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FDIC Enforcement Decisions and Orders

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   [11,547] In the Matter of First Bank of Childersburg, Vincent, Alabama, Docket No. 98-076b (8-10-98)

   A cease and desist order was issued, based on findings by the FDIC that it had reason to believe that respondent had engaged in unsafe and unsound practices. (This order was terminated by order of the FDIC dated 8-28-00; see ¶16,265.)
   [.1] Management—Qualifications Specified
   [.2] Audit—Independent Auditors Required
   [.3] Loans—Loan Officer-Qualifications Specified
   [.4] Loan Policy—Preparation or Revision of Policy Required
   [.5] Loans—Internal Review Procedure
   [.6] Assets—Adversely Classified Assets—Reduction Required
   [.7] Capital—Increase Required
   [.8] Loan Loss Reserve Establishment of or Increase Required
   [.9] Directors and Officers—Personal Expenses
   [.10] Payments—Restricted
   [.11] Violations of Law—Correction of Violations Required
   [.12] Bank Operations—Internal Routine and Control Procedures, Written Plan Required
   [.13] Brokered Deposits—Notification Required
   [.14] Funds Management and Liquidity—Preparation or Revision of Funds Management Policy Required
   [.15] Bank Operations—Education Plan, Compliance With Law and Regs
   [.16] Ethics—Written Policy Required
   [.17] Budget and Earning Forecast—Preparation Required
   [.18] Strategic Plan—Preparation of Required

In the Matter of
FIRST BANK OF CHILDERSBURG
VINCENT,ALABAMA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-98-076b

   First Bank of Childersburg, Vincent, Alabama, ("Bank"), having been advised of its right to receive a written Notice of Charges and of Hearing ("NOTICE") detailing the unsafe or unsound banking practices and violations of applicable laws and regulations alleged to have been committed by the Bank and of its right to a hearing regarding such alleged charges under section 8(b) of the {{10-31-00 p.C-4587}}Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1818(b), 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 10, 1998, 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 laws 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 Respondent had engaged in unsafe or unsound banking practices and had committed violations of applicable laws 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 cease and desist from the following unsafe or unsound banking practices:
   A. Failing to provide adequate supervision and direction over the affairs of the Bank by the board of directors of the Bank to prevent unsafe or unsound practices and violations of laws and regulations;
   B. Operating the Bank with management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits;
   C. Operating the Bank with an excessive volume of adversely classified assets;
   D. Operating the Bank with an inadequate level of capital protection;
   E. Engaging in hazardous lending and ineffective and lax collection practices as evidenced by:

       i. Renewing or extending credit which is inadequately secured;
       ii. Renewing or entending the due dates of loans without collection in cash of interest due or obtaining adequate additional collateral to secure credit advanced for the purpose of paying interest;
       iii. improperly extending repayment on loans without properly signed renewal notes and/or extension agreements;
   F. Renewing or extending credit without adequate and appropriate supporting documentation;
   G. Operating the Bank in contravention of written loan policies and procedures;
   H. Failing to provide an adequate allowance for loan and lease losses;
   I. Operating the Bank without adequate liquidity or proper regard for funds management;
   J. Operating the Bank without adequate internal routine and controls;
   K. Creating concentrations of credit as more fully set forth on pages 109-110 of the joint State of Alabama Banking Department and FDIC Report of Examination of the Bank as of November 14, 1997;
   L. Operating the Bank in violation of applicable Federal and State laws and regulations as more fully set forth on pages 33 through 54 of the joint State of Alabama Banking Department and FDIC Report of Examination as of November 14, 1997.
   M. Failing to take appropriate measures to ensure that the electronic information systems and other automated systems that are used by the Bank, or upon which the Bank depends for the conduct of its business ("Bank Information Systems"), are able to perform correctly all automated processing operations, including interactions and interdependencies with other automated systems, involving dates later than December 31, 1999 ("Year 2000 compliant").
   IT IS FURTHER ORDERED that the BANK, its institution-affiliated parties, and its successors and assigns take affirmative action as follows:

