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{{3-31-96 p.C-3747}}
   [11,031] In the Matter of First Scotland Bank, Laurinburg, North Carolina, Docket No. FDIC-94-115b (8-29-94).

   Bank to cease and desist from such unsafe or unsound practices as failing to provide adequate supervision over the Bank's affairs; operating in violation of applicable laws or regulations; operating without a comprehensive compliance program for consumer and civil rights laws and regulations; operating without a qualified compliance officer and failing to train personnel adequately regarding consumer and civil rights laws. (This order was terminated by order of the FDIC dated 1-22-96. See ¶16,068.)

[.1] Violations of Law—Eliminate/Correct
[.2] Consumer and Civil Rights Laws—Compliance—Minimum Requirements
[.3] Bank Secrecy Act—Compliance—Minimum Requirements
[.4] Truth In Lending Act—"Closed-End Credits"—File Search—Action Required
[.5] Flood Insurance—File Search—Written Report Required
[.6] Community Reinvestment Act—Compliance—Minimum Requirements
[.7] Shareholders—Disclosure—Cease and Desist Order

In the Matter of

FIRST SCOTLAND BANK
LAURINBURG, NORTH CAROLINA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-94-115b

   First Scotland Bank, Laurinburg, North Carolina ("Bank"), having been advised of its right to receive a written Notice of Charges and of Hearing ("NOTICE") detailing unsafe or unsound banking practices and violations of applicable law and regulations alleged to have been committed by the Bank and its right to a hearing regarding such al- {{3-31-96 p.C-3748}} leged charges under section 8(b)(1) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1818(b)(1), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") with a representative of the Legal Division of the Federal Deposit Insurance Corporation ("FDIC"), dated August 23, 1994, whereby solely for the purpose of this proceeding and without admitting or denying any of the alleged charges of unsafe or unsound banking practices and violations of applicable law and regulations, the Bank consented to the issuance of an ORDER TO CEASE AND DESIST ("ORDER") by the FDIC.
   The FDIC considered the matter and determined that it had reason to believe that the Bank had engaged in unsafe or unsound banking practices and had committed violations of applicable law and regulations.
   The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

ORDER TO CEASE AND DESIST
   IT IS HEREBY ORDERED, that the Bank, its institution-affiliated parties, as such term is defined in section 3(u) of the Act, 12 U.S.C. § 1813(u), and its successors and assigns cease and desist from the following unsafe or unsound banking practices and violations of law and regulations:

   [.1] A. Failing to provide adequate supervision and direction over the Bank's compliance with applicable laws and regulations by the board of directors of the Bank to prevent violations of:

