EXHIBIT 99.3
AGREEMENT BY AND BETWEEN
FIRST NATIONAL BANK OF ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, MICHIGAN
AND
THE OFFICE OF THE COMPTROLLER OF THE CURRENCY
The First National Bank of ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, Michigan (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, dated January
13, 2003 (▇▇▇).
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
(1) This Agreement shall be construed to be a "written agreement
entered into with the agency" within the meaning of 12 U.S.C.
Section 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. Section 1818(e)(1) and 12 U.S.C. Section 1818(i)(2).
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(3) This Agreement shall be construed to be a "formal written
agreement" within the meaning of 12 C.F.R. Section 5.51(c)(6)(ii). See 12
U.S.C. Section 1831i.
(4) This Agreement shall be construed to be a "written agreement"
within the meaning of 12 U.S.C. Section 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 the:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Assistant Deputy Comptroller
Detroit Field Office
Omni OfficeCentre, Suite 411
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
ARTICLE II
COMPLIANCE COMMITTEE
(1) Within thirty (30) days, the Board shall appoint a Compliance
Committee of at least three (3) directors, of which no more than one (1) shall
be an employee 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. The
Compliance Committee shall be responsible for monitoring and coordinating the
Bank's adherence to the provisions of this Agreement.
(2) Within sixty (60) days of the appointment of the Committee and
quarterly thereafter, the Compliance Committee shall submit a written progress
report to the Board setting forth in detail:
(a) actions taken to comply with each Article of this
Agreement; and
(b) the results of those actions.
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(3) The Board shall forward a copy of the Compliance Committee's
report, with any additional comments by the Board, to the Assistant Deputy
Comptroller.
ARTICLE III
CREDIT ADMINISTRATION
(1) The Board shall, within ninety (90) days, develop, implement, and
thereafter ensure Bank adherence to a written plan to improve the Bank's credit
administration program. The plan shall include, but not be limited to:
(a) procedures to ensure satisfactory and perfected collateral
documentation;
(b) procedures to ensure that extensions of credit are
granted, by renewal or otherwise, to any borrower only
after obtaining and analyzing current and satisfactory
credit information;
(c) underwriting standards and parameters (including, but not
limited to, minimally acceptable cash flow coverage
ratios, debt to worth ratios, and consumer credit scores);
(d) limits on the ratio of loan amount to appraised value or
acquisition costs of collateral securing the loan;
(e) loan approval requirements and procedures to ensure
conformance with such requirements;
(f) guidelines consistent with Banking Circular 255, setting
forth the criteria under which renewals of extensions of
credit may be approved. At a minimum the plan shall:
(i) ensure that renewals are not made for the sole
purpose of reducing
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the volume of loan delinquencies; and
(ii) provide guidelines and limitations on the
capitalization of interest;
(g) procedures to ensure conformance with Call Report
instructions, including the proper recognition and
reporting of nonaccrual loans;
(h) procedures to ensure the accuracy of internal management
information systems that provide for early problem loan
identification and the timely and accurate identification
and rating of loans and leases;
(i) measures to correct the deficiencies in the Bank's lending
procedures noted in any ▇▇▇;
(j) a system to track and analyze exceptions to the loan
policy and the credit administration procedures,
standards, and limits established pursuant to this
Article;
(k) a performance appraisal process, including performance
appraisals, job descriptions, and incentive programs for
loan officers, which adequately consider their performance
relative to policy compliance, documentation standards,
accuracy in credit grading, and other loan administration
matters.
(2) Upon completion, a copy of the plan shall be forwarded to the
Assistant Deputy Comptroller for Comptroller for prior determination of no
supervisory objection.
(3) The Board shall ensure that the Bank has processes, personnel, and
control systems to ensure implementation of and adherence to the plan and
systems developed pursuant to this Article.
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ARTICLE IV
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, or in any list provided to
management by the National Bank Examiners during any examination.