   [.1] 1. (a) Within one hundred twenty (120) days from the effective date of this ORDER, the Bank shall have and retain qualified management and staff. Each member of management shall have qualifications and experience commensurate with his or her duties and responsibilities at the Bank. At a minimum, management shall include a chief executive officer with proven ability in managing a bank of comparable size, and experience in upgrading a low quality loan portfolio, improving earnings, and other matters needing particular attention. Management shall also include a senior lending officer with significant appropriate lending, {{10-31-98 p.C-4588}}collection, and loan supervision experience, and experience in upgrading a low quality loan portfolio. Management shall also include a chief operations officer with significant appropriate experience in managing the operations of a bank of similar size and complexity in accordance with sound banking practices. Each member of management shall be provided appropriate written authority from the Bank's Board of Directors to implement the provisions of this ORDER.
   (b) The qualifications of management shall be assessed on its ability to: (i) comply with the requirements of this ORDER; (ii) operate the Bank in a safe and sound manner; (iii) comply with applicable laws and regulations; (iv) ascertain that the Bank Information Systems are fully Year 2000 compliant, and are appropriately tested to demonstrate such compliance; and, (v) maintain all aspects of the Bank in, or restore all aspects of the Bank to, a safe and sound condition, including asset quality, capital adequacy, earnings adequacy, liquidity adequacy, and management effectiveness.
   (c) During the life of this ORDER, the Bank may not add any individual to its Board of Directors or employ or engage any individual as a chief executive officer, chief operations officer, chief lending officer, other executive officer, internal auditor, loan operations officer/manager, or loan review officer without the prior written consent of the Superintendent and the Regional Director. The Bank shall notify the Superintendent and the Regional Director in writing of any proposed changes in management. Such notification shall be in addition to any application and prior approval requirements established by section 32 of the Act 12 U.S.C. Section 1831i and implamenting regulations; must include the names and qualifications of any replacement personnel; and must be provided at least (30) days prior to the date the individual is to assume office.
   (d) To facilitate compliance with paragraph 1(a), the Bank's Board of Directors shall in no more than sixty (60) days from the effective date of this ORDER develop and approve a written analysis and assessment of the Bank's management and staffing needs (management and staffing plan), which shall include, at a minimum:

       i) identification of both the type and number of officer positions needed to manage and properly supervise the affairs of the Bank;
       ii) evaluation of each Bank officer, and in particular the chief executive officer, chief lending officer, and the chief operating officer, that includes and takes into full consideration the requirements of paragraph 2 of this ORDER, to determine whether these individuals possess the ability, experience and other qualifications required to perform present and anticipated duties, including adherence to the Bank's established policies and practices, and maintenance of the Bank in a safe and sound condition;
       iii) a plan of action to recruit and hire any additional or replacement personnel with the requisite ability, experience 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 as provided in this paragraph and other parts of this ORDER; and
       iv) an organization chart.
   (e) The written management and staffing plan and any subsequent modification thereto shall be submitted to the Superintendent and the Regional Director for review and approval. The management and staffing plan shall be implemented sixty (60) days after its submission to the Superintendent and Regional Director. The board shall consider comments and adopt recommended changes no more than thirty (30) days from the receipt of any such comment from the Superintendent and/or the Regional Director. The Bank shall implement and follow the written management and staffing plan and/or any subsequent modification thereto as adopted by the Bank's Board of Directors and approved by the Superintendent and Regional Director. Such management and staffing plan and its implementation shall be satisfactory to the Superintendent and the Regional Director as determined at its initial review and at subsequent examinations and/or visitations.
   (f) Within sixty (60) days of the effective date of this ORDER, the Bank shall evaluate the performance of all present management personnel to determine appropriate responsibilities, capabilities, and levels of authority for those officers. The review shall include an evaluation of the actions and failures to act, including lending activities, of specific officers that were criticized in the November 17, 1997, Report of Examination. As part of the review, the Board will vote on {{10-31-98 p.C-4589}}and record in its minutes its evaluation of each officer's actions and handling of his or her responsibilities including his or her loan portfolio. If the officer is a member of the board, the officer will abstain from voting on the evaluation of the officer's own performance.
   [.2] 2. (a) The Bank shall hire or appoint a quafified, independent person to serve as the Bank's internal auditor. The qualifications of the internal auditor shall be assessed on the auditor's: training, ability, auditing experience in a financial institution, independence, ability to comply with the requirements of this ORDER and with the bank's written policies, and knowledge of applicable laws and regulations and sound banking procedures.
   (b) The internal auditor shall remain independent, perform no other duties in the Bank, and report directly to the Bank's audit committee that shall be composed solely of outside directors. The independent auditor is responsible for implementing and maintaining the Bank's internal audit program. Reports shall be made to the committee no less than once each calendar quarter. The committee will then report the internal audit results and its findings to the entire board of directors.
   (c) The board of directors is responsible for developing or contracting with others to develop an acceptable internal audit program. Such internal audit program shall be adopted and submitted to the Superintendent and Regional Director for comment and approval within ninety (90) days. The audit program shall be fully implemented thirty (30) days from such submission to the Superintendent and Regional Director. The board shall consider comments and adopt recommended changes no more than thirty (30) days from the receipt of any such comment from the Superintendent and/or the Regional Director. Such audit program and its implementation shall be satisfactory to the Superintendent and the Regional Director as determined at its initial review and at subsequent examinations and/or visitations.
   (d) So long as this ORDER remains in effect, the Bank shall also engage the services of qualified, independent, external auditors to perform annual audits of the Bank. The engagement of the auditor shall be approved by the Superintendent in accordance with § 5-2A-22 of the Alabama Banking Code. Audit shall mean a complete audit of the Bank in accordance with Generally Accepted Accounting Principles and Generally Accepted Auditing Standards that results in the issuance of an opinion by the auditor. A directors' examination or other procedure that is less than a full audit will not satisfy this requirement.