         (i) the Bank Secrecy Act, 31 U.S.C. §§ 5311-5326 ("BSA"), and the implementing regulations promulgated thereunder by the Department of the Treasury at 31 C.F.R. Part 103 ("Financial Recordkeeping Regulation"), made applicable to insured state nonmember banks by 31 C.F.R. § 103.46(b)(3) and section 326.8 of the FDIC's Rules and Regulations ("Regulations"), 12 C.F.R. § 326.8;
         (ii) the Truth in Lending Act, 15 U.S.C. §§ 1601–1667e ("TILA"), and the implementing regulations promulgated thereunder by the Board of Governors of the Federal Reserve System ("Federal Reserve") at 12 C.F.R. Part 226 ("Regulation Z"), made applicable to insured state nonmember banks by 15 U.S.C. § 1607(a)(1)(C);
         (iii) the Real Estate Settlement Procedures Act of 1974, 12 U.S.C. §§ 2601-2617 ("RESPA"), and the implementing regulations promulgated thereunder by the Office of the Assistant Secretary for Housing—Federal Housing Commissioner, Department of Housing and Urban Development ("HUD") at 24 C.F.R. Part 3500 ("Regulation X"), made applicable to insured state nonmember banks by 24 C.F.R. § 3500.5;
         (iv) the Truth in Savings Act, 12 U.S.C. §§ 4301–4313 ("TISA"), and the implementing regulations promulgated thereunder by the Federal Reserve at 12 C.F.R. Part 230 ("Regulation DD"), made applicable to insured state nonmember banks by 12 U.S.C. § 4309(a) (1)(A);
         (v) the Expedited Funds Availability Act, 12 U.S.C. §§ 4001–4010 ("EFA"), and the implementing regulations promulgated thereunder by the Federal Reserve at 12 C.F.R. Part 229 ("Regulation CC"), made applicable to insured state nonmember banks by 12 C.F.R. § 229.3(a)(1)(iii);
         (vi) section 329.2 of the Regulations, regarding "Interest on Deposits;"
         (vii) section 339.5 of the Regulations, regarding "Loans in Areas Having Special Flood Hazards;"
         (viii) section 338.7 of the Regulations, regarding "Fair Housing;"
         (ix) section 345.4 of the Regulations, regarding "Community Reinvestment;" and
         (x) section 326.8 of the Regulations, regarding "Procedures For Monitoring Bank Secrecy Act Compliance;"
    B. Engaging in violations of:
         (i) section 103.22(d) and (f) and 103.29(a)(1) and (2) of the Financial Recordkeeping Regulation, 31 C.F.R. §§ 103.22(d) and (f) and 103.29(a)(1) and (2);
         (ii) sections 226.6(a)(1) and (d), 226.9(a), 226.18(b), (c), (d), (e) and (q), 226.19(b)(1) and (2), 226.20(c), and 226.23(b) of Regulation Z, 12 C.F.R. §§ 226.6(a)(1) and (d), 226.9 (a), 226.18(b), (c), (d), (e) and (q), 226.19(b)(1) and (2), 226.20(c), and 226.23(b);
      {{10-31-94 p.C-3749}}
         (iii) section 6(a) of RESPA, 12 U.S.C. § 2605(a);
         (iv) sections 3500.7(a) and 3500.8(a) of Regulation X, 24 C.F.R. §§ 3500.7(a) and 3500.8(a);
         (v) sections 230.5(b) and 230.9(c) of Regulation DD, 12 C.F.R. §§ 230.5(b) and 230.9(c);
         (vi) sections 229.10(c)(1)(vii), 229.12(c), and 229.16 of Regulation CC, 12 C.F.R. §§ 229.10(c)(1)(vii), 229.12(c) and 229.16; and
         (vii) sections 326.8, 329.2, 338.7(a)(1)(i), 339.5 and 345.4(b)(2) of the Regulations, 12 C.F.R. §§ 326.8, 329.2, 338.7(a)(1)(i), 339.5 and 345.4(b)(2);
       C. Operating the Bank without adopting and implementing a comprehensive written compliance program designed to assure and monitor the Bank's compliance with all applicable consumer and civil rights laws and regulations;
       D. Operating the Bank without a qualified compliance officer with the requisite training and experience in administering and managing the Bank's compliance program; and
       E. Failing to provide necessary training on an ongoing basis to all Bank personnel who are assigned and/or perform duties and responsibilities regarding the Bank's compliance with all applicable consumer and civil rights laws and regulations.
       IT IS FURTHER ORDERED that the Bank and its successors and assigns take affirmative action as follows:

       [.1] 1. Within 30 days from the effective date of this ORDER, the Bank shall take all necessary steps, consistent with sound banking practices, to eliminate and/or correct all violations of consumer and civil rights laws and regulations committed by the Bank, as described on pages 2 through 2-a-8 and page 3 of the FDIC's Compliance Report of Examination of the Bank as of March 21, 1994. In addition, the Bank shall adopt appropriate procedures to ensure its future compliance with all applicable consumer and civil rights laws and regulations.

