FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C.
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In the Matter of ) CONSENT ORDER
)
CORNERSTONE COMMUNITY BANK ) FDIC-10-1037b
CHATTANOOGA, TENNESSEE )
(INSURED STATE NONMEMBER BANK) )
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The Federal Deposit Insurance Corporation ("FDIC") is the appropriate
Federal banking agency for Cornerstone Community Bank, Chattanooga, Tennessee
("Bank"), under 12 U.S.C. ss. 1813(q).
The Bank, by and through its duly elected and acting Board of Directors
("Board"), has executed a "STIPULATION TO THE ISSUANCE OF A CONSENT ORDER"
("STIPULATION"), dated March 31, 2010, that is accepted by the FDIC. With the
Stipulation, the Bank has consented, without admitting or denying any charges of
unsafe or unsound banking practices or violations of law or regulation relating
to deficient credit underwriting and monitoring, failure to identify problem
assets, inadequate Allowance for Loan and Lease Losses ("ALLL"), and weaknesses
in capital, interest rate risk and liquidity, to the issuance of this CONSENT
ORDER ("ORDER") by the FDIC.
Having determined that the requirements for issuance of an order under 12
U.S.C. ss. 1818(b) have been satisfied, the FDIC hereby orders that:
COMPLIANCE COMMITTEE - NON-EMPLOYEE DIRECTORS REQUIRED
------------------------------------------------------
1. (a) Within 30 days after the effective date of this ORDER, the Bank's
Board shall establish a committee of the Board of the Bank charged with the
responsibility of ensuring that the Bank complies with the provisions of this
ORDER. At least a majority of the members of such committee shall be directors
not employed in any capacity by the Bank other than as a director. The committee
shall report monthly to the full Board, and a copy of the report and any
discussion relating to the report or the ORDER shall be noted in the minutes of
the Bank's Board meetings. The establishment of this subcommittee shall not
diminish the responsibility or liability of the entire Board to ensure
compliance with the provisions of this ORDER.
MANAGEMENT - STAFFING STUDY
---------------------------
2. (a) Within 30 days after the effective date of this ORDER, the
Bank shall retain a bank consultant acceptable to the Regional Director of the
FDIC's Dallas Region ("Regional Director") and to the Commissioner of the
Tennessee Department of Financial Institutions ("Commissioner"). The consultant
shall develop a written analysis and assessment of the Bank's management and
staffing needs ("Management Plan") for the purpose of providing qualified
management for the Bank.
(b) The Bank shall provide the Regional Director and the Commissioner
with a copy of the proposed engagement letter or contract with the consultant
for review before it is executed. The contract or engagement letter, at a
minimum, should include:
(1) A description of the work to be performed under the
contract or engagement letter;
(2) The responsibilities of the consultant;
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(3) An identification of the professional standards
covering the work to be performed;
(4) Identification of the specific procedures to be used
when carrying out the work to be performed;
(5) The qualifications of the employee(s) who are to
perform the work;
(6) The time frame for completion of the work;
(7) Any restrictions on the use of the reported findings;
and
(8) A provision for unrestricted examiner access to work
papers.
(c) The Management Plan shall be developed within 90 days after the
effective date of this ORDER. The Management Plan shall include, at a minimum:
(1) Identification of both the type and number of officer
positions needed to properly manage and supervise the
affairs of the Bank;
(2) Identification and establishment of such Bank
committees as are needed to provide guidance and oversight
to active management;
(3) Evaluation of all Bank officers and staff members to
determine whether these individuals 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 restoration
and maintenance of the Bank in a safe and sound condition;
and
(4) A plan to recruit and hire any additional or
replacement personnel with the requisite ability, experience
and other qualifications to fill those officer or staff
member positions identified in the Management Plan.
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(d) The Management Plan shall be submitted to the Regional Director and
the Commissioner for review and comment upon its completion. Within 30 days from
the receipt of any comments from the Regional Director and the Commissioner, and
after the adoption of any recommended changes, the Bank shall approve the
Management Plan, and record its approval in the minutes of the Board meeting.
