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FDIC Enforcement Decisions and Orders

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   [12,106] In the Matter of Millennia Community Bank, Greenville, North Carolina, Docket No. 03-124b (10-2-03).

   A cease and desist order was issued, based on findings by the FDIC that it had reason to believe that respondent was engaged in unsafe and unsound practices. (This order was terminated by order of the FDIC dated 1-26-05; see ¶16,410.)

   [.1] Management—Qualifications Specified

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

   [.3] Assets—Charge-off or Collection

   [.4] Assets—Reduction Required

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

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

   [.7] Profit Plan—Preparation of Plan Required

   [.8] Business Plan—Preparation Required

   [.9] Violations of Law—Corrections of Violations Required

   [.10] Capital Plan—Increase Required

   [.11] Dividends—Dividends Restricted

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

   [.13] Progress Report—Written Report Required

In the Matter of
MILLENNIA COMMUNITY BANK
GREENVILLE, NORTH CAROLINA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

FDIC-03-124b

   MILLENNIA COMMUNITY BANK, GREENVILLE, NORTH CAROLINA ("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"), and the Commissioner of Banks for the State of North Carolina ("Commissioner") dated September 12, 2003, 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 and the Commissioner.

   The FDIC and the Commissioner considered the matter and determined that they 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 and the Commissioner, therefore, accepted the CONSENT AGREEMENT and issued the following:

ORDER TO CEASE AND DESIST

   IT IS HEREBY ORDERED, that the Bank, its institution-affiliated parties, as that term is defined in section 3(u) of the Act, 12 U.S.C. §1818(u), and its successors and assigns cease and desist from the following unsafe and unsound banking practices and violations of law and/or regulation:

       (a) operating with management whose policies and procedures are detrimental to the bank and jeopardize the safety of its deposits;

       (b) operating with a large volume of adversely classified loans or assets, and/or delinquent loans and/or non-accrual loans;

       (c) operating with an inadequate allowance for loan and lease losses for the volume, kind, and quality of loans and leases held;

       (d) following hazardous lending and lax collection practices;


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       (e) operating in such a manner as to produce operating losses; and

       (f) violating laws and/or regulations as more fully described on pages 12 and 13 of the Report of Examination dated March 31, 2003 ("Report").

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

1. MANAGEMENT

   [.1] (a) Within 120 days of the effective date of this ORDER, the Bank shall have and retain management having qualifications and experience commensurate with his or her duties and responsibilities at the Bank. At a minimum, management shall include the following:

       (i) a chief executive officer with proven ability in managing a bank of comparable size and in effectively implementing lending, investment and operating policies in accordance with sound banking practices; and

       (ii) a senior lending officer with significant lending, collection, and loan supervision experience for the type and quality of the Bank's loans, and proven ability in upgrading a low quality loan portfolio;

   Each member of management shall be provided appropriate written authority from the Bank's board of directors ("Board") 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; and

       (iv) restore all aspects of the Bank to a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness, and liquidity.

   (c) during the life of this ORDER, the Bank shall notify the Regional Director of the FDIC's Atlanta Regional Office ("Regional Director") and the Commissioner (collectively, "Supervisory Authorities") in writing when it proposes to add any individual to the Bank's board or employ any individual as a senior executive officer, as that term is defined in Part 303 of the FDIC's Rules and Regulations, 12 C.F.R. §303.101. The notification should include a description of the background and experience of the individual or individuals to be added or employed and must be received at least 30 days before such addition or employment is to become effective. If the Regional Director issues a notice of disapproval pursuant to section 32 of the Act, 12 U.S.C. §1831i, with respect to any proposed individual, then such individual may not be added or employed by the Bank.