(2) Within thirty (30) days, the Board shall adopt, implement, and
thereafter ensure Bank adherence to a written program designed to eliminate the
basis of criticism of assets criticized in the ▇▇▇, in any subsequent Report of
Examination, or by any internal or external loan review, or in any list provided
to management by the National Bank Examiners during any examination as
"doubtful," "substandard," or "special mention." This program shall include, at
a minimum:
(a) an identification of the expected sources of repayment;
(b) the appraised value of supporting collateral and the
position of the Bank's lien on such collateral where
applicable;
(c) an analysis of current and satisfactory credit
information, including cash flow analysis where loans are
to be repaid from operations; and
(d) the proposed action to eliminate the basis of criticism
and the time frame for its accomplishment.
(3) Upon adoption, a copy of the program for all criticized assets
equal to or exceeding one hundred thousand dollars ($100,000) shall be
forwarded to the Assistant Deputy Comptroller for review.
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(4) The Board shall ensure that the Bank has processes, personnel, and
control systems to ensure implementation of and adherence to the program
developed pursuant to this Article.
(5) The Board, or a designated committee, shall conduct a review, on at
least a quarterly basis, to determine:
(a) the status of each criticized asset or criticized portion
thereof that equals or exceeds one hundred thousand
dollars ($100,000);
(b) management's adherence to the program adopted pursuant to
this Article;
(c) the status and effectiveness of the written program; and
(d) the need to revise the program or take alternative action.
(6) A copy of each review shall be forwarded to the Assistant Deputy
Comptroller on a quarterly basis.
ARTICLE V
BOARD TO ENSURE COMPETENT MANAGEMENT
(1) The Board shall ensure that the Bank has competent management in
place on a full-time basis in its Chief Executive Officer; President; Senior
Loan Officer; and Chief Financial Officer positions to carry out the Board's
policies, ensure compliance with this Agreement, applicable laws, rules and
regulations, and manage the day-to-day operations of the Bank in a safe and
sound manner.
(2) Within ninety (90) days, the Board shall review the capabilities of
the Bank's management to perform present and anticipated duties and the Board
will determine whether management changes should be made, including the need for
additions to or deletions from
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current management.
(3) For incumbent officers in the positions mentioned in Paragraph (1)
of this Article, the Board shall within ninety (90) days assess each of these
officers' experience, other qualifications and performance compared to the
position's description, duties and responsibilities.
(4) If the Board determines that an officer will continue in his/her
position but that the officer's depth of skills needs improvement, the Board
will within one hundred and twenty (120) days develop and implement a written
program, with specific time frames, to improve the officer's supervision and
management of the Bank. At a minimum the written program shall include:
(a) an education program designed to ensure that the officer
has skills and abilities necessary to supervise
effectively;
(b) a program to improve the effectiveness of the officer;
(c) objectives by which the officer's effectiveness will be
measured; and
(d) a performance appraisal program for evaluating performance
according to the position's description and
responsibilities and for measuring performance against the
Bank's goals and objectives.
Upon completion, a copy of the written program shall be submitted to
the Assistant Deputy Comptroller for review.
(5) The Board shall establish measurable goals for its management team
in the areas of asset quality, capital, earnings, liquidity and interest rate
risk from which actual performance can be assessed.
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ARTICLE VI
INTERNAL AUDIT
(1) Within sixty (60) days, the Board shall adopt, implement, and
thereafter ensure Bank adherence to an independent, internal audit program
sufficient to:
(a) detect irregularities in the Bank's operations;
(b) determine the Bank's level of compliance with all
applicable laws, rules and regulations;
(c) evaluate the Bank's adherence to established policies and
procedures, with particular emphasis directed to the
Bank's adherence to its loan policies concerning
underwriting standards and problem loan identification
and classification;
(2) As part of this audit program, the Board shall 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 Bank has processes, personnel, and
control systems to ensure implementation of and adherence to the program
developed pursuant to this Article.
