Federal Deposit
Insurance Corporation

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   [¶11,404] In the Matter of Allendale County Bank, Fairfax, South Carolina, FDIC Docket No. 96-092b (4-15-97)

   Respondents agree to cease and desist from such unsafe and unsound banking practices and violations of laws and regulations as failing to provide adequate supervision and direction over the bank's affairs, having management policies that jeopardize the safety of the bank's deposits, operating the bank with an excess volume of adversely classified assets, operating the bank with inadequate equity capital for the quality of assets held by the bank, engaging in practices that {{10-31-00 p.C-4338.2}}produce inadequate operating income and excessive loan losses, and failing to operate the bank with adequate internal controls and accounting systems to prevent unsafe and unsound practices. (This order was terminated by order of the FDIC dated 9-17-02; see ¶16,317A.)

   [.1] Board of Directors—Reconstitute—Outside Directors
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   [.2] Management—Qualifications Specified
   [.3] Capital—Tier 1—Increase/Maintain
   [.4] Loan and Lease Losses—Adequate Allowance—Maintain
   [.5] Assets—Adversely Classified—Eliminate/Reduce
   [.6] Loans—Risk Position—Reduce—Written Plan Required
   [.7] Loans—Review Program—Develop/Implement
   [.8] Profit Plan—Development Required
   [.9] Shareholders—Cease and Desist Order—Disclosure
   [.10] Cease and Desist Order—Compliance Reports Required

In the Matter of

ALLENDALE COUNTY BANK
FAIRFAX, SOUTH CAROLINA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-96-092b
   The Allendale County Bank, Fairfax, South Carolina ("Bank"), having received a written Notice of Charges and of Hearing detailing unsafe or unsound banking practices and violations of applicable laws and regulations alleged to have been committed by the Bank and its right to a hearing regarding such 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 a representative of the Legal Division of the Federal Deposit Insurance Corporation ("FDIC"), dated April 11, 1997, whereby solely for the purpose of this proceeding and without admitting or denying any of the alleged charges of unsafe or unsound banking practices and violations of applicable laws and regulations, the Bank consented to the issuance of an ORDER TO CEASE AND DESIST ("ORDER") by the FDIC.
   The FDIC considered the matter and determined that it had reason to believe that the Bank had engaged in unsafe or unsound banking practices and had committed violations of applicable laws and regulations.
   The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

   IT IS HEREBY ORDERED, that the Bank, institution-affiliated parties, as such 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 laws and regulations:

   A. Failing to provide adequate supervision and direction over the affairs of the Bank by the board of directors of the Bank to prevent unsafe or unsound practices and violations of laws and regulations;
   B. Operating the Bank with management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits;
   C. Operating the Bank with an excessive volume of adversely classified assets;
   D. Operating the Bank with equity capital that is inadequate for the kind and quality of assets held by the Bank;
   E. Engaging in practices which produce inadequate operating income and excessive loan losses;
   F. Failing to provide and maintain an adequate allowance for loan and lease losses for the volume, kind and quality of loans held by the Bank;
   G. Engaging in violations of applicable Federal and state laws and regulations, as more fully described on pages 8.16 through 8.19 of the FDIC's Report of Examination of the Bank as of December 31, 1995; and
   H. Failing to operate the Bank with adequate internal controls and accounting systems to prevent unsafe and unsound practices, as more fully described on pages 8b.1 through 8b.3 of the FDIC's Report of Examination of the Bank as of December 31, 1995.

   [.1] 1. (a) Within one hundred eighty (180) days from the effective date of this ORDER, the Bank's board of directors shall be reconstituted so that at least one-half of its members shall be "outside directors" as that term is defined herein.
   (b) In the event any proposed resolution of the board of directors fails to pass because of a tie vote, Walker R. Harter, Sr. will recuse himself from further voting on such resolution.
   (c) For purposes of this ORDER, an "outside director" shall be an individual:

(i) Who was not, on or before December 31, 1995, a director of the Bank, and 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, or as an independent contractor who receives less than twenty-five percent (25%) of his income from the Bank;
(ii) Who shall not own or control, directly or indirectly, more than 5 percent of the voting stock of the Bank: and
(iii) Who shall not be related, by blood or marriage, to any director or principal shareholder of the Bank or any director or principal shareholder of any affiliate of the Bank.

   [.3] 4. (a) Within thirty (30) days from the effective date of this ORDER and within thirty (30) days after each December 31 and June 30 thereafter while this ORDER remains in effect, the Bank's board of directors shall calculate the Bank's Tier 1 capital as a percentage of its total assets ("capital ratio") as of the nearest preceding December 31 or June 30 date. If such capital ratio is less than 6.0 percent, the Bank shall, within ninety (90) days from the date of such calculation, increase its Tier 1 capital by an amount sufficient to raise its capital ratio to not less than 6.0 percent as of the nearest preceding June 30 or December 31 date. Such increase in Tier 1 capital may be accomplished by any one or more of the following:

(i) The sale of new securities in the form of common stock;
(ii) The collection in cash of all or part of the assets other than loans classified "Loss" or "Doubtful" as of December 31, 1995, and charged off in accordance with paragraph 6 of this ORDER;
(iii) The direct contribution of cash by the shareholders of the Bank;
(iv) The collection in cash of assets other than loans previously charged off; or
(v) Any other means acceptable to the Regional Director and the Commissioner.