   

[.2] 2. LENDING AND COLLECTION POLICIES

   Within 60 days from the effective date of this ORDER, the Bank shall revise, adopt, and implement a written lending and collection policy to provide effective guidance and control over the bank's lending function, which policy shall include, at a minimum, revisions to address all items of criticism enumerated on pages 2 and 3 of the Report, including but not limited to, adopting specific guidelines for placing and maintaining loans on a non-accrual basis, obtaining adequate and current documentation for all loans in the Bank's loan portfolio, and revising the Bank's loan grading system and internal "watch list." Such policy and its implementation shall be in a form and manner acceptable to the Supervisory Authorities as determined at subsequent examinations and/or visitations.

   

[.3] 3. CHARGE-OFF

   (a) Within 10 days from the effective date of this ORDER, the Bank shall eliminate from its books, by charge-off or collection, all assets or portions of assets classified "Loss" in the Report that have not been previously collected or charged-off. Elimination of these assets through proceeds of other loans made by the Bank is not considered collection for purposes of this paragraph.

   (b) Additionally, while this ORDER remains in effect, the Bank shall, within 30 days of the receipt of any official report of Examination of the Bank from the FDIC or the North Carolina Office of the Commissioner of Banks, eliminate from its books, by collection, charge-off, or other proper entries, the remaining balance of any assets classified "Loss" and 50 percent of those
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   classified "Doubtful" unless otherwise approved in writing by the Supervisory Authorities. (If an asset classified "Doubtful" is a loan or a lease, the Bank may, in the alternative, increase its allowance for loan and lease losses by an amount equal to 50 percent of the loan or lease classified "Doubtful.")

   

[.4] 4. REDUCTIONS OF CLASSIFIED ASSETS

   (a) Within 60 days of the effective date of this ORDER, the Bank shall submit to the Supervisory Authorities a written plan to effect the reduction/and or improvement of any lines of credit in excess of $50,000 which were classified "Substandard" in the Report. In developing such plan, the Bank shall, at a minimum:

       (i) review the financial position of each such borrower, including source of repayment, repayment ability, and alternative repayment sources; and

       (ii) evaluate the available collateral for each such credit, including possible actions to improve the Bank's collateral position.

   (b) Such plan shall include, but not be limited to the following:

       (i) dollar levels to which the Bank shall reduce each asset within 90 days from the effective date of this ORDER; and

       (ii) provisions for the submission of monthly written progress reports to the Board for review and notation in the minutes of the meeting of the Board.

   (c) As used in this paragraph, reduce means to:

       (i) collect;

       (ii) charge-off; or

       (iii) improve the quality of such assets so as to warrant removal of any adverse classification by the Supervisory Authorities.

   

[.5] 5. NO ADDITIONAL CREDIT

   (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 from 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.

   (b) Additionally, during the life 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 part, "Substandard" and is uncollected.

   (c) Paragraph 5(b) shall not apply if the Bank's failure to extend further credit to a particular borrower would be detrimental to the best interests of the Bank. Prior to the extending of any additional credit pursuant to this paragraph, either in the form of a renewal, extension, or further advance of funds, such additional credit shall be approved by a majority of the Board, or a designated committee thereof, who shall certify, in writing:

       (i) why the failure of the Bank to extend such credit would be detrimental to the best interests of the Bank;

       (ii) that the Bank's position would be improved thereby; and

       (iii) how the Bank's position would be improved.

   The signed certification shall be made a part of the minutes of the meeting of the Board or designated committee, and a copy of the signed certification shall be retained in the borrower's credit file.

6. SPECIAL MENTION

   Within 60 days from the effective date of this ORDER, the Bank shall correct the cited deficiencies in the loans listed for "Special Mention" on pages 27 through 29 of the Report.