(4) The Board shall ensure that the audit function is supported by an
adequately staffed department or outside firm, with respect to both the
experience level and number of the individuals employed.
(5) The Board shall ensure that the audit program is independent. The
persons responsible for implementing the internal audit program described above
shall report directly to
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the Board, which shall have the sole power to direct their activities. All
reports prepared by the audit staff shall be filed directly with the Board and
not through any intervening party.
(6) All audit reports shall be in writing. The Board shall ensure that
immediate actions are undertaken to remedy deficiencies cited in audit reports,
and that auditors maintain a written record describing those actions.
(7) The audit staff shall have access to any records necessary for the
proper conduct of its activities. National bank examiners shall have access to
all reports and work papers of the audit staff and any other parties working on
its behalf.
(8) Upon adoption, a copy of the internal audit program shall be
promptly submitted to the Assistant Deputy Comptroller for review.
ARTICLE VII
MANAGEMENT INFORMATION SYSTEMS
(1) Within ninety (90) days, the Board shall establish a management
information system (MIS) program designed to provide the Board with adequate,
accurate, and timely information about the Bank's operations and activities. The
Board's MIS program shall be consistent with the guidance set forth in the OCC
booklet Red Flags in Board Reports: A Guide for Directors, dated September 2000,
and shall require that the Board receive and evaluate timely and accurate
information sufficient to:
(a) ensure that the bank operates in a safe and sound manner;
(b) ensure that risks to the Bank are properly controlled;
(c) determine management's compliance with Board-established
policies, procedures, and risk parameters (including
addressing comments on pages
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7 and 10 of the Report of Examination dated January 13,
2003);
(d) identify ratios or trends that may signal existing or
potential problems.
(2) The Board shall ensure that the Bank has processes, personnel, and
control systems to ensure implementation of and adherence to the MIS program
developed pursuant to this Article.
(3) The Board shall submit a copy of the program to the Assistant
Deputy Comptroller for review.
ARTICLE VIII
STRATEGIC PLAN
(1) Within ninety (90) days, the Board shall adopt, implement, and
thereafter ensure Bank adherence to a written strategic plan for the Bank
covering at least a three-year period. The strategic plan shall establish
objectives for the Bank's overall risk profile, earnings performance, growth,
balance sheet mix, off-balance sheet activities, liability structure, capital
adequacy, and a reduction in the volume of nonperforming assets, together with
strategies to achieve those objectives and, at a minimum, include:
(a) the development of strategic goals and objectives to be
accomplished over the short and long term;
(b) an action plan to improve bank earnings and accomplish
identified strategic goals and objectives, including
specific time frames;
(c) a financial forecast to include projections for major
balance sheet and income statement accounts and desired
financial ratios over the period
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covered by the strategic plan;
(d) a strategy to ensure that from September 30, 2003
through December 31, 2004 the Bank's average total loans
during any calendar quarter, as reported on Line 6.a. of
Schedule RC-K of the Consolidated Reports of Condition and
Income, do not exceed the Bank's average total loans
during the preceding calendar quarter by more than one and
one half percent (1.5%);
(e) the prohibition of any new products or services without a
prior written analysis of the risks and benefits of the
product or service to the bank by the Board and the prior
determination of no supervisory objection of the Assistant
Deputy Comptroller;
(f) specific plans to establish responsibilities and
accountability for the strategic planning process, and;
(g) systems to monitor the Bank's progress in meeting the
plan's goals and objectives.
(2) Upon adoption, a copy of the plan shall be forwarded to the
Assistant Deputy Comptroller for review and prior determination of no
supervisory objection.
ARTICLE IX
CAPITAL PLAN AND HIGHER MINIMUMS
(1) The Bank shall achieve by December 31, 2003 and thereafter
maintain the following capital levels (as defined in 12 C.F.R. Part 3):
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(a) Tier 1 capital at least equal to ten percent (10%) of
risk-weighted assets;
(b) Tier 1 capital at least equal to seven and one-half
percent (7.5%) of adjusted total assets.
