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FDIC Enforcement Decisions and Orders

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   [11,869] In the Matter of Connecticut Bank of Commerce, Stamford, Connecticut, Docket No. 01-178b (11-30-01).

   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.

   [.1] Management—Qualifications Specified

   [.2] Board of Directors—Outside Directors Added to Board

   [.3] Risk Management—Plan Required

   [.4] Loan Policy—Preparation or Revision of Policy Required

   [.5] Assets—Charge-off or Collection

   [.6] Loans—Special Mention

   [.7] Loan Loss Reserve—Establishment of or Increase Required

   [.8] Credit Administration Deficiencies—Correction Required

   [.9] Loans—Extensions of Credit—To Borrowers with Existing Adversely Classified Credits

   [.10] Technical Exceptions—Correction of Technical Exceptions Required

   [.11] Loans—Internal Grading System Required

   [.12] Loans—Risk Position—Monitoring Required

   [.13] Loans—Comply with Written Policy

   [.14] Budget and Earnings Forecast—Preparation Required

   [.15] Strategic Plan—Preparation of Required

   [.16] Conflicts of Interest—Written Policy Required

   [.17] Capital—Maintain Tier I Capital

   [.18] Violations of Law—Correction of Violations Required

   [.19] Board of Directors—Meetings—Recording of Actions Required

   [.20] Bank Operations—Internal Controls, Correction of Weaknesses Required

   [.21] Interest Rate Risk Policy—Compliance Required

   [.22] Reports of Condition and Income—Amendment Required

   [.23] Dividends—Dividends Restricted

   [.24] Information Technology Plan—Minimum Requirements

   [.25] Bank Secrecy Act—Compliance

   [.26] Audit—Program Required

   [.27] Brokered Deposits—Brokered Deposits Restricted

   [.28] Business—New Business Restricted

   [.29] Security Controls—Security Against Tampering Required
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In the Matter of
CONNECTICUT BANK OF COMMERCE
STAMFORD, CONNECTICUT
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

FDIC-01-178b

   Connecticut Bank of Commerce, Stamford, Connecticut ("Insured Institution"), having been advised of its right to a Notice of Charges and of Hearing detailing the unsafe or unsound banking practices and violations of law and/or regulations alleged to have been committed by the Insured Institution and of its right to a hearing on the alleged 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 counsel for the Federal Deposit Insurance Corporation ("FDIC"), dated November 28, 2001, whereby solely for the purpose of this proceeding and without admitting or denying the alleged charges of unsafe or unsound banking practices and violations of law and/or regulations, the Insured Institution 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 Insured Institution has engaged in unsafe or unsound banking practices and has committed violations of law and/or regulations. The FDIC, therefore, accepts the CONSENT AGREEMENT and issues the following:

ORDER TO CEASE AND DESIST

   IT IS HEREBY ORDERED that the Insured Institution, its directors, officers, employees, agents, and other institution-affiliated parties (as that 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:

       (a) Operating with a board of directors ("Board") that fails to provide adequate supervision and direction to the operating management of the Insured Institution;

       (b) Operating with inadequate risk management practices;

       (c) Inadequately implementing prior regulatory recommendations, including the Memorandum of Understanding dated March 23, 1999;

       (d) Operating with inadequate supervision of the lending function;

       (e) Operating with an excessive volume of poor quality assets;

       (f) Engaging in hazardous lending practices, including but not limited to:

         (i) Failing to follow loan policy guidelines and standards;

         (ii) Extending credit to borrowers who lack sufficient repayment ability;

         (iii) Failing to provide an adequate loan review and grading system;

         (iv) Extending credit without adequate diversification of risk;

         (v) Failing to adequately analyze credit risk;

         (vi) Failing to obtain or perfect adequate collateral and monitor collateral margins of secured borrowers;

         (vii) Extending credit in a manner for which management lacks expertise; and

         (viii) Extending credit with deficient loan documentation.

       (g) Operating with an inadequate allowance for loan and lease losses;

       (h) Operating with marginal earnings;

       (i) Operating with an unsupported budgeting process;

       (j) Operating with an outdated written strategic plan;

       (k) Operating with inadequate disclosure, due diligence, and oversight of insider-related transactions and potential conflicts of interest;

       (l) Operating with marginal capital in relation to the type and quality of assets held by the Insured Institution;
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       (m) Engaging in violations of applicable federal laws and/or regulations;

       (n) Operating with inadequate Board and Board Credit Committee minutes;

       (o) Operating with inadequate internal routines and controls;

       (p) Operating with Information Technology deficiencies;

       (q) Operating with an inadequate Bank Secrecy Act Program; and

       (r) Operating with internal audit weaknesses.

