AGREEMENT BY AND BETWEEN The Conway National Bank Conway, South Carolina and The Comptroller of the Currency
AGREEMENT BY AND BETWEEN
The ▇▇▇▇▇▇ National Bank
Conway, South Carolina
and
The Comptroller of the Currency
The
▇▇▇▇▇▇ National Bank, Conway, 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 ("▇▇▇") for the examination that
commenced on July 26, 2010. The Comptroller has found unsafe and unsound
banking practices relating to credit administration and risk management systems
at the Bank.
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. § 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.
§ 1818(e)(1) and 12 U.S.C. § 1818(i)(2).
(3) This
Agreement shall be construed to be a "formal written agreement" within the
meaning of 12 C.F.R. § 5.51(c)(6)(ii). See 12 U.S.C.
§ 1831i.
(4) This
Agreement shall be construed to be a "written agreement" within the meaning of
12 U.S.C. § 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:
▇▇▇▇
▇. ▇▇▇▇▇
Assistant
Deputy Comptroller
Carolinas
Field ▇▇▇▇▇▇
▇▇▇
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
ARTICLE II
COMPLIANCE COMMITTEE
(1) Within
thirty (30) 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. § 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 quarterly thereafter, the
Compliance Committee shall submit a written progress report to the Board
setting forth in detail:
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(a) |
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 |
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(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
BOARD OVERSIGHT
(1) Within one hundred twenty (120) days, the Compliance Committee shall complete a review of Board supervision presently being provided to the Bank to ensure that the Bank has competent and effective Board and management to carry out the Board's policies, to operate the Bank in a safe and sound manner, and ensure compliance with this Agreement, applicable laws, rules and regulations. The findings and recommendations of the Compliance Committee shall be set forth in a written report to the Board. At a minimum, the report shall consider:
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(a) |
an assessment of the Board committees to ensure members are knowledgeable of areas delegated to the respective committees; |
|
(b) |
an assessment of whether Board members are receiving timely and adequate information on the condition, risks and operations of the Bank to enable them to fulfill their fiduciary responsibilities and other responsibilities under law; |
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(c) |
an assessment of Board processes in place to respond to the findings of control functions, such as internal audit, loan review and compliance, and to determine appropriate corrective actions, assignment of management responsibilities, tracking progress, and enforcing accountability; and |
|
(d) |
recommendations to correct or eliminate any other deficiencies in the supervision or organization structure of the Bank. |
(2) Within
sixty (60) days after completion of the review required by paragraph (1), the
Board shall develop, adopt and thereafter ensure Bank implementation and
adherence to a written plan, with specific time frames, that will correct any
deficiencies identified above.
(3) Copies
of the Board's written plan shall be forwarded to the Assistant Deputy
Comptroller. The Assistant Deputy Comptroller shall retain the right to
determine the adequacy of the report and its compliance with the terms of this
Agreement. In the event the written plan, or any portion thereof, is not
implemented, the Board shall promptly advise the Assistant Deputy Comptroller,
in writing, of specific reasons for deviating from the plan.
ARTICLE
IV
STRATEGIC PLAN
(1) Within
sixty (60) days, the Board shall review and revise as necessary, and thereafter
ensure Bank adherence to its 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 adequacy,
reduction in the volume of nonperforming assets, product line development, and
market segments that the Bank intends to promote or develop, together
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with strategies to achieve those objectives, and shall, at a minimum, include:
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(a) |
a mission statement that forms the framework for the establishment of strategic goals and objectives; |
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(b) |
the strategic goals and objectives to be accomplished; |
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(c) |
specific actions to improve Bank earnings and accomplish the identified strategic goals and objectives; |
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(d) |
identification of Bank personnel to be responsible and accountable for achieving each goal and objective of the Strategic Plan, including specific timeframes; |
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(e) |
a financial forecast, to include projections for major balance sheet and income statement accounts, targeted financial ratios, and growth projections over the period covered by the Strategic Plan; |
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(f) |
a description of the assumptions used to determine financial projections and growth targets; |
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(g) |
a management employment and succession program to promote the retention and continuity of capable management; |
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(h) |
a description of systems to monitor the Bank's progress in meeting the Strategic Plan's goals and objectives. |
(2) At
least quarterly, the Board shall review financial reports and earnings analyses
prepared by the Bank that evaluate the Bank's performance against the goals and
objectives established in the Strategic Plan, as well as the Bank's written
explanation of significant differences between actual and projected balance
sheet, income statement, and expense accounts, including descriptions
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of extraordinary and/or nonrecurring items. The Bank
shall submit a copy of these reports to the Assistant Deputy Comptroller upon
completion.
