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BEFORE THE OHIO Written Agreement SHOREBANK, Cleveland, UNITED STATES OF AMERICA OF GOVERNORS OF THE FEDERAL WASHINGTON, D.C. BOARD DIVISION SYSTEM INSTITUTIONS OF FINANCIAL COLUMBUS, OHIO by and between CLEVELAND Ohio FEDERAL RESERVE Cleveland, Ohio RESERVE Docket ) BANK No. 98-022-WA/RB-SM OF CLEVELAND and OHIO DIVISION OF FINANCIAL INSTITUTIONS Columbus, Ohio WHEREAS, and maintain Cleveland, member Reserve Division agreed the financial Ohio of the Federal Bank Reserve of Cleveland of Financial to enter into the Rules goal of the ShoreBank, to restore Cleveland, chartered bank System, the Bank, the Federal (the "Reserve Bank"), Agreement this Agreement is being Delegation and (the "Division") Written Regarding common a state Institutions this of their soundness (the "Bank"), WHEREAS, with in recognition which is a the Ohio have mutually (the "Agreement"); executed of Authority in accordance of the Board of 2 Governors of the Federal Reserve System (the "Board of Governors"), specifically 12 C.F.R. 265.11(a) (151, and Reserve has the prior approval of the Director Bank the Division of Banking "Director") enter received and the General into this Agreement WHEREAS, with Chapter directors to enter on authorizing into to compliance the Bank of (the of Governors to the Bank; is being Revised is acting and executed Code, under in accordance and the Deputy his own authority the Division in entering and on this and of the Bank, resolution of the Board this Agreement for Banks WHEREAS, section with of the Superintendent Agreement; and Regulation Counsel of the Ohio 1121 Superintendent behalf Supervision the and 3(u) oz\ at a duly constituted and directing this Agreement with each and every of the Federal (12 U.S.C. 1998, e6Vqe on behalf Deposit 1813(u)). the board meeting, of this parties, Insurance of adopted 3fqE!tyuL, -P-r‘ of the Bank provision its institution-affiliated (the "FDI Act") , &qoSt 4 and cm consented Agreement as defined Act, a as amended by in 3 NOW, adjudication without made of or finding this Agreement or implied the Division, without Division hereby of directors an admission the Bank, Bank 40 days shall (the "Review") and forward written detailing affairs of officer its findings The positions of the Bank Agreement, or this matter and the and the adequately; and personnel the Division The recommendations. following: identification needed of policies of the Bank's Bank the board review operating to the Reserve at a minimum, (i) number Bank, Bank a complete of its current of the performance include, the Reserve conduct and shall of settling of this and procedures Review and as follows: implementation report or of any allegation the Reserve for the purposes Within of the of any testimony of fact or law herein, of Governors, proceedings, (a) 1. taking issue constituting solely agree the on any by the Board and further the Bank's before THEREFORE, to manage of the type and and supervise the a 4 the (ii) the Bank's provide board guidance of directors' committees and to Bank oversight (iii) Bank's management scope, frequency board and by Bank or eliminate as each staff responsibility determine experience and whether and anticipated policies sound for a major these other individuals including of to including are to found; Bank authority possess the to the recommendations of each officer, as or operations, to the ability, required to perform adherence and maintenance of the provided of the Bank's qualifications duties, are needed of the supervision that lending area establishment management; and an evaluation with that of information management, member and of directors, any deficiencies and procedures condition; board sufficiency (iv) well an assessment by the Bank's of directors correct identification present to the Bank's of the Bank in a safe and (v) additional or replacement experience and other a plan to recruit personnel qualifications and hire any with the requisite ability, that are necessary to fill and 5 Bank officer findings and of the staff The in the development Bank's needs personnel. that aspects of a management with of this structure staffed to: including and of the Review the sound Agreement quality condition, and all and trained and shall and maintain and all capital (ii) comply applicable be to to the of management (i) restore asset shall suitable by qualified the qualifications by its ability to a safe requirements consistent purpose is adequately of the Bank, adequacy, primary At a minimum, be determined positions Review. (b) aid member laws with the and regulations. (c) written report submit a written Reserve Bank the board Bank required written and over address report. the after by paragraph plan the Division of directors supervision 20 days management and