   IT IS FURTHER ORDERED that the Insured Institution, its institution-affiliated parties, and its successors and assigns, take affirmative action as follows:

   [.1]1. (a) During the life of this ORDER, the Insured Institution shall have management qualified to restore the Insured Institution to a sound condition. Such management shall include a chief executive officer and an experienced senior lending officer responsible for supervising the Insured Institution's overall lending function.

   (b) Present management shall be assessed on its ability to:

       (i) Comply with the requirements of this ORDER;

       (ii) Restore and thereafter maintain the Insured Institution in a safe and sound condition, including management effectiveness, asset quality, capital adequacy, liquidity adequacy, and earnings adequacy, and sensitivity to market risk; and

       (iii) Comply with all applicable State and Federal laws, regulations, and FDIC and FFIEC policy statements.

   (c) During the life of this ORDER, the Insured Institution shall notify the Regional Director of the FDIC's Boston Regional Office ("Regional Director") and the Banking Commissioner of the State of Connecticut Department of Banking ("Commissioner") in writing of any resignations and/or terminations of any members of its Board and/or any of its senior executive officer(s), including senior vice presidents, within 15 days of the event.

   (d) The Insured Institution shall comply with section 32 of the Act, 12 U.S.C. §1831i.

   (e) (i) To ensure both compliance with this ORDER and qualified management for the Insured Institution, the Board, within 60 days from the effective date of this ORDER shall develop a written policy ("Management Policy") which, at a minimum, shall require an analysis of the Insured Institution's management and staffing requirements ("Analysis"), shall require clear and concise job descriptions, shall require periodic evaluations of each employee's job performance, and shall include the procedures requiring the periodic review and update of the Management Policy and Analysis. The Analysis shall, at a minimum, include: (1) both the number and type of positions needed to properly manage the Insured Institution, particularly the lending functions, giving appropriate consideration to the Insured Institution's loan types, loan volume, customer base, and the number of problem credits, (2) a clear and concise description of the needed experience for each job including a clear and concise description of the general duties and responsibilities for lending officers and their support staff, (3) an evaluation of present management including whether the current lending officials of the Insured Institution possess the necessary lending and collection experience and qualifications required to adequately perform present and anticipated duties, (4) a plan to recruit, hire or replace personnel with requisite ability and experience, and (5) a periodic evaluation of each individual's job performance.

   (ii) Within 90 days of the effective date of this ORDER, the Board shall prepare a written plan of implementation ("Plan") addressing the Analysis and the Management Policy. The Plan shall specify the actions to be taken by the Board and the time frames for each action.

   (iii) The Management Policy, Analysis, and Plan, and any subsequent modifications thereto, shall be submitted to the Regional Director and the Commissioner for review and comment. Within 30 days from receipt of any comment, and after consideration of such comment, the Board shall approve the Management Policy, Analysis, and Plan, which approval shall be recorded in the minutes of the meeting of the Board. Thereafter, the Insured Institution, its directors, officers, and employees shall implement and follow the Management Policy, Analysis, and Plan and any subsequent modifications thereto. It shall remain the responsibility of the Board to fully implement the Plan within the specified time frames. In the event the Plan, or
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   any portion thereof, is not implemented in accordance with the Plan's specified time frames, the Board shall immediately advise the Regional Director and Commissioner, in writing, of specific reasons for deviating from the Plan.

   (f) Within 30 days from the effective date of this ORDER, the Board shall establish a committee of the Board with the responsibility to ensure that the Insured Institution complies with the provisions of this ORDER. The members of such committee shall be independent with respect to the Insured Institution as defined in paragraph 2 of this ORDER. The committee shall report in writing monthly to the entire Board, and a copy of the report and any discussion relating to the report or the ORDER shall be included in the minutes of the Board. Nothing contained herein shall diminish the responsibility of the entire Board to ensure compliance with the provisions of this ORDER.

   [.2]2. (a) At each meeting of the shareholders at which directors of the Insured Institution are to be elected, the members of the Board who are also shareholders shall nominate and support the election of candidates to the Board who are independent with respect to the Insured Institution, in such number as is necessary to maintain a majority of the Board to be and to remain independent with respect to the Insured Institution.

   (b) For purposes of this ORDER, an individual who is "independent with respect to the Insured Institution" shall be any individual (1) who is not an employee, in any capacity, of the Insured Institution or any of its affiliated organizations or who does not own or control more than five (5.0) percent of the voting stock of the Insured Institution or its holding company, (2) who is not related by blood, marriage or common financial interest to any officers or directors of the Insured Institution or to any stockholders owning more than five (5.0) percent of the Insured Institution's outstanding shares or affiliates of the Insured Institution, and (3) who is not indebted to the Insured Institution, directly or indirectly (including the indebtedness of any entity in which the individual has a substantial financial interest), in an amount exceeding five (5.0) percent of the Insured Institution's total equity capital and allowance for loan and lease losses.

