SUPERVISORY AGREEMENT
This Supervisory Agreement (Agreement) is made and is effective this
8th day of December, 2005 (Effective Date), by and between Baltimore County
Savings Bank, FSB, Baltimore, Maryland, OTS Docket No. 08163 (BCBS or Bank), a
federally chartered stock savings association, and the Office of Thrift
Supervision (OTS), a bureau of the United States Department of the Treasury,
acting through its Southeast Regional Director or his designee (Regional
Director).
WHEREAS, the OTS is the primary federal regulator of the Bank;
WHEREAS, based upon the Bank's June 6, 2005 Report of Examination (2005
Examination), the OTS is of the opinion that the Bank has engaged in acts and
practices that: (i) have resulted in violations of certain of the laws or
regulations to which the Bank is subject; and/or (ii) are considered to be
unsafe and unsound;
WHEREAS, the OTS is of the opinion that grounds exist for the
initiation of an administrative proceeding against the Bank;
WHEREAS, the OTS is of the view that it is appropriate to take measures
intended to ensure that the Bank will: (i) comply with all applicable laws and
regulations; and (ii) engage in safe and sound practices; and
WHEREAS, the Bank, acting through its Board of Directors (Board),
without admitting or denying that such grounds exist except those as to
jurisdiction, which are admitted, wishes to cooperate with the OTS and to
evidence the intent to: (i) comply with all applicable laws and regulations; and
(ii) engage in safe and sound practices.
NOW THEREFORE, in consideration of the above premises and the mutual
undertakings set forth herein, the parties hereto agree as follows:
Compliance With Laws and Regulations.
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1. The Bank, its Directors, officers, employees, agents, and
subordinate organizations shall take all necessary and appropriate
actions to comply with the following laws and regulations:
a. the Bank Secrecy Act, as amended (31 U.S.C. ss.ss. 5311 et
seq.), the regulations promulgated thereunder at 31 C.F.R.
Part 103, as amended, 12 C.F.R ss. 563.177, and 12 C.F.R. ss.
563.180(d), and the rules and regulations of the Office of
Foreign Assets Control (OFAC) (the aforementioned laws and
regulations are hereafter collectively referred to as the BSA
Laws and Regulations), and
b. the National Flood Insurance Act and the Flood Disaster
Protection Act, 42 U.S.C. ss. 4001 et seq. (collectively, the
FDPA) and the OTS regulations promulgated thereunder at 12
C.F.R. ss. 572.
Business Plan.
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2. Within sixty (60) days after the Effective Date of this Agreement,
the Board shall prepare, adopt and submit for Regional Director
review and approval a new comprehensive three-year business plan
that covers the calendar years 2006, 2007 and 2008 (Business Plan).
The Business Plan shall consider the Bank's existing operations,
business strategies, current market conditions, local demographics,
earnings, available resources, and existing capital levels. The
Business Plan also shall consider the findings of the 2005
Examination. The Business Plan shall clearly and accurately detail
and discuss the Board's plans and strategies, including any new
activities, products and lines of business, for strengthening and
improving the Bank's earnings and profitability. The Board shall
review the Business Plan on at least an annual basis and make such
amendments as are necessary in consideration of the Bank's
performance under the prior year of the Business Plan.
3. The Board shall make any changes to the Business Plan required by
the Regional Director within thirty (30) days after receipt of
notification from the OTS. Thereafter, the Board shall direct
Management to follow and implement the Business Plan as approved by
the Board and the OTS. The Board shall require Management to
prepare and provide to it written reports, including supporting
documentation and other information, regarding the Bank's
implementation of the approved Business Plan. The Board shall
periodically, but not less than once each calendar quarter, conduct
a diligent review and assessment of Management's implementation of
and the Bank's compliance with the approved Business Plan. Any
material new activity, operation or line of business shall require
the prior review and approval of the Board. Any material
modifications to the Business Plan shall be submitted to the
Regional Director forty-five (45) days prior to implementation
unless such time period is waived by the OTS. Management shall
prepare quarterly variance reports on the Bank's compliance with
the Business Plan within thirty (30) days after the close of each
calendar quarter. Such variance reports shall detail actual
operating results versus projected results and shall include
detailed explanations of any material deviations from the Business
Plan and a specific description of the corrective actions or
measures that have been implemented, proposed or are under
consideration to correct any material deviation. The Board shall
review the variance reports on a quarterly basis to monitor the
Bank's compliance with the terms of the Business Plan. The Board's
review shall be fully documented in the Board meeting minutes. A
deviation shall be considered material under this Paragraph 3 when:
a. the Bank engages in any material activity that is inconsistent
with the Business Plan; or
b. the Bank exceeds the level of any activity contemplated in the
Business Plan or fails to meet target amounts established in
the Business Plan by more than 10%, unless the activity
involves assets risk weighted 50% or less, in which case a
variance of more than 25% shall be deemed to be a material
deviation.
