UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 24, 2013
SHORE BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
| Maryland | 0-22345 | 52-1974638 | ||
| (State or other jurisdiction of | (Commission file number) | (IRS Employer | ||
| incorporation or organization) | Identification No.) |
18 East Dover Street, Easton, Maryland 21601
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (410) 763-7800
N/A
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 1.01 Entry into a Material Definitive Agreement.
The Talbot Bank of Easton, Maryland (the “Bank”), the wholly owned subsidiary of Shore Bancshares, Inc. (the “Company”), has entered into a Stipulation and Consent to the Issuance of a Consent Order (the “Consent Agreement”) with the Federal Deposit Insurance Corporation (the “FDIC”), a Stipulation and Consent to the Issuance of a Consent Order (the “Maryland Consent Agreement” and together with the Consent Agreement, the “Consent Agreements”) with the Maryland Commissioner of Financial Regulation (the “Commissioner”) and an Acknowledgement of Adoption of the Order by the Commissioner (the “Acknowledgement”). The FDIC and the Commissioner issued the related Consent Order (the “Order”), effective May 24, 2013. The description of the Consent Agreements, the Order and the Acknowledgement set forth below is qualified in its entirety by reference to the Consent Agreements, the Order and the Acknowledgement, copies of which are filed herewith as exhibits 10.1, 10.2, 10.3 and 10.4 respectively, and incorporated herein by reference.
Management. The Bank is required to have and retain experienced, qualified management, and to assess management’s ability to (1) comply with the requirements of the Order; (2) operate the Bank in a safe and sound manner; (3) comply with all applicable laws, rules and regulations; and (4) restore all aspects of the Bank to a safe and sound condition, including capital adequacy, asset quality, and management effectiveness. The Bank has already implemented certain changes to comply with the Order.
Board Participation. The Bank’s board of directors is required to increase its participation in the affairs of the Bank, assuming full responsibility for the approval of sound policies and objectives and for the supervision of all the Bank activities. This participation shall include comprehensive, documented meetings to be held no less frequently than monthly. The board of directors must also develop a program to monitor the Bank’s compliance with the Order.
Loss Charge-Offs. The Order requires that the Bank eliminate from its books, by charge-off or collection, all assets or portions of assets classified “Loss” by the FDIC or the Commissioner. The Bank has already eliminated from its books all such classified assets.
Classified Assets Reduction. Within 60 days of the effective date of the Order, the Bank will submit a Classified Asset Plan to the FDIC and Commissioner to reduce the risk position in each asset in excess of $750,000 which is classified “Substandard” and “Doubtful” by the FDIC or Commissioner. The Bank will revise its existing Classified Asset Plan to address the terms of the Order and will submit the updated plan to the FDIC and Commissioner in accordance with the Order.
Allowance for Loan and Lease Losses. Within 60 days of the effective date of the Order, the board of directors must review the adequacy of the allowance for loan and lease losses (the “ALLL”), establish a policy for determining the adequacy of the ALLL and submit such ALLL policy to the FDIC and Commissioner. The Bank is in the process of amending its ALLL policy to comply with the terms of the Order and will submit the updated policy to the FDIC and Commissioner in accordance with the Order.
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Loan Policy. Within 60 days from the effective date of the Order, the Bank must (i) review its loan policies and procedures (“Loan Policy”) for adequacy, (ii) make all appropriate revisions to the Loan Policy to address the lending deficiencies identified by the FDIC, and (iii) submit the Loan Policy to the FDIC and Commissioner. The Bank has completed its review of the Loan Policy and is in the process of making the required revisions. The updated Loan Policy will be submitted to the FDIC and Commissioner in accordance with the terms of the Order.
Loan Review Program. Within 30 days from the effective date of the Order, the Board must establish a program of independent loan review that will provide for a periodic review of the Bank’s loan portfolio and the identification and categorization of problem credits (the “Loan Review Program”) and submit the Loan Review Program to the FDIC and Commissioner. The Bank is in the process of enhancing its existing Loan Review Program and will submit it to the FDIC and Commissioner in accordance with the terms of the Order.
Capital Requirements. Within 90 days from the effective date of the Order, the Bank must meet and maintain the following minimum capital levels, after establishing an appropriate ALLL, (i) a leverage ratio (the ratio of Tier 1 capital to total assets) of at least 8%, and (ii) a total risk-based capital ratio (the ratio of qualifying total capital to risk-weighted assets) of at least 12%. As of March 31, 2013, the Bank exceeded the Order’s minimum capital requirements with a Tier 1 leverage ratio of 8.24% and total risk based capital ratio of 12.38%.
Profit and Budget Plan. Within 60 days from the effective date of the Order and within 30 days of each calendar year thereafter, the Bank must submit a profit and budget plan to the FDIC and Commissioner consisting of goals and strategies, consistent with sound banking practices, and taking into account the Bank’s other plans, policies or other actions required by the Order. In accordance with the Order, the Bank intends to develop the profit and budget plan, which will be submitted to the FDIC and Commissioner within the required timeframe.
Dividend Restriction. While the Order is in effect, the Bank cannot declare or pay dividends or fees to the Company without the prior written consent of the FDIC and Commissioner.
Brokered Deposits. The Order provides that the Bank may not accept, renew, or rollover any brokered deposits unless it is in compliance with the requirements of the FDIC regulations governing brokered deposits.