Thereafter, the Bank, its directors, officers, and employees shall implement and
follow the Management Plan and/or any subsequent modification.
(e) Thereafter, the Bank shall have and retain qualified management. Each
member of management shall possess qualifications and experience commensurate
with his or her duties and responsibilities at the Bank. The qualifications of
management personnel shall be evaluated on their ability to:
(1) Comply with the requirements of the ORDER;
(2) Operate the Bank in a safe and sound manner;
(3) Comply with applicable laws and regulations; and
(4) Restore all aspects of the Bank to a safe and sound
condition, including improve the Bank's asset quality,
capital adequacy, earnings, management effectiveness,
liquidity, and its sensitivity to market risk.
(f) Within 30 days after the effective date of this ORDER, the Bank
shall restructure the Information Technology Management, Risk Management, and
Special Assets Committees to include representation of the directors not
employed in any capacity by the Bank other than as a director.
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ALLOWANCE FOR LOAN AND LEASE LOSSES
AND
AMENDED CALL REPORTS
--------------------
3. (a) Within 30 days after the effective date of this ORDER, the
Bank shall make provisions to its Allowance for Loan and Lease Losses ("ALLL")
in the amount of at least $1,624,000. The allowance should be funded by charges
to current operating income, and should be calculated in accordance with
generally accepted accounting standards and ALLL supervisory guidance. After the
initial provision is made, the Bank shall thereafter maintain a reasonable ALLL.
Prior to the end of each calendar quarter, the Bank's Board shall review the
adequacy of the Bank's ALLL. Such reviews shall include, at a minimum, the
Bank's loan loss experience, an estimate of potential loss exposure in the
portfolio, trends of delinquent and non-accrual loans and prevailing and
prospective economic conditions. The minutes of the Bank's Board meetings at
which such reviews are undertaken shall include complete details of the reviews
and the resulting recommended increases in the ALLL.
(b) Within 30 days after the effective date of this ORDER, the Bank
shall review Consolidated Reports of Condition and Income filed with the FDIC on
or after September 30, 2009, and amend said reports to accurately reflect the
financial condition of the Bank as of the date of each such report. In
particular, such reports shall contain a reasonable ALLL. Reports filed after
the effective date of this ORDER shall also accurately reflect the financial
condition of the Bank as of the reporting date.
BUDGET AND PROFIT PLAN
----------------------
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4. (a) Within 60 days after the effective date of this ORDER, the
Bank shall formulate and submit to the Regional Director and the Commissioner
for review and comment a written profit plan and a realistic, comprehensive
budget for all categories of income and expense for calendar year 2010. The plan
required by this paragraph shall contain formal goals and strategies, be
consistent with sound banking practices, reduce discretionary expenses, improve
the Bank's overall earnings and net interest income, and shall contain a
description of the operating assumptions that form the basis for major projected
income and expense components.
(b) The written profit plan shall address, at a minimum:
(1) An analysis of the Bank's pricing structure; and
(2) A recommendation for reducing the Bank's cost of funds.
(c) Within 30 days after the end of each calendar quarter following
completion of the profit plan and budget required by this paragraph, the Bank's
Board shall evaluate the Bank's actual performance in relation to the written
profit plan and budget, record the results of the evaluation, and note any
actions taken by the Bank in the minutes of the Board meeting when such
evaluation is undertaken.
(d) A written profit plan and budget shall be prepared for each
calendar year for which this ORDER is in effect and shall be submitted to the
Regional Director and the Commissioner for review and comment within 30 days
after the end of each year. Within 30 days after receipt of all such comments
from the Regional Director and the Commissioner and after adoption of any
recommended changes, the Bank shall approve the written profit plan and budget,
which approval shall be recorded in the minutes of the Board meeting.
Thereafter, the Bank shall implement and follow the plan.
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STRATEGIC PLAN
--------------
5. (a) Within 60 days after the effective date of this ORDER, the
Bank shall prepare and adopt a comprehensive strategic plan. The strategic plan
required by this paragraph shall contain an assessment of the Bank's current
financial condition and market area, and a description of the operating
assumptions that form the basis for major projected income and expense
components.
