continuity Plan (“BCP”) that shall conform to the March 2008 FFIEC Business Continuity Handbook and the Interagency Guidance on Pandemic Planning, and, at a minimum, include the following:

 

	
  

	
(a)

	
ensure an adequate number of qualified staff is engaged to develop, implement, update and maintain the BCP and pandemic plan, oversee testing of the plan and train employees involved in the BCP process;

	
  

	
(b)

	
develop and maintain a BCP Risk Assessment that is based on assumptions documented in the Business Impact Analysis;

	
  

	
(c)

	
ensure mission critical systems are backed-up to the Association’s hot- site;

	
  

	
(d)

	
document the steps necessary to recover a department, including branches, in various disaster scenarios based on the outcome of the BCP Risk Assessment;

	
  

	
(e)

	
ensure facilities identified as back-up sites for various departments and branches have the capacity and infrastructure to allow recovery; and

	
  

	
(f)

	
expand the testing strategy to include more in depth testing beyond a table top exercise.

 

(2)           The Board shall ensure that the Association has processes, personnel and control systems to ensure implementation of and adherence to the business plan developed pursuant to this Article.

 

 

  

9

  

 

ARTICLE VII

LOAN PORTFOLIO MANAGEMENT

 

(1)           Within sixty (60) days, the Board shall establish credit risk management practices that ensure effective credit administration, portfolio management and monitoring, and risk mitigation. In doing so, the Board shall adopt and the Association (subject to Board review and ongoing monitoring) shall implement and thereafter ensure adherence to a written credit policy to improve the Association’s loan portfolio management. The credit policy shall include (but not be limited to):

 

	
  

	
(a)

	
revision and/or development of Association procedures to ensure adherence to the Association’s internal lending policies and concentration limits, including, but not limited to, the Association’s commercial lending activities;

	
  

	
(b)

	
revision and/or development of the Association’s procedures to ensure accuracy of risk ratings and proper and timely problem loan identification, including non-accrual loans;

	
  

	
(c)

	
procedures that require ongoing monitoring of borrower ability to repay the loan through receipt and documented review of current borrower, principal and guarantor financial information;

	
  

	
(d)

	
procedures and controls to periodically verify the existence and lien position of collateral;

	
  

	
(e)

	
appropriate internal controls to ensure appraisals and/or evaluations consistent with the requirements of 12 C.F.R. Part 164 are obtained and reviewed on a timely basis prior to consummation of credit facilities:

	
  

	
(f)

	
credit risk rating definitions consistent with applicable regulatory guidance;

	
  

	
(g)

	
procedures for early problem loan identification, to ensure that credits are accurately risk rated at least quarterly;

	
  

	
(h)

	
a system to effectively monitor previously charged-off assets and their recovery potential;

	
  

	
(i)

	
a requirement to identify, track and report all loans approved as exceptions to the lending policy, including real estate loans that exceed the supervisory loan-to-value limits; and

	
  

	
(j)

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

 

 

  

10

  

 

 

(2)           Beginning September 30, 2012, on a quarterly basis management will provide the Board with written reports including, at a minimum, the following information:

 

	
  

	
(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 Association’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 Association; and

	
  

	
(h)

	
the identification of loans and leases not in conformance with the Association’s lending and leasing policies, and exceptions to the Association’s lending and leasing policies.

 

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

 

ARTICLE VIII

CONCENTRATIONS OF CREDIT

 

(1)           Within sixty (60) days, the Board shall adopt, implement, and thereafter ensure Association adherence to a written asset diversification program consistent with the guidance set forth in OTS CEO Memo 2521F2 and the “Concentrations of Credit” booklet of the Comptrollers’ Handbook (December 13, 2011). The program shall include, but not necessarily be limited to, the following:

 

_______________

2 CEO Memo 252, issued December 14, 2006 provides guidance on “Commercial Real Estate Concentration Risks”.

  

11

  

 

	
  

	
(a)

	
a review of the balance sheet to identify any concentrations of credit;

	
  

	
(b)

	
a written analysis of any concentration of credit identified above in order to identify and assess the inherent credit, liquidity, and interest rate risk;

	
  