Oversight Committee. Within 30 days from the effective date of the Order, the Bank must establish a board committee to monitor and coordinate compliance with the Order.
Progress Reports. Within 45 days from the end of each calendar quarter following the effective date of the Order, the Bank must furnish the FDIC and Commissioner with progress reports detailing the form, manner and results of any actions taken to secure compliance with the Order.
The Order will remain in effect until modified or terminated by the FDIC and the Commissioner.
On May 24, 2013, the Company issued a press release announcing the Bank’s entry into the Order with the FDIC and the Commissioner. A copy of the press release is attached to this Current Report on Form 8-K as Exhibit 99.1.
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Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
The exhibits that are filed or furnished with this report are listed in the Exhibit Index that immediately follows the signatures hereto, which list is incorporated herein by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| SHORE BANCSHARES, INC. | ||
| Dated: May 24, 2013 | By: | /s/ W. Moorhead Vermilye |
| W. Moorhead Vermilye Chief Executive Officer | ||
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EXHIBIT INDEX
| Exhibit | ||
| Number | Description | |
| 10.1 | Stipulation and Consent to the Issuance of a Consent Order with the FDIC | |
| 10.2 | Stipulation and Consent to the Issuance of a Consent Order with the Maryland Commissioner of Financial Regulation | |
| 10.3 | Consent Order issued by the Federal Deposit Insurance Corporation | |
| 10.4 | Acknowledgement of Adoption of the Order by the Maryland Commissioner of Financial Regulation | |
| 99.1 | Press release dated May 24, 2013 (furnished herewith) |
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FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C.
| ) | ||
| In the Matter of | ) | STIPULATION AND CONSENT |
| ) | TO THE ISSUANCE OF | |
| THE TALBOT BANK OF EASTON | ) | A CONSENT ORDER |
| EASTON, MARYLAND | ) | |
| ) | FDIC-13-018b | |
| (INSURED STATE NONMEMBER BANK) | ) | |
| ) |
Subject to the acceptance of this STIPULATION AND CONSENT TO THE ISSUANCE OF A CONSENT ORDER (“CONSENT AGREEMENT”) by the Federal Deposit Insurance Corporation (“FDIC”), it is hereby stipulated and agreed by and between a representative of the Legal Division of the FDIC and The Talbot Bank of Easton, Easton, Maryland (“Bank”), as follows:
1. The Bank has been advised of its right to receive a NOTICE OF CHARGES AND OF HEARING (“NOTICE”) detailing the unsafe or unsound banking practices alleged to have been committed by the Bank, and of its right to a hearing on the alleged charges under section 8(b)(1) of the Federal Deposit Insurance Act (“Act”), 12 U.S.C. § 1818 (b)(1), and has waived those rights.
2. The Bank, solely for the purpose of this proceeding and without admitting or denying any of the alleged charges of unsafe or unsound banking practices, hereby consents and agrees to the issuance of a CONSENT ORDER (“ORDER”) by the FDIC. The Bank further stipulates and agrees that such ORDER shall be deemed to be a final ORDER and that such ORDER shall become effective upon the issuance by the FDIC and fully enforceable by the FDIC pursuant to the provisions of section 8(i)(l) of the Act, 12 U.S.C. § 1818(i)(l), subject only to the conditions set forth in paragraph 3 of this CONSENT AGREEMENT.
3. In the event the FDIC accepts this CONSENT AGREEMENT and issues the ORDER, it is agreed that no action to enforce the ORDER in the United States District Court will be taken by the FDIC unless the Bank or any of its directors, officers, employees, agents, successor or assigns, or other institution-affiliated parties (as that term is defined in section 3(u) of the Act, 12 U.S.C. § 1813(u)), has violated or is about to violate any provision of the ORDER.
4. The Bank hereby waives:
(a) the receipt of a NOTICE;
(b) all defenses to the allegations to be set forth in the NOTICE;
(c) a hearing for the purpose of taking evidence on such alleged charges;
(d) the filing of PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW;
(e) the issuance of a RECOMMENDED DECISION by an Administrative Law Judge;
(f) Exceptions and briefs with respect to such RECOMMENDED DECISION; and
(g) judicial review of the ORDER as provided by section 8(h) of the Act, 12 U.S.C. § 1818(h), or any other challenge to the validity of the ORDER.