   (c) As used in this ORDER, "common financial interest" means any financial transaction or arrangement whereby the individual and the officer, director, or shareholder of the Insured Institution share some degree of financial interest such that their ability to exercise independent judgment on behalf of the Insured Institution could be materially impaired. It includes but is not limited to: (1) any common ownership interest in a closely held corporation, partnership, trust, sole proprietorship, joint venture, or other business entity, or any affiliates thereof, in which one or both parties, or related interests thereof, have a 5% or more ownership interest; (2) any common ownership interest in a publicly held corporation in which one or both parties, or related interests thereof, have control; (3) any lending relationship between the parties or related interests thereof; (4) any employment relationship where one or both parties is an executive officer; and (5) any financial relationship between the individual and a business entity in which an Insider (as defined in Paragraph 13(b) of this ORDER) of the Insured Institution has either control or is an executive officer. The terms "related interest," "control," and "executive officer" shall have the meaning ascribed to them in section 215.2 of the Rules and Regulations of the Board of Governors of the Federal Reserve System (Regulation O), 12 C.F.R. §215.2.

   [.3]3. Within 60 days from the effective date of this Order, management shall:

   (a) Evaluate the risk assessment controls and practices used to determine the quality of risk management practices and determine why the numerous weaknesses identified in the March 5, 2001 Joint FDIC/State Report of Examination were not identified internally.

   (b) Develop an action plan to improve risk management practices and to ensure that risk assessment controls and practices remain adequate.

   (c) Thereafter, maintain a system(s) that accurately and effectively identifies, measures, monitors, and controls risks.

   [.4]4. Within 60 days from the effective date of the ORDER, the Board and management shall review and amend the Insured Institution's current lending practices to comply with the standards outlined in Appendix A of Part 364 of the FDIC Rules and Regulations.

   5. (a) Within 60 days from the effective date of this order, the Insured Institution shall
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   revise its lending policy to adopt the recommendations set forth in the March 5, 2001 Joint FDIC/State Report of Examination. The revisions to the Credit Policy shall include, at a minimum, the following:

       (i) Provisions that provide parameters for identifying and aggregating related loans;

       (ii) Provisions that provide guidelines governing the newly developed structured finance area;

       (iii) Provisions that require complete loan documentation, adequate analysis, realistic repayment terms, and current credit information adequate to support the outstanding indebtedness of the borrower;

       (iv) Provisions that provide guidance for financing new or expanding businesses, including provisions requiring the receipt and analysis of pro forma financial statements and budget projections;

       (v) Provisions that provide guidelines for board reporting on factoring; and

       (vi) Provisions that provide guidelines for fraud detection.

   (b) Such policies and their implementation shall be in the form and manner acceptable to the Regional Director and the Commissioner as determined at subsequent examinations and/or visitations.

   [.5]6. (a) Within 10 days from the effective date of this ORDER, the Insured Institution shall eliminate from its books, by charge-off or collection, all assets classified "Loss" as reported in the March 5, 2001 Joint FDIC/State Report of Examination, that have not been previously collected or charged off. Reduction of these assets through proceeds of other loans made by the Insured Institution is not considered collection for the purpose of this paragraph.

   (b) Within 60 days from the effective date of this ORDER, the Insured Institution shall formulate and submit to the Regional Director and the Commissioner for review and approval a written plan of action to reduce the Insured Institution's risk position in each asset and contingent liability classified "Substandard" or "Doubtful" in the March 5, 2001 Joint FDIC/State Report of Examination and which aggregated $100,000 or more. The Insured Institution shall add to its written plan of action assets and contingent liabilities which are so classified in any subsequent examination. Such plan shall include, but not be limited to, the following:

       (i) Target dollar levels to which the Insured Institution will reduce the volume of adversely classified assets and contingent liabilities, within three months, six months, and twelve months from the effective date of this ORDER; and

       (ii) Provisions for the submissions of monthly written progress reports under this Paragraph 6 to the Insured Institution's Board for review and recordation in the Board minutes. Copies of such reports shall also be submitted to the Regional Director and the Commissioner on a quarterly basis. A form of such report is attached as Exhibit A.

   (c) As used in Paragraph 6(b), the word "reduce" means (i) to collect, (ii) to charge off, or (iii) to sufficiently improve the quality of assets adversely classified to warrant removing any adverse classification, as determined by the FDIC and the Commissioner.