(3) At
least quarterly, the Board shall prepare a written evaluation of the Bank's
performance against the Strategic Plan, based on the Bank's monthly reports,
analyses, and written explanations of any differences between actual
performance and the Bank's strategic goals and objectives, and shall include a
description of the actions the Board will require the Bank to take to address
any shortcomings, which shall be documented in the Board meeting minutes. The
Board shall submit a copy of the evaluation and Board minutes to the Assistant
Deputy Comptroller.
(4) Prior
to adoption by the Board, a copy of the Strategic Plan, and any subsequent
amendments or revisions, shall be forwarded to the Assistant Deputy Comptroller
for a prior written determination of no supervisory objection. Upon receiving
a written determination of no supervisory objection from the Assistant Deputy
Comptroller, the Board shall adopt and the Bank shall immediately implement and
adhere to the Strategic Plan.
ARTICLE
V
CAPITAL PLAN
(1) Within sixty (60) days, the Board shall review and revise as necessary, and thereafter ensure Bank adherence to its three-year capital program. The program shall include:
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(a) |
specific plans for the maintenance of adequate capital levels in relation to the bank's risk profile; |
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|
(b) |
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; |
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(c) |
projections of the sources and timing of additional capital to meet the Bank's current and future needs; |
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(d) |
identification of the primary source(s) from which the Bank will strengthen its capital structure to meet the Bank's needs; |
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(e) |
contingency plans that identify alternative methods should the primary source(s) under subpart (d) above not be available; |
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(f) |
a dividend policy that permits the declaration of a
dividend only: |
|
(g) |
a periodic review of Board approved capital minimums. Capital minimums should be based on the Board's analysis of the risk profile of the bank, and not regulatory minimums. |
(2) Upon completion, the Bank's capital program shall be submitted to the Assistant Deputy Comptroller for prior 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 capital program. The Board shall review and update the Bank's capital program on an annual basis, or more frequently if necessary. Copies of the reviews and updates shall be submitted to the Assistant Deputy Comptroller.
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ARTICLE
VI
INTERNAL AUDIT
(1) Within sixty (60) days, the Board shall review and revise as necessary, and thereafter ensure Bank adherence to its independent, internal audit program sufficient to:
|
(a) |
detect irregularities and weak practices in the Bank's operations; |
|
(b) |
determine the Bank's level of compliance with all applicable laws, rules and regulations; |
|
(c) |
assess and report the effectiveness of established policies, procedures, controls, and management oversight; |
|
(d) |
adequately cover all areas; and |
|
(e) |
establish an annual audit plan using a risk based approach sufficient to achieve these objectives. |
(2) As
part of this audit program, the Board shall continue to evaluate the audit
reports of any party providing services to the Bank, and shall assess the
impact on the Bank of any audit deficiencies cited in such reports.
(3) The
Board shall ensure that the audit function is supported by an adequately
staffed department or outside firm(s), with respect to both the experience
level and number of the individuals employed.
(4) The
Board shall ensure that immediate actions are undertaken to remedy deficiencies
cited in audit reports,
(5) The
Board shall ensure all deficiencies identified by audit and/or regulatory
agencies are appropriately monitored and reported through a factually accurate
tracking report.
(6) The
Board shall ensure prompt follow-up testing is performed.
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(7) Upon adoption, a copy of the internal audit program shall be promptly submitted to the Assistant Deputy Comptroller.