(b) The written strategic plan shall address, at a minimum:
(1) Strategies for pricing policies and asset/liability
management;
(2) Plans for sustaining adequate liquidity, including
back-up lines of credit to meet any unanticipated deposit
withdrawals;
(3) Goals for reducing problem loans;
(4) Plans for attracting and retaining qualified
individuals to fill vacancies in the lending and accounting
functions;
(5) Financial goals, including pro forma statements for
asset growth, capital adequacy, and earnings;
(6) Formulation of a mission statement and the development
of a strategy to carry out that mission.
(c) The Bank shall submit the strategic plan to the Regional Director
and the Commissioner for review and comment. After consideration all such
comments, the Bank shall approve the plan, which approval shall be recorded in
the minutes of the Bank's Board meeting. Thereafter, the Bank shall implement
and follow the strategic plan.
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(d) Within 30 days after the end of each calendar quarter following the
Board approval of this plan, the Bank's Board shall evaluate the Bank's
performance in relation to the strategic plan required by this paragraph and
record the results of the evaluation, and any actions taken by the Bank, in the
minutes of the Bank's Board meeting at which such evaluation is undertaken.
(e) The strategic plan required by this ORDER shall be revised and
submitted to the Regional Director and the Commissioner for review and comment
30 days after the end of each calendar year for which this ORDER is in effect.
Within 30 days after receipt of all such comments from the Regional Director and
the Commissioner and after consideration of all such comments, the Bank shall
approve the revised plan, which approval shall be recorded in the minutes of the
Bank's Board meeting. Thereafter, the Bank shall implement the revised plan.
DIVIDEND RESTRICTION
--------------------
6. (a) As of the effective date of this ORDER, the Bank shall
not declare or pay any cash dividend without the prior written consent of the
Regional Director and the Commissioner.
CAPITAL PLAN
------------
7. (a) Within 60 days after the effective date of this ORDER, the Bank
shall submit a written capital plan to the Regional Director and the
Commissioner to increase its Tier 1 Capital by no less than eight percent of the
Bank's Average Total Assets. The capital plan shall also require the Bank, after
establishing an Allowance for Loan and Lease Losses, to achieve and maintain its
Tier 1 Leverage Capital ratio equal to or greater than eight percent of the
Bank's Average Total Assets; to achieve and maintain its Tier 1 Risk-Based
Capital ratio equal to or greater than ten percent of the Bank's Total
Risk-Weighted Assets; and to achieve and maintain its Total Risk-Based Capital
ratio equal to or greater than twelve percent of the Bank's Total Risk Weighted
Assets.
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(b) Such capital plan shall detail the steps that the Bank shall take
to achieve and maintain the capital requirements set forth in paragraph 7(a)
above. In developing the capital plan, the Bank must take into consideration:
(1) The volume of the Bank's adversely classified assets;
(2) The nature and level of the Bank's asset concentration;
(3) The adequacy of the Bank's ALLL;
(4) The anticipated level of retained earnings;
(5) Anticipated and contingent liquidity needs; and
(6) The source and timing of additional funds to fulfill
future capital needs.
In addition, the capital plan must include a contingency plan in the event that
the Bank has: (1) failed to maintain the minimum capital ratios required by
paragraph 7(a); (2) failed to submit an acceptable capital plan as required by
this subparagraph; or (3) failed to implement or adhere to a capital plan to
which the Regional Director and the Commissioner have taken no written objection
pursuant to this subparagraph. Said contingency plan shall include a plan to
sell or merge the Bank. The Bank shall implement the contingency plan upon
written notice from the Regional Director and the Commissioner.
(c) After the Regional Director and the Commissioner respond to the capital
plan, the Bank's Board shall adopt the capital plan, including any modifications
or amendments requested by the Regional Director and the Commissioner.
Thereafter, the Bank shall immediately initiate measures detailed in the capital
plan, to the extent such measures have not previously been initiated, to effect
compliance with the plan within 30 days after the Regional Director and the
Commissioner respond to the capital plan.