   [.6]7. Within 90 days of the effective date of this ORDER, the Insured Institution shall significantly reduce the dollar volume of assets subject to Special Mention as listed in the March 5, 2001 Joint FDIC/State Report of Examination, or otherwise sufficiently improve such assets so as to warrant removal from the Special Mention category.

   [.7]8. (a) Within 30 days from the effective date of this Order, the Insured Institution shall establish and shall thereafter maintain, through charges to current operating income, an adequate valuation reserve for loan and lease losses. In determining the adequacy of the valuation reserve for loan and lease losses, the Board of the Insured Institution shall at a minimum consider the following:

       (i) Prevailing instructions contained in the Federal Financial Institutions Examination Council booklet entitled "Instructions-Consolidated Reports of Condition and Income";

       (ii) Prevailing regulatory guidance regarding the Allowance for Loan and Lease Losses, including: (a) FIL-89-93 dated December 21, 1993, entitled Interagency Statement of Policy on the Allowance for Loan and Lease Losses; and (b) FIL-63-2001 dated July 25, 2001, entitled Interagency Policy Statement on Allowance for
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       Loan lease Losses Methodologies and Documentation for Banks and Savings Associations;

       (iii) The volume and mix of the existing loan portfolio, including the volume and severity of nonperforming loans and adversely classified credits, as well as an analysis of net charge-offs experienced on previously adversely classified loans;

       (iv) The extent to which loan renewals and extensions are used to maintain loans on a current basis and the degree of risk associated with such loans;

       (v) The trend in loan growth, including any rapid increase in loan volume within a relatively short time period;

       (vi) Effects of any changes in risk selection and underwriting standards, and other changes in lending policies, procedures, and practices;

       (vii) General and local economic conditions affecting the collectibility of the Insured Institution's loans;

       (viii) Previous loan loss experience by loan type, including the trend of net charge-offs as a percent of average loans over the past several years;

       (ix) Off balance sheet credit risks;

       (x) The overall risk associated with each concentration of credit together with the degree of risk associated with each related individual borrower; and

       (xi) Any other factors appropriate in determining future valuation reserves.

   (b) Prior to the submission of any Report of Condition or Report of Income, the Board of the Insured Institution shall review the adequacy of the Insured Institution's valuation reserve for loan and lease losses. The minutes of the Board meetings at which each review is undertaken shall indicate the results of the review, the amount of any increase to the reserve, and the basis for the amount of the valuation reserve. The criteria for the review shall be as set forth in Paragraph 8(a).

   (c) Notwithstanding the provisions of Paragraph 8(a) and 8(b) above, the Insured Institution shall provide, within 30 days of the effective date of this ORDER, an additional $3.2 Million provision to the valuation reserve for loan and lease losses as of March 31, 2001. Thereafter the Insured Institution shall maintain, through charges to current operating income, an adequate valuation reserve for loan and lease losses.

   (d) In the event that the Regional Director and/or the Commissioner determine, at subsequent examinations and/or visitations, that the Insured Institution's valuation reserve for loan and lease losses is inadequate, the Insured Institution shall amend its Consolidated Reports of Condition and Income in accordance with Paragraph 23.

   [.8]9. Within 90 days of the effective date of this ORDER, the Board and management shall correct all the credit administration deficiencies noted on pages 42-43 of the March 5, 2001 Joint FDIC/State Report of Examination.

   [.9]10. (a) Beginning with the effective date of this ORDER, the Insured Institution shall not extend or renew, directly or indirectly, any credit to, or for the benefit of, any borrower who has a loan or other extension of credit with the Insured Institution that has been charged off or classified, in whole or in part, "Substandard," "Doubtful," or "Loss" as of March 5, 2001 unless such extension has been approved by a majority of the Insured Institution's Board in advance and the Insured Institution's Board has detailed in the written minutes of the Board meeting how it has affirmatively determined all of the following: (i) that the extension of credit is in full compliance with the Insured Institution's loan policy; (ii) that the extension of credit is necessary to protect the Insured Institution's interest or is adequately secured; (iii) that based upon credit analysis the customer is deemed to be creditworthy; and (iv) that all necessary loan documentation is on file, including current financial and cash flow information and satisfactory appraisal, title, and lien documents. The minutes shall also include the following information about the extension of credit: (i) The amount adversely classified as of March 5, 2001; (ii) the current balance; (iii) the amount of credit requested; (iv) a description of the collateral and its value securing the credit; and (v) a full description of the documentation presented to the Board including the date of the borrower's most recent financial information and the borrower's current income or cash flow data.

   (b) Beginning with the effective date of this ORDER, the Insured Institution shall not renew any loan without the full collection of interest due. The issuance of separate notes to the borrowing customer or a third party, the proceeds of which pay interest due, shall not satisfy the requirements of this paragraph
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   unless these separate notes receive prior Board approval in the same manner as outlined in Paragraph 10(a).

