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   [12,122] In the Matter of United Heritage Bank, Edison, New Jersey, Docket No. 03-166b (11-14-03).

   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.

   [.1] Management—Qualifications Specified

   [.2] Board of Directors—Directors' Plan—Establishment of Plan Required

   [.3] Board of Directors—Educational Program—Required

   [.4] Management—Management Report Required

   [.5] Board of Directors—Board of Governance Policy Required

   [.6] Board of Directors—Relocation Plan Required

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

   [.8] Audit—Internal Audit—Minimum Procedures Specified

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

   [.10] Asset/Liability Management—Preparation or Revision of Asset/Liability Management Policy Required

   [.11] Dividends—Dividends Restricted

   [.12] Audit—External Audit, Minimum Procedures Specified

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

   [.14] Board of Directors—Committee to Review Compliance with Cease and Desist Order Required

   [.15] Progress Report—Written Report Required

In the Matter of
UNITED HERITAGE BANK
EDISON, NEW JERSEY
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

FDIC-03-166b

   United Heritage Bank, Edison, New Jersey ("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 14, 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 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 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 Insured Institution, its directors, officers, employees,
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   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 of law and/or regulations:

       (a) Operating with a board of directors that has failed to adhere to sound principles of Board Governance, as set forth in Financial Institution Letter 123-97 ("FIL-123-97") (December 8, 1997), and that has failed to provide adequate supervision over and direction to the operating management of the Insured Institution;

       (b) Operating the Insured Institution with inadequate management and staffing;

       (c) Engaging in violations of applicable Federal and State laws and/or regulations, as more fully set forth at pages 37 through 41 of the joint Report of Examination of the Insured Institution by the FDIC and the New Jersey Department of Banking and Insurance ("Department") as of December 31, 2002 (the "Joint Report of Examination");

       (d) Operating in violation of section 39 of the FDI Act, 12 U.S.C. §1831p-1; and

       (e) Operating in such a manner as to produce operating losses.

   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) The Insured Institution shall have and retain qualified management. Each member of management shall have qualifications and experience commensurate with his or her duties and responsibilities at the Insured Institution. The qualifications of management shall be assessed on its ability to:

       (i) comply with the requirements of this ORDER;

       (ii) operate the Insured Institution in a safe and sound manner;

       (iii) comply with all applicable laws and regulations;

       (iv) restore all aspects of the Insured Institution to a safe and sound condition, with respect to management effectiveness and earnings; and

       (v) properly manage the day to day affairs of the Insured Institution with the appropriate level of authority granted by the Board.

   (b) During the life of this ORDER, the Insured Institution shall promptly notify the Regional Director and the Commissioner in writing of any resignations and/or terminations of any members of its Board and/or any of its officers.

   (c) The Insured Institution shall comply with section 32 of the Act 12 U.S.C. §1831i, which includes a requirement that the Insured Institution shall notify the Regional Director and the Commissioner in writing at least 30 days prior to any individual assuming a new position as a senior executive officer or any additions to its Board.

   (d) To facilitate having and retaining qualified management, the Board of the Insured Institution shall, within 60 days from the effective date of this ORDER, recruit and hire and/or retain a Senior Loan Officer, Chief Operations Officer, Commercial Loan Officer and Branch Manager/Retail Administrator as required by the Board's December 21, 2001 Organizational Review and Risk Management Assessment ("Assessment").

   [.2] 2. (a) Within 60 days from the effective date of this ORDER, the board of directors shall develop a Directors' Plan, which shall include, at a minimum:

       (i) an evaluation of each member of the board of directors, including the Chairman of the Board, to determine whether those individuals have the ability, experience, independence, and other qualifications which are necessary to perform the duties of the Board, including providing effective oversight of and guidance to management and staff to ensure adherence to the Board's policies and to maintain the Insured Institution in a safe and sound condition;

       (ii) an evaluation of each member of any committee of the board, including such committee's chairperson, to determine whether those individuals have the ability, experience, independence and expertise or other qualifications necessary to fulfill his or her obligations on such committee; and

       (iii) a written plan of action to enhance the effectiveness of the Board by adding new members to the Board with the necessary ability, experience, independence and other qualifications commensurate with the size and complexity of the Insured


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       Institution. The new directors shall not include persons who are either related by blood or marriage to, or have a business or professional relationship with existing directors, their attorneys or consultants. Additionally, the new directors shall not own or control directly or indirectly more than 5 percent of the voting stock of the Insured Institution. The new directors shall not be officers nor full-time employees of the Insured Institution.

   (b) Within 30 days after development of the Directors' Plan, the Insured Institution shall add new directors to the Board in accordance with paragraph 2(a)(iii).

   (c) The addition of new directors may be accomplished, to the extent permissible by state or the Insured Institution's by-laws, by means of appointment or by election at a regular or special meeting of the Insured Institution's shareholders.