| Dated: May 23, 2013 | ||
| Federal Deposit Insurance Corporation | The Talbot Bank of Easton | |
| Legal Division | Easton, Maryland | |
| By: | By: | |
| /s/ Patty S. Ko | /s/ Herbert L. Andrew, III | |
| Patty S. Ko | Andrew, Herbert L., III | |
| Senior Attorney | Director | |
| New York Regional Office |
| 2 |
| /s/ Brenda W. Armistead | |
| Armistead, Brenda W. | |
| Director | |
| /s/ Lloyd L. Beatty, Jr. | |
| Beatty, Lloyd L., Jr. | |
| Director | |
| /s/ Carole Ann Clem | |
| Clem, Carole Ann | |
| Director | |
| /s/ Michael R. Clemmer, Jr. | |
| Clemmer, Jr., R. Michael | |
| Director | |
| /s/ John W. Dillon | |
| Dillon, John W. | |
| Director | |
| /s/ William W. Duncan | |
| Duncan, William W. | |
| Director | |
| /s/ David A. Fike | |
| Fike, David A. | |
| Director | |
| /s/ Duane F. Marshall | |
| Marshall, Duane F. | |
| Director | |
| /s/ Stephen M. Shearer | |
| Shearer, Stephen M. | |
| Director | |
| /s/ Christopher F. Spurry | |
| Spurry, Christopher F. | |
| Director |
| 3 |
| /s/ David P. Valliant | |
| Valliant, David P. | |
| Director | |
| /s/ W. Moorhead Vermilye | |
| Vermilye, W. Moorhead | |
| Director | |
| Comprising
the Board of Directors of The Talbot Bank of Eason Easton, Maryland |
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| IN THE MATTER OF: | * | BEFORE |
| THE talbot BANK | * | THE COMMISSIONER OF |
| of easton, MARYLAND | * | FINANCIAL REGULATION |
| EASTON, Maryland | * | FOR THE |
| * | STATE OF MARYLAND |
* * * * * * *
STIPULATION AND CONSENT TO
THE ISSUANCE OF A CONSENT ORDER
Subject to the acceptance of this STIPULATION AND CONSENT TO THE ISSUANCE OF A CONSENT ORDER (“CONSENT AGREEMENT”) by the Commissioner of Financial Regulation for the State of Maryland (“Commissioner”), it is hereby stipulated and agreed by and between the Commissioner and The Talbot Bank of Easton, Maryland, Easton, Maryland (“Bank”), as follows:
1. The Bank, solely for the purpose of this proceeding and without admitting or denying any of the alleged charges of unsafe or unsound banking practices, hereby consents and agrees to the issuance of a CONSENT ORDER (“ORDER”) by the Commissioner. The Bank further stipulates and agrees that the ORDER shall be deemed to be a final ORDER and that the ORDER shall become effective immediately upon its issuance by the Commissioner and fully enforceable by the Commissioner pursuant to the provisions of the Annotated Code of Maryland, Financial Institutions Article (“FI”) §§ 5-808 and 5-809, subject only to the conditions set forth in paragraph 3 of this CONSENT AGREEMENT.
2. The Bank has been advised of its right to notice and a hearing on the alleged charges relating to the ORDER under FI § 5-808(d)(2) and Annotated Code of Maryland, State Government Article §§ 10-207 and 10-208, and has waived those rights.
3. In the event the Commissioner accepts the CONSENT AGREEMENT and issues the ORDER, it is agreed that no action to enforce the ORDER in a court of competent jurisdiction will be taken by the Commissioner unless the Bank or any director, officer, employee, agent, successor or assignee, or other affiliate of the Bank has violated or is about to violate any provision of the ORDER.
The Bank hereby waives:
| (a) | its right to notice and a hearing conducted for the purpose of taking evidence on the allegations to be set forth in the ORDER; |
| (b) | all defenses to the allegations to be set forth in the ORDER; |
| (c) | its right to appeal the ORDER by filing exceptions; and |
| (d) | its right to appeal the ORDER to a court of competent jurisdiction. |
| Dated: | May 23, 2013 |
| /s/ Mark A. Kaufman | |
| Mark A. Kaufman, | |
| Commissioner of Financial Regulation |
| THE talbot BANK of easton, MARYLAND | |
| EASTON, MARYLAND: | |
| BY: |
| /s/ Herbert L. Andrew, III | |
| Herbert L. Andrew, III | |
| Director | |
| /s/ Brenda W. Armistead | |
| Brenda W. Armistead | |
| Director | |
| /s/ Lloyd L. Beatty, Jr. | |
| Lloyd L. Beatty, Jr. | |
| Director |
| - 2 - |
| /s/ Carole Ann Clem | |
| Carole Ann Clem | |
| Director | |
| /s/ R. Michael Clemmer, Jr. | |
| R. Michael Clemmer, Jr. | |
| Director | |
| /s/ John W. Dillon | |
| John W. Dillon | |
| Director | |
| /s/ David A. Fike | |
| David A. Fike | |
| Director | |
| /s/ Duane F. Marshall | |
| Duane F. Marshall | |
| Director | |
| /s/ Steve M. Shearer | |
| Steve M. Shearer | |
| Director | |
| /s/ Christopher F. Spurry | |
| Christopher F. Spurry | |
| Director | |
| /s/ David P. Valliant | |
| David P. Valliant | |
| Director | |
| /s/ W. Moorhead Vermilye | |
| W. Moorhead Vermilye | |
| Director | |
| Comprising the Board of | |
| Directors of | |
| The Talbot Bank of Easton, Maryland | |
| Easton, Maryland |
| - 3 - |
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C.
| ) | ||
| In the Matter of | ) | CONSENT ORDER |
| ) | ||
| THE TALBOT BANK OF EASTON | ) | |
| EASTON, MARYLAND | ) | FDIC-13-018b |
| ) | ||
| (INSURED STATE NONMEMBER BANK) | ) | |
| ) |
The Federal Deposit Insurance Corporation (“FDIC”) is the appropriate Federal banking agency for The Talbot Bank of Easton, Easton, Maryland (“Bank”), under section 3(q) of the Federal Deposit Insurance Act (“Act”), 12 U.S.C. § 1813(q).