    [.2] 2. (a) Within 60 days from the effective date of this ORDER, the Bank shall have and/or retain a qualified senior compliance officer, who shall have the requisite training and experience to administer and manage the Bank's compliance with all applicable consumer and civil rights laws and regulations. The senior compliance officer shall be provided the necessary written authority to implement the provisions of this ORDER and to ensure the Bank's compliance with all applicable consumer and civil rights laws and regulations. The qualifications of the senior compliance officer shall be assessed on his/her ability to ensure the Bank's compliance with the requirements of this ORDER and with all applicable consumer and civil rights laws and regulations. As long as this ORDER remains in effect, the Bank shall notify the Regional Director of the FDIC's Atlanta Regional Office ("Regional Director") in writing of the identity of any individual as any replacement individual so designated in the future. Such notification shall be in addition to any application and prior approval requirements established by section 32 of the Act, 12 U.S.C. § 18311, and implementing regulations; must include the name and qualifications of any individual designated as the Bank's senior compliance officer; and must be provided at least 30 days prior to the individual assuming such position.
       (b) To facilitate compliance with paragraph 2(a) of this ORDER, and to ensure the Bank's future compliance with all applicable consumer and civil rights laws and regulations, the Bank shall develop, within 60 days from the effective date of this ORDER, a comprehensive written compliance program ("compliance program"), which shall include, at a minimum:
         (i) provisions addressing the requirements specified in the first paragraph on page 1-a of the FDIC's Compliance Report of Examination of the Bank as of March 21, 1994;
         (ii) identification of both the type and number of officer and staff member positions, including the position of senior compliance officer, needed to manage and supervise properly the Bank's compliance with all applicable consumer and civil rights laws and regulations;
         (iii) identification and establishment of such committees of the Bank's board of directors as are needed to provide guidance and oversight to the senior compliance officer and compliance staff;
         (iv) a requirement that the senior com- {{10-31-94 p.C-3750}}pliance officer report at least quarterly to the board of directors regarding his/ her administration of the Bank's compliance program and the Bank's compliance with all applicable consumer and civil rights laws and regulations;
         (v) an evaluation of each current Bank officer, in particular the senior compliance officer, and compliance staff member to determine whether these individuals possess the ability, experience, training and other qualifications required to perform present and anticipated compliance duties, including adherence to the Bank's compliance program;
         (vi) the establishment of a regular, ongoing training program for the senior compliance officer and all other Bank officers and staff members with present or anticipated compliance duties and responsibilities, to ensure that they have and maintain the knowledge and ability necessary to perform their compliance duties; and
         (vii) a plan of action to recruit and hire any additional or replacement personnel with the requisite experience, ability, training and other qualifications, which the board of directors determines are necessary to fill Bank officer or staff member positions consistent with the analysis, evaluation and assessment provided in paragraphs 2(b)(ii) and (v) of this ORDER.
       (c) The written compliance program and any subsequent modification thereto shall be submitted to the Regional Director for review and comment. No more than 30 days from the receipt of any comment from the Regional Director, and after consideration of such comment, the board of directors shall approve the written compliance program and/or any subsequent modification thereto, which approval shall be recorded in the minutes of the board of directors. Thereafter, the Bank and its successors and assigns shall implement and follow the written compliance program and/or any subsequent modification thereto.

    [.3] 3. (a) Within 45 days from the effective date of this ORDER, the Bank shall develop a written BSA compliance program conforming to the requirements of sections 326.8(b) and (c) of the Regulations, 12 C.F.R. §§ 326.8(b) and (c). Such written BSA compliance program shall, at a minimum, provide for each of the elements listed in sections 326.8(c)(1)-(4) of the Regulations, 12 C.F.R. §§ 326.8(c)(1)-(4), and in the FDIC's Policy Statement entitled "Guidelines for Monitoring Bank Secrecy Act Compliance," FDIC Bank Letter No. BL-16-87 (May 18, 1987), a copy of which is appended hereto as Appendix A. Such written BSA compliance program shall, in addition, provide for the continued administration of the program, reasonably designed to assure and monitor compliance with the recordkeeping and reporting requirements set forth in the BSA and the Financial Recordkeeping Regulation, 31 C.F.R. Part 103. The board of directors shall approve the written BSA compliance program and/or any subsequent modification thereto, which approval(s) shall be recorded in the minutes of the board of directors. Thereafter, the Bank and its successors and assigns shall implement and follow the written BSA compliance program and any subsequent modification thereto.
       (b) Within 45 days from the effective date of this ORDER, the Bank shall designate or reaffirm the designation of: (i) the individual or individuals responsible for coordinating and monitoring day-to-day compliance with the BSA and the Financial Recordkeeping Regulation; (ii) the individual or individuals qualified and responsible for conducting independent testing of the Bank's compliance with the BSA and the Financial Recordkeeping Regulation; and (iii) the individual or individuals qualified and responsible for training appropriate Bank personnel in the requirements of and compliance with the BSA and the Financial Recordkeeping Regulation. The board of directors shall approve such designations, which approval shall be recorded in the minutes of the board of directors. Thereafter, the board of directors shall adequately review and monitor the performance and activities of the designated individuals.
       (c) A copy of the written BSA compliance program, as required by paragraph 3(a) of this ORDER, and the identity of the individuals designated pursuant to paragraph 3(b) of this ORDER, as well as any additional or replacement personnel so designated in the future, shall be submitted to the Regional Director.