   

[.6] 7. ALLOWANCE FOR LOAN/LEASE LOSSES

   Within 30 days from the effective date of this ORDER, the Board shall review the adequacy of the Bank's allowance for loan and lease losses ("allowance") and establish a comprehensive policy for determining the adequacy of the allowance. For the purpose of this determination, the adequacy of the allowance shall be determined after the charge-off of all loans or other items classified "Loss." The policy shall provide for a review of the allowance at least once each calendar quarter. Said review shall be completed at least ten (10) days prior to the end of each quarter, in order that the findings of the Board with respect to the allowance may
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   be properly reported in the quarterly Reports of Condition and Income. The Board's review should focus on the results of the Bank's internal loan review, loan and lease loss experience, trends of delinquent and non-accrual loans, an estimate of potential loss exposure of significant credits, concentrations of credit, and present and prospective economic conditions. The minutes of the Board meeting at which such review is undertaken shall indicate the results of the review. A deficiency in the allowance shall be remedied in the calendar quarter it is discovered, prior to submitting the Report of Condition, by a charge to current operating earnings. The Bank's policy for determining the adequacy of the allowance and its implementation shall be satisfactory to the Supervisory Authorities as determined at subsequent examinations and/or visitations.

   

[.7] 8. BUDGET PROFIT PLAN

   Within 60 days from the effective date of this ORDER, the Bank shall formulate and implement a written plan to improve earnings. This plan shall be forwarded to the Supervisory Authorities for review and comment and shall, at a minimum:

       (a) identify the major areas in, and means by which, the Board will seek to improve the Bank's operating performance;

       (b) require realistic and comprehensive budgets;

       (c) require 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 monthly basis; and

       (d) describe operating assumptions that form the basis for, and adequately support, major projected income and expense components.

   Following the end of each calendar quarter, the Board shall evaluate the Bank's actual performance in relation to the plan 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 meeting at which such evaluation is undertaken.

   

[.8] 9. WRITTEN STRATEGIC/BUSINESS PLAN

   Within 60 days from the effective date of this ORDER, the Bank shall prepare and submit to the Supervisory Authorities a written business/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 plan shall be in a form and manner acceptable to the Supervisory Authorities as determined at subsequent examinations and/or visitations, but at a minimum shall cover three years and provide specific objectives for asset growth, market focus, earnings projections, capital needs, and liquidity positions.

   

[.9] 10. ELIMINATE/CORRECT ALL VIOLATIONS OF LAW

   Within 60 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of law identified on pages 12 and 13 of the Report. In addition, the Bank shall take all necessary steps to ensure future compliance with all applicable laws and regulations.

   

[.10] 11. CAPITAL

   Within 90 days from the effective date of this ORDER, the Bank shall develop and adopt a capital plan designed to maintain an adequate level of capital protection for the kind and quality of assets held by the bank ("Plan"). The Plan should address both internal and external sources of capital augmentation, including capital infusions and retention of earnings. The Plan shall be in a form and manner acceptable to the Supervisory Authorities as determined at subsequent examinations.

   

[.11] 12. CASH DIVIDENDS

   The Bank shall not pay cash dividends without the prior written consent of the Supervisory Authorities.

   

[.12] 13. DISCLOSURE

   Following the effective date of this ORDER, the Bank shall send to its shareholders or otherwise furnish a description of this ORDER in conjunction with the Bank's next shareholder communication and also 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, Registration and Disclosure Section, Washington, D.C. 20429, at least 15 days prior to dissemination to shareholders. Any changes requested to be made by the
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   FDIC shall be made prior to dissemination of the description, communication, notice, or statement.

   

[.13] 14. PROGRESS REPORTS

   Within 30 days of the end of the first quarter following the effective date of this ORDER, and within 30 days of the end of each quarter thereafter, the Bank shall furnish written progress reports to the Supervisory Authorities detailing the form and manner of any actions taken to secure compliance with this ORDER and the results thereof. Such reports shall include a copy of the Bank's Reports of Condition and Income. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Supervisory Authorities have released the Bank in writing from making further reports.

   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 and the authority of the Commissioner under N.C. Gen. Stat. §53-107.1 (2003).

   Dated at Atlanta, Georgia, this 2nd day of October, 2003.



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