The Bank, by and through its duly elected and acting Board of Directors (“Board”), has executed a STIPULATION AND CONSENT TO THE ISSUANCE OF A CONSENT ORDER (“CONSENT AGREEMENT”), dated May 23, 2013, that is accepted by the FDIC. With the CONSENT AGREEMENT, the Bank has consented, without admitting or denying any charges of unsafe or unsound banking practices relating to weaknesses in, among others, asset quality and capital to the issuance of this Consent Order (“ORDER”) by the FDIC.
Having determined that the requirements for issuance of an order under section 8(b) of the Act, 12 U.S.C. § 1818(b), have been satisfied, the FDIC hereby orders that:
MANAGEMENT
1. (a) 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. At a minimum, such management shall include: a chief executive officer with proven ability in managing a bank of comparable size and complexity and experience in upgrading a low quality loan portfolio; a senior lending officer and a chief credit officer with an appropriate level of lending, collection, and loan supervision experience for the type and quality of the Bank’s loan portfolio. The Board shall provide the necessary written authority to management to implement the provisions of this ORDER.
(b) The qualifications of management shall be assessed on its ability to:
(i) comply with the requirements of this ORDER;
(ii) operate the Bank in a safe and sound manner;
(iii) comply with applicable laws, rules, and regulations; and
(iv) restore all aspects of the Bank to a safe and sound condition, including capital adequacy, asset quality, and management effectiveness.
BOARD PARTICIPATION
2. (a) The Board shall increase its participation in the affairs of the Bank, assuming full responsibility for the approval of sound policies and objectives and for the supervision of all of the Bank’s activities, consistent with the role and expertise commonly expected for directors of banks of comparable size.
(b) This participation shall include meetings to be held no less frequently than monthly at which, at a minimum, the following areas shall be reviewed and approved: reports of income and expenses; new, overdue, renewal, insider, charged off, and recovered loans; Watch List, loan exceptions, and concentrations; investment activity; liquidity levels and funds management; adoption or modification of operating policies; individual committee reports; audit reports; internal control reviews including managements’ responses; reconciliation of general ledger accounts; and compliance with this ORDER. Board minutes shall document these reviews and approvals, including the names of any dissenting directors.
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(c) The Bank shall notify the Regional Director of the FDIC’s New York Regional Office (“Regional Director”) and the Commissioner of Financial Regulation for the State of Maryland (“Commissioner”) in writing of any resignations or terminations of any members of its Board or any of its “senior executive officers” (as that term is defined in section 303.101(b) of the FDIC’s Rules and Regulations, 12 C.F.R. § 303.101(b)) within 10 days of the event. Any notification required by this subparagraph shall include a description of the background(s) and experience of any proposed replacement personnel and must be received by the Regional Director and the Commission for non-objection or comment at least 30 days prior to the individual(s) assuming the new position(s). The Bank shall also establish procedures to ensure compliance with section 32 of the Act, 12 U.S.C. § 1831i, and Subpart F of Part 303 of the FDIC’s Rules and Regulations, 12 C.F.R. Part 303.
LOSS CHARGE-OFF
3. (a) The Bank shall eliminate from its books, by charge-off or collection, all assets or portions of assets classified “Loss” by the FDIC or the Commissioner in the current Report of Examination, dated August 20, 2012, that have not been previously collected or charged off. Elimination or reduction of such assets with the proceeds of other Bank extensions of credit shall not be considered “collection” for purposes of this paragraph. Thereafter, within 30 days after the receipt of any Report of Examination or Visitation Letter of the Bank from the FDIC or the Commissioner, the Bank shall eliminate from its books, by charge-off or collection, all assets or portions of assets classified “Loss” in any Report of Examination or Visitation Letter that have not been previously collected or charged off.
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CLASSIFIED ASSETS REDUCTION
4. (a) Within 60 days from the effective date of this ORDER, the Bank shall formulate and submit for review as described in subparagraph (c), a written plan (“Classified Asset Plan”) to reduce the Bank’s risk position in each asset in excess of $750,000 which is classified “Substandard” or “Doubtful” in the current or future Report of Examination, or Visitation Letter. For purposes of this provision, “reduce” means to collect, charge off, or improve the quality of an asset so as to warrant its removal from adverse classification by the Regional Director and the Commissioner.
(b) The Classified Asset Plan shall include, at a minimum, the following:
(i) an action plan to review, analyze and document the current financial condition of each classified borrower including source of primary repayment, repayment ability, and alternative repayment sources, as well as the value and accessibility of any pledged or assigned collateral, and any possible actions to improve the Bank’s collateral position;
(ii) a schedule showing, on a quarterly basis, the expected consolidated balance of all adversely classified assets, and the ratio of the consolidated balance to the Bank’s projected Tier 1 Capital plus the Allowance for Loan and Lease Losses (“ALLL”);
(iii) specific action plans intended to reduce the Bank’s risk exposure in each classified asset;
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(iv) delineate areas of responsibility for loan officers; and
(v) provide for the submission of monthly written progress reports to the Board for review and notation in minutes of the Board meetings.
(c) The Classified Asset Plan shall be submitted to the Regional Director and the Commissioner for non-objection or comment. Within 45 days from receipt of non-objection or any comments from the Regional Director and the Commissioner, and after incorporation and adoption of all comments, the Board shall approve the Classified Asset Plan, which approval shall be recorded in the minutes of the Board meeting. Thereafter, the Bank shall implement and fully comply with the Classified Asset Plan.