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Anti-Money Laundering/BSA Compliance.
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4. Within sixty (60) days after the Effective Date of this Agreement,
the Board shall review and revise as necessary the Bank's written
program for compliance with the BSA Laws and Regulations (BSA
Compliance Program) to strengthen and ensure BCSB's compliance with
the BSA Laws and Regulations, including compliance with all
documentation and recordkeeping requirements. In amending its BSA
Compliance Program, the Board shall, at a minimum, take the
following actions:
a. The Board shall review and revise as necessary the Bank's
process and written methodology for assigning risk levels
(Risk Assignment Methodology) to the Bank's customers,
products, and services.(1) The Board shall ensure that the
Bank's Risk Assignment Methodology is consistent with the
Quantity of Risk Matrix included as Appendix J to the FFIEC
Bank Secrecy Act/Anti-Money Laundering Examination Manual
(FFIEC Manual) and accurately identifies all customer accounts
that present a heightened risk of conduct of potentially
unlawful activities or transactions (Higher Risk Accounts).
b. The Board shall review and revise as necessary the Bank's
customer identification program (CIP) to strengthen and ensure
the Bank's compliance with the requirements of 31 C.F.R. ss.
103.121; the guidance contained in Chief Executive Officer
Memorandum No. 202 (July 27, 2004); and the FFIEC Manual. The
CIP shall (i) be a part of the Bank's BSA Compliance Program;
(ii) contain detailed written account opening procedures
governing the origination and establishment of new accounts,
including the identifying information that must be obtained
from each customer; (iii) include written risk based
procedures for verifying a customer's identity within a
reasonable time after opening of the account, including
verification of any required state or federal licenses and
registrations; and (iv) provide for the identification of high
risk accounts at the opening of the account.
c. The Board shall review and revise as necessary the Bank's
written internal controls, due diligence processes, and
oversight and monitoring requirements (BSA Monitoring
Procedures) to strengthen and ensure the Bank's compliance
with 12 C.F.R. ss. 563.180(d). At a minimum, the BSA
Monitoring Procedures shall (i) ensure the accurate
identification and monitoring of all Higher Risk Accounts in
accordance with enhanced due diligence levels and oversight
and monitoring requirements established by the Board; (ii)
ensure the timely identification and detection of any
suspicious activity(2) arising from or relating to the opening
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(1) The assignment of risk to a particular Bank product or service shall include
transactions where such products and services are offered to non-customers.
(2) The term "suspicious activity" shall include, but is not limited to, any
transactions or account activity that is not customary, routine, or commensurate
based upon past or expected transactions or activity, or that is otherwise
suspicious or lacking an apparent business or legal purpose.
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of new accounts, the Bank's monitoring of existing accounts,
funds transfers to or through the Bank, and non-customer
transactions; and (iii) provide for an investigation and
review process for all suspicious activities to determine
whether a Suspicious Activity Report (SAR) must be filed with
appropriate law enforcement and supervisory authorities; and
(iv) require the timely filing, in an accurate and complete
manner, of any SAR with appropriate law enforcement and
supervisory authorities.
d. The Board shall review and revise as necessary the Bank's
written policies and procedures to strengthen and ensure the
Bank's compliance with the Currency Transaction Report (CTR)
exemptions set forth in 31 C.F.R. ss. 103.22(d) (CTR Exemption
Policies). The CTR Exemption Policies shall: (i) require an
initial review of all customers proposed for an exemption
under Section 103.22(d) to verify the customer's eligibility
and ensure appropriate documentation of the Bank's review and
determination process and (ii) require an annual review of all
CTR exempt customers to ensure the customer's continuing
eligibility and qualification for an exemption under Section
103.22(d).
e. The Board shall review and revise as necessary the Bank's
specific review procedures to ensure the accurate completion
and timely filing of all CTRs.
f. The Board shall require Management to address all deficiencies
and weaknesses and complete all required corrective actions
discussed in the Bank's 2005 Examination. Management shall
provide the Board with monthly status reports regarding its
compliance with this requirement.