   (d) Within 30 days from the effective date of this Order, the Board of the Insured Institution shall obtain the services of an outside consultant(s) acceptable to the Regional Director and Commissioner, who is knowledgeable in the area of bank management, to assist in preparing the Directors' Plan and in aiding the Board in identifying prospective qualified director candidates. In the event that recommendations made by the consultant(s) are not included in the Directors' Plan, the Board shall immediately advise the Regional Director and Commissioner, in writing, of the specific reasons for which the recommendations were excluded from the Directors' Plan.

   [.3] 3. (a) Within 60 days of the appointment of new directors in accordance with paragraph 2(b) and 2(c), the Insured Institution's Board shall develop and adopt an educational program for each member of the Board. The educational program shall include, at a minimum:

       (i) specific training in the areas of lending, operations, and compliance with laws, rules and regulations applicable to the Insured Institution;

       (ii) specific training in the duties and responsibilities of the board in connection with the safe and sound operation of the Insured Institution; and

       (iii) a provision for ongoing periodic training.

   (b) The educational program shall be submitted within 10 days of its completion to the Regional Director and Commissioner for review. The board shall document training activities and attendance in the minutes of the next Board meeting following completion of the training.

   [.4] 4. (a) One year following the implementation of the Assessment in paragraph 1(d), the Board shall provide for a review of the Insured Institution's management and operational staff. The review of management and staff shall, at a minimum: 1) identify both the type and number of officer and operational staff positions that are needed to properly manage and supervise the affairs of the Insured Institution in a safe and sound manner; 2) establish a plan to recruit, hire and/or replace personnel based on ability and experience; and 3) provide for an assessment of management's effectiveness in improving the Insured Institution's financial condition, operating the Insured Institution in a safe and sound manner, and implementing regulatory corrective actions.

   (b) The Board of the Insured Institution shall obtain the services of an outside consultant, acceptable to the Regional Director and Commissioner, who is knowledgeable in the area of bank management, to assist the Board in its review of management, as required in paragraph 4(a). The findings of such review of management shall be set forth in writing ("Review Findings") and shall contain the recommendations made by the consultant. This consultant may be the same consultant employed to assist in preparing the Directors' Plan required by paragraph 2(d).

   (c) Promptly after preparation of the Review Findings, a copy of the Review Findings 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 of the Insured Institution shall approve the Review Findings, which approval shall be recorded in the minutes of the meeting of the Board. It shall remain the responsibility of the Board to fully implement the Review Findings within the specified time frames. In the event the Review Findings, or any portion thereof, is not implemented, the Board shall immediately advise the Regional Director and Commissioner, in writing, of the specific reasons for deviating from the Review Findings.

   (d) Should this ORDER be in effect in subsequent years, it shall remain the responsibility of
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   the Board to provide for additional annual reviews of the Insured Institution's management.

   [.5] 5. (a) Within 30 days from the effective date of this Order, the Board shall develop a Board Governance Policy to ensure it maintains adequate supervision over the affairs of the Insured Institution. The policy shall address how the Board will: supervise management effectively, maintain independence in its decision making, keep informed of insider transactions and the activities and condition of their institution, and ensure that the institution's day-to-day operations are in the hands of the qualified management. The Board Governance Policy shall also include a procedure for the Board to conduct an annual evaluation of its effectiveness in overseeing the affairs of the Insured Institution.

   (b) Immediately upon the effective date of this ORDER, the Board shall hold Board and Committee meetings as prescribed in the Insured Institution's by-laws. The Board shall also ensure that complete and accurate minutes are timely recorded and maintained for director, committee and special meetings. Such minutes shall accurately reflect any reports of information or agenda items presented to the Board or Board committee for review, as well as the discussions and action taken, including, but not limited to, regulatory issues and/or correspondence. The minutes shall also accurately reflect the names of all directors present at any Board or committee meeting, and the vote of each director on any action taken or proposed to be taken by the Board. All minutes and accompanying documents of any Board and/or committee meeting should be securely maintained at the Insured Institution.

   (c) Within 60 days from the effective date of this ORDER, the Board shall have adopted a three-year Strategic Business Plan/Budget, which includes at a minimum, objectives and specific strategies for serving the identified targeted markets, in addition to strategies for managing the various types of risk facing the Insured Institution, and a minimum of three years of pro-forma quarterly financial statements, supported by the underlying financial and economic assumptions.

       (i) Such written Strategic Business Plan/Budget developed pursuant to paragraph 5(c) shall be submitted promptly to the Regional Director and Commissioner for review and comments. Within 30 days after the receipt of any comment from the Regional Director, the Board shall approve the Strategic Business Plan/Budget, which approval shall be recorded in the minutes of the meetings of the board.

