] 2. (a) To facilitate having and retaining qualified management, the
board of directors of the Bank shall, within 60 days from the effective
date of this ORDER, undertake an in-depth analysis and review of the
Bank's managerial requirements and make a written report
("Management Report") on the Bank's management needs. The
Management Report shall incorporate an analysis of the Bank's
management and staffing requirements and shall, at a minimum:
(i) provide a review of the composition, policies and practices
of the Bank's current operating management;
(ii) provide a recommendation of whether current operating management
should be changed, or the terms and conditions under which current
operating management should be continued;
(iii) provide an evaluation of each Bank officer indicating whether
these officials possess the ability, experience and other
qualifications required to perform present and anticipated duties,
including adherence to the Bank's established policies and practices
and maintenance of the Bank in a safe and sound condition;
(iv) identify both the number and type of positions needed to properly
supervise the Bank's lending functions, giving appropriate
consideration to the Bank's loan volume, customer base and the number
of problem credits;
(v) provide a clear and concise description of the general duties and
responsibilities for each bank officer and their key support staff;
(vi) identify the skills, experience and compensation required for each
position;
(vii) establish a plan to recruit, hire and/or replace personnel based
on ability and experience;
(viii) establish a plan providing for periodic evaluation of each
individual's job performance; and
(ix) provide for periodic review of the Bank's management and updating
of lending policies and procedures.
(b) The board of directors of the Bank shall obtain the services
of an outside consultant, acceptable to the FDIC and the Department,
who is knowledgeable in the area of bank management, lending,
collections and personnel evaluation to assist the board of directors
in reviewing the Bank's management needs and preparing the Management
Report. The acceptability of the consultant shall be based on the
consultant's ability to advise the Bank in each of the areas
identified in paragraph 2(a).
(c) Within 90 days from the effective date of this ORDER, the board of
directors of the Bank, with the assistance of the outside consultant,
shall prepare a written plan of implementation ("Plan")
addressing the findings of the Management Report. The Plan shall
specify the actions to be taken by the board of directors and the time
frames for each action.
(d) Within 90 days from the effective date of this ORDER, the board of
directors of the Bank shall prepare a written report ("Written
Report") which shall contain (1) a recitation identifying the
recommendations made by the outside consultant which have been
incorporated in the Management Report and Plan, (2) a recitation
identifying the recommendations made by the outside consultant which
were not incorporated in the Management Report and Plan and the reasons
for not including such recommendations, and (3) a copy of any report
prepared by the outside consultant.
(e) A copy of the Management Report, Plan, and Written Report shall
promptly 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 of the Bank
shall approve the Management Report and Plan, which approval shall be
recorded in the minutes of the meeting of the board of directors. It
shall remain the responsibility of the board to fully implement the
Plan within the specified time frames. In the event the Plan, or any
portion thereof, is not implemented, the board shall immediately advise
the Regional Director and the Commis-
{{9-30-00 p.C-4965}}
sioner, in writing, of the specific
reasons for deviating from the Plan.
[.3] 3. (a) Within 510 days from the effective date of this ORDER, the Bank
shall have adjusted Tier 1 capital equal to or greater than 6 percent
of the Bank's adjusted Part 325 total assets. Thereafter, during the
life of this ORDER, the Bank shall maintain adjusted Tier 1 capital
equal to or greater than 6 percent of the Bank's adjusted Part 325
total assets.
(b) Any increase in Tier 1 capital necessary to meet the ratio required
by paragraph 3(a) of this ORDER may be accomplished by the following:
(i) the sale of new securities in the form of common stock or
non-cumulative perpetual preferred stock; or
(ii) the direct contribution of cash by the directors or parent bank
holding company of the Bank; or
(iii) any combination of the above or other method acceptable to the
FDIC and the Department.
(c) If all or part of the increase in Tier 1 capital required by
paragraph 3(a) of this ORDER is accomplished by the sale of new
securities, the board of directors of the Bank shall forthwith 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 Bank 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
Federal and State securities laws. Prior to the implementation of the
plan and, in any event, not less than 20 days prior to the
dissemination of such materials, the plan and any materials used in the
sale of the securities shall be submitted to the FDIC, Registration and
Disclosure Section, Washington, D.C. 20429 and the Department. Any
changes requested to be made in the plan or materials by the FDIC and
the Department shall be made prior to their dissemination. If any part
of the increase in Tier 1 capital is provided by the sale of
non-cumulative perpetual preferred stock, then all terms and conditions
of the issue, including but not limited to those terms and conditions
relative to interest rate and any convertibility factor, shall be
presented to the Regional Director and the Commissioner for prior
approval.