The Board shall require that Management take all steps necessary
to ensure that the Bank's BSA Compliance Program, as revised
consistent with the requirements of this Agreement, is fully
implemented and thereafter fully adhered to by the Management and
staff of the Bank. The Board shall require Management to ensure
complete and accurate documentation of the Bank's compliance with
the BSA Laws and Regulations and this Agreement. The Board shall
request such information and documentation as is necessary to
assess Management and the Bank's compliance with the revised BSA
Compliance Program and the BSA Laws and Regulations.
5. The Board shall review the Bank's BSA Compliance Program on an
annual basis to assess its adequacy and compliance with applicable
BSA Laws and Regulations based upon the Bank's operations,
activities, size and complexity. The Board shall promptly adopt
and implement such changes as are necessary to ensure the BSA
Compliance Program remains adequate for the Bank and fully
complies with the BSA Laws and Regulations and SAR Regulations.
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BSA Independent Testing.
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6. Within sixty (60) days after the Effective Date of this Agreement,
the Board shall review and revise as necessary the Bank's written
policies and procedures for conducting an annual independent test
of the Bank's BSA Compliance Program and the Bank's compliance with
the BSA Laws and Regulations (Independent Testing Policies)
consistent with the guidance set forth in the FFIEC Manual. The
Independent Testing Policies shall require a review of all
pertinent areas of the Bank's BSA Compliance Program and the
conducting of more expansive transactional testing. A written
report detailing the results and findings of each independent test
shall be provided to the Board for review within forty-five (45)
days after completion of the test. The Board's review of the
independent test results, and any corrective actions adopted by the
Board, shall be fully detailed in the Board meeting minutes with a
copy of the written report attached thereto. The Board shall
provide copies of the independent test report and the Board meeting
minutes to the Regional Director within ten (10) days after review.
FDPA Compliance.
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7. Within sixty (60) days after the Effective Date of this Agreement,
the Board shall review and amend as necessary the Bank's FDPA
policies and procedures (FDPA Policy) to strengthen and ensure the
Bank's compliance with the FDPA and the OTS regulations at 12
C.F.R. Part 572 (collectively, the FDPA Laws and Regulations). The
FDPA Policy as amended and adopted by the Board shall establish a
system to ensure that appropriate flood insurance, if required, is
obtained and maintained on all property securing a loan from the
Bank, including condominium units, in accordance with applicable
FDPA Laws and Regulations. The Board shall ensure that Bank
personnel receive appropriate training and that the Bank's
compliance with the FDPA Policy is reviewed periodically. The Board
shall take all steps necessary to ensure that the FDPA Policy
required by this Paragraph 7 is implemented and thereafter fully
adhered to by Management and staff of the Bank.
Documentation and Recordkeeping.
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8. Within sixty (60) days after the Effective Date of this Agreement,
the Board will review and revise as necessary the Bank's written
indirect automobile loan underwriting policies and procedures (Auto
Loan Policies) to strengthen and improve the automobile loan
underwriting and approval process. The revised Auto Loan Policies
shall include a separate policy that sets forth the Board's
guidelines, requirements and limitations on dealer overages
(Overage Policy). The revised Auto Loan Policies also shall require
all loan underwriting and pricing decisions, including any
exceptions made as a result of compensating factors, to be fully
and appropriately documented in the Bank's loan files. The Board
shall require Management to review and assess compliance with the
revised Auto Loan Policies, including the Overage Policy, on at
least a quarterly basis. The results of Management's review and
assessment of the Bank's compliance with the revised Auto Loan
Policies shall be presented to the Board in writing within thirty
(30) days after the end of each calendar quarter. The Board shall
document its review of Management's findings, and any corrective
actions required by the Board, in the appropriate Board meeting
minutes.
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Director Responsibility.
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9. Notwithstanding the requirements of this Agreement that the Board
submit various matters to the Regional Director for the purpose of
receiving his approval, non-objection or notice of acceptability,
such regulatory oversight does not derogate or supplant each
individual Director's continuing fiduciary duty. The Board shall
have the ultimate responsibility for overseeing the safe and sound
operation of the Bank at all times, including compliance with the
determinations of the Regional Director as required by this
Agreement.
Compliance with Agreement.