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(d) Such increase in Tier 1 Capital and any increase in Tier 1 Capital
necessary to meet the capital ratios required by this ORDER may be accomplished
by:
(1) The sale of securities in the form of common stock; or
(2) The direct contribution of cash subsequent to October
8, 2009, by the directors and/or shareholders of the Bank or
by the Bank's holding company; or
(3) Receipt of an income tax refund or the capitalization
subsequent to October 8, 2009, of a bona fide tax refund
certified as being accurate by a certified public accounting
firm; or
(4) Any other method approved by the Regional Director and
the Commissioner.
(e) If any such capital ratios are less than required by the ORDER, as
determined as of the date of any Report of Condition and Income or at an
examination by the FDIC or the State, the Bank shall, within 30 days after
receipt of a written notice of the capital deficiency from the Regional Director
or the Commissioner, present to the Regional Director and the Commissioner a new
capital plan to increase the Bank's Tier 1 Capital of the Bank or to take such
other measures to bring all the capital ratios to the percentages required by
this ORDER. After the Regional Director and the Commissioner respond to the new
capital plan, the Bank's Board shall adopt the new capital plan, including any
modifications or amendments requested by the Regional Director and the
Commissioner.
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(f) Thereafter, the Bank shall immediately initiate measures detailed in
the plan, to the extent such measures have not previously been initiated, to
increase its Tier 1 Capital by an amount sufficient to bring all the Bank's
capital ratios to the percentages required by this ORDER within 30 days after
the Regional Director and the Commissioner respond to the new capital plan.
(g) If all or part of the increase in Tier 1 Capital required by this
ORDER is to be accomplished by the sale of new securities, the Bank's Board
shall adopt and implement a plan for the sale of such additional securities,
including soliciting proxies and the voting of any shares or proxies owned or
controlled by them in favor of the plan. Should the implementation of the plan
involve a public distribution of the Bank's 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 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, Accounting and Securities Disclosure Section,
550 17th Street N.W., Washington, D.C. 20429, for review. Any changes requested
to be made in the plan or the materials by the FDIC shall be made prior to their
dissemination. If the increase in Tier 1 Capital is to be provided by the sale
of non-cumulative perpetual preferred stock, then all terms and conditions of
the issue shall be presented to the Regional Director and the Commissioner for
prior approval.
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(h) In complying with the provisions of this ORDER and until such time
as any such public offering is terminated, the Bank shall provide to any
subscriber and/or purchaser of the Bank's securities written notice of any
planned or existing development or other change which is materially different
from the information reflected in any offering materials used in connection with
the sale of the Bank securities. The written notice required by this paragraph
shall be furnished within 10 days after the date such material development or
change was planned or occurred, whichever is earlier, and shall be furnished to
every purchaser and/or subscriber who received or was tendered the information
contained in the Bank's original offering materials.
(i) In addition, the Bank shall comply with the FDIC's Statement of
Policy on Risk-Based Capital found in Appendix A to Part 325 of the FDIC Rules
and Regulations, 12 C.F.R. Part 325, App. A.
(j) For purposes of this ORDER, all terms relating to capital shall be
calculated according to the methodology set forth in Part 325 of the FDIC's
Rules and Regulations, 12 C.F.R. Part 325.
RESTRICTION ON ADVANCES TO CLASSIFIED BORROWERS
-----------------------------------------------
8. (a) While this ORDER is in effect, the Bank shall not extend, directly
or indirectly, any additional credit to or for the benefit of any borrower whose
existing credit has been classified Loss either in whole or in part by the FDIC
or the State and is uncollected, or to any borrower who is already obligated in
any manner to the Bank on any extension of credit, including any portion
thereof, that has been charged off the books of the Bank and remains
uncollected. The requirements of this paragraph shall not prohibit the Bank from
renewing credit already extended to a borrower after full collection, in cash,
of interest due from the borrower.
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(b) While this ORDER is in effect, the Bank shall not extend, directly
or indirectly, any additional credit to or for the benefit of any borrower whose
extension of credit is classified Doubtful and/or Substandard either in whole or
in part by the FDIC or the State and is uncollected, unless the Bank's Board has
signed a detailed written statement giving reasons why failure to extend such
credit would be detrimental to the best interests of the Bank. The statement
shall be placed in the appropriate loan file and included in the minutes of the
applicable Bank Board meeting.
