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FDIC Enforcement Decisions and Orders

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   [11,997] In the Matter of Bank of Pocahontas, Pocahontas, Arkansas, Docket No. 02-119b (12-12-02).

(This order was terminated by order of the FDIC dated 8-28-03; see ¶16,351.)

   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] Capital—Maintain Tier 1 Capital

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

   [.4] Profit Plan—Preparation of Plan Required

   [.5] Strategic Plan—Preparation of Required

   [.6] Assets—Charge-off or Collection

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

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

   [.9] Loan Review and Grading System—Establishment of Required

   [.10] Board of Directors—Committee to Review Loans to Existing Borrowers

   [.11] Compliance Officer—Review of Extensions of Credit Required

   [.12] Real Estate Activities—Other Real Estate (ORE), Management Policy Required

   [.13] Report of Examination—Correction of Exceptions Required

   [.14] Bank Operations—Internal Routine and Control Procedures—Written Plan Required
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   [.15] Bank Secrecy Act—Compliance Program—Employee Training

   [.16] Interagency Policy Statement on External Auditing Programs—Implementation Required

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

   [.18] Dividends—Dividends Restricted

   [.19] Shareholders—Disclosure of Cease and Desist Order Required

   [.20] Board of Directors—Compliance with Cease and Desist Order—Written Progress Reports Required

In the Matter of
BANK OF POCAHONTAS
POCAHONTAS, ARKANSAS
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

FDIC-02-119b

   BANK OF POCAHONTAS, POCAHONTAS, ARKANSAS ("Bank"), 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 Bank 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 December 5, 2002, 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 Bank consented to the issuance of an ORDER TO CEASE AND DESIST ("ORDER") by the FDIC.

   The FDIC considered the matter and determined that it had reason to believe that the Bank had engaged in unsafe or unsound banking practices and had committed violations of law and/or regulations. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

ORDER TO CEASE AND DESIST

   IT IS HEREBY ORDERED that the Bank, its 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) engaging in hazardous lending and lax collection practices;

   (b) operating with inadequate capital in relation to the kind and quality of assets held by the Bank;

   (c) operating with a large volume of poor quality loans;

   (d) operating with an inadequate loan valuation reserve;

   (e) operating with inadequate internal routine and control policies;

   (f) operating in such a manner as to produce low earnings;

   (g) operating in violation of section 39 of the Act, 12 U.S.C. §1831p-1 and in contravention of Appendix A to Part 364 of the FDIC's Rules and Regulations, 12 C.F.R. §364; section 323 of the FDIC's Rules and Regulations, 12 C.F.R. §323; section 326 of the FDIC's Rules and Regulations, 12 C.F.R. §326; section 103 of the Treasury Department's Rules and Regulations, 31 C.F.R. §103; in contravention of section 365 of the FDIC's Rules and Regulations, 12 C.F.R. §365; and in violation of section 215 of Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. §215.5(d)(4), made applicable to state nonmember banks by section 18(j)(2), 12 U.S.C. §1828(j)(2);

   (h) operating with management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits; and

   (i) operating with a board of directors which has failed to provide adequate supervision over and direction to the active management of the Bank.

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

   [.1]1. (a) During the life of this ORDER, the Bank shall have management qualified to restore the Bank to a sound condition. Such management shall include a chief operating officer and an experienced senior lending officer responsible for supervising the Bank's overall lending function. The chief operating officer and senior lending officer may be the same individual. The senior lending officer shall have skills requisite to administer commercial and industrial loans, agricultural loans, one-to-four family residential loans, consumer loans, and floor plan lending.

   (b) Management shall be assessed on its ability to:

       (i) Comply with the requirements of this ORDER;

       (ii) Improve and thereafter maintain the Bank in a safe and sound condition, including asset quality, capital adequacy, liquidity adequacy, earnings adequacy, and sensitivity to market risks; and

       (iii) Comply with all applicable State and Federal laws and regulations.

   (c) (i) During the life of this ORDER, the Bank shall notify the Regional Director of the Dallas Regional Office ("Regional Director"), through the Area Director for the Memphis Area Office of the Dallas Region, and the Commissioner of the Arkansas State Banking Department ("Commissioner") in writing of any resignations and/or terminations of any members of its board of directors and/or any of its senior executive officer(s) within 15 days of the event.