(d) In complying with the provisions of paragraph 3 of this ORDER, the
Bank shall provide to any subscriber and/or purchaser of Bank
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 paragraph shall be
furnished within 10 calendar 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 Bank
securities who received or was tendered the information contained in
the Bank's original offering materials.
(e) For the 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
sections 325.2(t) and 325.2(v), 12 C.F.R. §325.2(t) and (v). The
"Capital Calculations" schedule in the FDIC Report of Examination
provides the method for determining the ratio of adjusted 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.
[.4] 4. (a) Within 30 days from the effective date of this ORDER, the board
of directors of the Bank shall review the adequacy of the Bank's
allowance for loan and lease losses. This review shall focus particular
attention upon: (i) results of the Bank's internal loan review; (ii)
loan loss experience; (iii) an estimate of potential loss exposure on
each significant credit; (iv) concentrations of credit in the Bank; and
(v) present and prospective economic conditions.
(b) Immediately upon completing the review required by paragraph 4(a)
of this ORDER, the Bank's board of directors shall
{{9-30-00 p.C-4966}}
adopt a method of
computing the balance of the Bank's allowance for loan and lease
losses that gives consideration to the volume and composition of the
loan portfolio not subject to criticism, as well as to the volume and
composition of criticized loans, including, but not limited to, the
factors referenced in paragraph 4(a). Thereafter, the Bank's board of
directors shall, during the first month of each quarter, reevaluate the
allowance for loan and lease losses and make such additional provisions
for loan and lease losses that are necessary to maintain the allowance
at an adequate level relative to the volume of risk in the Bank's loan
portfolio. All such additional provisions for loan and lease losses
shall be made in the first month of the calendar quarter in which the
deficiency in the allowance is identified, but as of the end of the
preceding calendar quarter, and shall be reflected in the Report of
Condition and the Report of Income filed in the calendar quarter in
which the deficiency is identified with respect to the preceding
calendar quarter. The minutes of the board of directors of the Bank
shall reflect that such reevaluation has been performed, and
documentary proof of the method employed in determining the level of
the allowance shall be maintained for future regulatory review.
(c) All increases in the allowance for loan and lease losses, with the
exception of recoveries credited directly to the allowance, shall be
accomplished by charges to operating earnings through the provision for
loan and lease losses.
[.5] 5. Within 30 days from the effective date of this ORDER, the Board
shall adopt 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 Bank, and a minimum of three years of
pro-forma quarterly financial statements, supported by the underlying
financial and economic assumptions.
[.6] 6. (a) Within 30 days from the effective date of this ORDER, and within
the first 30 days of each calendar year thereafter, the board of
directors of the Bank shall develop a written earnings plan consisting
of goals and strategies for improving the earnings of the Bank for each
calendar year. The written earnings 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 earnings plan and any subsequent modification
thereto shall be submitted to the Regional Director and the
Commissioner for review and comment. Within 30 days after the receipt
of any comment from the Regional Director and the Commissioner, the
board of directors shall approve the written earnings plan, which
approval shall be recorded in the minutes of the meeting of the board
of directors of the Bank. Thereafter, the Bank shall follow the written
earnings plan and/or any subsequent modification thereto.
[.7] 7. Within 60 days from the effective date of this ORDER, the Bank shall
develop, adopt and implement written policies and procedures designed
to bring to the attention of each member of the board conflicts of
interest which may exist in approving loans or other transactions in
which officers, directors or principal stockholders of the Bank
("Insiders") are involved. Such policies and procedures shall, at
a minimum, ensure that each member of the board has been apprised of
any potential conflict prior to making a decision and has acted
specifically on any loan or other transaction in which Insiders and/or
their business associates are, directly or indirectly, involved. The
results of board deliberations as to potential conflicts shall be
reflected in the minutes of the meeting of the board of directors.
[.8] 8. (a) Within 60 days from the effective date of this ORDER, the Bank
shall review its written loan and collection policy and make whatever
changes may be necessary to provide for the safe and sound
administration of all aspects of the lending and collection function.
At a minimum, specific procedures shall be included for: (i) prior
approval of loans to directors, officers and principal shareholders and
their related interests in compliance with applicable laws and
regulations, and (ii) compliance with
{{9-30-00 p.C-4967}}
the loan-to-value limits for real
estate loans outlined in Appendix A to Part 365, Inter Agency
Guidelines for Real Estate Lending Policies, December 31, 1992. Loan
documentation, repayment programs, collection and charge-off procedures
and internal loan review shall also be included as a part of the
review. The Bank shall adopt changes it considers necessary and
appropriate and management shall reaffirm its intent to comply with the
policy, as amended. Evidence of management's reaffirmation shall be
reduced to writing. The policy and its implementation shall be in a
form and manner acceptable to the Regional Director and the
Commissioner as determined at subsequent examinations and/or
visitations.