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10. All policies, procedures, corrective actions, plans, programs,
reviews and systems required by this Agreement (collectively,
Policies and Procedures) shall conform to all applicable statutes,
regulations, OTS policy and guidance. The Board shall submit copies
of all Policies and Procedures required by this Agreement to the
Regional Director within the timeframes specified or, in the event
a timeframe is not specified, within thirty (30) days after
adoption by the Board. The Board shall revise such Policies and
Procedures as required by the Regional Director within thirty (30)
days of receipt of written direction from the Regional Director.
The Policies and Procedures, as modified consistent with the
written direction of the Regional Director, shall be incorporated
into this Agreement and any material deviation, as determined by
the Regional Director in his sole discretion, from such Policies
and Procedures shall be a violation of this Agreement.
11. The Board shall require Management to correct all deficiencies
identified in the Bank's 2005 Examination, as directed therein,
except where such direction is modified or changed by the terms of
this Agreement. Further, the Board and Management of the Bank shall
take immediate action to cause the Bank to comply with the terms of
this Agreement and shall take all actions necessary or appropriate
thereafter to cause the Bank to continue to carry out the
provisions of this Agreement.
12. The Board shall, on a quarterly basis beginning with the calendar
quarter ending March 31, 2006, adopt a board resolution (the
Compliance Resolution) formally resolving that, following a
diligent inquiry of relevant information (including a report from
Management regarding the Bank's compliance with each numbered
paragraph of this Agreement), to the best of its knowledge and
belief, during the immediately preceding calendar quarter, the Bank
has complied with each provision of this Agreement currently in
effect, except as otherwise stated. The Compliance Resolution
shall:
a. specify in detail how, if at all, full compliance was found
not to exist; and
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b. identify all notices of exemption or non-objection issued by
the Regional Director that were outstanding as of the date of
its adoption.
13. The minutes of each meeting of the Board shall set forth the
following information with respect to the adoption of each
Compliance Resolution:
a. the identity of each Director voting in favor of its adoption;
and
b. the identity of each Director voting in opposition to its
adoption or abstaining from voting thereon, setting forth each
such Director's reasoning for opposing or abstaining(3).
14. Within forty-five (45) calendar days after the end of each calendar
quarter, beginning with the calendar quarter ending March 31, 2006,
the Board shall provide to the Regional Director a certified true
copy of the Compliance Resolution[s] adopted at the Board meeting
pursuant to Paragraph 12 of this Agreement. The Board, by virtue of
the submission of a certified true copy of such Compliance
Resolution to the Regional Director, shall be deemed to have
attested to the accuracy of the statements set forth in each
Compliance Resolution, except that in the event one or more
Directors do not agree with the representations set forth in a
Compliance Resolution, such disagreement shall be noted in the
Board meeting minutes.
15. The Board shall promptly respond to any request from the OTS for
documents to demonstrate compliance with this Agreement, including
making Bank records and documents available for OTS examiner review
upon request.
Definitions.
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16. All technical words or terms used in this Agreement for which
meanings are not specified or otherwise provided by the provisions
of this Agreement shall, insofar as applicable, have meaning as
defined in Chapter V of Title 12 of the Code of Federal
Regulations, BSA, HOLA, Federal Deposit Insurance Act (FD1A),
Chapter I of Title 31 of the Code of Federal Regulations, or any
Memoranda or Bulletins issued by the OTS or the U. S. Department of
the Treasury's Financial Crimes Enforcement Network (FinCEN). Any
such technical words or terms used in this Directive and undefined
in said Code of Federal Regulations, HOLA, BSA, FDIA and Memoranda
or Bulletins of the OTS or FinCEN shall have meanings that are in
accordance with the best custom and usage in the savings and loan
industry.
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(3) The recordkeeping requirements in this Paragraph 13 are mandated by the OTS
for the purposes of compliance with this Agreement and in no way are intended to
imply that the Board's minutes do not include this information with respect to
issues unrelated to this Agreement.
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Successor Statutes, Regulations, Guidance, Amendments.
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17. Reference in this Agreement to provisions of statutes, regulations,
and OTS and FinCEN Memoranda shall be deemed to include references
to all amendments to such provisions as have been made as of the
Effective Date and references to successor provisions as they
become applicable.
Notices.