   [.4] 5. (a) Within thirty (30) days from the effective date of this ORDER, and concurrently with compliance with the requirements of paragraph 4 of this ORDER, the Bank shall establish and thereafter continuously maintain an adequate allowance for loan and lease losses in accordance with the prevailing requirements of the Instructions for the Reports of Condition and Income, by charges against current operating income. In complying with the requirements of this paragraph 5(a) of the ORDER, the Bank's board of directors shall, at a minimum, meet and review the adequacy of the Bank's allowance for loan and lease losses prior to the end of each calendar quarter. The review {{6-30-97 p.C-4342}}shall include consideration of loans internally classified during the Bank's loan review process, loans adversely classified at FDIC and State of South Carolina Commissioner of Banking examinations of the Bank, and delinquent non-performing loans. The minutes of the board meeting at which such review is undertaken shall indicate the results of the review, the amount of any recommended increases in the allowance, and the basis for determining the amount of allowance provided.
   (b) Reports of Condition and Income required to be filed by the Bank prior to the effective date of this ORDER and subsequent to December 31, 1995, shall reflect a provision for the allowance for loan and lease losses necessary to comply with paragraph 5(a) of this ORDER. If necessary to comply with this paragraph 5(b) of the ORDER, the Bank shall file amended Reports of Condition and Income within thirty (30) days from the effective date of this ORDER.

   [.5] 6. (a) Within thirty (30) days from the effective date of this ORDER the Bank shall eliminate from its books, by collection, charge-off or other proper entries, all assets or portions of assets classified "Loss" and one-half of all assets or portions of assets classified "Doubtful" by the FDIC as a result of its most recent examination of the Bank which have not been previously collected or charged off, unless otherwise approved in writing by the Regional Director and the Commissioner.
   (b) Within sixty (60) days from the effective date of this ORDER, the Bank shall submit to the Regional Director and the Commissioner a written plan of action to reduce each line of credit which was adversely classified by the FDIC as of December 31, 1995, and which aggregated one hundred fifty thousand dollars ($150,000) or more as of that date. Such plan of action shall thereafter be implemented by the Bank and monitored, and progress reports shall be submitted by the Bank to the Regional Director and the Commissioner concurrently with the the reporting requirements set forth in paragraph 16 of this ORDER.
   (c) As used in this paragraph 6 of the ORDER, "reduce" means to (i) collect, (ii) charge off, or (iii) improve the quality of such assets sufficiently to warrant removal of any adverse classification by the FDIC.
   (d) Within sixty (60) days of the effective date of this ORDER the Bank shall develop a specific plan for the reduction of the concentrations of credit contained on pages 3e.1 and 3e.2 of the FDIC's Report of Examination of the Bank as of December 31, 1995.
   7. (a) Effective the date of this ORDER, the Bank shall not extend, directly or indirectly, any additional credit to or for the benefit or 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," "Doubtful" or "Substandard" and is uncollected, except as provided in paragraph 7(b) of this ORDER.
   (b) Upon compliance by the Bank with the requirements of paragraph 1 of this ORDER, the Bank may extend additional credit, directly or indirectly, to or for the benefit of any borrower who has a loan or other extension of credit with the Bank that has been classified, in whole or in part, "Substandard," and is uncollected, provided that a majority of the Bank's board of directors first: (i) determines that such advance is in the best interest of the Bank; (ii) determines that the Bank has satisfied the requirements set out in paragraph 6(b) of this ORDER as to such borrower; (iii) determines that the extension of credit is in full compliance with the Bank's loan policy; (iv) determines that all necessary loan documentation is on file, including, but not limited to, current financial and cash flow information and satisfactory appraisal, title and lien documents; and (v) approves such advance. A written record of the board of directors' determination and approval of any advance under this paragraph 7(b) of the ORDER shall be maintained in the credit files of each affected borrower as well as in the minutes of the board of directors.
   (c) The requirements of this paragraph 7 of the ORDER shall not prohibit the Bank from renewing or extending the maturity of any credit already extended to the borrower, provided such action is in accordance with both Federal and state laws, rules and regulations, and further provided that all interest due at the time of such renewal or extension is collected in cash from the borrower.