	
(c)

	
policies and procedures to control and monitor concentrations of credit including: (i) comprehensive and reasonable loan concentration limits expressed as a percentage of total risk-based capital for all commercial real estate (CRE) loans in the aggregate and for each primary and identifiable sub-category of CRE loans (i.e., construction, multi-family, hotel, land, nonresidential, and nonmortgage commercial loans);

	
  

	
(d)

	
specific review procedures and reporting requirements, including written reports to the Board, to identify, monitor, and control the risks associated with concentrations of credit and periodic market analysis for the various property types and geographic markets represented in the portfolio; and

	
  

	
(e)

	
a written action plan, including specific time frames, to reduce the risk of any concentration deemed imprudent in the analysis conducted pursuant to paragraph (1)(b) of this Article and to bring the Association into compliance with its concentration of credit limits established pursuant to paragraph (1)(c) of this Article.

 

(2)           For purposes of this Article, a concentration of credit is as defined in CEO Memo 252.

 

(3)           The Board shall ensure that future concentrations of credit are subjected to the analysis required by subparagraph (1)(b) of this Article and that the analysis demonstrates that the concentration will not subject the Association to undue credit or interest rate risk.

 

(4)           The Board shall forward a copy of any analysis performed on existing or potential concentrations of credit to the Assistant Deputy Comptroller immediately following the review.

 

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

 

  

12

  

 

ARTICLE IX

CRITICIZED ASSETS

 

(1)           The Association shall take immediate and continuing action to protect its interest in those assets criticized in the ROE, in any subsequent Report of Examination, by internal or external loan review, or in any list provided to management by the National Bank Examiners during any examination.

 

(2)           Within sixty (60) days, the Board shall adopt, implement, and thereafter ensure Association adherence to a written program designed to eliminate the basis of criticism of assets equal to or exceeding two hundred and fifty thousand dollars ($250,000), criticized in the ROE, in any subsequent Report of Examination, or by any internal or external loan review, or in any list provided to management by the National Bank Examiners during any examination as “doubtful” “substandard.” This program shall include, at a minimum:

 

	
  

	
(a)

	
an identification of the expected sources of repayment;

	
  

	
(b)

	
the appraised value of supporting collateral and the position of the Association’s lien on such collateral where applicable;

	
  

	
(c)

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

	
  

	
(d)

	
the proposed action to eliminate the basis of criticism and the time frame for its accomplishment.

 

(3)           Upon adoption, a copy of the program shall be forwarded to the Assistant Deputy Comptroller.

 

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

 

(5)           The Board, or a designated committee, shall conduct a review, on at least a quarterly basis, to determine:

 

 

  

13

  

 

	
  

	
(a)

	
the status of each criticized asset or criticized portion thereof that equals or exceeds two hundred and fifty thousand dollars ($250,000);

	
  

	
(b)

	
management’s adherence to the program adopted pursuant to this Article;

	
  

	
(c)

	
the status and effectiveness of the written program; and

	
  

	
(d)

	
the need to revise the program or take alternative action.

 

(6)           A copy of each review shall be forwarded to the Assistant Deputy Comptroller on a quarterly basis (in a format similar to Appendix A, attached hereto).

 

(7)           The Association may extend credit, directly or indirectly, including renewals, extensions or capitalization of accrued interest, to a borrower whose loans or other extensions of credit are criticized in the ROE, in any subsequent Report of Examination, in any internal or external loan review, or in any list provided to management by the National Bank Examiners during any examination and whose aggregate loans or other extensions exceed two hundred and fifty thousand dollars ($250,000) only if each of the following conditions is met:

 

	
  

	
(a)

	
the Board or designated committee finds that the extension of additional credit is necessary to promote the best interests of the Association and that prior to renewing, extending or capitalizing any additional credit, a majority of the full Board (or designated committee) approves the credit extension and records, in writing, why such extension is necessary to promote the best interests of the Association; and

	
  

	
(b)

	
a comparison to the written program adopted pursuant to this Article shows that the Board’s formal plan to collect or strengthen the criticized asset will not be compromised.

 

 

  

14

  

 

(8)           A copy of the approval of the Board or of the designated committee shall be maintained in the file of the affected borrower.