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    [.4] 4. (a) Within 90 days of the effective date of this ORDER, the Bank shall conduct a search of its credit files regarding the following "closed-end credits," as that term is defined in Regulation Z: (i) the Bank's files regarding any outstanding closed-end credits extended by the Bank on or after July 20, 1992, the date of the FDIC's immediately preceding compliance examination of the Bank; and (ii) the Bank's files regarding any terminated closed-end credits extended by the Bank on or after March 21, 1992, a date two years prior to the date of the FDIC's current compliance examination of the Bank. The Bank shall search such credit files to determine if any such closed-end credits, in addition to those listed on page 2 of the FDIC's Compliance Report of Examination of the Bank as of March 21, 1994, contained TILA disclosure violations which understated the finance charge, and thus the annual percentage rate, charged by the Bank, of the type identified on page 2 of the FDIC's Compliance Report of Examination of the Bank as of March 21, 1994, as a result of a clear and consistent pattern or practice by the Bank, identified during the March 21, 1994 examination, of failing to include the cost of credit life insurance in the disclosed finance charge under circumstances where such costs did not qualify for exclusion from the finance charge pursuant to section 226.4(d) of Regulation Z, 12 C.F.R. § 226.4(d).
       (b) Within 120 days of the effective date of this ORDER, and pursuant to and in accordance with the provisions of section 108(e) of the TILA, 15 U.S.C. § 1607(e), and the Federal Financial Institutions Examination Council's joint policy statement entitled "Administrative Enforcement of the Truth In Lending Act— Restitution," 45 Fed. Reg. 48,712 (July 21, 1980), effective July 11, 1980, a copy of which is appended hereto as Appendix B, the Bank shall make a monetary adjustment to the accounts of (i) the borrowers identified on page 2 of the FDIC's Compliance Report of Examination of the Bank as of March 21, 1994, and (ii) all closed-end credit borrowers identified in the file search required by paragraph 4(a) of this ORDER whose closed-end credits contained TILA disclosure violations of the type described in paragraph 4(a). In making such monetary adjustments, the Bank may rely on and be guided by the Table of Reimbursable Violations contained in the FDIC's Compliance Report of Examination of the Bank as of March 21, 1994, regarding the alternative methods and/or amounts of such monetary adjustments.
       (c) Within 120 days of the effective date of this ORDER, the Bank shall prepare and submit to the Regional Director a written report detailing the results of its closed-end credit file search as required by paragraph 4(a) of this ORDER, which report shall include: (i) the number of closed-end credit files searched; (ii) the number and dollar amounts of all closed-end extensions of credit requiring a monetary adjustment to the account of the borrower pursuant to the TILA, as identified in paragraph 4(b); (iii) the method and amount of monetary adjustment made by the Bank to the account of the borrower on each closed-end extension of credit listed and described pursuant to paragraph 4(c)(ii), and the calculations supporting the amount of the monetary adjustment made in each case; and (iv) the date on which each monetary adjustment listed and described pursuant to paragraph 4(c)(iii) was made. A copy of the written report required by this paragraph shall be submitted to and addressed by the Bank's board of directors at its next board meeting following preparation of the report, and a copy of the report, together with a record of the board's consideration and discussion thereof, shall be included in the board of directors' minutes.

    [.5] 5. (a) Within 90 days of the effective date of this Order, the Bank shall conduct a search of its credit files to identify all outstanding extensions of credit secured by improved real estate or a mobile home located or to be located in an area that has been identified by the Director of the Federal Emergency Management Agency as an area having special flood hazards. The Bank shall determine whether, in the case of each outstanding extension of credit identified as a result of such file search, the building or mobile home and any personal property securing such extension of credit is covered for the term of the loan by flood insurance in an amount at least equal to the outstanding principal balance of the extension of credit or the maximum
    {{10-31-94 p.C-3752}}limit of coverage made available for the particular type of property under the National Flood Insurance Program.
       (b) For each extension of credit identified by the Bank pursuant to the credit file search required by paragraph 5(a) of this ORDER which is determined to be secured by a building or mobile home or personal property which is required to be covered by flood insurance as described in paragraph 5(a) but is not so covered, the Bank shall take all necessary steps to secure or cause the borrower to secure the required flood insurance coverage for such property.
       (c) Within 90 days from the effective date of this ORDER, the Bank shall prepare and submit to the Regional Director a written report detailing the results of its credit file search as required by paragraph 5(a) of this Order, which report shall include: (i) the number of credit files searched; (ii) the number and dollar amounts of all extensions of credit, the security for which is required to be covered by flood insurance as described in paragraph 5(a); (iii) the amount of flood insurance coverage currently in effect for all extensions of credit listed and described pursuant to paragraph 5(c)(ii); (iv) the number and dollar amounts of all extensions of credit, the security for which is determined not to be covered by the required amount of flood insurance; and (v) the means by which and time within which the Bank will secure or cause the borrower to secure flood insurance coverage in the required amount for all extensions of credit listed and described pursuant to paragraph 5(c)(iv). A copy of the written report required by this paragraph shall be submitted to and addressed by the Bank's board of directors at its next board meeting following preparation of the report, and a copy of the report, together with a record of the board's consideration and discussion thereof, shall be included in the board of directors' minutes.