   [.3] 3. (a) The bank shall hire or appoint a qualified person to serve as the Bank's loan operations officer or manager. The qualifications of the loan operations officer shall be assessed on the officer's: training in loan operations and loan documentation, ability, loan operations experience in a financial institution, ability to comply with the requirements of this ORDER and the Bank's written loan policy, and knowledge of applicable laws and regulations and sound banking procedures.
   (b) The loan operations officer shall be responsible for all operations of the Bank's loan department including loan documentation, credit and collateral files, and loan entries. The loan operations officer shall report monthly and directly to the Bank's audit committee. The committee will then report its findings to the entire board of directors. The reports shall:

       i) disclose all outstanding documentation exceptions,
       ii) separately and prominently list each loan made during the preceding month without complete documentation as required by the Bank's loan policy, and
       iii) disclose each loan made during a month that represents an exception to the Bank's loan policy that was not properly approved according to the requirements of the policy.

   [.4] 4. (a) Within sixty (60) days from the effective date of this ORDER, the Bank shall revise its written loan policy, which revision shall include, at a minimum:
       i) responsibility of the Board of Directors in reviewing, ratifying and approving loans and extensions;
       ii) guidelines under which unsecured loans will be granted;
       iii) the guidelines for rates of interest and terms of repayment for unsecured loans and secured loans;
       iv) with regard to secured loans: 1) limitations on the amount advanced in relation to the value of the collateral; and 2)
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    the documentation required by the Bank for each type of secured loan;
       v) the maintenance and review of complete and current credit files on each borrower;
       vi) appropriate and adequate collection procedures, including, but not limited to, the actions to be taken against borrowers who fail to make timely payments;
       vii) guidelines establishing limitations on the major volume of loans in relation to total assets;
       viii) appropriate limitations on extension of credit through overdrafts and cash items;
       ix) the determination and documentation of sources and terms of loan repayment;
       x) retention of lien searches and appraisals covering personal property and liens on real estate;
       xi) maintenance of written, individual loan file comments by officers;
       xii) prohibitions against the extension or renewal or extension of loans without full collection of interest due, with acceptance of separate notes for the payment of interest, or the capitalization of interest to the balance of the note;
       xiii) prohibitions against the making of loans for speculative purposes;
       xiv) procedures regarding designations of nonaccrual loans;
       xv) procedures for identifying, supervising, and collecting problem loans;
       xvi) a mechanism for Board approval of loans to be sold to another financial institution including a review of all documentation provided and representations made to the institution;
       xvii) periodic review of the overdue, problem and/or adversely classified or special mention loans by the Board of Directors, so as to monitor management's administration of such distressed credits, and to provide guidance; and
       xviii) any other loan policy recommendations contained in the November 17, 1997, Report of Examination.
   (b) The revised written loan policy shall be adopted and submitted to the Superintendent and the Regional Director for review and approval within sixty (60) days from the effective date of this ORDER. The policy shall be fully implemented thirty (30) days from such submission to the Superintendent and Regional Director. The board shall consider comments and adopt recommended changes no more than thirty (30) days from the receipt of any such comment from the Superintendent and/or the Regional Director. Such approval shall be recorded in the minutes of the Board of Directors. Subsequent modifications to the revised written loan policy may be made only after submitting such modifications to the Superintendent and the Regional Director for review and approval. The board shall consider comments and adopt recommended changes to the proposed modifications no more than thirty (30) days from the receipt of any such comment from the Superintendent and/or the Regional Director. No such modification shall become effective until approved by the Board of Directors, and such approval shall be recorded in the minutes of the Board of Directors. The Bank, its Directors, officers and employees shall follow the revised written loan policy and/or any subsequent modifications to it. Such policy and its implementation shall be satisfactory to the Superintendent and the Regional Director as determined at its initial review and at subsequent examinations and/or visitations.