 

ARTICLE X

COMMERCIAL LENDING INTERNAL CONTROLS

 

(1)           Within sixty (60) days, the Board shall develop, implement, and thereafter adhere to a written program to improve its internal controls over its commercial lending activities. The program shall include, but not be limited to, procedures to ensure that:

 

	
  

	
(a)

	
terms and collateral are consistent with loan presentations upon which approvals were based;

	
  

	
(b)

	
collateral interests are perfected and loan proceeds are advanced in strict accordance with loan approval documents;

	
  

	
(c)

	
the Association has a Chief Credit Officer that can effectively lead the credit underwriting and administration, risk rating, and problem loan identification and workout functions; and

	
  

	
(d)

	
the commercial lending functions of the Senior Lender are segregated from the credit administration related activities under the Chief Credit Officer.

 

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

 

ARTICLE XI

LENDING POLICY

 

(1)           Within sixty (60) days, the Board shall review and revise the Association’s written loan policy. In revising this policy, the Board shall refer to 12 C.F.R. §§ 160.93 and 160.170 (Lending Limitations and Records for Lending Transactions). This policy shall incorporate, but not necessarily be limited to, the following:

 

 

  

15

  

 

 

	
  

	
(a)

	
a description of acceptable types of loans that will ensure that:

	
  

	
(i)

	
commercial lines of credit are not extended to borrowers for unknown or inappropriate purposes including but not limited to use as a source of permanent working capital, to make speculative investments, or for unknown purposes; and

	
  

	
(ii)

	
lending management employs prudent lending practices in its area of land development loans and ceases prior practices in which loans were originated with high loan to value ratios, financing was extended to pay for developer’s soft costs, and lending management renewed loans without requiring the necessary principal reductions or terming out loans over a reasonable repayment period.

	
  

	
(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 Association’s trade area;

	
  

	
(h)

	
guidelines and limitations for loans originating outside of the Association’s trade area;

	
  

	
(i)

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

	
  

	
(j)

	
distribution of loans by category;

	
  

	
(k)

	
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;

	
  

	
(l)

	
guidelines and limitations on concentrations of credit;

	
  

	
(m)

	
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;

	
  

	
(n)

	
measures to correct the deficiencies in the Association’s lending procedures noted in any ROE;

	
  

	
(o)

	
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 Association’s normal course of business, including all credits which deviate from the Association’s written strategic plan, receive the prior approval of the Board, or a committee thereof.

	
  

	
(p)

	
guidelines consistent with The Federal Financial Institutions Examination Council’s (FFIEC) Policy Statement on Prudent Commercial Real Estate Loan Workouts (October 30, 2009), 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.

	
  

	
(q)

	
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

	
  

	
(r)

	
guidelines for periodic review of the Association’s adherence to the revised lending policy.

 

 

  

16

  

 

 

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

 

(3)           The Board shall ensure that the Association has processes, personnel, and control systems to ensure implementation of and adherence to the policy developed pursuant to this Article.

 

ARTICLE XII

INTERNAL LOAN REVIEW

 

(1)           The Board shall within thirty (30) days ensure that the Association’s current loan review firm is timely and accurately identifying problem loans and leases; as well as develop and implement effective strategies to reduce the Association’s level of problem loans. (2)Within sixty (60) days, the Board shall establish an effective, independent and on-going loan review system to review, at least quarterly, the Association’s loan and lease portfolios to assure the timely identification, categorization and classification of problem credits in accordance with 12 C.F.R. § 160.160. 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 the “Asset Quality” section of the OTS Examination Handbook. Such reports shall include, at a minimum, conclusions regarding:

 

	
  

	
(a)

	
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)

	
credit and collateral documentation exceptions;

	
  

	
(e)

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

	
  

	
(f)

	
the identity of the loan officer who originated each loan reported in accordance with subparagraphs (b) through (e) of the Article;

	
  

	
(g)

	
concentrations of credit;

	
  

	
(h)

	
loans and leases to executive officers, directors, principal shareholders (and their related interests) of the Association; and

	
  

	
(i)

	
loans and leases not in conformance with the Association’s lending and leasing policies, and exceptions to the Association’s lending and leasing policies.

 

 

  

17

  

 

(3)           The Board shall hold officers responsible for the self-identification and risk rating of borrowers experiencing credit deterioration.