   [.6] 6. Within 90 days from the effective date of this ORDER, the Bank shall take all necessary steps to improve its record of performance in ascertaining and meeting the credit needs of its entire local community, including low-and moderate-income neighborhoods, as required by the Community Reinvestment Act, 12 U.S.C. §§ 2901–2907 ("CRA"), and Part 345 of the Regulations, 12 C.F.R. Part 345. Such steps shall include, but are not necessarily limited to, the following:
       (a) Designating or affirming the designation of the individual, or the composition of any committee of the Bank's board of directors, responsible for coordinating and monitoring the Bank's compliance with CRA and Part 345 of the Regulations, and all aspects of the Bank's CRA performance;
       (b) Approving, adopting and implementing an effective CRA program which meets the requirements of CRA and Part 345 of the Regulations, and follows the guidelines provided in the "Statement of the Federal Financial Supervisory Agencies Regarding the Community Reinvestment Act," FDIC Bank Letter No. BL-16-89 (April 10, 1989), a copy of which is appended hereto as Appendix C;
       (c) Planning and providing marketing of the Bank's credit products that are designed to reach the Bank's entire delineated local community, including low- and moderate-income neighborhoods;
       (d) Developing and implementing a system for ongoing analysis of the geographic distribution of the Bank's extensions of credit, applications for credit submitted to the Bank, and the Bank's denials of applications for credit, designed to ensure that the Bank's ascertainment and marketing efforts are effective in enabling the Bank to meet the credit needs of its entire delineated local community, including low- and moderate-income neighborhoods;
       (e) Requiring periodic submission of written reports to the Bank's board of directors by the individual or committee designated pursuant to paragraph 6(a) regarding the Bank's compliance with CRA and Part 345 of the Regulations, and all aspects of the Bank's CRA performance, which reports shall be included in the board of directors' minutes, together with a record of the board's consideration and discussion thereof; and
       (f) Requiring at least an annual review by the entire board of directors of the Bank's compliance with CRA and Part 345 of the Regulations, and all aspects of the Bank's CRA performance, which review shall be reflected in the board of directors' minutes.

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   [.7] 7. Following the effective date of this ORDER, the Bank shall send to its shareholders or otherwise furnish a description of this ORDER (a) in conjunction with the Bank's next shareholder communication and also (b) in conjunction with its notice or proxy statement preceding the Bank's next shareholder meeting. The description shall fully describe this ORDER in all material respects. The description and any accompanying communication, statement or notice shall be sent to the FDIC, Registration and Disclosure Section, 550 17th Street, N.W., Washington, D.C. 20429, for review at least 20 days prior to dissemination to shareholders. Any changes requested to be made by the FDIC shall be made prior to dissemination of the description, communication, notice or statement.
   8. Within 90 days from the effective date of this ORDER, and within 15 days after the end of each calendar quarter thereafter while this ORDER remains in effect, the Bank shall furnish written progress reports to the Regional Director detailing the form and manner of any actions taken to secure compliance with this ORDER and the results thereof. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Regional Director has released the Bank in writing from making further reports. All progress reports and other written responses to this ORDER shall be reviewed by the board of directors of the Bank and made a part of the minutes of the appropriate board meeting.
   9. The provisions of this ORDER shall become effective ten (10) days from the date of its issuance and shall be binding upon the Bank, its institution-affiliated parties, and its successors and assigns. The provision of this ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provisions of this ORDER shall have been modified, terminated, suspended, or set aside by the FDIC.
   Dated at Atlanta, Georgia, this 29th day of August, 1994.
   Pursuant to delegated authority.

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