(b) Within 60 days from the effective date of this ORDER, the board of
directors of the Bank shall adopt and implement a written program with
regard to each asset equal to or in excess of $100,000 criticized
internally or by the FDIC and the Department as a result of their
concurrent examinations of the Bank as of February 28, 2000, so as to
eliminate the basis of criticism of each such asset. This program shall
include, at a minimum, an assessment of the status of each criticized
asset, the proposed action for eliminating the basis of criticism, and
the time frame for its accomplishment. Once all such programs are
adopted, a copy of the program for each criticized asset which equals
or exceeds $100,000 shall be forwarded to the Regional Director and the
Commissioner. Furthermore, while this ORDER is in effect, the Bank's
board of directors shall, within 30 days following receipt of any
Report of Examination of the Bank from the FDIC or the Department,
adopt and implement written programs, as specified above, for any
assets criticized in said Reports, and forward copies of such programs
to the Regional Director and the Commissioner. For the purposes of this
ORDER, the term "criticized asset" means any asset, or portion
thereof, scheduled as "Special Mention", "Substandard", or
"Doubtful" internally, or in any Report of Examination of the
Bank by the FDIC or the Department.
(c) The Bank's board of directors shall conduct a review of each
program adopted pursuant to paragraph 10(a) of this ORDER on at least a
monthly basis, to determine:
(i) the status of each criticized asset;
(ii) management's adherence to each written program;
(iii) the status and effectiveness of each written program; and
(iv) the need to revise each written program and/or take other actions.
The board shall send quarterly progress reports on the status of
each criticized asset equal to or exceeding $100,000 to the Regional
Director and the Commissioner.
[.9] 9. (a) Within 30 days from the effective date of this ORDER, the board
of directors of the Bank shall adopt and implement 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) identifying the overall quality of the loan portfolio;
(ii) the identification and amount of each delinquent loan;
(iii) an identification or grouping of loans that warrant the special
attention of management;
(iv) for each loan identified, a statement of the amount and an
indication of the degree of risk that the loan will not be fully repaid
according to its terms and the reason(s) why the particular loan merits
special attention;
(v) an identification of credit and collateral documentation
exceptions;
(vi) the identification and status of each 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, but in any event no less
than quarterly, to the board of directors on the status of each loan
identified and the action(s) taken by operating 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.
(c) Within 60 days from the effective date of this ORDER the Bank's
board of direc-
{{9-30-00 p.C-4968}}
tors 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 that
borrower, either directly or indirectly, exceed or would exceed $1.5
million. The review shall 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
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.
[.10] 10. Within 60 days from the effective date of this ORDER, the Bank
shall eliminate and/or correct all violations of law and/or
regulations, as described in the concurrent Reports of Examination of
the Bank by the FDIC and the Department as of February 28, 2000. In
addition, the Bank shall take all steps necessary to ensure future
compliance with all applicable Federal and State laws and regulations.
[.11] 11. Within 60 days from the effective date of this ORDER, the Bank
shall adopt and implement a written liquidity and funds management
policy. Such policy shall include the establishment of acceptable
ranges of ratios in the following areas: volatile liability dependence,
total loans to total deposits and temporary investments to volatile
liabilities. In addition, the liquidity policy shall incorporate a
funds management program which designates acceptable levels for:
volatile liabilities, including borrowings; asset mix, including
temporary funds and investments, long-term investment securities and
classes of obligors, and loans to deposits; and rate-sensitive assets
as a percent of rate-sensitive liabilities. Such 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.
[.12] 12. (a) Within 30 days from the effective date of this ORDER, the Bank
shall review all Reports of Condition and Income filed with the FDIC on
and after June 30, 1999, and shall amend and file with the FDIC amended
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.
[.13] 13. Within 30 days from the effective date of this ORDER, the Bank
shall maintain its interest rate risk ("IRR") exposure within the
limits and parameters established and approved by the Bank's board of
directors and in accordance with safe and sound banking practices,
including holding, at a minimum, monthly meetings of the Bank's
Asset/Liability Committee ("ALCO"). Reports of the Bank's IRR
and liquidity positions shall be presented at least monthly to the
board of directors. The minimum time periods set forth in this
paragraph are not to be construed so as to prevent more frequent
analyses, ACO meetings, and reports to the Bank's board of directors.