   [.5] (a) Within sixty (60) days from the effective date of this ORDER, the Bank shall adopt an internal loan review and grading system to provide for the periodic review of the Bank's loan portfolio in order to identify and categorize the Bank's loans, and other extensions of credit which are carried on the Banles books as loans, on the basis of credit quality. The Bank shall also within sixty (60) days from the effective date of this ORDER, submit the written loan review policy to the Superintendent and Regional Director for their review and approval. The loan review and grading system shall be fully implemented thirty (30) days from such submission to the Superintendent and Regional Director. The board shall consider comments and adopt recommended changes no more than thirty (30) days from the receipt of any such comment from the Superintendent and/or the Regional Director. Such system and its implementation shall be satisfactory to the Superintendent and the Regional Director as determined at its initial review and at subsequent examinations and/or visitations. At a minimum, the grading system shall provide for:

       i) specification of standards and criteria
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    for assessing the credit quality of the Bank's loans;
       ii) application of loan grading standards and criteria to the Bank's loan portfolio;
       iii) categorization of the Bank's loans into groupings based on the varying degrees of credit and other risks which may be presented under the applicable grading standards and criteria, but in no case, will a loan be assigned a rating higher than that assigned by examiners at the last examination of the bank;
       iv) assessment of the likelihood that each loan exhibiting credit and other risks will not be repaid according to its terms and conditions;
       v) identification of any loan that is not in conformance with the Bank's loan policy;
       vi) identification of any loan which presents any unsafe or unsound banking, practice or condition or is otherwise in violation of any applicable State or Federal law, regulation, or statement of policy; and
       vii) requirement of a written report to be made to the Bank's Board of Directors and Audit Committee, not less than quarterly after the effective date of this ORDER. The report shall identify the status of those loans which exhibit credit and other risks under the applicable grading standards/criteria and the prospects for full collection and/or strengthening of the quality of any such loans.
   (b) The bank shall also hire, appoint, or contract with a qualified individual to administer the loan review system. The qualifications of the loan review officer shall be assessed on the officer's: training in loan review/examination procedure, knowledge of loan documentation requirements, ability, loan review/examination experience, ability to comply with the requirements of this ORDER and the bank's written loan and loan review policies, and knowledge of applicable laws and regulations and sound lending/ banking procedures.

   [.6] 6. (a) Immediately upon the effective date of this ORDER, the Bank shall eliminate from its books, by charge-off or collection, all assets classified "Loss" in the November 17, 1997, Report of Examination that have not been previously collected or charged-off. Immediately upon the effective date of this ORDER, the Bank shall eliminate from its books, by charge-off or collection, 50 percent of those assets classified "Doubtful" in the November 17, 1997, Report of Examination that have not been previously collected or charged off, unless otherwise approved in writing by the Superintendent and the Regional Director. Elimination of these assets through proceeds of other loans made by the Bank is not considered collection for the purpose of this paragraph.
   (b) Within one hundred twenty (120) days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" in the November 17, 1997, Report of Examination and those assets classified "Doubtful" that have not previously been charged off to not more than $4,300,000
   (c) Within two hundred forty (240) days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" in the November 17, 1997, Report of Examination and those assets classified "Doubtful" that have not previously been charged off to not more than $3,000,000.
   (d) Within three hundred sixty (360) days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" in the November 17, 1997, Report of Examination and those assets classified "Doubtful" that have not previously been charged off to not more than $1,700,000.
   (e) The above requirements for reduction of classified assets are not to be constued as standards for future operations and, in addition to the foregoing, the Bank shall eventually reduce the total of all adversely classified assets. Reduction of these assets through proceeds of other loans made by the Bank is not considered collection for the purpose of this paragraph. As used above, the word "reduce" means:

       i) collect;
       ii) charge off; or
       iii) sufficiently improve the quality of assets adversely classified to warrant removing any adverse classification, as determined by the Superintendent and the Regional Director.
   (f) Beginning with the effective date of this ORDER, the Bank shall not extend, directly or indirectly, any additional credit to, or for the benefit of, any borrower who has a loan or other extension of credit from the Bank that has been charged off or classified, {{10-31-98 p.C-4592}}in whole or in part "Loss" and is uncollected.
   (g) Beginning with the effective date of this ORDER, the Bank shall not extend, directly or indirectly, any additional credit to, or for the benefit of, any borrower who has a loan or other extension of credit from the Bank that has been classified, in whole or in part, "Substandard" or "Doubtful" without the prior written approval of a majority of the Board of Directors or the loan committee of the Bank.
   (h) Beginning with the effective date of this Order, the Bank shall not renew, directly or indirectly, any loan without full collection of interest due, with acceptance of separate notes for the payment of interest, or capitalization of interest to the balance of the note, without the prior written approval of the Bank's board of directors.

   [.7] 7. (a) During the life of this ORDER, the Bank shall, at all times, have Tier 1 capital in such an amount as to equal 6.5 percent of the Bank's total assets. The level of Tier 1 capital to be maintained during the life of this ORDER shall be in addition to a fully funded allowance for loan and lease losses, the adequacy of which shall be satisfactory to the Superintendent and the Regional Director as determined at subsequent reviews, examinations and/or visitations.
   (b) The Bank's board of directors shall calculate the ratio of Tier 1 capital as a percentage of its total assets ("capital ratio") as of the effective date of this order and within thirty (30) days after each December 31, March 31, June 30, and September 30 thereafter while this ORDER remains in effect. If such capital ratio is less than 6.5 percent, the Bank shall, within ninety (90) days from the date of such calculation, increase its Tier 1 capital by an amount sufficient to raise its capital ratio to not less than 6.5 percent as of the nearest preceding March 31, June 30, September 30, or December 31 date.
   (c) Any increase in Tier 1 capital necessary to meet the requirements of this paragraph may be accomplished by the following:

       i) sale of common stock; or
       ii) direct contribution of cash by the Board of Directors and/or shareholders of the Bank, or
       iii) other means acceptable to the Superintendent and the Regional Director.
   (d) Any increase in Tier 1 capital necessary to meet the requirements of this paragraph may not be accomplished through a deduction from the Bank's allowance for loan and lease losses.
   (e) If all or part of any necessary increase in Tier 1 capital required by this paragraph is accomplished by the sale of new securities, the Board of Directors shall forthwith take all necessary steps to adopt and implement a plan for the sale of such additional securities, including the voting of any shares owned or proxies held or controlled by them in favor of the plan. Should the implementation of the plan involve a public distribution of the Banks securities (including a distribution limited only to the Bank's existing shareholders), the Bank shall prepare offering materials fully describing the securities being offered, including an accurate description of the financial condition of the Bank and the circumstances giving rise to the offering, and any other material disclosures necessary to comply with any applicable securities laws. Prior to the implementation of the plan and, in any event not less than fifteen (15) days prior to the dissemination of such materials, the plan and any materials used in the sale of the securities shall be submitted to the FDIC, Registration and Disclosure Section, 550 17th Street, N.W., Washington, D.C. 20429, and the Alabama Banking Department for review. Any changes requested to be made in the plan or materials shall be made prior to their dissemination.
   (f) In complying with the provisions of this paragraph, the Bank shall provide to any subscriber and/or purchaser of the Bank's securities, a written notice of any planned or existing development or other changes which are materially different from the information reflected in any offering materials used in connection with the sale of Bank securities. The written notice required by this Paragraph shall be furnished within ten (10) days from the date such material development or change was planned or occurred, whichever is earlier, and shall be furnished to every subscriber and/or purchaser of the Bank's securities who received or was tendered the information contained in the Bank's original offering materials.
   (g) For the purposes of this ORDER, the terms "Tier 1 capital" and "total assets" shall have the meanings ascribed to them in Part 325 of the FDIC Rules and Regulations, 12 C.F.R. Sections 325.2(t) and 325.2(v).
   (h) In addition to the above requirements {{10-31-98 p.C-4593}}for maintenance of the capital ratio, for as long as this Order remains in effect, the Bank shall meet the ratio requirements established for risk-based capital ("risk-based capital ratio") as set forth in Appendix A of Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325, which Appendix A is entitled "Statement of Policy on Risk-Based Capital," and/or any subsequent amendments or modifications thereto.

