Exhibit 10.18
#2008-141
AGREEMENT BY AND BETWEEN
Bank of Xxxxxxxx, National Association
Anderson, South Carolina
and
The Comptroller of the Currency
Bank of Xxxxxxxx, National Association, Anderson, South Carolina
("Bank") and the Comptroller of the Currency of the United States of America
("Comptroller") wish to protect the interests of the depositors, other
customers, and shareholders of the Bank, and, toward that end, wish the Bank to
operate safely and soundly and in accordance with all applicable laws, rules and
regulations.
The Comptroller, through his National Bank Examiner, has examined the
Bank and his findings are contained in the Report of Examination ("XXX") for the
examination commenced on April 28, 2008.
In consideration of the above premises, it is agreed, between the
Bank, by and through its duly elected and acting Board of Directors ("Board"),
and the Comptroller, through his authorized representative, that the Bank shall
operate at all times in compliance with the articles of this Agreement.
ARTICLE I
JURISDICTION
(1) This Agreement shall be construed to be a "written agreement
entered into with the agency" within the meaning of 12 U.S.C. ss. 1818(b)(1).
(2) This Agreement shall be construed to be a "written agreement
between such depository institution and such agency" within the meaning of 12
U.S.C. ss. 1818(e)(1) and 12 U.S.C. ss. 1818(i)(2).
(3) This Agreement shall be construed to be a "formal written
agreement" within the meaning of 12 C.F.R. ss. 5.51(c)(6)(ii). See 12 U.S.C. ss.
1831i.
(4) This Agreement shall be construed to be a "written agreement"
within the meaning of 12 U.S.C. ss. 1818(u)(1)(A).
(5) All reports or plans which the Bank or Board has agreed to submit
to the Assistant Deputy Comptroller pursuant to this Agreement shall be
forwarded to:
Xxxx X. Xxxxx
Assistant Deputy Comptroller
Carolinas Field Xxxxxx
000 Xxxxx Xxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxx Xxxxxxxx 00000
ARTICLE II
COMPLIANCE COMMITTEE
(1) Within fifteen (15) days of the date of this Agreement, the Board
shall appoint a Compliance Committee of at least five (5) directors, of which no
more than one (1) shall be an employee or controlling shareholder of the Bank or
any of its affiliates (as the term "affiliate" is defined in 12 U.S.C. ss.
371c(b)(1)), or a family member of any such person. Upon appointment, the names
of the members of the Compliance Committee and, in the event of a change of the
membership, the name of any new member shall be submitted in writing to the
Assistant Deputy Comptroller. The Compliance Committee shall be responsible for
monitoring and coordinating the Bank's adherence to the provisions of this
Agreement.
(2) The Compliance Committee shall meet at least monthly.
(3) Within thirty (30) days of the date of this Agreement and every
thirty (30) days thereafter, the Compliance Committee shall submit a written
progress report to the Board setting forth in detail:
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(a) description of the action needed to achieve full compliance
with each Article of this Agreement;
(b) actions taken to comply with each Article of this Agreement;
and
(c) the results and status of those actions.
(4) The Board shall forward a copy of the Compliance Committee's
report, with any additional comments by the Board, to the Assistant Deputy
Comptroller within ten (10) days of receiving such report.
ARTICLE III
LOAN PORTFOLIO MANAGEMENT
(1) The Board shall, within sixty (60) days, develop, implement, and
thereafter ensure Bank adherence to a written program to improve the Bank's loan
portfolio management. The program shall include, but not be limited to:
(a) procedures to ensure that extensions of credit are granted,
by renewal or otherwise, to any borrower only after
obtaining and analyzing current and satisfactory credit
information;
(b) a system to track and analyze exceptions;
(c) procedures to ensure continued conformance with Call Report
instructions;
(d) procedures to ensure the continued accuracy of internal
management information systems;
(e) a performance appraisal process, including performance
appraisals, job descriptions, and incentive programs for
loan officers, which adequately consider their performance
relative to policy compliance, documentation standards,
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accuracy in credit grading, and other loan administration
matters;
(f) procedures to track and analyze concentrations of credit,
significant economic factors, and general conditions and
their impact on the credit quality of the Bank's loan and
lease portfolios;
(g) a process to ensure market analysis is performed for various
property types and geographic markets represented in the
banks portfolio no less than quarterly;
(h) a comprehensive loan review process that quantifies the
overall level of credit risk and assesses the quality of
credit risk management; and
(i) procedures to ensure the re-appraisal of property that
defines the criteria for when a new or adjusted appraisal is
required based upon changes in market conditions or original
project plans.