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

   (d) (i) To ensure both compliance with this ORDER and qualified management for the Bank, the board of directors, within 30 days from the effective date of this ORDER, shall develop a written policy ("Management Policy") which shall incorporate an analysis of the Bank's management and staffing requirements and shall, at a minimum address (1) both the number and type of positions needed to properly manage the Bank, (2) a clear and concise description of the needed experience and pay for each job, (3) an evaluation of present management, (4) a plan to recruit, train, hire, or replace personnel with requisite ability and experience, (5) a periodic evaluation of each individual's job performance, (6) management succession, and (7) the establishment and implementation of procedures to periodically review and update the Management Policy.

   (ii) The Management Policy and any subsequent modification 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 of directors shall approve the Management Policy, which approval shall be recorded in the minutes of the meeting of the board of directors. Thereafter, the Bank and its directors, officers, and employees shall implement and follow the Management Policy and any modifications thereto.

   (e) Within 30 days from the effective date of this ORDER, the board of directors shall establish a committee of the board of directors with the responsibility to ensure that the Bank complies with the provisions of this ORDER. At least two-thirds of the members of such committee shall be independent, outside directors as defined herein. The committee shall report monthly to the entire board of directors, 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 of directors. Nothing contained herein shall diminish the responsibility of the entire board of directors to ensure compliance with the provisions of this ORDER.

   (f) For the purpose of this ORDER, an "outside director" shall be an individual:

       (i) Who shall not be employed, in any capacity, by the Bank or its affiliates other than as a director of the Bank or an affiliate;

       (ii) Who shall not own or control more than 5 percent of the voting stock of the Bank or its holding company;

       (iii) Who shall not be indebted to the Bank or any of its affiliates in an amount greater than 5 percent of the Bank's equity capital and reserves;

       (iv) Who shall not be related to any directors, principal shareholders of the Bank or affiliates of the Bank; and

       (v) Who shall be a resident of, or engage in business in, the Bank's trade area.

   [.2]2. (a) Within 30 days from the effective date of this ORDER, the Bank shall have Tier 1 capital equal to or greater than seven and one-half percent (7.5%) of the
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   Bank's adjusted Part 325 total assets. Thereafter, during the life of this ORDER, the Bank shall maintain Tier 1 capital equal to or greater than seven and one-half percent (7.5%) of the Bank's adjusted Part 325 total assets.

   (b) Any increase in Tier 1 capital necessary to meet the ratio required by Paragraph 2(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 Bank holding company of the Bank; or

       (iii) Any other method acceptable to the FDIC.

   (c) If all or part of the increase in Tier 1 capital required by Paragraph 2(a) of this ORDER is accomplished by the sale of new securities, the board of directors of the Bank 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 Bank's 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 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, Accounting & Securities Section, 550 17th Street, N.W., Room F-6043, Washington, D.C. 20429 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 allows any part of the increase in Tier 1 capital 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 for prior approval.

   (d) In complying with the provisions of Paragraph 2 of this ORDER, the Bank shall provide to any subscriber and/or purchaser of the Bank'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 Bank securities. The written notice required by this subparagraph 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 Bank's securities who received or was tendered the information contained in the Bank's original offering materials.

   (e) For purposes 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, respectively subsections 235.2(v) and 325.2(x), 12 C.F.R. §§ 325.2(v) and (x). The "Capital Calculations" schedule contained on page 50 of the Report of Examination of the Bank as of March 31, 2002, provides the method for determining the ratio of Tier 1 capital to adjusted Part 325 total assets as required by this ORDER.

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

   [.3]3. (a) Within 30 days from the effective date of this Order, the Bank 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 directors of the Bank 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) 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;

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

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

       (v) General and local economic conditions affecting the collectibility of the Bank's loans;

       (vi) 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;

       (vii) Off balance sheet credit risks;

       (viii) The overall risk associated with each concentration of credit, if any, together with the degree of risk associated with each related individual borrower; and

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

   (b) Prior to the submission of any Report of Condition and Income, the board of directors of the Bank shall review the adequacy of the Bank'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 3(a).