(2) The requirement in this Agreement to meet and maintain a specific
capital level means that the Bank may not be deemed to be "well capitalized" for
purposes of 12 U.S.C. Section 1831o and 12 C.F.R. Part 6 pursuant to 12 C.F.R.
Section 6.4(b)(1)(iv).
(3) Within thirty (30) days, the Board shall develop, implement, and
thereafter ensure Bank adherence to a three-year capital program, consistent
with the goals and objectives outlined in your strategic plan. The program shall
include:
(a) specific plans for the maintenance of adequate capital
that may in no event be less than the requirements of
paragraph (1) of this Article;
(b) projections for growth, subject to the limitations in
subparagraph (1)(d) of Article VIII, and capital
requirements based upon a detailed analysis of the Bank's
assets, liabilities, earnings, fixed assets, and
off-balance sheet activities;
(c) projections of the sources and timing of additional
capital to meet the Bank's current and future needs;
(d) the primary source(s) from which the Bank will strengthen
its capital structure to meet the Bank's needs;
(e) contingency plans that identify alternative methods should
the primary source(s) under (d) above not be available;
and
(f) a dividend policy that permits the declaration of a
dividend only when the
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Bank:
(i) is in compliance with its approved capital
program;
(ii) when the Bank is incompliance with 12 U.S.C.
Sections 56 and 60; and
(iii) with the prior written determination of no
supervisory objection by the Assistant Deputy
Comptroller.
(4) Upon completion, a copy of the plan shall be forwarded to the
Assistant Deputy Comptroller for Comptroller for prior determination of no
supervisory objection. Upon notification by the Assistant Deputy Comptroller of
no supervisory objection to the capital program, the Board 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
for review.
ARTICLE X
ASSET/LIABILITY POLICY
(1) Within thirty (30) days, the Board shall immediately begin to
adhere to the bank's written asset/liability policy, which at a minimum
requires;
(a) testing alternative liquidity scenarios; and
(b) forecasting loan funding.
(2) Your liquidity assessment should include the nature, extent, and
purpose of the Bank's use of brokered deposits consistent with the Bank's
overall funds management strategies and periodic review of the Bank's adherence
to the policy.
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(3) The Board shall ensure that the Bank has processes, personnel, and
control systems to ensure implementation of and adherence to the policy
developed pursuant to this Article.
ARTICLE XI
INTEREST RATE RISK
(1) Within ninety (90) days, the Board shall adopt, implement, and
thereafter ensure Bank adherence to a written program to improve the Bank's
interest rate risk management. The program shall, at a minimum, address:
(a) the establishment of adequate management reports on which
to base sound interest rate risk management decisions;
(b) establishment and guidance of the Bank's strategic
direction and tolerance for interest rate risk;
(c) implementation of effective tools to measure and monitor
the Bank's performance and overall interest rate risk
profile;
(d) the identification of embedded options in the Bank's
assets and liabilities, and the proper recognition of
those options in measuring and monitoring interest rate
risk;
(e) employment of competent personnel to manage interest rate
risk;
(f) prudent limits on the nature and amount of interest rate
risk that can be taken; and
(g) periodic review of the Bank's adherence to the program.
(2) The Board shall ensure that the Bank has processes, personnel, and
control
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systems to ensure implementation of and adherence to the program developed
pursuant to this Article.
(3) Upon adoption, a copy of the written program shall be forwarded to
the Assistant Deputy Comptroller for review.
ARTICLE XII
VIOLATIONS OF LAW
(1) The Board shall immediately take all necessary steps to ensure that
Bank management corrects each violation of law, rule or regulation cited in the
▇▇▇ and in any subsequent Report of Examination. The quarterly progress reports
required by Article II of this Agreement shall include the date and manner in
which each correction has been effected during that reporting period.