(2) Upon completion, a copy of the program shall be forwarded to the
Assistant Deputy Comptroller.
(3) Within sixty (60) days, the Board shall develop, implement, and
thereafter ensure Bank adherence to systems which provide for effective
monitoring of:
(a) early problem loan identification to assure the
timely identification and rating of loans and leases
based on lending officer submissions;
(b) statistical records that will serve as a basis for
identifying sources of problem loans and leases by
industry, size, collateral, division, group,
indirect dealer, and individual lending officer;
(c) previously charged-off assets and their recovery
potential;
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(d) compliance with the Bank's lending policies and
laws, rules, and regulations pertaining to the
Bank's lending function;
(e) adequacy of credit and collateral documentation; and
(f) concentrations of credit.
(4) Beginning December 2008, on a monthly basis management will
provide the Board with written reports including, at a minimum, the following
information:
(a) the identification, type, rating, and amount of
problem loans and leases;
(b) the identification and amount of delinquent loans
and leases;
(c) credit and collateral documentation exceptions;
(d) the identification and status of credit related
violations of law, rule or regulation;
(e) the identity of the loan officer who originated each
loan reported in accordance with subparagraphs (a)
through (d) of this Article and Paragraph;
(f) an analysis of concentrations of credit, significant
economic factors, and general conditions and their
impact on the credit quality of the Bank's loan and
lease portfolios;
(g) the identification and amount of loans and leases to
executive officers, directors, principal
shareholders (and their related interests) of the
Bank; and
(h) the identification of loans and leases not in
conformance with the Bank's lending and leasing
policies, and exceptions to the Bank's lending and
leasing policies.
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(5) The Board shall ensure that the Bank has processes, personnel, and
control systems to ensure implementation of and adherence to the program and
systems developed pursuant to this Article.
ARTICLE IV
ALLOWANCE FOR LOAN AND LEASE LOSSES
(1) Within sixty (60) days, the Board shall adopt, implement, and
thereafter ensure adherence to written policies and procedures for maintaining
an adequate Allowance for Loan and Lease Losses ("ALLL") in accordance with
generally accepted accounting principles. The ALLL policies and procedures shall
be consistent with the guidance set forth in the Federal Financial Institutions
Examination Council's "Interagency Policy Statement on the Allowance for Loan
and Lease Losses" dated December 13, 2006 (OCC Bulletin 2006-47), and shall at a
minimum include:
(a) procedures for determining whether a loan is
impaired and measuring the amount of impairment,
consistent with FASB Statement of Financial
Accounting Standards No. 114, Accounting by
Creditors for Impairment of a Loan;
(b) procedures for segmenting the loan portfolio and
estimating loss on groups of loans, consistent with
FASB Statement of Financial Accounting Standards No.
5, Accounting for Contingencies;
(c) procedures for validating the ALLL methodology;
(d) a process for summarizing and documenting, for the
Board's review and approval, the amount to be
reported in the Consolidated Reports of Condition
and Income ("Call Reports") for the ALLL. Any
deficiency in the ALLL shall be remedied in the
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quarter it is discovered, prior to the filing of the
Call Reports, through additional provision expense.
(2) The Board shall ensure that the Bank has processes, personnel, and
control systems to ensure implementation of and adherence to the policies and
procedures developed pursuant to this Article.