(d) The Bank shall not extend, directly or indirectly, any additional credit to, or for the benefit of, any borrower who is already obligated in any manner to the Bank on any extensions of credit (including any portion thereof) that has been charged off the books of the Bank or classified “Loss” in the current or any future Report of Examination or Visitation Letter, so long as such credit remains uncollected.
(e) The Bank shall not extend, directly or indirectly, any additional credit to, or for the benefit of, any borrower whose loan or other credit has been classified “Substandard” or “Doubtful” in the current or any future Report of Examination or Visitation Letter, and is uncollected, unless a written, detailed explanation of why the extension is in the best interest of the Bank, prior to extending additional credit pursuant to this paragraph, whether in the form of a renewal, extension, or further advance of funds, is provided for approval by the Board who shall determine that:
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(i) the failure of the Bank to extend such credit would be detrimental to the best interests of the Bank, with a written explanation of why the failure to extend such credit would be detrimental;
(ii) the extension of such credit would improve the Bank’s position, with a written explanatory statement of how and why the Bank’s position would improve; and
(iii) an appropriate workout plan has been developed and will be implemented in conjunction with the additional credit to be extended.
(f) The Board’s determinations and approval shall be recorded in the minutes of the Board meeting and copies shall be submitted to the Regional Director and the Commissioner at such times as the Bank submits the progress reports required by this ORDER or sooner upon the written request of the Regional Director or the Commissioner.
ALLOWANCE FOR LOAN AND LEASE LOSSES
5. (a) Within 60 days from the effective date of this ORDER, the Bank shall develop and submit for review as described in subparagraph (d), a comprehensive policy and methodology for determining the ALLL (“ALLL Policy”). The ALLL Policy shall provide for a review of the ALLL at least once each calendar quarter. Said review shall be completed no later than 15 days subsequent to the end of each calendar quarter in order that the results of the review conducted by the Board may be properly reported in the quarterly Consolidated Reports of Condition and Income (“Call Report”). Such reviews shall, at a minimum, be made in accordance with:
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(i) Financial Accounting Standards Board (“FASB”) ASC 310-40 and FASB ASC 310-10-35-2 through 30;
(ii) the FFIEC’s Instructions for the Call Report;
(iii) the Interagency Statement of Policy on the Allowance for Loan and Lease Losses (FIL-105-206, issued December 13, 2006);
(iv) other applicable regulatory guidance that addresses the appropriateness of the Bank’s ALLL; and
(v) any analysis of the Bank’s ALLL provided by the FDIC and the Commissioner.
(b) Such reviews shall include, at a minimum:
(i) the Bank’s loan loss experience;
(ii) an estimate of the potential loss exposure in the portfolio; and
(iii) trends of delinquent and nonaccrual loans and prevailing and prospective economic conditions.
(c) The minutes of the Board meetings at which such reviews are undertaken shall include complete details of the reviews and the resulting recommended adjustment in the ALLL. The Board shall document in the minutes the basis for any determination not to require provisions for loan losses in accordance with subparagraphs (a) and (b).
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(d) The ALLL Policy shall be submitted to the Regional Director and the Commissioner for non-objection or comment. Within 30 days from receipt of non-objection or any comments from the Regional Director and the Commissioner, and after incorporation and adoption of all comments, the Board shall approve the ALLL Policy, which approval shall be recorded in the minutes of the Board meeting. Thereafter, the Bank shall implement and fully comply with the ALLL Policy.
(e) A deficiency in the ALLL shall be remedied in the calendar quarter in which it is determined by a charge to current operating earnings prior to any Tier 1 Capital determinations required by this ORDER and prior to the Bank’s submission of its Call Report. The Bank shall thereafter maintain an appropriate ALLL.
(f) The analysis supporting the determination of the adequacy of the ALLL shall be submitted to the Regional Director and the Commissioner. These submissions shall be made at such times as the Bank files the progress reports required by this ORDER or sooner upon the written request of the Regional Director or the Commissioner. In the event that the Regional Director or the Commissioner determines that the Bank’s ALLL is inadequate, the Bank shall increase its ALLL and amend its Call Reports accordingly.
LOAN POLICY
6. (a) Within 60 days from the effective date of this ORDER, the Bank shall conduct a review of the Bank’s loan policies and procedures (“Loan Policy”) for adequacy and, based upon such review, shall make all appropriate revisions to the Loan Policy necessary to address the lending deficiencies identified in the current Report of Examination. The revised Loan Policy shall be submitted for review as described in subparagraph (c). The Board shall also establish review and monitoring procedures to ensure that all lending personnel adhere to the Loan Policy, and that the Board receives timely and fully documented reports on loan activity, including reports that identify deviations from the Loan Policy.