   [.8] 8. (a) Prior to the end of the calendar quarter following the effective date of this ORDER, the Bank shall establish and thereafter maintain an adequate allowance for loan and lease losses.
   (b) For the purpose of the board determination of reserve adequacy, the adequacy of the allowance shall be determined after the charge-off of all loans or other items classified "Loss" in the November 17, 1997, Report of Examination. The policy shall provide for a review of the allowance at least once each calendar quarter. Said review should be completed at least ten (10) days prior to the end of each quarter, in order that the findings of the Board of Directors with respect to the loan and lease loss allowance may be properly reported in the quarterly Reports of Condition and Income. The calculation of reserve adequacy should incorporate: the results of the Banks internal loan review, loan and lease loss experience, trends of delinquent and nonaccrual loans, estimates of potential loss exposure of significant credits, concentrations of credit, and present and prospective economic conditions. A deficiency in the allowance shall be remedied in the calendar quarter it is discovered, prior to submitting the Reports of Condition and Income, by a charge to current operating earnings. The minutes of the Board of Directors meeting at which such review is undertaken shall indicate the results of the review. Upon completion of the review, the Bank shall increase and maintain its allowance for loan and lease losses consistent with the established policy for the allowance for loan and lease losses.

   [.9] 9. (a) Following the effective date of this ORDER, the Bank shall require expenses submitted for reimbursement by a Bank employee, officer or director to include an explanation of how the expenditure relates to actual or potential Bank business. The Bank shall require and maintain the explanation and all necessary supporting documentation including: receipts showing the name, address, and telephone number of the business where the expense was incurred; lists of persons present when the expense was incurred, explanation of how each person's presence was related to the business purpose of the event, and what items or services were paid for.
   (b) The audit committee shall approve all Bank expenses submitted by an employee, officer or director before any reimbursements are made. The audit committee shall also approve or disapprove all expenditures/ charges made by employees, officers, or directors on credit cards issued to them by the bank. The audit committee will disapprove any personal charges not related to bank business and employees, officers, and directors will promptly reimburse the bank for those charges. The audit committee may, at its discretion, disapprove any other expense. No expense allowances will be disbursed to employees, officers, or directors in advance in cash or by other means without proper documentation and approvals as required above. The audit committee's minutes reflecting approval or disapproval of each expense shall be presented at the monthly board meeting and noted in the Board of Directors' minutes.
   (c) In addition, the internal auditor will examine bank records as a regular part of the internal audit program to determine compliance with this ORDER, expense reimbursement policy, and internal controls.
   (d) The audit committee will also investigate and approve or disapprove all expenditures by bank officers during calendar year 1997. Officers will promptly reimburse the bank for any disapproved expenses or personal expenses not related to bank business.

   [.10] 10. While this ORDER is in effect, the Bank shall not declare or pay any cash or property dividends on its capital stock without the prior written approval of the Superintendent and the Regional Director.

   [.11] 11. After the effective date of this ORDER, the Bank, consistent with sound banking practices, shall correct all violations of laws and regulations detailed in the November 17, 1997, Report of Examination. In addition, the Board of Directors shall ensure the Bank's future compliance with all applicable laws, regulations, and statements of policy.
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   [.12] 12. Within ninety (90) days from the effective date of this ORDER, the Bank shall develop or revise, adopt, and implement written policies and procedures to provide effective guidance and control over internal routine and controls of the Bank, in accordance with safe and sound banking practices. Among other provisions, the revised policies and procedures shall specifically provide for correction of all internal routine and control deficiencies scheduled in the November 17, 1997, Report of Examination. Such policy and its implementation shall be in a form and manner acceptable to the Superintendent and the Regional Director as determined at subsequent examinations and/or visitations.