 

(4)           Within sixty (60) days, the Board shall develop, implement, and thereafter ensure Association adherence to a written program providing for independent review of problem loans and leases in the Association’s loan and lease portfolios for the purpose of monitoring portfolio trends, on at least a quarterly basis. The program shall require a quarterly report to the Board. At a minimum the program shall provide for an independent reviewer’s assessment of the Association’s:

 

	
  

	
(a)

	
monitoring systems for early problem loan identification to assure the timely identification and rating of loans and leases based on lending officer submissions;

	
  

	
(b)

	
statistical records that 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)

	
system for monitoring previously charged-off assets and their recovery potential;

	
  

	
(d)

	
system for monitoring compliance with the Association’s lending policies and laws, rules, and regulations pertaining to the Association’s lending function; and

	
  

	
(e)

	
system for monitoring the adequacy of credit and collateral documentation.

 

(5)           A written description of the program called for in this Article shall be forwarded to the Assistant Deputy Comptroller upon implementation.

 

(6)           The Board shall ensure that the Association has processes, personnel, and control systems to ensure implementation of and adherence to the program developed pursuant to this Article including but not limited to ensuring that additional internal and/or external problem loan identification training is provided for loan officers, loan committee members, credit officers, and credit analysts.

 

(7)           The Board shall evaluate the internal loan and lease 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).

 

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

 

 

  

18

  

 

ARTICLE XIII

INTERNAL AUDIT

 

(1)           Within sixty (60) days, the Board shall review and revise its independent internal audit program to ensure it is sufficient to:

 

	
  

	
(a)

	
detect irregularities and weak practices in the Association’s operations;

	
  

	
(b)

	
determine the Association’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 Association’s adherence to established policies and procedures, with particular emphasis directed to the Association’s adherence to its loan policies concerning:

	
  

	
(i)

	
adherence to credit approval conditions in the terms provided to borrowers;

	
  

	
(ii)

	
proper separation of duties in authorization of deposits and wires to fund loans;

	
  

	
(iii)

	
verification that the borrowers and guarantors that were evaluated in the loan approval documents are consistent with those in the actual loan agreements and guarantees obtained;

	
  

	
(e)

	
adequately cover all areas;

	
  

	
(f)

	
determine conclusions and ratings on the quality of the areas audited; and

	
  

	
(g)

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

 

  

19

  

 

 

(2)           As part of this audit program, the Board or its Audit Committee shall evaluate the audit reports of any party providing services to the Association, and shall assess the impact on the Association 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, through its Audit Committee, shall ensure that immediate actions are undertaken to remedy deficiencies cited in audit reports, and maintain a written record describing the deficiency, the projected corrective action, and the status of the corrective action.

 

(5)           The audit staff shall evaluate in writing the effectiveness of the corrective action and recommend additional corrective actions, as necessary.

 

(6)           Upon adoption, a copy of the revised internal audit program shall be submitted to the Assistant Deputy Comptroller.

 

ARTICLE XIV

ALLOWANCE FOR LOAN AND LEASE LOSSES

 

(1)           The Board shall review the adequacy of the Association’s Allowance for Loan and Lease Losses (“Allowance”) and its program for the maintenance of an adequate Allowance. This review and program shall comport to the comments on maintaining a proper Allowance found in the Federal Financial Institutions Examination Council (“FFIEC”) Policy Statement on Allowance for Loan and Lease Losses Methodologies and Documentation for Banks and Savings Institutions (July 6, 2001), and the Interagency Policy Statement on the Allowance for Loan and Lease Losses (December 2006), and shall focus particular attention on the following
factors:

 

  

20

  

 

	
  

	
(a)

	
results of the Association’s internal loan review;

	
  

	
(b)

	
results of the Association’s external loan review;

	
  

	
(c)

	
an estimate of inherent loss exposure on each significant credit if determined to be impaired;

	
  

	
(d)

	
an estimate of inherent loss exposure on each credit, if determined to be impaired, in excess of two hundred and fifty thousand dollars ($250,000);

	
  

	
(e)

	
loan loss experience;

	
  

	
(f)

	
trends of delinquent and nonaccrual loans;

	
  

	
(g)

	
concentrations of credit in the Association;

	
  

	
(h)

	
present and prospective economic conditions; and

	
  

	
(i)

	
appropriate treatment of classified loans pursuant to the Interagency Policy Statement on the Allowance for Loan and Lease Losses (December 2006), ASC 450-20 (FAS 5), and ASC 310-10 (FAS 114).