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(b) The Loan Policy shall, at minimum:
(i) require that all extensions of credit originated or renewed by the Bank, including loans purchased from a third party (loan participations):
a. have a clearly defined and stated purpose;
b. have a predetermined and realistic repayment source and schedule, including secondary source of repayment;
c. are supported by complete loan documentation, including lien searches, perfected security interests, and collateral valuations; and
d. are supported by current financial information, profit and loss statements or copies of tax returns, and cash flow projections, which shall be maintained throughout the term of the loan; and are otherwise in conformance with the Loan Policy;
(ii) incorporate limitations on the amount that can be loaned in relation to established collateral values, require the source of collateral valuations to be identified, require that collateral valuations be completed prior to the commitment to lend funds, and require that collateral valuations be performed on a periodic basis over the term of the loan;
(iii) require that extensions of credit to any of the Bank’s executive officers, trustees, or principal shareholders, or to any related interest of such person, be reviewed for compliance with Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 215, and section 337.3 of the FDIC’s Rules and Regulations, 12 C.F.R. § 337.3;
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(iv) require accurate reporting of past due loans to the Board or the Bank’s loan committee at least monthly;
(v) require the individual reporting of loans granted as exceptions to the Loan Policy and aggregation of such loans in the portfolio;
(vi) prohibit the capitalization of interest or loan-related expenses unless the Board or the Bank’s loan committee provides, in writing, a detailed explanation of why such action is in the best interest of the Bank; and
(vii) establish review and monitoring procedures for compliance with the FDIC’s appraisal regulation, 12 C.F.R. Part 323, and the Interagency Appraisal and Evaluation Guidelines (FIL-74-94, issued November 11, 1994).
(c) The Loan Policy shall be submitted to the Regional Director and the Commissioner for non-objection or comment. Within 30 days from receipt of non-objection or comments from the Regional Director and the Commissioner, and after incorporation and adoption of all comments, the Board shall approve the Loan Policy, which approval shall be recorded in the minutes of the Board meeting. Thereafter, the Bank shall implement and fully comply with the Loan Policy.
LOAN REVIEW PROGRAM
7. (a) Within 30 days from the effective date of this ORDER, the Board shall establish a program of independent loan review that will provide for a periodic review of the Bank’s loan portfolio and the identification and categorization of problem credits (“Loan Review Program”).
(b) At a minimum, the Loan Review Program shall provide for:
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(i) prompt identification of loans with credit weaknesses that warrant the special attention of management, including the name of the borrower, amount of the loan, reason why the loan warrants special attention; and assessment of the degree of risk that the loan will not be fully repaid according to its terms;
(ii) prompt identification of all outstanding balances and commitments attributable to each obligor identified under the requirements of subparagraph (i), including outstanding balances and commitments attributable to related interests of such obligors, including the obligor of record, relationship to the primary obligor identified under subparagraph (i), and an assessment of the risk exposure from the aggregate relationship;
(iii) identification of trends affecting the quality of the loan portfolio and potential problem areas;
(iv) assessment of the overall quality of the loan portfolio;
(v) identification of credit and collateral documentation exceptions;
(vi) identification and status of violations of laws, rules, or regulations with respect to the lending function;
(vii) identification of loans that are not in conformance with the Bank’s Loan Policy;
(viii) identification of loans to directors, officers, principal shareholders, and their related interests; and
(ix) a mechanism for reporting periodically, but in no event less than quarterly, the information developed in (i) through (viii) above to the Board.
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(c) The Loan Review Program shall be submitted to the Regional Director and the Commissioner for non-objection or comment. Within 30 days from receipt of non-objection or any comments from the Regional Director and the Commissioner, and after incorporation and adoption of all comments, the Board shall approve the Loan Review Program, which approval shall be recorded in the minutes of the Board meeting. Thereafter, the Bank shall implement and fully comply with the Loan Review Program.
CAPITAL
8. (a) Within 90 days from the effective date of this ORDER, the Bank shall meet and maintain the following minimum capital levels (as defined in Part 325 of the FDIC’s Rules and Regulations, 12 C.F.R. Part 325), after establishing an appropriate ALLL:
(i) Tier 1 Capital at least equal to 8 percent of total assets;
(ii) Total risk-based Capital at least equal to 12 percent of total risk-weighted assets.
(b) For purposes of this ORDER, all terms relating to capital shall be calculated in accordance with Part 325 of the FDIC’s Rules and Regulations, 12 C.F.R. Part 325, and 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’s Rules and Regulations, 12 C.F.R. Part 325, App. A.
(c) In the event any capital ratio falls below the minimum required by this ORDER, the Bank shall immediately notify the Regional Director and the Commissioner; and
(i) within 30 days shall increase capital in an amount sufficient to comply with this ORDER; or
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(ii) within 30 days shall develop a written plan (“Capital Plan”) describing the primary means and timing by which the Bank shall increase its capital ratios up to or in excess of the minimum requirements set forth in this ORDER, as well as a contingency plan (“Contingency Plan”) for the sale, merger, or liquidation of the Bank in the event the primary sources of capital are not available within 30 days. The Capital Plan and Contingency Plan shall be submitted for review as described below.
(d) At a minimum, the Capital Plan shall include:
(i) specific plans to achieve the capital levels required under this ORDER;
(ii) specific plans for the maintenance of adequate capital that may in no event be less than the requirements of the provisions of this ORDER;
(iii) projections for asset growth and capital requirements, and such projections shall be based upon a detailed analysis of the Bank’s current and projected assets, liabilities, earnings, fixed assets, and off-balance sheet activities, each of which shall be consistent with the Bank’s strategic business plan;
(iv) projections for the amount and timing of the capital necessary to meet the Bank’s current and future needs;
(v) the primary source(s) from which the Bank will strengthen its capital to meet the Bank’s needs; and
(vi) contingency plans that identify alternative sources of capital should the primary source(s) under (v) above not be available.