CLASSIFIED ASSETS - CHARGE-OFF AND PLAN FOR REDUCTION
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9. (a) Within 30 days after the effective date of this ORDER, the
Bank shall, to the extent that it has not previously done so, eliminate from its
books, by charge-off or collection, all assets or portions of assets classified
Loss by the FDIC or the State as a result of its examination of the Bank as of
October 8, 2009. Elimination or reduction of these assets through proceeds of
loans made by the Bank shall not be considered "collection" for the purpose of
this paragraph.
(b) Within 60 days after the effective date of this ORDER, the Bank
shall submit a written plan to the Regional Director and the Commissioner to
reduce the remaining assets classified Doubtful and Substandard as of October 8,
2009. The plan shall address each asset so classified with a balance of $300,000
or greater and provide the following:
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(1) The name under which the asset is carried on the books of
the Bank;
(2) Type of asset;
(3) Actions to be taken in order to reduce the classified asset;
and
(4) Timeframes for accomplishing the proposed actions.
The plan shall also include, at a minimum:
(1) Review the financial position of each such borrower,
including the source of repayment, repayment ability, and
alternate repayment sources; and
(2) Evaluate the available collateral for each such credit,
including possible actions to improve the Bank's collateral
position.
In addition, the Bank's plan shall contain a schedule detailing the
projected reduction of total classified assets on a quarterly basis. Further,
the plan shall contain a provision requiring the submission of monthly progress
reports to the Bank's Board and a provision mandating a review by the Bank's
Board.
(c) The Bank shall present the plan to the Regional Director and the
Commissioner for review. Within 30 days after the Regional Director's and the
Commissioner's response, the plan, including any requested modifications or
amendments shall be adopted by the Bank's Board which approval shall be recorded
in the minutes of the meeting of the Bank's Board. The Bank shall then
immediately initiate measures detailed in the plan to the extent such measures
have not been initiated.
(d) For purposes of the plan, the reduction of adversely classified assets
as of October 8, 2009, shall be detailed using quarterly targets expressed as a
percentage of the Bank's Tier 1 Capital plus the Bank's Allowance for Loan and
Lease Losses and may be accomplished by:
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(1) Charge-off;
(2) Collection;
(3) Sufficient improvement in the quality of adversely
classified assets so as to warrant removing any adverse
classification, as determined by the FDIC or the State;
or
(4) Increase in the Bank's Tier 1 Capital.
(e) While this ORDER is in effect, the Bank shall eliminate from its
books, by charge-off or collection, all assets or portions of assets classified
Loss as determined at any future examination conducted by the FDIC or the State.
LENDING POLICIES
----------------
10. Within 60 days after the effective date of this ORDER, the Bank
shall ensure policies are enhanced and procedures are implemented to correct
credit underwriting and loan administration deficiencies disclosed in the
October 8, 2009, Report of Examination, including the Bank's Asset-Based and
Commercial Real Estate ("CRE") lending strategy, policies and procedures. They
shall include:
(a) Guidance consistent with the December 6, 2006, Financial
Institution Letter pertaining to Concentrations in Commercial Real Estate
Lending, Sound Risk Management Practices including, at a minimum, the following:
(1) Limits for total exposure in relation to total
loans, total risk-based capital and by loan type,
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(2) Reporting requirements,
(3) Risk mitigation strategies,
(4) Guidelines for reevaluation of real estate
collateral, and
(5) Sensitivity analysis of individual CRE loans and
CRE portfolio.
