SUPERVISORY AGREEMENT
This Supervisory Agreement (Agreement) is made and is effective this
22nd day of March, 2002 (Effective Date), by and between First Federal of the
South, Sylacauga, Alabama, OTS Docket No. 5329 (First Federal 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 September 26, 2001 Report of
Examination (2001 Examination) and the March 1, 2002 Report of Trust
Examination (2002 Trust Examination) of Pension and Benefits Trust Company
(PBTC), a trust company subsidiary of the Bank, 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 (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, REGULATIONS & SAFE AND SOUND PRACTICES
1. The Bank, its directors, officers, employees, agents, and subordinate
organizations shall take all necessary and appropriate actions to
comply with the following laws, regulations, and safe and sound
business practices:
a. 12 U.S.C. ss. 1468, 12 U.S.C. ss. 371c and 12 U.S.C. ss.
371c-1 (Transactions with Affiliates);
b. 12 C.F.R. ss. 563.41 and 12 C.F.R. ss. 563.42 (Transactions
with Affiliates);
c. 12 U.S.C. ss. 1464(u) (Loans to One Borrower);
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d. 12 C.F.R. ss. 560.93 (Loans to One Borrower);
e. 12 C.F.R. Part 215; (Loans to Executive Officers, Directors and
Shareholders);
f. 12 C.F.R. ss. 563.550, 563.555, and 563.560 (Notice of Change of Director
or Senior Executive Officer); and
g. 12 C.F.R. ss. 560.170 (Records for Lending Transactions).
BOARD OF DIRECTORS, MANAGEMENT AND OVERSIGHT
2. Within 60 days after the Effective Date of this Agreement, the Board shall
develop, adopt, and implement specific corrective actions for the following
areas of the Matters Requiring Board or Management Attention section of the
2002 Trust Examination Report: Management; Operations, Internal Controls,
Information Technology and Auditing; Earnings; and Compliance. A copy of the
corrective actions required by this paragraph shall be submitted to the
Regional Director within 30 days after the date of adoption by the Board.
3. Within 60 days after the Effective Date of this Agreement, the Board shall
review its existing organizational structure and develop, adopt, and
implement policies and procedures establishing clear lines of authority,
responsibility and reporting. The Board shall ensure that the authority,
responsibilities and reporting requirements of each position are clearly
defined and communicated to each person. The Board shall ensure the
coordination and oversight of all activities and operations of the Bank,
including the activities and operations of PBTC, and shall establish a
strategic plan with specific goals and objectives for the activities and
operations of PBTC. A copy of the policies and procedures required by this
paragraph shall be submitted to the Regional Director within 30 days after
adoption by the Board.
4. Within 60 days after the Effective Date of this Agreement, the Board shall
develop, adopt, and implement, a compliance program to ensure that PBTC
complies with the laws and regulations applicable to and governing the
retirement services industry and the operations of PBTC. Such program shall
include specific procedures for identifying and addressing conflicts of
interest by this paragraph shall be submitted to the Regional Director
within 30 days after adoption by the Board.
5. Within 60 days after the Effective Date of this Agreement, the Board shall
develop, adopt, and implement, policies and procedures requiring Management
to produce a large items report for all deposit account activity. Such
policies and procedures shall define the amount
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that will subject an item to inclusion on the report. Management shall
review the large items report daily. The Board shall require any unusual or
suspicious account activities to be investigated immediately and
appropriate action(s) taken to safeguard the Bank's interests. The Board's
shall review the large items report and any actions taken by Management on
a monthly basis. The Board's review of shall be fully documented in the
minutes of the meetings of the Board. A copy of the policies and procedures
required by this paragraph shall be submitted to the Regional Director
within 30 days after adoption by the Board.
6. Prior to the beginning any new lending activities or increasing the amounts
of existing lending activities, the Board shall ensure that appropriate
policies and procedures have been developed, adopted and implemented to
govern such lending activities. The lending policies and procedures
required by this paragraph 6 shall ensure that the Bank's lending
activities comply with existing laws and regulations and are consistent
with OTS guidance.
7. Within 60 days after the Effective Date of this Agreement, the Board shall
develop, adopt, and implement an appropriate risk identification and
management system for PBTC consistent with the guidance contained in
Sections 030 and 220 of the OTS Trust and Asset Management Handbook (OTS
Trust Handbook).