   (c) Notwithstanding the provisions of Paragraph 3(a) and 3(b) above, the Bank shall achieve, within 30 days of the effective date of this ORDER, a valuation reserve for loan and lease losses, after charge off of loans classified "Loss" as required in Paragraph 5(a) below, of not less than $3,031,000, and shall thereafter 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 Bank's valuation reserve for loan and lease losses is inadequate, the Bank shall amend its Consolidated Reports of Condition and Income in accordance with Paragraph 17.

   (e) The requirements of Paragraph 3(c) above are not to be construed as a standard for future operations.

   [.4]4. (a) Within 90 days from the effective date of this ORDER, and within the first 30 days of each calendar year thereafter, the board of directors shall develop a written profit plan consisting of goals and strategies for improving the earnings of the Bank for each calendar year. The written profit plan shall include, at a minimum:

       (i) Identification of the major areas in, and means by, which the board of directors will seek to improve the Bank's operating performance;

       (ii) Realistic and comprehensive budgets;

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

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

   (b) Such written profit plan and any subsequent modification thereto shall be submitted to the Regional Director and the Commissioner for review and comment. No more than 30 days after the receipt of any comment from the Regional Director and/or the Commissioner, the board of directors shall approve the written profit plan which approval shall be recorded in the minutes of the board of directors. Thereafter, the Bank, its directors, officers, and employees shall follow the written profit plan and/or any subsequent modification.

   [.5]5. By January 15, 2003, the Bank shall develop a long-range strategic plan. At a minimum, the written strategic plan shall include long-range goals and objectives, steps for achieving these goals and objectives, competitive factors of new markets, and periodic monitoring of performance to allow for both the actual results and the making of necessary revisions. The strategic plan and any subsequent modification thereto shall be submitted to the Commissioner and Regional Director for review and comment. No more than 30 days after the receipt of any comment from the Commissioner and/or Regional Director, the board of directors shall approve the written strategic plan, which approval shall be recorded in the minutes of the board of directors. Thereafter, the Bank, its directors, officers, and employees shall follow the strategic plan and/or any subsequent modification.

   [.6]6. (a) Within 10 days from the effective date of this ORDER, the Bank shall eliminate from its books, by charge-off or
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   collection, all assets classified "Loss" as of March 31, 2002, that have not been previously collected or charged-off. Reduction of these assets through proceeds of other loans made by the Bank is not considered collection for the purpose of this paragraph.

   (b) Within 60 days from the effective date of this ORDER, the Bank shall formulate and submit to the Regional Director and the Commissioner for review and approval a written plan of action directed at lessening the Bank's risk position in each line of credit which was classified "Substandard" or "Doubtful" as of March 31, 2002, and which aggregated $100,000 or more. Such plan shall include, but not be limited to, the following:

       (i) Target dollar levels to which the Bank will reduce each line of credit or other asset within three months, six months, and twelve months from the effective date of this ORDER; and

       (ii) Provisions for the submission of monthly written progress reports under this Paragraph 6 to the Bank's board of directors for review and recordation in the board minutes.

   (c) Within 90 days from the effective date of this ORDER, the Bank shall sufficiently reduce or otherwise improve assets subject to Special Mention as of March 31, 2002, to warrant removal from the Special Mention category.

   (d) The requirements of Paragraphs 6(a), 6(b), and 6(c) are not to be construed as standards for future operations.

   (e) As used in Paragraphs 6(a), 6(b), and 6(c), 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/or the Commissioner.

   [.7]7. (a) 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 with the Bank that has been charged off or classified, in whole or in part, "Loss" or "Doubtful" and is uncollected. The requirements of this paragraph shall not prohibit the Bank from renewing (after collection in cash of interest due from the borrower) any credit already extended to any borrower. The requirements of this paragraph 7(a) shall not apply to [Company], provided the Bank complies with the provisions of paragraph 7(b) prior to extending additional credit to, or for the benefit of, [Company].