   [.13] 13. (a) While this ORDER, is in effect, the Bank shall give written notice to the Superintendent and the Regional Director at such time as the Bank intends to make use of brokered deposits. The notification should indicate how the brokered deposits are to be utilized with specific reference to credit quality of investments/loans and the effect on the Bank's funds position and asset/liability matching. The Superintendent and the Regional Director shall have the right to reject the Bank's plans for utilizing brokered deposits.
   (b) For purposes of this ORDER, brokered deposits are defined as described in section 337.6(a)(1) of the FDIC Rules and Regulations to include any deposits funded by third party agents or nominees for depositors, including deposits managed by a trustee or custodian when each individual beneficial interest is entitled to or asserts a right to federal deposit insurance.
   (c) The bank will also develop and adopt a plan within thirty (30) days from the effective date of this ORDER to either eliminate the current reliance on brokered deposits or justify the retention of those deposits. This plan should also be submitted within thirty (30) days from the effective date of this ORDER to the Superintendent and Regional Director for their review and approval. The board shall consider comments and adopt recommended changes no more than thirty (30) days from the receipt of any such comment from the Superintendent and/or the Regional Director. Such plan and its implementation shall be in a form and manner acceptable to the Superintendent and the Regional Director as determined at the initial review and subsequent examinations and/or visitations.

   [.14] 14. (a) Within ninety (90) days from the effective date of this ORDER, the Bank shall adopt a funds management policy. The funds management policy shall include, at a minimum:

       i) methods for repricing deposits and loans;
       ii) goals and strategies for managing and/or improving the Bank's interest rate risk exposure and provisions requiring that the Bank's position be regularly measured and reported to the Board of directors;
       iii) monitoring of the interest rate sensitivity of present investments and deposits and projections of the types of investments and deposits to improve such liquidity position;
       iv) coordination of the Bank's loan, investment, operating, and budget and profit planning, policies with the written funds management policy; and,
       v) alternative funding sources.
   (b) The funds management policy shall be submitted to the Superintendent and the Regional Director for review and approval within ninety (90) days from the effective date of this ORDER. The policy shall be fully implemented thirty (30) days from such submission to the Superintendent and Regional Director. The board shall consider comments and adopt recommended changes no more than thirty (30) days from the receipt of any such comment from the Superintendent and/or the Regional Director. Subsequent modifications to the funds management policy may be made only after submitting the proposed modification to the Superintendent and the Regional Director for review and approval. No such modification shall become effective until approved by the Superintendent, Regional Director, and the Board of Directors; and such approval shall be recorded in the minutes of the Board of Directors. The Bank, its directors, officers and employees shall follow the funds management policy and/or any subsequent modifications thereto.

   [.15] 15. (a) Within ninety (90) days of the effective date of this ORDER, the Bank's Board of Directors shall develop and adopt an educational program for each member of the Board. The educational Program shall include, at a minimum:

       i) specific training in the areas of lending, operations, and compliance with laws,

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    rules and regulations applicable to banks chartered in the state of Alabama;
       ii) specific training in the duties and responsibilities of the Board of Directors in connection with the safe and sound operation of the Bank; and
       iii) provision for period training.
   (b) The training should ensure that the Board of Directors is provided with the most current and up-to-date information. The educational program shall be submitted within ninety (90) days of the effective date of this ORDER to the Superintendent and the Regional Director for review and approval. The educational program shall be implemented (30) days after such submission to the Superintendent and Regional Director. The board shall consider comments and adopt recommended changes no more than thirty (30) days from the receipt of any such comment from the Superintendent and/or the Regional Director. The board shall also submit any proposed modifications to the Superintendent and Regional Director for review and approval. The Board of Directors shall document the training activities in the minutes of the next meeting following completion of the training. The Board's actions as required by this paragraph shall be satisfactory to the Superintendent and the Regional Director at their initial review and as determined at subsequent examinations and/or visitations.

   [.16] 16. (a) The Board will adopt an Ethics Policy that requires a complete disclosure of all outside economic interests of all bank directors and officers at least annually. Specifically, relationships between directors/officers and borrowing customers will be thoroughly reviewed and approved by the full Board. This disclosure will certify to the Board of Directors, the Superintendent, and the Regional Director all of each director/ officer's relationships and financial interests in or with any business or individual. Such disclosures will be completed within sixty (60) days of the effective date of this ORDER and copies provided to the Board, the Superintendent, and the Regional Director.
   (b) The Ethics Policy will be required within sixty (60) days from the effective date of this order and will be furnished to the Superintendent and the Regional Director for their comment and approval. The Ethics Policy shall be implemented thirty (30) days from such submission to the Superintendent and Regional Director. Any subsequent modification to the Ethics Policy shall also be submitted to the Superintendent and the Regional Director for review and approval. The board shall consider comments and adopt recommended changes no more than thirty (30) days from the receipt of any such comment from the Superintendent and/or the Regional Director. Once the Ethics Policy is approved, adopted, and implemented, all directors, officers and employees will be given instruction on its requirements within (30) days. Such policy and its implementation shall be satisfactory to the Superintendent and the Regional Director as determined at its initial review and at subsequent examinations and/or visitations.