(b) Guidance addressing Asset-Based lending that includes, at a minimum,
the following:
(1) The requirement of personal guarantees,
(2) Lender liability issues,
(3) Guidelines for qualified customers,
(4) Advance rates are justified by the value and
marketability of underlying collateral,
(5) The requirement of an asset-based loan agreement that
sets forth conditions governing the handling of the relationship
and the remedies available in the event of default. The loan
agreement should address the following areas:
(A) Eligible accounts receivable,
(B) Delinquent accounts,
(C) Contra accounts,
(D) Affiliate accounts,
(E) Concentration accounts,
(F) Bill-and-hold sales,
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(G) Progress billings,
(H) Receivables subject to a purchase-money
interest,
(I) Percentage advanced against or acceptable
accounts receivable,
(J) Percentage advanced against eligible
inventory,
(K) Audits, and
(L) Confirmations.
(6) Periodic on-site audits of borrowers that include the following in the
analysis as appropriate:
(A) Shipping documents,
(B) Inventory invoices,
(C) Turnover of account receivables and account
payables,
(D) Direct verification of account receivables
and account payables,
(E) Concentrations of customers' account
receivables (Poor credit quality in a
concentration may warrant lower advance rates.)
(F) Sales dilution resulting from merchandise
returns, bad debt allowances or uncollectible
receivables,
(G) Borrower's credit and collection procedures,
(H) Ineligible affiliate and inter-company
receivables,
(I) Other possibly ineligible account receivables
such as:
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(1) Restarts (new account receivable issued
by borrower to replace an account receivable
that is over 90 days effectively "restarts"
the invoice),
(2) Service (lawyers, repair work, etc. are
sometimes excluded,
(3) Foreign (sometimes excluded because of
perfection difficulties outside the United
States), and
(4) Chronic delinquents.
(J) Aging of account receivables and account
payables,
(K) Inventory make up such as:
(1) Shelf Life,
(2) Obsolescence,
(3) High tech, and
(4) Work in Process (exclude from borrowing
base).
(L) Machinery and equipment listing. (Specialty
equipment is typically excluded as eligible
collateral),
(M) Operational risk of the borrower.
(7) Borrowing base is adequately monitored,
(8) When a credit approval presentation is required and what it should
contain,
(9) Controls over disbursements, and
(10) Controls over borrower operating accounts.
(c) Underwriting standards including;
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(1) Loan terms,
(2) Pricing structures,
(3) Obtaining, validating, and updating
appraisals and evaluations, when warranted;
(4) Collateral valuation and appraisal review,
(5) LTV limits,
(6) Requirement for feasibility studies,
sensitivity analyses and/or stress testing,
(7) Minimum requirements for initial investment
and maintenance of hard equity by the borrower,
(8) Minimum standards for borrower net worth,
property cash flow, and debt service coverage for
the property, and
(9) Ensuring compliance with the Interagency
Policy Statement on the Allowance for Loan and
Lease Losses, specifically relating to testing
large impaired loans according to Financial
Accounting Standard 114.
(d) Loan administration standards including;
(1) Loan disbursement procedures,
(2) Inspection processes,
(3) Documentation on construction progress,
(4) Tracking pre-sold units,
(5) Exception monitoring and reporting,
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(6) Ongoing monitoring of borrower property cash
flow and debt service coverage for the property,
and
(7) Regular credit reviews to assess credit
quality.
(e) Perform portfolio-level stress tests or sensitivity analysis to
quantify the impact of changing economic conditions on asset quality, earnings,
and capital
(f) Procedures to monitor economic conditions and real estate values in the
Bank's larger geographic trade areas,
(g) Procedures to identify, track, and report exceptions to the loan policy
and to establish procedures for approval of loans granted in exception to the
loan policy,
(1) Controls to ensure adherence to and monitor
compliance with the policies and strategies. The
Bank's Board will approve all policy deviations,
with a record of this approval noted in the Board
minutes; and
(2) Provisions for the submission of monthly
progress reports to the Board for review and
notation in the minutes.
The adequacy of the policy will be reviewed at future examinations or
visitations of the Bank.
SPECIAL MENTION AND TECHNICAL EXCEPTIONS
----------------------------------------
11. (a) Within 60 days after the effective date of this ORDER, the
Bank shall correct all deficiencies in the loans listed for Special Mention in
the Report of Examination as of October 8, 2009.