(2) Within sixty (60) days, the Board shall adopt, implement, and
thereafter ensure Bank adherence to specific procedures to prevent future
violations as cited in the ▇▇▇ and shall adopt, implement, and ensure Bank
adherence to general procedures addressing compliance management which
incorporate internal control systems and education of employees regarding laws,
rules and regulations applicable to their areas of responsibility.
(3) Within sixty (60) days of receipt of any subsequent Report of
Examination which cites violations of law, rule, or regulation, the Board shall
adopt, implement, and thereafter ensure Bank adherence to specific procedures to
prevent future violations as cited in the ▇▇▇ and shall adopt, implement, and
ensure Bank adherence to general procedures addressing compliance management
which incorporate internal control systems and education of employees regarding
laws, rules and regulations applicable to their areas of responsibility.
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(4) Upon adoption, a copy of these procedures shall be promptly
forwarded to the Assistant Deputy Comptroller for review.
(5) The Board shall ensure that the Bank has policies, processes,
personnel, and control systems to ensure implementation of and adherence to the
procedures developed pursuant to this Article.
ARTICLE XIII
CLOSING
(1) Although the Board has agreed to submit certain programs and
reports to the Assistant Deputy Comptroller for review or approval, the Board
has the ultimate responsibility for proper and sound management of the Bank.
(2) It is expressly and clearly understood that if, at any time, the
Comptroller deems it appropriate in fulfilling the responsibilities placed upon
him by the several laws of the United States of America to undertake any action
affecting the Bank, nothing in this Agreement shall in any way inhibit, estop,
bar, or otherwise prevent the Comptroller from so doing.
(3) Any time limitations imposed by this Agreement shall begin to run
from the effective date of this Agreement. Such time requirements may be
extended in writing by the Assistant Deputy Comptroller for good cause upon
written application by the Board.
(4) The provisions of this Agreement shall be effective upon execution
by the parties hereto and its provisions shall continue in full force and effect
unless or until such provisions are amended in writing by mutual consent of the
parties to the Agreement or excepted, waived, or terminated in writing by the
Comptroller.
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(5) In each instance in this Agreement in which the Board is required
to ensure adherence to, and undertake to perform certain obligations of the
Bank, it is intended to mean that the Board shall:
(a) authorize and adopt such actions on behalf of the Bank as
may be necessary for the Bank to perform its obligations
and undertakings under the terms of this Agreement;
(b) require the timely reporting by Bank management of such
actions directed by the Board to be taken under the terms
of this Agreement;
(c) follow-up on any non-compliance with such actions in a
timely and appropriate manner; and
(d) require corrective action be taken in a timely manner of
any non-compliance with such actions.
(6) This Agreement is intended to be, and shall be construed to be, a
supervisory "written agreement entered into with the agency" as contemplated by
12 U.S.C. Section 1818(b)(1), and expressly does not form, and may not be
construed to form, a contract binding on the OCC or the United States.
Notwithstanding the absence of mutuality of obligation, or of consideration, or
of a contract, the OCC may enforce any of the commitments or obligations herein
undertaken by the Bank under its supervisory powers, including 12 U.S.C. Section
1818(b)(1), and not as a matter of contract law. The Bank expressly acknowledges
that neither the Bank nor the OCC has any intention to enter into a contract.
The Bank also expressly acknowledges that no OCC officer or employee has
statutory or other authority to bind the United States, the U.S. Treasury
Department, the OCC, or any other federal bank regulatory agency or entity, or
any officer or
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employee of any of those entities to a contract affecting the OCC's exercise of
its supervisory responsibilities. The terms of this Agreement, including this
paragraph, are not subject to amendment or modification by any extraneous
expression, prior agreements or arrangements, or negotiations between the
parties, whether oral or written.
IN TESTIMONY WHEREOF, the undersigned, authorized by the Comptroller,
has hereunto set his/her hand on behalf of the Comptroller.
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ 7/10/2003
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Date
Assistant Deputy Comptroller
Detroit Field Office
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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.
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇ 7/10/2003
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