ARTICLE VII
CREDIT RISK
(1) Within sixty (60) days, the Board shall develop, implement, and thereafter ensure Bank adherence to a written program to reduce the high level of credit risk in the Bank and strengthen credit risk identification practices. The program shall include, but not be limited to:
|
(a) |
an action plan to reduce the high level of credit risk in the Bank; |
|
(b) |
procedures which strengthen management of credit operations and the maintenance of an adequate, qualified staff in all loan functional areas; |
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(c) |
implementation of an effective training program for all lending staff; |
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(d) |
a performance appraisal process, including performance appraisals, job descriptions, and performance incentive programs for loan officers, which adequately consider their performance relative to policy compliance, documentation standards, accuracy in grading, and other loan administration matters. |
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(e) |
credit risk rating definitions consistent with applicable regulatory guidance, including income accrual status; |
|
(f) |
procedures to ensure that extensions of credit are granted, by renewal or otherwise, to any borrower only after obtaining and analyzing current, complete and satisfactory credit information on the borrower and any guarantor; |
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(g) |
procedures to ensure that pre- and post-funding analysis is comprehensive and includes a complete analysis of the primary source of repayment, guarantor support, and collateral value. Analysis must include assessment and verification of contingent liabilities, and liquid assets when consideration is given as part of the loan approval process; |
|
(h) |
procedures to measure the success of workout activities; |
|
(i) |
procedures which strengthen credit underwriting and limit the number of exceptions to prudent underwriting guidelines to an acceptable level of risk; |
|
(j) |
procedures for early problem loan identification; and |
|
(k) |
procedures to ensure accurate and timely risk grades, including loss recognition and identification of nonaccrual loans. |
(2) A
written description of the programs required by paragraph (1) of this Article
shall be forwarded to the Assistant Deputy Comptroller upon implementation
(3) At
least quarterly, the Board shall prepare a written assessment of the Bank's
credit risk, which shall evaluate the Bank's progress under the aforementioned
program. Upon completion, the Board shall submit a copy of this assessment to
the Assistant Deputy Comptroller.
ARTICLE VIII
CRITICIZED ASSETS
(1) The
Bank shall take immediate and continuing action to protect its interest in
those assets criticized in the ▇▇▇, in any subsequent Report of Examination, by
internal or external loan review, in any list provided to management by the
National Bank Examiners
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during any examination or in any report prepared by the bank.
(2) Within
sixty (60) days, the Board shall review and revise as necessary, and thereafter
ensure Bank adherence to its written program designed to eliminate the basis of
criticism of assets criticized in bank reports, the Report of Examination
("▇▇▇"), in any subsequent ▇▇▇, or by any internal or external loan
review, or in any list provided to management by the National Bank Examiners
during any examination rated as "doubtful," "substandard,"
or "special mention." The program shall include the development of
Criticized Asset Reports ("CARs") for all credit relationships totaling, in
aggregate, five hundred thousand dollars ($500,000) or more that are criticized
as "doubtful," "substandard," or "special mention." Each CAR shall cover an
entire credit relationship and include, at a minimum, an analysis and
documentation of the following:
|
(a) |
the origination date and any renewal or extension dates, amount, purpose of the loan or other asset, and the originating and current handling officer(s); |
|
(b) |
the expected primary and secondary sources of repayment, and an analysis of the adequacy of the repayment sources; |
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(c) |
the appraised value of supporting collateral and the position of the Bank's lien on such collateral, where applicable, as well as other necessary documentation to support the current collateral valuation; |
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(d) |
an analysis of current and complete credit information, including global cash flow analysis where loans are to be repaid from operations; |
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(e) |
results of any impairment analysis; |
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(f) |
significant developments, including a discussion of changes since the prior CAR, if any; and |
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(g) |
the proposed action to eliminate the basis of criticism and the time frame for its accomplishment, including an appropriate exit strategy. |
(3) Upon
adoption, a copy of the program for all criticized assets equal to or exceeding
five hundred thousand dollars ($500,000) shall be forwarded to the Assistant
Deputy Comptroller on a quarterly basis.
(4) The
Bank may extend credit, directly or indirectly, including renewals, extensions
or capitalization of accrued interest, to a borrower whose loans or other
extensions of credit are criticized in the ▇▇▇, in any subsequent ▇▇▇, 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 five hundred thousand dollars ($500,000) 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 |
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(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. |
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(5) A copy of the approval of the Board or of the designated committee shall be maintained in the file of the affected borrower.