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(b) Within 60 days after the effective date of this ORDER, the Bank
shall correct the technical exceptions listed in the Report of Examination as of
October 8, 2009
(c) Within 90 days after the effective date of this ORDER, the Bank
shall implement a system of monitoring loan documentation exceptions on an
ongoing basis and implement procedures designed to reduce the occurrence of such
exceptions in the future.
REDUCTION OF DELINQUENCIES
--------------------------
12. (a) Within 60 days after the effective date of this ORDER, the
Bank shall formulate and submit to the Regional Director and the Commissioner
for review and comment a written plan for the reduction and collection of
delinquent loans. Such plan shall include, but not be limited to, provisions
which:
(1) Prohibit the extension of credit for the
payment of interest;
(2) Delineate areas of responsibility for
implementing and monitoring the Bank's collection
policies;
(3) Establish specific collection procedures to
be instituted at various stages of a borrower's
delinquency;
(4) Establish dollar levels to which the Bank
shall reduce delinquencies per calendar quarter;
and
(5) Provide for the submission of monthly written
progress reports to the Bank's Board for review
and notation in minutes of the meetings of the
Bank's Board.
(b) For purposes of the plan, "reduce" means to:
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(1) Charge-off; or
(2) Collect.
(c) After the Regional Director and the Commissioner have responded to
the plan, the Bank's Board shall adopt the plan as amended or modified by the
Regional Director and the Commissioner. The plan will be implemented immediately
to the extent that the provisions of the plan are not already in effect at the
Bank.
LOAN COMMITTEE AND LOAN REVIEW REQUIREMENTS
-------------------------------------------
13. (a) Within 30 days after the effective date of this ORDER, the
Bank's Board shall establish a loan review committee to periodically review the
Bank's loan portfolio and identify and categorize problem credits. The committee
shall file a report with the Bank's Board at each Board meeting. This report
shall include the following information:
(1) The overall quality of the loan portfolio;
(2) The identification, by type and amount, of each
problem or delinquent loan;
(3) The identification of all loans not in conformance
with the Bank's lending policy; and
(4) The identification of all loans to officers,
directors, principal shareholders or their related
interests.
(b) At least a majority of the members of the loan review committee
shall be directors not employed in any capacity by the Bank other than as a
director.
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APPRAISAL/EVALUATION POLICY
---------------------------
14. Within 90 days after the effective date of this ORDER, the
Bank's Board shall establish and enforce an appraisal review policy. The policy
shall provide a process for identifying appraisals containing weaknesses that
bring the appraised value into question. The policy shall provide guidance
pertaining to evaluation/appraisal procedures as set forth in the Interagency
Appraisal and Evaluation Guidelines dated October 27, 1994.
CORRECTION OF VIOLATIONS AND CONTRAVENTIONS OF POLICY
-----------------------------------------------------
15. (a) Within 60 days after the effective date of this ORDER,
the Bank shall eliminate and/or correct all violations of law and regulation
noted in the October 8, 2009, Report of Examination.
(b) Within 60 days after the effective date of this ORDER, the Bank shall
implement procedures to ensure future compliance with all applicable laws and
regulations.
(c) Within 60 days after the effective date of this ORDER, the Bank
shall address any contraventions of policy noted in the October 8, 2009, Report
of Examination.