management fully Within to improve the Bank's findings l(a) hereof, specific to take in order the board officers. and completion (the "Management describing proposes the of the the Bank shall Plan") to the actions that to strengthen of directors' The Management recommendations Plan contained shall in the 6 Within 2. submit 30 days to the Reserve achieve and, The plan Bank thereafter, shall, Guidelines of the Board Risk Based Measures Part 208, the maintain Division and current of Governors and with shall plan capital to position. consider: future capital the Capital for State 1 Leverage the Bank a written an adequate compliance and Tier Agreement, address The Bank's including App. and at a minimum, (a) requirements, of this Measure Adequacy Member Banks: (12 C.F.R. A and B); (b) the volume of the Bank's adversely (cl the growth in the Bank's assets classified assets; relationship to the Bank's (d) earnings; capital the Bank's and its ratios; anticipated levels of retained 7 the (e) fulfill the Bank's requirements; future any and month 10 percent Division within of additional the loan loss funds to reserve within the Bank's that Bank Tier to notify 5 days details 1 leverage the ratio of the end 1 leverage to the Reserve ratio Bank steps the Reserve and than falls the the Bank to no less of will take 10 percent 60 days. without The the prior Director, received and Bank on earnings, not cash not approval the Division. by the Reserve but shall written to the proposed contain, Bank. and for the to submit plan its Tier 3. prior timing in writing, that and a written to increase capital procedures the Division, calendar below and and (f) Bank source and dividend flow, any dividends the Bank, for approval Division declaration to, current capital or pay of the Reserve Requests Bank be limited declare levels shall at least date and and projected and asset the be 30 days shall information quality of the 8 4. the (a) The responsibility Bank's for monitoring written loan policies monthly basis, $20,000 that or more or on nonaccrual the meeting, or that mention by federal specifically accordance the with the volume forth written 5. shall submit due with board policies latest report shall was made in and procedures, to reduce actions procedures of directors 60 days Bank for special management such 90 days were in as set and procedures. shall discussions for subsequent to the Reserve directors' of the of credit collection of its loan Within date of directors and whether of for or listed by Bank on a or interest in the Bank's loan policies be available (a) in excess the extension loans, loan minutes loans The board the Bank's The of all classified undertaken the Bank's review, as of the written with maintain shall examiners whether actions in its written shall adversely or state (b) which status shall and as to principal the Bank's compliance accurate due are of past compliance status or visitation. collection full current address of directors and procedures are past of examination board the and meetings, supervisory of this and maintain review. Agreement, Division the Bank a written plan 9 designed to improve $50,000 that of 90 days and on each that estate, mention report was by Reserve through additional collateral except or other This due status or visitation. the Reserve receipt Bank of each shall of $50,000 for special of the Bank and new amendment for more report of each within of examination (the loan be or rescinded and have to cover that 90 days subsequent shall 30 days loans adversely subsequent or loans than without the Division, been in any to the plan the Division may periodically mention as of the date 1998 recent liquidation, Bank that as special problem not be amended be amended other by any of the whichever of the Reserve shall 11, loan repayment, means, including in the most on the Bank's or interest Each May of in excess or listed examiners dated in excess of this of $50,000, as a problem or other or visitation as to principal nonaccrual cited Bank, loan or interest classified Division of the in excess or listed of examination and approval the plan assets classified adversely plan on each as of the date in excess amortization, written that status or included watchlist, appropriate. position as to principal asset Report"), consultants, the prior due Bank of examination "Examination Bank's past or on nonaccrual Agreement real was the Bank's report are past or on examination be submitted after or visitation. to the Bank's Amended 10 plans based listed on loans for special or visitations Division mention shall with past due hereof, such assets shall assets include, of funds (v) specific target (vi) a copy from the "LOSS" been (a) and receipt visitation, levels of the Bank's 6. Bank for changes previously most Unless of any report