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18. Except as otherwise provided herein, any request, demand,
authorization, direction, notice, consent, waiver or other document
provided or permitted by the Agreement to be made upon, given or
furnished to, delivered to, or filed with:
a. the OTS by the Bank, shall be sufficient for every purpose
hereunder if in writing and mailed, first class, postage
prepaid or sent via overnight delivery service or physically
delivered, in each case addressed to the Regional Director,
Office of Thrift Supervision, Department of the Treasury, 1475
Peachtree Street, N.E., Atlanta, Georgia, 30309, or telecopied
to 404.897.1861 and confirmed by first class mail, postage
prepaid, overnight delivery service or physically delivered,
in each case to the above address; and
b. the Bank by the OTS, shall be sufficient for every purpose
hereunder if in writing and mailed, first class, postage
prepaid, or sent via overnight delivery service or physically
delivered, in each case addressed to the Bank: at 4111 East
Joppa Road, Suite 300, Baltimore, Maryland 21236 or telecopied
to 410.256.0261 and confirmed by first class mail, postage
prepaid, overnight delivery service or physically delivered,
in each case to the above address.
Duration, Termination or Suspension of Agreement.
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19. This Agreement shall:
a. become effective upon its execution by the OTS, through its
authorized representative whose signature appears below; and
b. remain in effect until terminated, modified or suspended in
writing by the OTS, acting through its Director or the
Regional Director (including any authorized designee thereof).
20. The Regional Director in his sole discretion, may, by written
notice, suspend any or all provisions of this Agreement.
Time Limits.
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21. Time limitations for compliance with the terms of this Agreement
run from the Effective Date, unless otherwise noted.
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Effect of Headings.
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22. The Section headings herein are for convenience only and shall not
affect the construction hereof.
Separability Clause.
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23. In case any provision in this Agreement is ruled to be invalid,
illegal or unenforceable by the decision of any Court of competent
jurisdiction, the validity, legality and enforceability of the
remaining provisions hereof shall not in any way be affected or
impaired thereby, unless the Regional Director in his sole
discretion determines otherwise.
No Violations of Law, Rule, Regulation or Policy Statement Authorized; OTS Not
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Restricted.
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24. Nothing in this Agreement shall be construed as:
a. allowing the Bank to violate any law, rule, regulation, or
policy statement to which it is subject; or
b. restricting the OTS from taking such action(s) as are
appropriate in fulfilling the responsibilities placed upon it
by law, including, without limitation, any type of
supervisory, enforcement or resolution action that the OTS
determines to be appropriate.
Successors in Interest/Benefit.
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25. The terms and provisions of this Agreement shall be binding upon,
and inure to the benefit of, the parties hereto and their
successors in interest. Nothing in this Agreement, express or
implied, shall give to any person or entity, other than the
parties hereto and the Federal Deposit Insurance Corporation and
their successors hereunder, any benefit or any legal or equitable
right, remedy or claim under this Agreement.
Signature of Directors.
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26. Each Director signing this Agreement attests, by such act, that she
or he voted in favor of a Board resolution authorizing the
execution of this Agreement by the Bank.
Integration Clause.
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27. This Agreement and the OTS's November 30, 2005 letter to the Board
represents the final written agreement of the parties with respect
to the subject matter hereof and constitutes the sole agreement of
the parties, as of the Effective Date, with respect to such subject
matter. However, as noted herein, all Policies and Procedures
required by this Agreement shall, upon modification consistent with
the direction of the Regional Director, become part of this
Agreement and any deviation from these policies shall be deemed a
violation of this Agreement.
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Enforceability of Agreement.
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28. The Bank represents and warrants that this Agreement has been duly
authorized, executed, and delivered, and constitutes, in
accordance with its terms, a valid and binding obligation of the
Bank. The Bank acknowledges that this Agreement, is a "written
agreement" entered into with the OTS within the meaning of Section
8 of the FDIA, 12 U.S.C. ss.1818.
Counterparts.
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29. This Agreement may be executed in two or more counterparts, all of
which shall be considered one and the same agreement and each of
which shall be deemed original.
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IN WITNESS WHEREOF, the OTS, acting by and through the Regional Director
and the Bank, in accordance with a duly adopted resolution of its Board, hereby
execute this Agreement as of the Effective Date.
THE BANK OFFICE OF THRIFT SUPERVISION
By: /s/ Gary C. Loraditch By: /s/ John E. Ryan
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Name: Gary C. Loraditch John E. Ryan
Title: President Regional Director
/s/ William M. Loughran
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Director
/s/ Michael J. Klein
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Director
/s/ John J. Panzer, Jr.
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Director
/s/ Henry V. Kahl
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Director
/s/ H. Adrian Cox
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Director
/s/ William J. Kappauf, Jr.
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Director
/s/ P. Louis Rohe
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Director