LIQUIDITY/ASSET/LIABILITY MANAGEMENT
------------------------------------
16. (a) Within 90 days after the effective date of this ORDER, the Bank
shall develop and submit to the Regional Director and the Commissioner for
review and comment a written plan addressing liquidity, the Bank's relationship
of volatile liabilities to temporary investments, rate sensitivity objectives,
and asset/liability management. Annually thereafter, while this ORDER is in
effect, the Bank shall review this plan for adequacy and, based upon such
review, shall make necessary revisions to the plan to strengthen funds
management procedures and maintain adequate provisions to meet the Bank's
liquidity needs. The initial plan shall include, at a minimum, provisions:
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(1) Establishing limitations on the total loan to total
deposits ratio. The requirements of this paragraph shall not
be construed as standards for future operations, and the
Bank's total loan to total deposits ratio shall be monitored
on a monthly basis and maintained at a level consistent with
safe and sound banking practices;
(2) Establishing a reasonable range for its net non-core
funding ratio as computed in the Uniform Bank Performance
Report;
(3) Identifying the source and use of borrowed and/or
volatile funds;
(4) Establishing lines of credit at correspondent banks,
including the Federal Reserve Bank or the Federal Home Loan
Bank Board, that would allow the Bank to borrow funds to
meet depositor demands if the Bank's other provisions for
liquidity proved to be inadequate;
(5) Requiring the retention of securities and/or other
identified categories of investments that can be liquidated
within one day in amounts sufficient to ensure the
maintenance of the Bank's liquidity posture at a level
consistent with short- and long-term liquidity objectives;
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(6) Establishing a minimum liquidity ratio and defining how
the ratio is to be calculated;
(7) Establishing contingency plans by identifying
alternative courses of action designed to meet the Bank's
liquidity needs;
(8) Addressing the use of borrowings (i.e., seasonal credit
needs, match funding mortgage loans, etc.) and providing for
reasonable maturities commensurate with the use of the
borrowed funds; addressing concentration of funding sources;
and addressing pricing and collateral requirements with
specific allowable funding channels (i.e., brokered
deposits, internet deposits, Fed funds purchased and other
correspondent borrowings); and
(9) Establishing procedures for managing the Bank's
sensitivity to interest rate risk, which comply with the
Joint Agency Statement of Policy on Interest Rate Risk (June
26, 1996), and the Supervisory Policy Statement on
Investment Securities and End-user Derivative Activities
(April 23, 1998).
(b) Within 30 days after the receipt of all such comments from the
Regional Director and the Commissioner, and after revising the plan as
necessary, the Bank shall adopt the plan, which adoption shall be recorded in
the minutes of the Board meeting. Thereafter, the Bank shall implement the plan.
INTEREST RATE RISK
------------------
17. (a) Within 60 days after the effective date of the ORDER, the Bank
shall develop, adopt, and implement an interest rate risk policy and procedures
that shall include, at a minimum:
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(1) Measures designed to control the nature and amount of
interest rate risk the Bank takes including those that
specify risk limits and defines lines of responsibilities
and authority for managing risk;
(2) A system for identifying and measuring interest rate
risk;
(3) A system for monitoring and reporting risk exposures;
and
(4) A system of internal controls, review, and audit to
ensure the integrity of the overall risk management process.
PROGRESS REPORTS
----------------
18. Within 30 days after the end of the first calendar quarter
following the effective date of this ORDER, and within 30 days after the end of
each successive calendar quarter, the Bank shall furnish written progress
reports to the Regional Director and the Commissioner detailing the form and
manner of any actions taken to secure compliance with this ORDER and the results
thereof. Such reports may be discontinued when the corrections required by the
ORDER have been accomplished and the Regional Director has released the Bank in
writing from making additional reports.
SHAREHOLDER NOTIFICATION
------------------------
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19. Within 30 days after the effective date of this ORDER, the Bank
shall send a copy of this ORDER, or otherwise furnish a description of this
ORDER, to its shareholders. 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 Accounting and Securities
Disclosure Section, 550 17th Street N.W., Washington, D.C. 20429, for review at
least 20 days prior to dissemination to shareholders. Any changes requested by
the FDIC shall be made prior to dissemination of the description, communication,
notice, or statement.
The provisions of this ORDER shall not bar, stop, or otherwise prevent the
FDIC or any other federal or state agency or department from taking any other
action against the Bank or any of the Bank's current or former
institution-affiliated parties.
This ORDER shall be effective on the date of issuance.
The provisions of this ORDER shall be binding upon the Bank, its
institution-affiliated parties, and any successors and assigns thereof.
The provisions of this ORDER shall remain effective and enforceable except
to the extent that and until such time as any provision has been modified,
terminated, suspended, or set aside by the FDIC and the State.
Issued pursuant to delegated authority 2nd day of April, 2010.
/s/ Kristie K. Elwquist
------------------------
For: Thomas J. Dujenski
Regional Director
Dallas Region
Division of Supervision and
Consumer Protection
Federal Deposit Insurance
Corporation
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