   [.10]11. Beginning with the effective date of this ORDER, the Insured Institution shall initiate and implement a program to correct the technical exceptions as detailed on pages 126-128 of the March 5, 2001, Joint FDIC/State Report of Examination. For all credit extensions, the Insured Institution shall ensure that all appropriate documentation is obtained before credit is extended.

   [.11]12. (a) Within 30 days of the effective date of this ORDER, the Board shall establish an effective internal loan review and grading system ("System") to periodically review the Insured Institution's loan portfolio and identify and categorize problem credits. At a minimum the System shall provide for:

       (i) The identification of the overall quality of the loan portfolio;

       (ii) The identification and amount of each delinquent loan;

       (iii) An identification or grouping of loans that warrant the special attention of management;

       (iv) For each loan identified, a statement of the amount and an indication of the degree of risk that the loan will not be fully repaid according to its terms and the reason(s) why the particular loan merits special attention;

       (v) An identification of credit and collateral documentation exceptions;

       (vi) The identification and status of each loan in apparent violation of law, rule or regulation;

       (vii) An identification of exceptions to the lending policy and loans not in conformance with the Insured Institution's lending policy;

       (viii) An identification of insider loan transactions;

       (ix) Guidelines for ensuring that all significant loans are reviewed by individuals who are not part of, or influenced by anyone associated with, the loan origination approval process;

       (x) Establishing the frequency of reviews;

       (xi) Determining the scope of review for significant loans and those with major credit risks; and

       (xii) A mechanism for reporting periodically, no less than quarterly, to the Board on the status of each loan identified and the action(s) taken by management.

   (b) Within 60 days of the effective date of this ORDER the Insured Institution shall ensure that the scope of the external loan review function is sufficient to assure independence and address the weaknesses noted in the March 5, 2001 Joint FDIC/State Report of Examination.

   (c) A copy of any internal or external loan review report submitted to the Board, as well as documentation of the action taken by the Insured Institution to collect or strengthen assets identified as problem credits, shall be kept with the minutes of the Board.

   [.12]13. (a) As of the effective date of this ORDER, the Insured Institution shall adequately monitor concentrations of credit risk. At least quarterly, concentration risks shall be reviewed, quantified, assessed, and eliminated or reduced to the extent possible. A current list of concentrations shall be reported to the Board quarterly. For the purposes of this Board reporting, concentrations shall be defined to include concentrations of 25% or more of Tier 1 Capital by individual borrower, small interrelated group of individuals, or single repayment source or project.

   (b) During the life of this ORDER, the Insured Institution shall maintain a system of identifying all interrelated borrowing relationships. All such relationships involving Insiders, or individuals or entities that have common financial interests with one or more Insiders, shall be reported to the Board quarterly. For purposes of this ORDER, the term "Insider" shall have the meaning ascribed to it in section 215.2 of Regulation O, 12 C.F.R. §215.2, and shall also include relationships established by blood or marriage.

   (c) Within 30 days of the effective date of this ORDER, the Insured Institution shall establish prudent limits on extensions of credit to, and asset purchases through, any single obligor, or related parties, subject to the following limits:

       (i) Direct obligations, combined with obligations extended under lease purchase facilities, shall be limited to 25% of Tier 1 Capital;

       (ii) Accounts Receivable purchased from one seller (or the related interests of one
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       seller) shall be limited to 100% of Tier 1 Capital; and

       (iii) Combination relationships (relationships which involve direct obligations and/or lease purchases, and accounts receivable purchases) with one obligor shall be limited to 100% of Tier 1 Capital, provided that any direct obligation and/or lease purchase facility portion shall be limited to 25% of Tier 1 Capital.

   (d) Notwithstanding the foregoing, the Insured Institution shall, with respect to its financial transactions, comply with any and all relevant State statutes regarding legal lending limitations. Further, the Insured Institution shall continue to limit its aggregate exposure in accounts receivable purchase facility financing to no greater than 30% of net loans, in accordance with the provisions of the current loan policy.

   [.13]14. (a) Within 30 days of the effective date of this Order, the Insured Institution shall adopt and implement policies and procedures to ensure that all extensions of credit and/or renewals comply with the Insured Institution's loan policies including, but not limited to, current financial statements and current appraisals. Any exceptions to, or deviations from, the Insured Institution's established direct or indirect lending policies, shall be noted in writing along with the name of the loan's originating officer. Documentation of the Insured Institution's review shall be made a part of the Insured Institution's loan file. A written report shall be submitted monthly to the Board concerning the Insured Institution's adherence to the loan policies, noting any exceptions to or deviations from the loan policies established by the Insured Institution's Board, the loan officer responsible for the exception or deviation, and the date the exception or deviation received the Insured Institution Board's approval. The report shall be made a part of the minutes of the Board meeting.