   (b) Beginning with the effective date of this ORDER, the Bank shall not make any further extensions of credit, directly or indirectly, to any borrower whose loans in the aggregate exceed $100,000 and are adversely classified "Substandard" as of March 31, 2002, without prior approval by the Bank's board of directors or the board loan committee after the board's or committee's affirmative determination, as reflected in the minutes of the meeting, that the extension of credit is necessary to protect the Bank's interest or is adequately secured, that credit analysis has determined the customer to be creditworthy, and 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 31, 2002; (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 of directors including the date of the borrower's most recent financial information and the borrower's current income or cash flow data.

   (c) Beginning with the effective date of this ORDER, the Bank 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 unless these separate notes receive prior board approval in the same manner as outlined in Paragraph 7(b).

   [.8]8. (a) Within 60 days from the effective date of this ORDER, the Bank shall review its written loan policy and make whatever changes may be necessary to provide for the safe and sound administration of all aspects of the lending function, including, at a minimum, incorporating:

       (i) The provisions of Part 365 of the FDIC's Rules and Regulations, particularly with respect to real estate loan-to-value guidelines;
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       (ii) Guidelines for internal review of real estate appraisals and evaluations;

       (iii) Updated internal risk rating guidelines;

       (iv) Nonaccrual loan guidelines;

       (v) Guidelines regarding overdrafts; and

       (vi) Guidelines for granting loan payment extensions, with established procedures for monitoring loan payment extensions, and quarterly management reports detailing the loans extended, the length of the extension, the reason for the extension, whether interest was paid current, and the name of the loan officer responsible for granting the extension.

   (b) The Bank's revised loan policy shall include underwriting guidelines that include, at a minimum, requirements to obtain:

       (i) Current borrower financial information, including, where applicable, detailed balance sheets, profit and loss statements, complete copies of the borrower's most recent tax returns, cash flow projections, and recent credit reports, that are sufficient to support the outstanding indebtedness of each borrower;

       (ii) Documents necessary to perfect the Bank's lien position, evaluate its lien priority, and provide a supportable valuation for all collateral pledged, all prior to funding any loan proceeds;

       (iii) Collateral valuations that adhere to the Bank's loan policy and or performed by an independent third party or are supported by purchase invoices;

       (iv) Realistic payment terms that match a borrower's source of repayment; and

       (v) Adequate collateral margins for all new extensions of credit.

   (c) The Bank shall adopt additional changes it considers necessary and appropriate. Management shall reaffirm its intent to comply with the policy, as amended. Evidence of management's reaffirmation shall be reduced to writing.

   (d) The loan 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.

   (e) The Bank shall adopt and implement compliance and monitoring procedures to ensure compliance with the loan policy. Evidence of the establishment, review, and monitoring of compliance with the loan policy shall be reduced to writing.

   [.9]9. (a) By December 31, 2002, the board shall establish an internal loan review and grading system ("System") to periodically review the Bank'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 warrants 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 violation of law, rule, or regulation;

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

       (viii) An identification of insider loan transactions; and

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

   (b) A copy of the reports submitted to the board, as well as documentation of the action taken by the Bank to collect or strengthen assets identified as problem credits, shall be kept with the minutes of the board of directors.

   [.10]10. (a) Within 60 days from the effective date of this ORDER the Bank's board of directors shall establish and appoint a loan committee to review and approve in advance all extensions of credit and/or renewals that when aggregated with all other extensions of credit to a borrower, either directly or indirectly, exceed or would exceed $100,000. The review should include financial, income, and cash flow information, collateral values and lien information, repayment terms, past performance by the borrower, the purpose of the extension, and
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   whether the extension complies with the Bank's loan policy and applicable laws, rules, and regulations. The loan committee shall meet at least twice monthly and shall maintain written minutes which detail the information reviewed by the loan committee, its conclusions, approvals, denials, recommendations, and reasons for the approval of any credit which does not fully comply with the review requirements set forth in this paragraph. At least monthly, the loan committee shall submit its written minutes to the board of directors. At least two-thirds of the members of the loan committee shall be independent, outside directors as defined in Paragraph 1(f) of this ORDER.