timetables current otherwise the Division, charge-off in such and in status federal the 100 percent collected in full asset; of the assets; watch within report by the 10 days of examination assets or visitation or charged-off. and list. in writing shall, of all of examination (iii) plans for achievement; or state of of the plan; internal Bank 13 values of the approved and by paragraph collateral; or elimination 13 on classified required of supporting the or visitation. reports as of the date and by paragraph (i) the carrying at a minimum: reduction, (iv) source Reserve progress or examinations Bank required examination of $50,000, and value improvement, in subsequent report, (book and nonbook) (ii) the nature for Quarterly are classified to the Reserve subsequent in excess that or overdue progress each (b) assets be submitted the next following hereof, or other or classified that have not 11 (b) shall achieve and, charges to current reserve for determined Within loan thereafter, operating losses. in light the current 30 days level of this continue income, The an adequate loans, evaluation of the potential for portfolio, current conditions, contained in the the requirements Allowance Bank's most of the Interagency for Loan "Interagency maintained amount economic and Policy reserve Bank Agreement. Thereafter, assessment nonperforming quarterly 30 days and needed. loans assessment of the end the Division the Bank of its loan and shall experience, criticisms Policy Statement dated used record loss quarter. loans, of examination, shall to the Reserve of each other within submit loss and on the December 21, 1993 record shall be in determining shall conduct, reserve to of this at a minimum, and documentation and (the the be submitted 60 days Bank be in the Bank's A written This shall report Losses, . valuation classified past losses the methodology the Reserve quarterly Lease recent Statementu) indicating of the loan through of the reserve of weighted of nonperforming the Bank to maintain, adequacy of the volume Agreement, a its of each the Division within 12 Within 7. submit 60 days to the Reserve Bank procedures. The identify categorize quality and of the loan Bank's include a minimum, assigned to each the Grading written shall credits and loan shall review to be designed the overall to assess These portfolio. the Bank procedures shall, at following: of the risk grades to be loan; the designation for determining of the loan individuals who will grades; (c) a description of when loans will be graded; (d) a description of what loans will be graded; (e) the Interagency requirements procedures problem loan Agreement, the Division A description (b) be responsible and review the (a) of this Policy relating Systems"; requirements Statement to "Loan outlined addressing Review in Attachment the minimum Systems" and "Credit I of 13 (f) risk grades procedures assigned by the Bank's for each (9) loan, a written file, of the statement, reason(s) (h) review grading Bank's board taken each adversely 8. submit 1998 a mechanism earnings not necessarily the 60 days Bank consisting the merits as a watch list appropriate special of an adequate credit attention; internal loan for reporting status of the to improve periodically loan reviews the Bank's to the and position the on graded. Within 1999 officers; in the loan of all and by management to the Reserve and such the accuracy identified development of directors action(s) loan the loan loan maintained why report; (i) to confirm and of this the Division of goals of the Bank. be limited Agreement, and The written to, the a written strategies plan following: the Bank shall for plan shall for improving include, but 14 Identification (a) means by which Bank's the board operating of directors realistic provide for: income expense items; Bank the actual in comparison seek in and to improve financial statements, statements (iii) the and year-end balance flow of the a of projected annual sheet process on at least revision projected at of all material and net cash semiannual that, of a review projections including budgets estimates expenses income, and basis; comprehensive (ii) establishment to budgetary quarterly flow and (i) monthly a minimum, to monitor will areas performance; (b) and of the major and budgets income and cash statements for the Bank; a description (c) that form income the and and bonuses bases expense for, and adequately components, (if any) of senior deferred tax position, and maintain adequate loss loan of the operating support, including officers provisions reserves; assumptions major projected the compensation and directors, needed and the to establish level Bank's and 15 (d) expenses reduce with a complete overhead (a) submit management an adequate to peer Within liquidity at a minimum, address and