   (b) Evidence of the review and establishment of procedures to ensure compliance with the loan policy shall be reduced to writing. The policy and its implementation shall be in a form and manner acceptable to the Regional Director and the Commissioner as determined at subsequent examinations and/or visitations.

   [.14]15. (a) Within 60 days from the effective date of this ORDER, and annually thereafter, the Board of the Insured Institution shall develop a written budget that corresponds to the strategic plan referenced in paragraph 16 of this ORDER. The budget shall include, at a minimum:

       (i) Realistic and comprehensive budget assumptions;

       (ii) A description of the operating assumptions that form the basis for, and adequately support, major projected income and expense components; and

       (iii) A budget review process to monitor the income and expenses of the Insured Institution to compare actual figures with budgetary projections on not less than a quarterly basis.

   (b) Such written budget and any subsequent modifications thereto shall be submitted to the Regional Director and the Commissioner for review and comment. Within 30 days from the receipt of any comment, the Board shall approve the written budget and such approval shall be recorded in the minutes of the Board. Thereafter, the Insured Institution, its directors, officers, and employees shall follow the written budget and any subsequent modifications thereto.

   [.15]16. Within 90 days from the effective date of this ORDER, the Insured Institution shall formulate and submit to the Regional Director and Commissioner for review and comment a realistic and comprehensive written strategic plan that corresponds to the written budget referenced in paragraph 15 of this ORDER. The plan required by this paragraph shall include, but not be limited to, an assessment of the Insured Institution's current financial condition and market area, and a description of the operating assumptions that form the basis for major projected income and expense components. Within 30 days following the receipt of any comment, and after consideration of such comment, the Board shall approve the strategic plan, and such approval shall be recorded in the minutes of the Board. Thereafter, the Insured Institution, its directors, officers, and employees shall follow the strategic plan and any subsequent modifications thereto.

   [.16]17. Within 60 days from the effective date of this ORDER, the Insured Institution shall develop, adopt, and implement written policies and procedures designed to bring to the attention of each member of the Board potential conflicts of interest in approving loans or other transactions in which Insiders are involved. Such policies and procedures shall, at a minimum, require the disclosure of the nature of the Insider's relationship to the borrower, such as family relationship, common ownership of real or personal property, and business association(s) with the borrower or any entity in which the borrower has an ownership interest. Such policies and procedures shall also, at a minimum, require the disclosure
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   of the nature of the Insider's relationship to parties involved in participations or purchase and sale transactions of Insured Institution assets. In addition, the policies and procedures shall ensure that each member of the Board has been apprised of any potential conflict prior to making a decision, and shall ensure that underwriting standards, the level of due diligence, and credit risk monitoring applied to loans or other transactions in which Insiders and/or their business associates are, directly or indirectly, involved are at a minimum consistent with non-Insider credit relationships. The results of Board deliberations as to potential conflicts shall be reflected in the minutes of the Board meeting. If the loan or transaction in question is one that may be approved by a committee of the Board or of the Insured Institution rather than the Board, the policies and procedures shall require the disclosure of the foregoing information not only to the Board but also to the members of any applicable committees prior to the approval of the loan or transaction, and the minutes of each applicable committee shall reflect deliberations of all potential conflicts.

   [.17]18. (a) (i) Within 90 days from the effective date of this ORDER, the Insured Institution shall have Tier 1 capital at or in excess of seven and one-half (7 1/2) percent of the Insured Institution's Part 325 total assets ("Tier 1 leverage capital ratio") and shall continue to maintain its Tier 1 leverage capital ratio at or in excess of such level as calculated herein while this ORDER is in effect. Toward this end, the Insured Institution shall develop a Capital Plan which shall be submitted to the Regional Director and the Commissioner for approval within 30 days from the effective date of this ORDER. The Capital Plan should address both internal and external sources of capital augmentation, including capital infusions, retention of earnings, restrictions of asset growth and asset sales.

   (ii) For purpose of this ORDER, the terms "Tier 1 capital" and "Part 325 total assets" shall have the meanings ascribed to them in Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325. The "Capital Calculations" page in the March 5, 2001 Joint FDIC/State Report of Examination provides the method for determining the ratio of Tier 1 capital to adjusted Part 325 total assets as required by this ORDER.

   (b) Any increase in Tier 1 capital necessary to meet the ratio required by Paragraph 18(a) of this ORDER may be accomplished by the following:

       (i) The sale of new securities in the form of common stock; or

       (ii) The direct contribution of cash by the directors, shareholders, or parent Insured Institution holding company of the Insured Institution; or

       (iii) Any other method acceptable to the FDIC and the Commissioner.