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(e) The Capital Plan and the Contingency Plan shall be submitted to the Regional Director and the Commissioner for non-objection or comment. Within 30 days from receipt of non-objection or any comments from the Regional Director and the Commissioner, and after incorporation and adoption of all comments, the Board shall approve the Capital Plan and the Contingency Plan, which approval shall be recorded in the minutes of the Board meeting. Thereafter, the Bank shall implement and fully comply with the Capital Plan and the Contingency Plan.
(f) The Board shall review the Bank’s adherence to the Capital Plan, at minimum, on a monthly basis. Copies of the reviews and updates shall be submitted to the Regional Director and the Commissioner as part of the progress reports required by this ORDER.
PROFIT AND BUDGET PLAN
9. (a) Within 60 days from the effective date of this ORDER, and within the first 30 days of each calendar year thereafter, the Bank shall formulate and submit for review as described in subparagraph (c), a written profit and budget plan (“Profit Plan”) consisting of goals and strategies, consistent with sound banking practices, and taking into account the Bank’s other written plans, policies, or other actions as required by this ORDER.
(b) The Profit Plan shall include, at a minimum:
(i) a description of the operating assumptions that form the basis for, and adequately support, material projected revenue and expense components;
(ii) specific goals to maintain appropriate provisions to the ALLL;
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(iii) realistic and comprehensive budgets for all categories of income and expense;
(iv) a budget review process to monitor the revenue and expenses of the Bank whereby actual performance is compared against budgetary projections not less than quarterly; and
(v) recording the results of the budget review and any actions taken by the Bank as a result of the budget review in the Board minutes.
(c) The Profit Plan shall be submitted to the Regional Director and the Commissioner for non-objection or comment. Within 30 days from receipt of non-objection or any comments from the Regional Director and the Commissioner, and after incorporation and adoption of all comments, the Board shall approve the Profit Plan, which approval shall be recorded in the minutes of the Board meeting. Thereafter, the Bank shall implement and fully comply with the Profit Plan.
(d) Within 30 days following the end of each calendar quarter following completion of the Profit Plan required by this paragraph, the Board shall evaluate the Bank’s actual performance in relation to the Profit Plan, record the results of the evaluation, and note any actions taken by the Bank in the minutes of the Board meeting at which such evaluation is undertaken.
DIVIDEND RESTRICTION
10. The Bank shall not declare or pay any dividend or fees to its holding company without the prior written consent of the Regional Director and the Commissioner.
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BROKERED DEPOSITS
11. (a) The Bank shall not accept, renew, or rollover any brokered deposit, as defined by section 337.6(a)(2) of the FDIC’s Rules and Regulations, 12 C.F.R. § 337.6(a)(2), unless it is in compliance with the requirements of 12 C.F.R. § 337.6(b), governing solicitation and acceptance of brokered deposits by insured depository institutions.
(b) The Bank shall comply with the restrictions on the effective yields on deposits described in section 337.6 of the FDIC’s Rules and Regulations, 12 C.F.R. § 337.6.
OVERSIGHT COMMITTEE
12. (a) Within 30 days from the effective date of this ORDER, the Board shall establish an oversight committee (“Oversight Committee”), a majority of which members who are not now, and have never been, involved in the daily operations of the Bank, with the responsibility of ensuring compliance with the provisions of this ORDER.
(b) The Oversight Committee shall monitor compliance with this ORDER and submit a written report monthly to the entire Board, and a copy of the report and any discussion related to the report or this ORDER shall be part of the minutes of the Board meeting. Copies of the monthly report shall be submitted to the Regional Director and the Commissioner as part of the progress reports required by this ORDER. Nothing contained herein shall diminish the responsibility of the entire Board to ensure compliance with the provisions of this ORDER.
PROGRESS REPORTS
13. (a) Within 45 days from the end of each calendar quarter following the effective date of this ORDER, the Bank shall furnish to the Regional Director and the Commissioner written progress reports detailing the form, manner, and results of any actions taken to secure compliance with this ORDER. All progress reports and other written responses to this ORDER shall be reviewed and approved by the Board and made a part of the Board minutes.
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SHAREHOLDER DISCLOSURE
14. Within 30 days from 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 parent holding company. The description shall fully describe the ORDER in all material respects.
The provisions of this ORDER shall not bar, estop, 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.
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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.
Issued Pursuant to Delegated Authority
| Dated: May 24, 2013 | ||
| By: | ||
| /s/ John F. Vogel | ||
| John F. Vogel | ||
| Regional Director | ||
| Division of Risk Management Supervision | ||
| Federal Deposit Insurance Corporation |
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ACKNOWLEDGEMENT OF ADOPTION OF FDIC CONSENT ORDER
BY
THE COMMISSIONER OF FINANCIAL REGULATION AND
THE TALBOT BANK OF EASTON, MARYLAND
The Commissioner of Financial Regulation for the State of Maryland (the “Commissioner”), having duly approved the foregoing Consent Order (“ORDER”), and The Talbot Bank of Easton, Maryland, Easton, Maryland (“Bank”) agree that, upon the issuance of the ORDER by the Federal Deposit Insurance Corporation, the ORDER shall be binding between the Bank and the Commissioner with the same legal effect and to the same degree that the ORDER would be binding on the Bank if the Commissioner had issued a separate order pursuant to Md. Code Ann., Fin. Inst. § 5-808 that included and incorporated all of the provisions of the ORDER.