INTERNAL AUDIT AND CONTROL
8. Within 60 days after the Effective Date of this Agreement, the Board shall
develop, adopt, and implement, an ongoing internal audit and controls
program for the Bank and PBTC that is consistent with the guidelines
contained in Sections 340 and 355 of the Thrift Activities Handbook and
Section 410 of the OTS Trust Handbook. The program for PBTC should
specifically address the major fiduciary risks impacting PBTC and the
internal controls and internal control structure of PBTC. The program shall
require the preparation of regular internal audit reports and reports on
internal controls reviews to the Board. The Board shall review such reports
and adopt specific corrective actions as are necessary and appropriate. The
Board's review and the corrective actions adopted shall be documented in
the minutes of the Board's meeting. A copy of the program required by this
paragraph shall be submitted to the Regional Director within 30 days after
adoption by the Board.
ASSET QUALITY
9. Within 60 days after the Effective Date of this Agreement, the Board shall
establish written policies and procedures requiring basic credit analyses
to be performed on all borrowers prior to the making of any loan or
extension of credit. Copies of the analyses and all other related and
necessary documentation satisfying the requirements of 12 C.F.R. ss.
560.170 shall be maintained in the Bank's loan files. A copy of the
policies and procedures required by this paragraph shall be submitted to
the Regional Director within 30 days after adoption
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by the Board. The expanded lending authority granted by the OTS on July 26,
1994, is hereby revoked.
10. Within 60 days after the Effective Date of this Agreement, the Board shall
require management to perform a review of all existing major loan
relationships where the total exposure to the borrower exceeds the greater
of $500,000 or 5% of the Bank's core capital, including any loan
relationships established pursuant to the expanded lending authority
granted by the OTS in 1994. Reviews shall be performed on a quarterly basis
for all loan relationships that meet the requirements of this paragraph,
including all new loan relationships that meet the requirements of this
paragraph and were established after the Effective Date of this Agreement.
Reviews of both existing and future loan relationships should ensure that
current financial information has been obtained and that the borrowers are
performing and in compliance with any established requirements or
covenants. Documentation of the reviews required by this paragraph shall be
maintained in the Bank's loan files and reports detailing the reviews shall
be presented to the Board Quarterly.
11. Within 60 days after the Effective Date of this Agreement, the Board shall
review the Bank's construction and speculative construction loan portfolios
and establish limits on such loans in compliance with 12 C.F.R. ss.
560.101. Limits shall be established as follows: (i) by borrower, (ii) by
loan type (speculative versus pre-sold), (iii) by subdivision or
development, (iv) by borrower for each subdivision or development, and (v)
by metropolitan area. The Board shall require Management to prepare reports
to the Board documenting compliance with the limits established pursuant to
this paragraph.
LOANS TO ONE BORROWER
12. First Federal shall comply with the lending limitations and restrictions
applicable to loans to one borrower (LTOB). Within 60 days after the
Effective Date of this Agreement, the Board shall develop, adopt and
implement such policies and procedures as necessary to ensure that the Bank
complies with its LTOB limits. These policies and procedures shall require
certifications to be obtained from all borrowers to whom loans are made in
an amount more than the greater of $500,000 or 5% of the Institution's
capital and surplus, identifying the persons, entities and interests of
such borrower. A copy of the policies and procedures required by this
paragraph shall be submitted to the Regional Director within 30 days after
their adoption by the Board.
TRANSACTIONS WITH AFFILIATES AND INSIDERS
13. The Board shall ensure that all loans to Affiliate fully comply with 12
C.F.R. ss. 563.41 and 563.42. The Board also shall ensure that all loans to
directors, officers, principal shareholders and their related interests
(collectively, Insiders) fully comply with Regulation O, 12 C.F.R. Part
215, and 12 C.F.R. 563.43. Within 60 days after the Effective Date of this
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Agreement, the Bank shall develop, adopt and implement specific policies
and procedures governing the payment of overdrafts by Insiders to ensure
compliance with the requirements of Regulation O. The Bank shall maintain
documentation sufficient to evidence that all loans to Affiliates and
Insiders were made in compliance with applicable statutory and regulatory
requirements. The Board shall require Management to prepare a report
indicating all overdrafts by Insiders. The Board shall review the Insider
overdraft report monthly and review shall be documented in the minutes of
the Board's meeting. A copy of the policies and procedures required by
this paragraph shall be submitted to the Regional Director within 30 days
after their adoption by the Board.