   (c) If, after having achieved the Tier 1 leverage capital ratio specified in paragraph 18(a), such ratio declines below seven and one-half (7 1/2) percent, the Insured Institution, within thirty (30) days after the date on which said ratio so declined, shall submit a written plan to the Regional Director and the Commissioner for increasing such ratio up to or in excess of seven and one-half (7 1/2) percent within sixty (60) days after the written plan is implemented. Thereafter, the Insured Institution shall continue to maintain its Tier 1 leverage capital ratio at or in excess of such level while this ORDER is in effect. Upon approval by the Regional Director and the Commissioner, the Insured Institution shall immediately implement the written plan.

   (d) In addition to the requirements of paragraphs 18(a)-(c), the Insured Institution shall comply with the FDIC's Statement of Policy on Risk-Based Capital found in Appendix A to Part 325 of the FDIC Rules and Regulations, 12 C.F.R. Part 325, App. A.

   (e) If all or part of the increase in the Tier 1 leverage capital ratio required by Paragraph 18(a) of this ORDER is accomplished by the sale of new securities, the Board of the Insured Institution shall 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 Insured Institution's securities (including
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   a distribution limited only to the Insured Institution's existing shareholders), the Insured Institution shall prepare offering materials fully describing the securities being offered, including an accurate description of the financial condition of the Insured Institution and the circumstances giving rise to the offering, and any other material disclosures necessary to comply with the Federal securities laws. Prior to the implementation of the plan and, in any event, not less than 20 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, Disclosure, and Securities Operations Unit, 550 17th Street, N.W., Room F-6043, Washington, D.C. 20429, and to the Commissioner, for review. Any changes requested to be made in the plan or materials by the FDIC shall be made prior to their dissemination. If the Regional Director and the Commissioner allow any part of the increase in the Tier 1 leverage capital ratio to be provided by the sale of noncumulative perpetual preferred stock, then all terms and conditions of the issue, including but not limited to those terms and conditions relative to the interest rate and any convertibility factor, shall be presented to the Regional Director and the Commissioner for prior approval.

   (f) In complying with the provisions of Paragraph 18 of this ORDER, the Insured Institution shall provide to any subscriber and/or purchaser of the Insured Institution's securities 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 Insured Institution securities. The written notice required by this paragraph shall be furnished within 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 Insured Institution's securities who received or was tendered the information contained in the Insured Institution's original offering materials.

   (g) The Insured Institution shall not lend funds directly or indirectly, whether secured or unsecured, to any purchaser of Insured Institution stock or to any investor by any other means for any portion of any increase in the Tier 1 leverage capital ratio required herein.

   (h) The Insured Institution's Board shall maintain in its minutes a written record of all actions taken by the Insured Institution to comply with the capital requirements of paragraphs 18(a) through 18(g) of this ORDER.

   [.18]19. Within 60 days from the effective date of this ORDER, the Insured Institution shall eliminate and/or correct all apparent violations of law and regulations as described in the March 5, 2001 Joint FDIC/State Report of Examination. In addition, the Insured Institution shall henceforth comply with all applicable laws and regulations.

   [.19]20. (a) Beginning with the effective date of this ORDER, minutes of Board and committee meetings shall contain sufficient detail to reflect the substance of significant discussions and the rationale to support significant decisions.

   (b) Beginning with the effective date of this ORDER, the Board shall review the appropriateness and use of quorum guidelines and enforce compliance with the guidelines.

   [.20]21. Within 60 days from the effective date of this ORDER, the Insured Institution shall eliminate and/or correct all internal routine and control deficiencies as described in the March 5, 2001 Joint FDIC/State Report of Examination.

   [.21]22. Within 60 days from the effective date of this ORDER, the Insured Institution shall ensure full compliance with the Joint Interagency Policy Statement on Interest Rate Risk.

   [.22]23.(a) Within 30 days from the effective date of this ORDER, the Insured Institution shall review all Consolidated Reports of Condition and Income filed with the FDIC on and after March 31, 2001, and shall amend and file with the FDIC and the Commissioner amended Consolidated Reports of Condition and Income which accurately reflect the financial condition of the Insured Institution as of the date of each such Report.

   (b) In addition to the above and during the life of this ORDER, the Insured Institution shall file with the FDIC Consolidated Reports of Condition and Income that accurately reflect the financial condition of the Insured Institution as of the reporting period. In particular such Reports shall include any adjustment in the Insured Institution's books made necessary or appropriate as a consequence of any State or FDIC examination
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   of the Insured Institution during that reporting period.