In appropriate circumstances, prudent banking will dictate that more
frequent analyses of the Bank's IRR and liquidity positions take
place, that more frequent ALCO meetings be held, and/or more frequent
reports be made by management to the Bank's board of directors.
[.14] 14. Within 60 days from the effective date of this ORDER, the Bank
shall develop, adopt, and implement a written policy satisfactory to
the Regional Director and the Commissioner, which policy shall govern
the relationship between the Bank and its holding company, and shall
limit the payment of any management, consulting, or other fees or funds
of any nature, directly or indirectly, to or for the benefit of the
Bank's holding company to only those fees or funds paid in connection
with services performed by the Bank's holding company on behalf of or
for the benefit of the Bank.
[.15] 15. While this ORDER is in effect, the Bank shall not declare or pay
either directly or indirectly any dividends, whether
{{3-31-03 p.C-4969}}
in cash, stock, or
otherwise, on any class of its stock, without the prior written consent
of the Regional Director and the Commissioner.
[.16] 16. Within 60 days from the effective date of this ORDER, and
thereafter on an annual basis, the Bank shall review the total
compensation (both current and deferred) being paid to Bank directors
and executive officers to determine whether the compensation received
by each such person is reasonable in relation to the services provided
to the Bank. The minutes of the board meeting at which such review is
undertaken shall indicate the results of the review and the basis for
determination of the reasonableness of the compensation. For the
purposes of this paragraph, "compensation" refers to any and all
salaries, bonuses, and other benefits of every kind and nature
whatsoever, whether paid directly or indirectly.
[.17] 17. Immediately upon the effective date of this ORDER, the Bank shall:
(a) not enter into any agreements with present and former officers of
the Bank which constitute "golden parachute payments", as defined
in section 18(k)(4) of the Act, 12 U.S.C. §1828(k)(4); (b) rescind
all agreements or portions of agreements with present and former
officers of the Bank which constitute "golden parachute
payments"; (c) cease making any payments to present and former
officers of the Bank which constitute "golden parachute
payments"; and (d) take whatever legal steps are necessary to obtain
reimbursement from all former officers of the Bank of any payments
which have already been made to them and which constitute "golden
parachute payments".
[.18] 18. While this ORDER is in effect, the Bank shall not accept, renew, or
rollover brokered deposits other than as and to the extent permitted
pursuant to section 29 of the Act, 12 U.S.C. §1831f, as amended, and
the FDIC's Rules and Regulations, including section 337.6, 12 C.F.R.
§337.6, as amended and supplemented. For the purposes of this ORDER,
the term "brokered deposits" shall have the same meaning as is
found in section 337.6(a)(2) of the FDIC's Rules and Regulations, as
amended.
[.19] 19. 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 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 Department for review at least 20 days prior to dissemination to
shareholders. Any changes requested to be made by the FDIC and the
Department shall be made prior to dissemination of the description,
communication, notice, or statement.
[.20] 20. The Bank's board of directors shall appoint a committee composed
of at least three directors who are not now and have never been
involved in the daily operations of the Bank, and whose composition is
acceptable to the Regional Director and the Commissioner (the
"Compliance Committee"), to monitor the Bank'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 Bank's board of directors 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 Bank's
board of directors.
21. The Bank will provide on a monthly basis to the Regional
Director and Commissioner reports for the prior month as follows:
a) consolidated and bank-only statements of condition and income;
b) report of performance indicators for the month including:
calculations providing Tier 1 and total leverage and Tier 1 and total
risk-based capital ratios; return on average assets (annualized to
date; net interest margin (annualized to date);
c) loan portfolio reports of delinquency and charge-off activity, and
d) interest rate risk analysis and results and comparison to
Board-approved limits
22. 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,
{{3-31-03 p.C-4970}}
the Bank shall furnish
written progress reports to the Regional Director and the Commissioner
detailing the form, content, and manner of any actions taken to secure
compliance with this ORDER, and the results thereof. These progress
reports should also include a description of the Bank's progress in
achieving the established goals and timelines of the Capital Plan and
an explanation of any variances from these goals and timelines.
23. The Bank shall notify the Regional Director and the Commissioner
immediately of any material adverse development affecting its
condition, performance, or outlook.
The effective date of this ORDER shall be 10 days from the date of
issuance.
The provisions of this ORDER shall be binding upon the Bank, its
successors, assigns, directors, officers, employees, agents, and other
institution-affiliated parties.
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: July 18, 2000.