   [.17] 17. (a) No later than November 30, 1998, the Bank shall formulate a written plan and comprehensive budget for all categories of income and expense. Thereafter, the Bank shdould formulate such a plan and budget by November 30 of each subsequent year.
   (b) The plan and budget shall include formal goals and strategies, consistent with sound banking practices, to improve the Bank's net interest margin, increase interest income, and improve and sustain earnings of the Bank. The plan shall include a description of the operating assumptions that form the basis for, and adequately support, major projected income and expense components.
   (c) Following the end of each calendar quarter, the Board of Directors shall evaluate the Bank's actual performance in relation to the plan and budget required by this Paragraph and shall record the results of the evaluation, and any actions taken by the Bank, in the minutes of the Board of Directors meeting at which such evaluation is undertaken.
   (d) The bank shall submit the written plan and budget to the Superintendent and Regional Director for their review and approval. The plan and budget shall be fully implemented thirty (30) days after such submission to the Superintendent and Regional Director. The board shall consider comments and adopt recommended changes no more than thirty (30) days from the receipt of any such comment from the Superintendent and/or the Regional Director. Such budget {{10-31-98 p.C-4596}}and its implementation shall be satisfactory to the Superintendent and the Regional Director as determined at its initial review and at subsequent examinations and/or visitations.

   [.18] 18. (a) No later than November 30, 1998, the Bank shall develop and adopt a written strategic plan consisting of long term goals designed to improve the condition of the Bank and its viability and strategies for achieving those goals. The strategic plan shall include, at a minimum:

       i) identification of the Bank's market area, including means by which the Board of Directors will seek to target that area;
       ii) established product lines with consideration given to risk diversification;
       iii) desired composition of balance sheet including means by which the Board of Directors will achieve the desired composition; and
       iv) methods of ensuring the viability of the Bank through positive earnings and/or sale or merger of Bank to achieve desired goals.
   (b) The bank shall submit the written plan to the Superintendent and Regional Director for their review and approval. The plan shall be fully implemented thirty (30) days from the date of such submission to the Superintendent and Regional Director. The board shall consider comments and adopt recommended changes no more than thirty (30) days from the receipt of any such comment from the Superintendent and/or the Regional Director. Such plan and its implementation shall be satisfactory to the Superintendent and the Regional Director as determined at its initial review and at subsequent examinations and/or visitations.
   (c) Subsequent modifications to the written strategic plan may be made only after giving the Superintendent and the Regional Director written notice of the proposed modification, and after consideration of any responsive comments submitted by the Superintendent and/or the Regional Director. No such modification shall become effective until approved by the Board of Directors, the Superintendent, and the Regional Director, and such approval shall be recorded in the minutes of the Board of Directors. The Bank, its directors, officers, and employees shall follow the written strategic plan and/or any subsequent modifications thereto.
   19. Within ninety (90) days from the effective date of this ORDER, the Bank shall correct the cited deficiencies in the loans listed for "Special Mention" in the November 17, 1997, Report of Examination.
   20. Within ninety (90) days from the effective date of this ORDER, the Bank shall correct any remedial documentation exceptions on loans listed in the schedule of Assets with Credit Data or Collateral Documentation Exceptions in the November 17, 1997, Report of Examination.
   21. Within ninety (90) days from the effective date of this ORDER, the Bank shall formulate and implement a plan to reduce all concentrations listed in the November 17, 1997, Report of Examination to less than 25 percent of the Bank's Tier 1 Capital. However, where such concentrations represent violations of the lending limits contained in § 5-5A-22 of the Alabama Banking Code, the loans will immediately be reduced to the lending limits required by § 5-5A-22.
   22. The Bank shall take steps to implement its existing Year 2000 Plan.
   23. Within (30) days following the end of each calendar quarter after the effective date of this ORDER, the Bank shall furnish written progress reports to the Superintendent and 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 Superintendent and the Regional Director have 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.
   24. The provisions of this ORDER shall become effective ten (10) days from the date of its issuance and shall be binding upon the Respondent. The provisions 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.
   Pursuant to delegated authority.
   Dated at Atlanta, Georgia, this 10th day of August, 1998.

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