(3) A copy of the Board's program shall be submitted to the Assistant
Deputy Comptroller for review and prior written determination of no supervisory
objection. Upon receiving a determination of no supervisory objection from the
Assistant Deputy Comptroller, the Bank shall implement and adhere to the
program.
ARTICLE V
CRITICIZED ASSETS
(1) The Bank shall take immediate and continuing action to protect its
interest in those assets criticized in the XXX, in any subsequent Report of
Examination, by internal or external loan review, or in any list provided to
management by the National Bank Examiners during any examination.
(2) Within sixty (60) days, the Board shall adopt, implement, and
thereafter ensure Bank adherence to a written program designed to eliminate the
basis of criticism of assets criticized in the XXX, in any subsequent Report of
Examination, or by any internal or external loan review, or in any list provided
to management by the National Bank Examiners during any examination as
"doubtful," "substandard," or "special mention." This program shall include, at
a minimum:
(a) an identification of the expected sources of repayment;
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(b) the appraised value of supporting collateral and the
position of the Bank's lien on such collateral where
applicable;
(c) an analysis of current and satisfactory credit
information, including cash flow analysis where
loans are to be repaid from operations; and
(d) the proposed action to eliminate the basis of
criticism and the time frame for its accomplishment.
(3) Upon adoption, a copy of the program for all criticized assets
equal to or exceeding fifty thousand dollars ($50,000) shall be forwarded to the
Assistant Deputy Comptroller.
(4) The Board shall ensure that the Bank has processes, personnel, and
control systems to ensure implementation of and adherence to the program
developed pursuant to this Article.
(5) The Board, or a designated committee, shall conduct a review, on
at least a monthly basis, to determine:
(a) the status of each criticized asset or criticized
portion thereof that equals or exceeds fifty
thousand dollars ($50,000);
(b) management's adherence to the program adopted pursuant to
this Article;
(c) the status and effectiveness of the written program; and
(d) the need to revise the program or take alternative
action.
(6) A copy of each review shall be forwarded to the Assistant Deputy
Comptroller on a monthly basis (in a format similar to Appendix A, attached
hereto).
(7) The Bank may extend credit, directly or indirectly, including
renewals, extensions or capitalization of accrued interest, to a borrower whose
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loans or other extensions of credit are criticized in the XXX, in any subsequent
Report of Examination, in any internal or external loan review, or in any list
provided to management by the National Bank Examiners during any examination and
whose aggregate loans or other extensions exceed fifty thousand dollars
($50,000) only if each of the following conditions is met:
(a) the Board or designated committee finds that the
extension of additional credit is necessary to
promote the best interests of the Bank and that
prior to renewing, extending or capitalizing any
additional credit, a majority of the full Board (or
designated committee) approves the credit extension
and records, in writing, why such extension is
necessary to promote the best interests of the Bank;
and
(b) a comparison to the written program adopted pursuant
to this Article shows that the Board's formal plan
to collect or strengthen the criticized asset will
not be compromised.
(8) A copy of the approval of the Board or of the designated committee
shall be maintained in the file of the affected borrower.
ARTICLE VI
CONSTRUCTION LOAN UNDERWRITING STANDARDS
(1) Within sixty (60) days, the Board shall develop, implement, and
thereafter adhere to a written program to improve its construction loan
underwriting standards. The program shall include, but not be limited to,
procedures for ensuring that:
(a) market feasibility analyses are performed on construction
projects;
(b) cash flow analyses are performed on construction
loan borrowers;
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(c) current rental and sales information is maintained
in all construction projects;
(d) periodic independent inspections are performed on
all construction projects; and
(e) all construction loans are either in conformity with
the Bank's construction loan policies and procedures
or in compliance with the Bank's written provisions
for exceptions to loan policies and procedures.
(2) Upon completion, the Board shall submit a copy of the program to
the Assistant Deputy Comptroller for review.