The Commissioner and Bank further agree that the provisions of the ORDER shall remain effective and enforceable by the Commissioner against the Bank except to the extent that, and until such time as, any provisions of the ORDER shall be modified, terminated, suspended, or set aside by the Commissioner.
| /s/ Teresa M. Louro | May 23, 2013 | |
| Teresa M. Louro, | Date | |
| Assistant Commissioner for Bank Supervision |
Agreed and Acknowledged:
The Talbot Bank of Easton, Easton, Maryland:
| BY: | |
| /s/ Herbert L. Andrew, III | |
| Herbert L. Andrew, III | |
| Director |
| /s/ Brenda W. Armistead | |
| Brenda W. Armistead | |
| Director | |
| /s/ Lloyd L. Beatty, Jr. | |
| Lloyd L. Beatty, Jr. | |
| Director | |
| /s/ Carole Ann Clem | |
| Carole Ann Clem | |
| Director | |
| /s/ Michael Clemmer, Jr. | |
| Michael Clemmer, Jr. | |
| Director | |
| /s/ John W. Dillon | |
| John W. Dillon | |
| Director | |
| /s/ David A. Fike | |
| David A. Fike | |
| Director | |
| /s/ Duane F. Marshall | |
| Duane F. Marshall | |
| Director | |
| /s/ Steve M. Shearer | |
| Steve M. Shearer | |
| Director | |
| /s/ Christopher F. Spurry | |
| Christopher F. Spurry | |
| Director | |
| /s/ David P. Valliant | |
| David P. Valliant | |
| Director |
| 2 |
| /s/ W. Moorhead Vermilye | |
| W. Moorhead Vermilye | |
| Director | |
| Comprising the Board of | |
| Directors of | |
| The Talbot Bank of Easton, Maryland | |
| Easton, Maryland |
| 3 |
Shore Bancshares, Inc.
28969 Information Lane, Easton, Maryland 21601
Talbot Bank Enters into Consent Order with Regulators
Easton, MD, May 24, 2013 - Shore Bancshares, Inc. (NASDAQ: SHBI) announced today that its wholly owned subsidiary, The Talbot Bank of Easton, Maryland (the “Bank”), entered into a Consent Order with the Federal Deposit Insurance Corporation (“FDIC”) and the Commissioner of Financial Regulation of Maryland (“Commissioner”) with certain requirements, including improving credit quality and reviewing and revising certain of the Bank’s policies and procedures.
Patrick M. Bilbrough, Chief Executive Officer of the Bank, commented: “Everyone is familiar with the fact that the local and national economies have experienced a very difficult time. No bank has been immune from the challenges created by the economic downturn. The Bank, like most businesses, is facing challenges. As we deal with those challenges, we are working closely with the FDIC and the Commissioner to make sure that we handle these challenges in the correct way and in a timely manner.”
Importantly, despite the economic problems encountered over the last several years, the Bank had a Tier 1 leverage ratio of 8.24% and a total risk based capital ratio of 12.38% at the end of the first quarter of 2013 which exceeds the regulatory requirement of the Consent Order as well as internal levels set by the Bank. Additionally, the Company reported Net Income for the first quarter of 2013 reflecting an improvement in credit quality.
The Bank has been aggressively improving its credit quality and has already accomplished many of the requirements of the Consent Order. The Bank’s management team is confident that the administrative aspects of this Consent Order can be effectively addressed.
Mr. Bilbrough further noted: “While these types of agreements have become somewhat commonplace in the banking industry over the last three years, every member of our Board and management team is focused and committed to working with our regulators to continue to resolve the issues facing the Bank and meeting all the terms and conditions of the Consent Order. At the same time, we are committed to continuing to provide to our customers the superior care and service levels to which they are accustomed.”
Mr. Bilbrough concluded: “We look forward to overcoming our current challenges and emerging an even stronger bank.”
The Bank is a member of the Shore Bancshares family of companies, the largest independent financial services company that offers banking, insurance and wealth management services to families and businesses on the Delmarva Peninsula. As a financial holding company with $1.1 billion in assets, the Shore Bancshares family of companies also includes CNB, Wye Financial & Trust, Avon-Dixon Agency, LLC, Elliott Wilson Insurance, LLC and Jack Martin & Associates, Inc.
With 7 locations in Talbot and Dorchester counties, we serve the local needs of our customers and our community through personalized banking services and products, convenient operations and secure and reliable banking solutions. Our employees offer a personalized “hometown” approach to make your banking experience positive. We invest in what is important to you.
Forward-Looking Statements
This press release contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements do not represent historical facts, but statements about management’s beliefs, plans and objectives. These statements are evidenced by terms such as “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” and similar expressions. Although these statements reflect management’s good faith beliefs and projections, they are not guarantees of future performance and they may not prove true. These projections involve risk and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements. For a discussion of these risks and uncertainties, see the section of the periodic reports filed by Shore Bancshares, Inc. with the Securities and Exchange Commission entitled “Risk Factors”.
For further information contact: W. Moorhead Vermilye, Chief Executive Officer, 410-763-7800