   (d) Within 60 days from the effective date of this ORDER, and within the first 30 days of each calendar year thereafter, the Board shall develop a written profit plan consisting of goals and strategies for improving the earnings of the Insured Institution for each calendar year. The written profit plan shall include, at a minimum:

   (1) (i) identification of the major areas in, and means by, which the board will seek to improve the Insured Institution's operating performance;

       (ii) realistic and comprehensive budgets;

       (iii) a budget review process to monitor the income and expenses of the Insured Institution to compare actual figures with budgetary projections and document reasons for any significant variances 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.

   (2) (i) Such written profit plan developed pursuant to paragraph 5(d) 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, the Board shall approve the written profit plan which approval shall be recorded in the minutes of the Board. Thereafter, the Insured Institution, its directors, officers, and employees shall follow the written profit plan and/or any subsequent modification.

       (ii) The copies of quarterly reports required under paragraph 5(d)(1(iii) shall be submitted to the Regional Director and the Commissioner by the 30th day after the end of the calendar quarter following the effective date of this Order, and by the 25th day after the end of every calendar quarter, thereafter.

   [.6] 6. (a) Immediately upon the effective date of this ORDER, the Board shall have a plan of action to relocate the Insured Institution's principal office. The Plan, at a minimum,
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   shall include an identification of each contractor and/or vendor approved to construct and/or prepare the new site; copies of any construction or other agreements in connection with such relocation; procedures for Board and/or Board committee oversight of such relocation plan and specific timeframes for each stage of construction and/or relocation.

   (b) The Board shall continue to submit to the Regional Director and Commissioner, weekly status reports of the Board's progress in relocating the principal office of the Insured Institution.

   [.7] 7. Within 30 days from the effective date of this ORDER, the Insured Institution shall eliminate and/or correct all violations of law and regulations which are more fully set out on pages 37 through 41 of the Joint Report of Examination. In addition, the Insured Institution shall take all steps necessary to ensure future compliance with all applicable Federal and State laws and regulations.

   [.8] 8. Immediately upon the effective date of this ORDER, the Board shall ensure that the internal audit schedule is fully adhered to in accordance with the audit scope and frequency set forth in the Board-approved Internal Audit Program.

   [.9] 9. Immediately upon the effective date of this ORDER, the Insured Institution shall initiate and implement a program to strengthen its credit administration processes and correct the technical exceptions detailed on pages 48 and 49 of the Joint Report of Examination.

   [.10] 10. Within 30 days from the effective date of this ORDER, the Insured Institution shall correct the Asset/Liability Management Policy deficiencies as detailed on pages 33 and 34 of the Joint Report of Examination.

   [.11] 11. Immediately upon the effective date of this ORDER, the Insured Institution shall not declare or pay either directly or indirectly any dividends, whether in cash, stock, or otherwise, on any class of its stock, without the prior written consent of the Regional Director. The Board shall also notify the Commissioner prior to the declaration or payment of dividends.

   [.12] 12. During the life of this ORDER, the Insured Institution shall continue to submit annual audited financial statements to the Regional Director and Commissioner. Such statements shall be prepared by a qualified, independent, external auditor and filed within 60 days after each annual period end.

   [.13] 13. Immediately upon the effective date of this ORDER, the Insured Institution shall send a copy or a description of this ORDER to its shareholders: (i) in conjunction with the Insured Institution's next shareholder communication, and also (ii) in conjunction with its notice or proxy statement preceding the Insured Institution'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, and the Commissioner for review at least 20 days prior to dissemination to shareholders. Any changes requested to be made by the FDIC and/or the Commissioner shall be made prior to dissemination of the description, communication, notice or statement.

   [.14] 14. Immediately upon the effective date of this ORDER, the Insured Institution's Board shall appoint a Compliance Committee composed of at least three directors who are not now and have never been involved in the daily operations of the Insured Institution, and whose composition is acceptable to the Regional Director and Commissioner, to monitor the Insured Institution's compliance with this ORDER. Within 30 days from the effective date of this ORDER, and at monthly intervals thereafter, such Compliance Committee shall prepare and present to the Insured Institution's Board a written report of its findings, detailing the form, content, and manner of any action taken to secure compliance with this ORDER and the results thereof, and any recommendations with respect to such compliance. Such progress reports shall be included in the minutes of the meeting of the Insured Institution's Board.

   [.15] 15. By the 30th day after the end of the calendar quarter following the effective date of this ORDER, and by the 25th day after the end of every calendar quarter thereafter, the Insured Institution shall furnish written progress reports to the Regional Director and Commissioner detailing the form, content, and manner of any actions taken to secure compliance with this ORDER, and the results thereof.

   16. The Insured Institution shall notify the Regional Director and Commissioner immediately
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   of any material adverse development affecting its condition, performance or outlook.

   The effective date of this ORDER shall be ten (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 14, 2003.

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