(3) The Board shall ensure that the Bank has processes, personnel, and
control systems to ensure implementation of and adherence to the program
developed pursuant to this Article.
ARTICLE VII
CONCENTRATIONS OF CREDIT
(1) Within sixty (60) days, the Board shall adopt, implement, and
thereafter ensure Bank adherence to a written asset diversification program
consistent with OCC Banking Circular 255. The program shall include, but not
necessarily be limited to, the following:
(a) a review of the balance sheet to identify any
concentrations of credit;
(b) a written analysis of any concentration of credit
identified above in order to identify and assess the
inherent credit, liquidity, and interest rate risk;
(c) policies and procedures to control and monitor
concentrations of credit;
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(d) an action plan approved by the Board to reduce the
risk of any concentration deemed imprudent in the
above analysis; and
(e) a review of established North American Industry
Classification System (NAICS) limits to ensure the
concentrations of credit limits are reasonable and
establish an effective risk measure.
(2) For purposes of this Article, a concentration of credit is as
defined in the "Loan Portfolio Management" booklet of the Comptroller's
Handbook.
(3) The Board shall ensure that future concentrations of credit are
subjected to the analysis required by subparagraph (b) and that the analysis
demonstrate that the concentration will not subject the Bank to undue credit or
interest rate risk.
(4) The Board shall forward a copy of any analysis performed on
existing or potential concentrations of credit to the Assistant Deputy
Comptroller immediately following the review.
(5) The Board shall ensure that the Bank has processes, personnel, and
control systems to ensure implementation of and adherence to the program
developed pursuant to this Article.
ARTICLE VIII
STRATEGIC PLAN
(1) Within sixty (60) days, the Board shall adopt, implement, and
thereafter ensure Bank adherence to a written strategic plan for the Bank
covering at least a three-year period. The strategic plan shall establish
objectives for the Bank's overall risk profile, earnings performance, growth,
balance sheet mix, off-balance sheet activities, liability structure, capital
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adequacy, reduction in the volume of nonperforming assets, product line
development and market segments that the Bank intends to promote or develop,
together with strategies to achieve those objectives and, at a minimum, include:
(a) a mission statement that forms the framework for the
establishment of strategic goals and objectives;
(b) an assessment of the Bank's present and future
operating environment;
(c) the development of strategic goals and objectives to
be accomplished over the short and long term;
(d) an identification of the Bank's present and future
product lines (assets and liabilities) that will be
utilized to accomplish the strategic goals and
objectives established in (1 )(c) of this Article;
(e) an evaluation of the Bank's internal operations,
staffing requirements, board and management
information systems and policies and procedures for
their adequacy and contribution to the
accomplishment of the goals and objectives developed
under (1)(c) of this Article;
(f) a management employment and succession program to
promote the retention and continuity of capable
management;
(g) product line development and market segments that
the Bank intends to promote or develop;
(h) an action plan to improve bank earnings and
accomplish identified strategic goals and
objectives, including individual responsibilities,
accountability and specific time frames;
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(i) a financial forecast to include projections for
major balance sheet and income statement accounts
and desired financial ratios over the period covered
by the strategic plan;
(j) control systems to mitigate risks associated with
planned new products, growth, or any proposed
changes in the Bank's operating environment;
(k) specific plans to establish responsibilities and
accountability for the strategic planning process,
new products, growth goals, or proposed changes in
the Bank's operating environment; and
(l) systems to monitor the Bank's progress in meeting
the plan's goals and objectives.
(2) Within ninety (90) days, the Board shall develop, implement, and
thereafter ensure Bank adherence to a three year capital program. The program
shall include:
(a) projections for growth and capital requirements
based upon a detailed analysis of the Bank's assets,
liabilities, earnings, fixed assets, and off-balance
sheet activities;
(b) projections of the sources and timing of additional
capital to meet the Bank's current and future needs;
(c) the primary source(s) from which the Bank will
strengthen its capital structure to meet the Bank's
needs;
(d) contingency plans that identify alternative methods
should the primary source(s) under (c) above not be
available; and
(e) a dividend policy that permits the declaration of a
dividend only:
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(i) when the Bank is in compliance with its approved
capital program; and
(ii) when the Bank is in compliance with 12 U.S.C.
xx.xx. 56 and 60.