   (b) The requirements of Paragraph 10(a) shall not apply to extensions of credit and/or renewals secured by one-to-four family dwellings or consumer loans of $25,000 or less, provided such extensions of credit are not past due, are not in non-accrual status, or are not adversely classified by the Bank, the FDIC, or the State of Arkansas.

   [.11]11. (a) Within 30 days of the effective date of this Order, the Bank shall adopt and implement written policies and procedures to ensure that all new extensions of credit and/or renewals, including the acquisition of any form of indirect indebtedness or dealer paper, in an amount in excess of $25,000 but not more than $100,000, shall be reviewed by the Bank's Compliance Officer. The Bank's Compliance Officer shall ensure that the loan, renewal, or acquisition complies with the Bank's loan policies including, but not limited to, current financial statements and current appraisals. Any exceptions to, or deviations from, the Bank's established direct or indirect lending policies, shall be noted in writing along with the name of the loan's originating officer. A copy of the Bank Compliance Officer's review shall be made a part of the Bank's loan file. The Bank's Compliance Officer shall submit a written report monthly to the Bank's board of directors concerning the Bank's adherence to the loan policies, noting any exceptions to or deviations from the loan policies established by the Bank's board of directors, the loan officer responsible for the exception or deviation, and the date the exception or deviation received the Bank board of director's ratification. The report shall be made a part of the minutes of the board meeting.

   [.12]12. (a) Within 60 days from the effective date of this ORDER, the board of directors shall develop a plan for managing the Other Real Estate ("ORE") of the Bank. The written ORE plan shall include, at a minimum:

       (i) A quarterly review of the ORE portfolio by the ORE committee to be appointed by the Bank;

       (ii) Realistic and comprehensive budgets for each piece of ORE, including projections of the Bank's cost of marketing the ORE, and the Bank's costs of carrying the ORE on its books (e.g., upkeep, repairs, and insurance costs);

       (iii) A determination by the ORE committee for each piece of ORE that the property is listed with a real estate broker or otherwise made widely available for sale in an appropriate manner, and that the proposed selling price is realistic;

       (iv) Guidelines to ensure that periodic appraisals are obtained for the ORE and that progress reports are obtained from all real estate brokers marketing the ORE, including a projected sales time frame for each piece of ORE;

       (v) Guidelines to ensure that all taxes and insurance premiums are timely paid;

       (vi) An identification of any ORE that warrants the special attention of management;

       (vii) An identification of documentation exceptions on any ORE; and

       (viii) An identification of all ORE not in conformance with the Bank's policies;

   (b) Reports from the ORE committee shall be submitted to the board of directors on at least a quarterly basis and a copy of such reports, as well as documentation of the action taken by the Bank to facilitate the timely sale of ORE, shall be made part of the minutes of the board of directors.

   [.13]13. (a) Within 60 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of law that are set out in the FDIC Report of Examination of the Bank as of March 31, 2002. In addition, the Bank shall henceforth comply with all applicable laws and regulations.

   [.14]14. (a) Within 90 days from the effective date of this ORDER, the Bank shall adopt and implement a written policy and procedures for the operation of the Bank in
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   such a manner as to provide internal routine and controls consistent with safe and sound banking practices. At a minimum, the internal routine and control policy shall provide guidelines for (i) separation of duties in the Bank's accounts payable department; (ii) an approval process for payment of invoices and expenses; (iii) random cash verification at frequent intervals by an officer or other designated Bank official who is not responsible for day-to-day teller duties; (iv) electronic banking functions, including, at a minimum, contracts with internet service providers, a response system for web page services, firewall protection, testing and verification of web page information, and auditing of electronic banking functions; and (v) routine and extensive review of telephone banking activities, requirements for customer modification of passwords set by the system administrator, and auditing of the telephone banking system. Such policy and its implementation shall be satisfactory to the Regional Director and the Commissioner as determined at subsequent examinations and/or visitations.