   [.23]24. The Insured Institution shall not declare and pay cash dividends in any amount without the prior written consent of the Regional Director and the Commissioner.

   [.24]25. (a) Within 60 days from the effective date of this ORDER, the Insured Institution shall develop a plan with a timetable ("IT Plan") to correct the following deficiencies noted in the Information Technology Report of Examination dated March 31, 2001 ("IT Exam"):

       (i) Correct outstanding audit exceptions from prior audits and the exceptions noted in the IT Exam;

       (ii) Correct segregation of duty weaknesses;

       (iii) Implement a comprehensive security policy;

       (iv) Provide for an ongoing security assessment program and a network penetration program to include a formalized incident response plan; and

       (v) Address other deficiencies noted in the IT Exam.

   (b) The IT Plan and any subsequent modification thereto shall be submitted to the Regional Director and Commissioner for review and comment. Within 30 days from receipt of any comment, and after consideration of such comment, the Board shall approve the IT Plan, and such approval shall be recorded in the minutes of the Board. Thereafter, the Insured Institution, its directors, officers, and employees shall implement and follow the IT Plan and any subsequent modifications thereto.

   [.25]26. Within 30 days from the effective date of this ORDER, the Insured Institution shall establish an adequate plan to comply in all material respects with the Bank Secrecy Act and section 326.8 of the FDIC Rules and Regulations, 12 C.F.R. §326.8. Thereafter, the Insured Institution shall comply in all material respects with the plan.

   [.26]27. Within 90 days from the effective date of this ORDER, the Insured Institution's Board shall adopt and implement a comprehensive written audit program for internal and external audits. A copy of the audit program shall be submitted to the Regional Director and Commissioner for review and comment. Within 30 days from the receipt of any comment, and after consideration of such comments, the Board shall approve the audit program, and such approval shall be recorded in the minutes of the Board. The Insured Institution shall thereafter implement and enforce the audit program and any subsequent modifications thereto. The internal auditor shall make written monthly reports of audit findings directly to the Insured Institution's Board or Board Audit Committee.

   The minutes of the meetings of the Board and Board Audit Committee shall reflect consideration of these reports and describe any action taken as a result thereof.

   [.27]28. During the life of this ORDER, the Insured Institution shall not accept, renew, or roll over brokered deposits other than to the extent permitted pursuant to section 29 of the Act, 12 U.S.C. §1831f, as amended, and the FDIC's Rules and Regulations, including section 337.6, 12 C.F.R. §337.6, as amended and supplemented. For the purposes of this ORDER, the term "brokered deposit" shall have the same meaning as is found in section 337.6(a)(2) of the FDIC's Rules and Regulations, as amended, 12 C.F.R. §337.6(a)(2).

   [.28]29. (a) During the life of this ORDER, the Insured Institution shall notify the Regional Director and Commissioner of any new lines of business under consideration by the Insured Institution. For purposes of this paragraph "new lines of business" means any activity not conducted by the Insured Institution as of March 31, 2001.

   (b) The notification required by subsection (a) shall be in writing not less than 30 days prior to the proposed commencement date of the new line of business. The notification shall include prospective operating policies and procedures to be adopted as part of the new line of business.

   (c) Subsequent to the regulatory notification provided in this paragraph, the Insured Institution shall not commence any new line of business without Board approval and notation in the official Board minutes.

   (d) Nothing in this paragraph shall be deemed to relieve the Insured Institution from compliance with all other applicable statutes and regulations, including but not limited to, section 24 of the Federal Deposit Insurance Act, 12 U.S.C. §1831a, and Part 362 of the FDIC Rules and Regulations, 12 C.F.R. Part 362.
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   [.29]30. During the life of this ORDER, the Insured Institution shall establish and implement security controls with respect to tenants occupying the premises of the Insured Institution. At a minimum, such security controls shall ensure that the computer systems, paper files, and other information systems of the Insured Institution are protected from tampering by such tenants, their agents, employees, and visitors. Such controls and their implementation shall be in the form and manner acceptable to the Regional Director and the Commissioner as determined at subsequent examinations and/or visitations.

   31. Within 30 days from the end of each calendar quarter, the Board shall furnish written progress reports to the Regional Director and the Commissioner 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 and the Commissioner have released the Insured Institution in writing from making further reports. All progress reports and other written responses to this ORDER shall be reviewed by the Board and consideration thereof shall be included in the official Board minutes.

   The provisions of this ORDER shall be binding upon the Insured Institution, its directors, officers, employees, agents, successors, assigns, and other institution-affiliated parties of the Insured Institution.

   This ORDER shall become effective 10 days from the date of its issuance.

   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: November 30th, 2001.

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