(3) Upon adoption, a copy of the plan shall be forwarded to the
Assistant Deputy Comptroller for review and prior written determination of no
supervisory objection. Upon receiving a determination of no supervisory
objection from the Assistant Deputy Comptroller, the Bank shall implement and
adhere to the strategic and capital plans.
ARTICLE IX
PROFIT PLAN
(1) Within sixty (60) days, the Board shall develop, implement, and
thereafter ensure Bank adherence to a written profit plan to improve and sustain
the earnings of the Bank. This plan shall include, at minimum, the following
elements:
(a) identification of the major areas in and means by
which the Board will seek to improve the Bank's
operating performance;
(b) realistic and comprehensive budgets, including
projected balance sheets and year-end income
statements;
(c) a budget review process to monitor both the Bank's
income and expenses, and to compare actual figures
with budgetary projections; and
(d) a description of the operating assumptions that form
the basis for major projected income and expense
components.
(2) The budgets and related documents required in paragraph (1) above
for 2008 shall be submitted to the Assistant Deputy Comptroller upon completion.
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The Board shall submit to the Assistant Deputy Comptroller annual budgets as
described in paragraph (1) above for each year this Formal Agreement remains in
effect. The budget for each year shall be submitted on or before January 31, of
that year.
(3) The Board shall forward comparisons of its balance sheet and
profit and loss statement to the profit plan projections to the Assistant Deputy
Comptroller on a quarterly basis.
(4) The Board shall ensure that the Bank has processes, personnel, and
control systems to ensure implementation of and adherence to the plan developed
pursuant to this Article.
ARTICLE X
LIQUIDITY
(1) The Board shall ensure the level of liquidity at the Bank is
sufficient to sustain the Bank's current operations and to withstand any
anticipated or extraordinary demand against its funding base. Such actions may
include, but are not necessarily limited to:
(a) selling assets;
(b) obtaining lines of credit from the Federal Reserve Bank;
(c) obtaining lines of credit from correspondent banks;
(d) recovering charged-off assets; and
(e) injecting additional equity capital.
(2) The Board shall review the Bank's liquidity on a monthly basis.
Such reviews shall consider: (a) a maturity schedule of certificates of deposit,
including large uninsured deposits;
(b) the volatility of demand deposits including escrow
deposits;
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(c) the amount and type of loan commitments and standby
letters of credit;
(d) an analysis of the continuing availability and
volatility of present funding sources;
(e) an analysis of the impact of decreased cash flow from
the Bank's loan portfolio resulting from delinquent and
non-performing loans;
(f) an analysis of the impact of decreased cash flow from
the sale of loans or loan participations; and
(g) geographic disbursement of and risk from brokered
deposits.
(3) The Board shall take appropriate action to ensure adequate sources
of liquidity in relation to the Bank's needs. Monthly reports shall set forth
liquidity requirements and sources and establish a contingency plan. Copies of
these reports shall be forwarded to the Assistant Deputy Comptroller in the
Bank's quarterly report to the Assistant Deputy Comptroller.
ARTICLE XI
BROKERED DEPOSITS
(1) The Bank may accept Brokered Deposits (as defined by 12 C.F.R. ss.
337.6(a)(2)) for deposit at the Bank only after obtaining a prior written
determination of no supervisory objection from the Assistant Deputy Comptroller.
(2) The limitation of paragraph (1) shall include the acquisition of
Brokered Deposits through any transfer, purchase, or sale of assets, including
Federal funds transactions.