   (b) Within 90 days of the effective date of this ORDER, the board shall adopt and implement a data security program that shall, at a minimum, include:

       (i) The assignment and maintenance of user access levels that are considered appropriate for the size and complexity of the institution;

       (ii) Limitations for deposit file maintenance, loan file maintenance, and automatic transfer capabilities;

       (iii) Guidelines for daily, structured reviews of activity reports, exception reports, and security logs by an independent and knowledgeable staff member (including file maintenance activity, automatic transfer activity, failed sign-on attempts, and attempts at unauthorized access);

       (iv) Procedures for reporting any discrepancies and suspicious activity to senior management and the board; and

       (v) Periodic review, at least annually, of user capabilities with notations in committee or board minutes.

   (c) Within 90 days from the effective date of this ORDER, the Bank shall develop and implement policies and procedures regarding the protection of consumer financial information in accordance with Part 332 of the FDIC Rules and Regulations, 12 C.F.R. §332. The Bank shall conduct periodic tests to assure compliance with approved policies and procedures.

   [.15]15. (a) Within 60 days from the effective date of this ORDER, the Bank shall develop and implement an education program for its employees to ensure compliance with the Bank Secrecy Act and the financial recordkeeping regulations of the United States Treasury Department. The education program shall contain provisions for periodic training. The board of directors shall document the development and implementation of the education program and all training conducted in connection with the program in the minutes of the meetings of the board of directors.

   [.16]16. (a) During the life of this ORDER, the Bank shall revise, adopt, and implement a written external audit program that complies with the FFIEC Interagency Policy Statement on Independent External Auditing Programs of Banks and Savings Associations, Financial Institutions letter 96-99, dated October 25, 1999.

   (b) The provisions of Paragraph 16(a) notwithstanding, by December 31, 2002, and annually thereafter, the Bank shall obtain an external audit of the Bank's financial statements from an independent auditing firm. Promptly upon receipt, the Bank shall submit copies of the external auditor's report to the Regional Director and the Commissioner. The Bank shall notify the Regional Director and the Commissioner at least 7 days in advance of any meeting with the external auditor to discuss the report's findings. The Bank shall allow the Regional Director and/or the Commissioner, or their representatives, to attend such meeting.

   [.17]17. (a) Within 30 days from the effective date of this ORDER, the Bank shall review all Consolidated Reports of Condition and Income filed with the FDIC on and after March 31, 2002, and shall amend and file with the FDIC amended Consolidated Reports of Condition and Income which accurately reflect the financial condition of the Bank as of the date of each such Report.

   (b) In addition to the above and during the life of this ORDER, the Bank shall file with the FDIC Consolidated Reports of Condition and Income which accurately reflect the financial condition of the Bank as of the reporting period. In particular such Reports shall include any adjustment in the Bank's books made necessary or appropriate as a consequence of any State or FDIC examination of the Bank during that reporting period.
{{2-28-03 p.C-5657}}

   [.18]18. While this ORDER is in effect, the Bank shall not declare or pay any cash dividends on its capital stock unless, at least 60 days prior to payment of such dividends, the Bank's entire board of directors certifies in writing to the Regional Director and the Commissioner (i) the amount of Bank earnings as of the date of the certification; and (ii) that after payment of such dividends the Bank is, and will continue to be, in compliance with (A) the capital requirements contained in paragraph 2 of this ORDER; (B) the valuation reserve for loan and leases losses requirements contained in paragraph 3 of this ORDER; and (C) the written profit plan required by paragraph 4 of this ORDER.

   [.19]19. Following the effective date of this ORDER, the Bank shall send, or otherwise furnish a description of, this ORDER to its shareholders (i) in conjunction with the Bank's next shareholder communication, and also (ii) in conjunction with its notice or proxy statement preceding the Bank's next shareholder meeting. The description shall fully describe the ORDER in all material respects. The description and any accompanying communication, statement, or notice shall be sent to the FDIC, Accounting & Securities Section, 550 17th Street, N.W., Room F-6043, Washington, D.C. 20429 for review at least 20 days prior to dissemination to shareholders. Any changes requested by the FDIC shall be made prior to dissemination of the description, communication, notice, or statement.

   [.20]20. By the fifteenth day after the end of each calendar quarter following the effective date of this ORDER, the Bank 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 Bank in writing from making further reports.

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

   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: December 12, 2002.

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Last Updated 12/7/2003 legal@fdic.gov