 

(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 is discovered, prior to the filing of the Thrift Financial Report or Consolidated Report 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)           The Board shall ensure that the Association has processes, personnel, and control systems to ensure implementation of and adherence to the program developed pursuant to this Article.

 

  

21

  

 

ARTICLE XV

GOVERNANCE OF INFORMATION SECURITY

 

(1)           Within sixty (60) days, the Board shall require the Association update and improve its information security risk assessment policy and written annual information security report to the Board to ensure adherence to, a comprehensive, written, information security program designed to ensure compliance with 12 C.F.R. Part 170, Appendix B, Information Security Standards. 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 to be completed includes:

 

	
  

	
(a)

	
expanding the written information security risk assessment to include a list of threats and/or vulnerabilities associated each asset that contains non­public customer information (“NPI”); a list of controls associated with the threats and vulnerabilities for each NPI asset; the results of NPI asset controls testing; a list of residual risk and management’s plans to address them; and

	
  

	
(b)

	
expanding the annual written information security report to the Board to include the results of information security monitoring and testing, a summary of residual risk, and recommendations for changes to the information security program.

 

(2)           Within sixty (60) days, the Board shall review the responsibilities of the information security officer (“ISO”) and ensure that his or her duties are consistent with standard industry practice and regulatory requirements including but not limited to:

 

	
  

	
(a)

	
the administration of the Association’s securities programs;

	
  

	
(b)

	
management and monitoring of the risk assessment process;

	
  

	
(c)

	
development of policies, standards, and procedures, testing, and security reporting processes; and

	
  

	
(d)

	
access to review the Association’s firewall and intrusion prevention system compliance and event reports.

 

(3)           Within sixty (60) days, the Board shall ensure that an adequate number of independent and qualified staff is engaged to develop, implement, monitor, and periodically adjust the information security program. A copy of the Association’s information security program should be forwarded to the Assistant Deputy Comptroller.

 

(4)           The Board shall ensure that the Association has policies, processes, personnel, and control systems to ensure implementation of and adherence to the procedures developed pursuant to this Article.

 

 

  

22

  

 

ARTICLE XVI

CLOSING

 

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

 

(2)           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 Association, nothing in this Agreement shall in any way inhibit, estop, bar, or otherwise prevent the Comptroller from so doing.

 

(3)           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 Assistant Deputy Comptroller for good cause upon written application by the Board.

 

(4)           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.

 

(5)           Reference in this Agreement to provisions of statutes, regulations and other published regulatory guidance shall be deemed to include references to all amendments to such provisions as have been made as of the date hereof and references to successor provisions as they become applicable.

 

(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 Association, it is intended to mean that the Board shall:

 

	
  

	
(a)

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

	
  

	
(b)

	
require the timely reporting by Association 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.

 

 

  

23

  

 

 

(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 Association under his supervisory powers, including 12 U.S.C. § 1818(b)(1), and not as a matter of contract law. The Association expressly acknowledges
that neither the Association nor the Comptroller has any intention to enter into a contract. The Association 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 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/ Daniel L. Bailey                                                                                         7/12/12

Daniel L. Bailey                                                                                                Date

Assistant Deputy Comptroller

Syracuse Field Office

 

  

  

24

  

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

 

	
 

/s/ Timothy P. Ahern

Timothy P. Ahern

	
 

7/12/2012

Date

	
 

/s/ John W. Altmeyer

John W. Altmeyer

	
 

7/12/2012

Date

	
 

/s/ Edward H. Butler

Edward H. Butler

	
 

7/12/2012

Date

	
 

/s/ Thomas M. Driscoll

Thomas M. Driscoll

	
 

7/12/2012

Date

	
 

/s/ David R. Hill

David R. Hill

	
 

7/12/2012

Date

	
 

/s/ Gail M. Kinsella

Gail M. Kinsella

	
 

7/12/2012

Date

	
 

/s/ Ross J. Prossner

Ross J. Prossner

	
 

7/12/2012

Date

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00206-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00206-of-00352.parquet"}]]