(3) If the Bank seeks to acquire Brokered Deposits, the Board shall
apply to the Assistant Deputy Comptroller for written permission. Such
application shall contain, at a minimum, the following:
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(a) the dollar volume, maturities, and cost of the Brokered
Deposits to be acquired;
(b) the proposed use of the Brokered Deposits, i.e.,
short-term liquidity or restructuring of liabilities to
reduce cost;
(c) alternative funding sources available to the Bank; and
(d) the reasons why the Bank believes that the acceptance
of the Brokered Deposits does not constitute an unsafe
and unsound practice in its particular circumstances.
(e) The Assistant Deputy Comptroller may require the
submission of such additional information as necessary
to make an informed decision. Upon consideration of the
Bank's application, the Assistant Deputy Comptroller
will determine whether the proposed acquisition of
Brokered Deposits may be accomplished in a safe and
sound manner and may condition the Bank's acquisition
as the Assistant Deputy Comptroller shall deem
appropriate.
ARTICLE XII
CLOSING
(1) Although the Board has agreed to submit certain programs and
reports to the Assistant Deputy Comptroller for review or prior written
determination of no supervisory objection, the Board has the ultimate
responsibility for proper and sound management of the Bank.
(2) It is expressly and clearly understood that if, at any time, the
Comptroller deems it appropriate in fulfilling the responsibilities placed upon
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him/her by the several laws of the United States of America to undertake any
action affecting the Bank, nothing in this Agreement shall in any way inhibit,
estop, bar, or otherwise prevent the Comptroller from so doing.
(3) Any time limitations imposed by this Agreement shall begin to run
from the effective date of this Agreement. Such time requirements may be
extended in writing by the Assistant Deputy Comptroller for good cause upon
written application by the Board.
(4) The provisions of this Agreement shall be effective upon execution
by the parties hereto and its provisions shall continue in full force and effect
unless or until such provisions are amended in writing by mutual consent of the
parties to the Agreement or excepted, waived, or terminated in writing by the
Comptroller.
(5) In each instance in this Agreement in which the Board is required
to ensure adherence to, and undertake to perform certain obligations of the
Bank, it is intended to mean that the Board shall:
(a) authorize and adopt such actions on behalf of the
Bank as may be necessary for the Bank to perform its
obligations and undertakings under the terms of this
Agreement;
(b) require the timely reporting by Bank management of
such actions directed by the Board to be taken under
the terms of this Agreement;
(c) follow-up on any non-compliance with such actions in
a timely and appropriate manner; and
(d) require corrective action be taken in a timely
manner of any non-compliance with such actions.
(6) This Agreement is intended to be, and shall be construed to be, a
supervisory "written agreement entered into with the agency" as contemplated by
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12 U.S.C. ss. 1818(b)(1), and expressly does not form, and may not be construed
to form, a contract binding on the Comptroller or the United States.
Notwithstanding the absence of mutuality of obligation, or of consideration, or
of a contract, the Comptroller may enforce any of the commitments or obligations
herein undertaken by the Bank under his supervisory powers, including 12 U.S.C.
ss. 1818(b)(1), and not as a matter of contract law. The Bank expressly
acknowledges that neither the Bank nor the Comptroller has any intention to
enter into a contract. The Bank also expressly acknowledges that no officer or
employee of the Office of the Comptroller of the Currency has statutory or other
authority to bind the United States, the U.S. Treasury Department, the
Comptroller, or any other federal bank regulatory agency or entity, or any
officer or employee of any of those entities to a contract affecting the
Comptroller's exercise of his supervisory responsibilities. The terms of this
Agreement, including this paragraph, are not subject to amendment or
modification by any extraneous expression, prior agreements or prior
arrangements between the parties, whether oral or written.
IN TESTIMONY WHEREOF, the undersigned, authorized by the Comptroller,
has hereunto set his hand on behalf of the Comptroller.
/S/ Xxxx X. Xxxxx October 15, 2008
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Xxxx X. Xxxxx Date
Assistant Deputy Comptroller
Carolinas Field Office
[Signatures of the Board omitted.]
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