DIRECTOR RESPONSIBILITY
14. 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
15. All policies, procedures, corrective actions, plans, programs, reviews and
systems required by Paragraphs 2-5 and 7-13 of this Agreement
(collectively, Policies and Procedures) shall conform to all applicable
statutes, regulations, OTS policy and guidance. The Board shall make all
changes to Policies and Procedures required by the Regional Director
within 10 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 deviation from such Policies and Procedures shall be a
violation of this Agreement.
16. The Board and officers 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.
17. The Board, on a quarterly basis, shall adopt a board resolution (the
Compliance Resolution) formally resolving that, following a diligent
inquiry of relevant information (including reports of management), 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: (i) specify in detail how, if at all, full compliance was found not
to exist, and (ii) identify all notices of exemption or non-objection
issued by the Regional Director that were outstanding as of the date of
its adoption.
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18. The minutes of the meeting of the Board shall set forth the following
information with respect to the adoption of each Compliance Resolution;
(i) the identity of each director voting in favor of tis adoption, and
(ii) 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.
19. Within 30 calendar days after the end of each calendar quarter, beginning
with the end of the first calendar quarter following the Effective Date of
this Agreement, the Bank shall provide to the Regional Director a
certified true copy of the Compliance Resolution[s] adopted at the Board
Meeting. The Board, by virtue of the Bank's submission of a certified true
copy of such Compliance Resolution to the Regional Director, shall be
deemed to have certified to the accuracy of the statements set forth in
each Compliance Resolution, except that in the event that one or more
directors do not agree with the representations set forth in a Compliance
Resolution, such disagreement shall be noted in the minutes of the Bank.
20. The Board shall promptly respond to any request from the OTS for documents
to demonstrate compliance with this Agreement.
DEFINITIONS
21. 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 meanings as defined in Chapter V of
Title 12 of the CODE OF FEDERAL REGULATIONS, HOLA, FDIA or OTS Memoranda.
Any such technical words or terms used in this Directive and undefined in
said CODE OF FEDERAL REGULATIONS, HOLA, FDIA, or OTS Memorandum shall have
meanings that are in accordance with the best custom and usage in the
savings and loan industry.
SUCCESSOR STATUTES, REGULATIONS, GUIDANCE, AMENDMENTS
22. Reference in this Agreement to provisions of statutes, regulations, and
OTS 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
23. 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
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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, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇, 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.
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 ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇., ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, or telecopied to
(▇▇▇) ▇▇▇-▇▇▇▇ 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
24. This Agreement shall: (i) become effective upon its execution by the
OTS, through its authorized representative whose signature appears
below, and (ii) 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):
25. The Regional Director in his sole discretion, may, by written notice,
suspend any or all provisions of this Agreement.
TIME LIMITS
26. Time limitations for compliance with the terms of this Agreement run
from the Effective Date, unless otherwise noted.
EFFECT OF HEADINGS
27. The Section headings herein are for convenience only and shall not
affect the construction hereof.
SEPARABILITY CLAUSE
28. 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.
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NO VIOLATIONS OF LAW, RULE, REGULATION OR POLICY STATEMENT AUTHORIZED; OTS NOT
RESTRICTED
29. Nothing in this Agreement shall be construed as: (i) allowing the Bank
to violate any law, rule, regulation, or policy statement to which it
is subject, or (ii) 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
30. 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
31. Each Director signing the 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
32. This Agreement 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 in Paragraph 14 above, 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.
ENFORCEABILITY OF AGREEMENT
33. 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.
Section 1818.
COUNTERPARTS
34. 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 an 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.
OFFICE OF THRIFT SUPERVISION THE BANK
By: By:
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▇▇▇▇ ▇. ▇▇▇▇ Name: ▇▇▇ ▇▇▇▇▇▇▇▇
Regional Director Chief Executive Officer
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Director
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Director
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Director
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Director
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Director
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Director