ARTICLE IX
APPRAISAL PROCESS
(1) The Board shall require and the Bank shall obtain a current independent appraisal or updated appraisal, in accordance with 12 C.F.R. Part 34, on any loan in the amount of five hundred thousand dollars ($500,000) or more that is secured by real property:
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(a) |
where the loan was criticized in the most recent ▇▇▇ or by the Bank's loan review and the most recent independent appraisal is more than twelve (12) months old; or |
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(b) |
where the borrower has failed to comply with the contractual terms of the loan agreement and the Bank's analysis of current financial information does not support the ongoing ability of the borrower or guarantor(s) to perform in accordance with the contractual terms of the loan agreement and the most recent independent appraisal is more than twelve (12) months old. |
(2) Appraisals criticized during the 2010 exam and required by this Article shall be ordered within thirty (30) days, and certification by the Board attesting to the completion of the appraisals shall be forwarded to the Assistant Deputy Comptroller along with quarterly progress reports. Going forward, appraisals shall be ordered within thirty (30) days following the event triggering the appraisal requirement, for delivery to the Bank within sixty (60) days of the date the appraisal was ordered.
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(3) Within
thirty (30) days, the Board shall ensure policies and procedures are
implemented to ensure compliance with Interagency
Appraisal and Evaluation Guidelines adopted on December 10, 2010 as discussed
in OCC Bulletin 2010-42, "Sound Practices for Appraisals and
Evaluations."
(4) Within
thirty (30) days, the Board shall require and the Bank shall develop and
implement an independent review and analysis process to ensure that appraisals
conform to appraisal standards and regulations. The appraisal review and
analysis process shall ensure that appraisals are:
|
(a) |
performed in accordance with 12 C.F.R. Part 34; |
|
(b) |
consistent with OCC Bulletin 2010-42, "Sound Practices for Appraisals and Evaluations."; |
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(c) |
consistent with the guidance in OCC Bulletin 2005-6, "Appraisal Regulations and the Interagency Statement on Independent Appraisal and Evaluation Functions: Frequently Asked Questions" (March 22, 2005); and; |
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(d) |
consistent with OCC Advisory Letter 2003-9, "Independent Appraisal and Evaluation Function" (October 28, 2003). |
(5) Written documentation supporting each appraisal review and analysis shall be retained in the loan file, along with the appraisal.
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ARTICLE X
LIQUIDITY RISK MANAGEMENT
(1) The Board shall immediately ensure liquidity risk management practices are strengthened. Such actions must include, but are not limited to:
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(a) |
developing appropriate policies and procedures to govern wholesale funding activities, including the establishment of internal limits on funding concentrations; |
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(b) |
implementing a process to identify, measure, and monitor the Bank's rollover risk in contractual funding sources (e.g., Fed Funds Purchased, Correspondent Lines, Repurchase Agreements, Certificates of Deposit, Federal Home Loan Bank Advances); and |
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(c) |
reviewing, revising and expanding, as necessary, its contingency funding planning to include quantitative stress scenarios and a process for regular testing of the plan to ensure it is operationally robust. |
(2) The Board shall review the Bank's liquidity on a quarterly basis. 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
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.
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(2) It
is expressly and clearly understood that if, at any time, the Comptroller deems
it appropriate in fulfilling the responsibilities placed upon 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, stop, 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; |
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(c) |
follow-up on any non-compliance with such actions in a timely and appropriate manner; and |
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|
(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 12 U.S.C. §
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.
§ 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.
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/s/▇▇▇▇ ▇. ▇▇▇▇▇ |
June 7, 2011 |
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IN TESTIMONY WHEREOF, the undersigned, as the duly elected and acting Board of Directors of the Bank, have hereunto set their hands on behalf of the Bank.
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/s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇. June
7, 2011 |
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Date |
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Date |
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▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Date |
APPENDIX A
The ▇▇▇▇▇▇ National Bank
Conway, South Carolina
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CRITICIZED ASSET REPORT AS OF: |
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BORROWER(S): |
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ASSET BALANCE(S) AND OCC RATING (SM, SUBSTANDARD, DOUBTFUL
OR LOSS): |
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$ |
CRITICISM |
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PRESENT STATUS (Fully explain
any increase in outstanding balance; include past due status,
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FINANCIAL AND/OR COLLATERAL
SUPPORT (include brief summary of most current
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PROPOSED
PLAN OF ACTION TO ELIMINATE ASSET CRITICISM(S) AND TIME
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IDENTIFIED SOURCE OF REPAYMENT
AND DEFINED REPAYMENT PROGRAM
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Use this form for reporting
each criticized asset that exceeds five hundred thousand dollars |
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