   [.6] 8. (a) Within sixty (60) days from the effective date of this ORDER, the Bank shall revise and implement its written loan policy. The Bank shall submit the revisions to the loan policy to the Regional Director and the Commissioner for review and comment. At a minimum the policy shall address the recommendations set forth on pages 8.3 through {{6-30-97 p.C-4343}}8.4 of the FDIC's Report of Examination of the Bank as of December 31, 1995 and shall include the following elements:

(i) A requirement that before advancing any loan the Bank must obtain, analyze, and verify credit information which will be sufficient to identify a source of repayment and support for the scheduled repayment plan;
(ii) A requirement that all collateral documentation or evidence of collateral documentation be obtained and reviewed before loan proceeds are disbursed;
(iii) A requirement for the maintenance and review of complete and current credit files on each borrower with extensions of credit outstanding;
(iv) A requirement that each extension of credit have an appropriate repayment plan;
(v) A requirement for the establishment of criteria and guidelines for the acceptance and review of financial statements;
(vi) A requirement for limiting loans and other extensions of credit to any one borrower or related group of borrowers involving the same collateral or source of repayment to no more than twenty-five (25) percent of the Bank's total equity capital, and for establishing an acceptable system for identifying the Bank's total risk exposure to any one borrower or related group of borrowers involving the same collateral or source of repayment, including direct and indirect funded and unfunded commitments;
(vii) A requirement for appraisal procedures which, at a minimum, satisfy the requirements of Part 323 of the FDIC's Rules and Regulations, 12 C.F.R. Part 323.

   [.7] 10. (a) Within thirty (30) days from the effective date of this ORDER, the Bank shall adopt an internal loan review and grading system to provide for the periodic review of the Bank's loan portfolio in order to identify and categorize the Bank's loans, and other extensions of credit which are carried on the Bank's books as loans, on the basis of credit quality. At a minimum, the grading system shall provide for:

(i) The specification of standards and criteria for assessing the credit quality of the Bank's loans;
(ii) The application of the loan grading standards and criteria to the Bank's loan portfolio;
(iii) The categorization of the Bank's loans into groupings based on the varying degree of credit and other risks which may be presented under the applicable grading standards and criteria;
(iv) For any loan exhibiting credit and other risks, an assessment of the likelihood that the loan will not be repaid according to its terms and conditions;
(v) The identification of any loan which is not in conformance with the Bank's loan policy;
(vi) The identification of any loan which presents any unsafe or unsound banking practice or condition or is otherwise in violation of any applicable Federal or state law, rule or regulation; and
(vii) The requirement for a written report to be made to the Bank's board of directors, not less than quarterly, identifying the status of those loans which exhibit credit and other risks under the applicable grading standards and criteria and the prospect of full collection or strengthening the quality of any such loans.

   [.8] 11. (a) Not later than September 30, 1997, the Bank shall prepare a realistic and comprehensive budget and earnings forecast for calendar year 1998 and shall submit this budget and earnings forecast to the Regional Director and the Commissioner for review and comment.
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   (b) As long as this ORDER remains in effect, the Bank shall prepare annually realistic and comprehensive calendar year budget and earnings forecasts on a consolidated basis as of January 1 of each year subsequent to 1997 and shall submit these budget and earnings forecasts to the Regional Director and the Commissioner for review and comment no later than January 31 of each year.
   (c) In preparing the budget and earnings forecasts required by this paragraph 11 of the ORDER, the Bank shall, at a minimum:

(i) Identify the major areas in, and means by which, the board of directors will seek to improve the Bank's operating performance; and
(ii) Describe the operating assumptions that form the basis for, and adequately support, major projected income and expense components.

   [.9] 16. Following the effective date of this ORDER, the Bank shall send to its shareholders or otherwise furnish a description of this ORDER (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 this ORDER in all material respects. The description and any accompanying communication, statement or notice shall be sent to the FDIC, Registration and Disclosure Section, 550 17th Street, Washington, D.C. 20429, and to the Commissioner, for review at least twenty (20) days prior to dissemination to shareholders. Any changes requested to be made by the FDIC or the Commissioner shall be made prior to dissemination of the description, communication, notice or statement.

   [.10] 17. Within ninety (90) days from the effective date of this ORDER, and within {{2-28-01 p.C-4345}}thirty (30) days following the end of each calendar quarter while this ORDER is in effect, the Bank shall furnish written progress reports to the Regional Director and to the Commissioner detailing the form and manner of all actions taken to secure compliance with this ORDER and the results of such actions. 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. All progress reports and other written responses to this ORDER shall be reviewed by the board of directors of the Bank and made a part of the minutes of the appropriate board meeting.
   18. The provisions of this ORDER shall become effective ten (10) days from the date of its issuance and shall be binding upon the bank, its institution-affiliated parties, and its successors and assigns. Further, the provisions of this ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provisions of this ORDER shall have been modified, terminated, suspended, or set aside by the FDIC.
   Pursuant to delegated authority.
   Dated at Atlanta, Georgia, this 15th day of April, 1997.