erosion sources large, minimum (A) the credit with on short other notice; to provide the Bank a written funds for the maintenance plan and procedures if the funding Bank establishment were plan of shall, to identify to experience of contingency withdrawals, of assets, financial an and which shall (B) establishing institutions which will plans include, lines advance for at a of funds and (iii) directors to base; unexpected sale Agreement, the Division A contingency (ii) meeting to be taken or below. of this The overhead consider: of liquidity of its deposit of the steps and position. (i) potential Bank and procedures of the Bank's levels 30 days to the Reserve plan analysis description expenses 9. shall a complete to determine a monthly how best review to allocate by the Bank's the Bank's board of available 16 funding sources among (A) the Bank's such as loan Bank's liquidity and rate-sensitivity coordinated with and profit funds Bank's Bank consistent and/or correct all Report and subsequent any (a) 11. enter into, transaction Ohio, with written plans margin. shall be operating, Bank forth all and not, or in any other Cleveland in the Examination the of the Reserve or visitation. directly or indirectly, manner engage Corporation, Chicago, necessary to eliminate of examination shall (collectively, take practices, of law set Corporation, approval and interest investment, banking report ShoreBanc thereof (C) the immediately violations The of credit, policies. sound participate, or ShoreBank subsidiary prior with reviewing: commitments management shall steps after (B) outstanding and net loan, planning The 10. categories letters position The the asset position, commitments (b) budget various Cleveland, Illinois, "Corporation"), Bank and in any or any nonbank without the Division. the 17 For (b) (i) "transaction" transfer, direct sale nature, 215.3 and the Reserve Bank periods forth approved receipt fully plans, approved and 7, and 9(a) or the of fee of any overdrafts; as set forth and in of Governors of the Ohio in this policies, shall for review and and procedures within Agreement. and During Bank the term and procedures to the be submitted required shall within and by approval. shall the required be submitted The Bank procedures by the Reserve them. and procedures hereof the Division policies, with plans, policies, policies, of approval comply be defined 1301:1-3-04 the Division plans, set cash, or service including terms to, the or obligation 0 of the Board section The plans, 2, 5(a), Acceptable shall the Code. 12. Bank expense of credit, Agreement, including of a management of Regulation Administrative Reserve of any of credit" and but of any asset, payment 215.3) paragraphs not be limited extension "extension (12 C.F.R. include, the payment or any section of this or purchase or indirect Corporation, (ii) shall the purposes time adopt 10 days the Division of this shall the of and Agreement, not to be amended then the or 18 rescinded and the without Within (September following the .the Reserve detailing the after the Division Agreement on all asset Such 5 hereof. and by this the Reserve Bank the Division from making 14. and further All the Bank Reserve Bank the may calendar June shall progress actions improvement reports 31, and written of all required be sent of the the end of each 31, March corrections Bank approval Agreement, and manner this reports paragraph of this and form with 30 days 30, December date Bank compliance updated written Division. 13. quarter the prior have, taken to to secure results thereof, including plans required by have been when the accomplished in writing, released and the reports. communications regarding this Agreement to: (a) furnish reports be discontinued Agreement 30) R. Chris Moore Senior Vice President Federal Reserve Bank of Cleveland 1455 East Sixth Street Cleveland, Ohio 44114 shall 19 15. upon Richard L. Hardgrove Deputy Superintendent for Banks Ohio Division of Financial Institutions 77 South High Street, 21st Floor Columbus, Ohio 43266-0121 (c) George P. Surgeon Chief Executive Officer ShoreBank, Cleveland 540 E. 105th Street Cleveland, Ohio 44108 The the Bank capacities (b) and provisions its as such, 16. Each effective and suspended by the 17. the contrary, their provision enforceable successors of this until of Governors Notwithstanding and Bank discretion, grant written extensions comply any provision modified, in their shall remain terminated or the Division. and Division of this be binding and assigns. any provision Reserve shall parties, Agreement stayed, the with Agreement institution-affiliated and Board of this of time Agreement. of this may, Agreement in their to the Bank sole to to 20 If the 18. the reasonable any requirements Bank shall Bank judgment of this the compliance with, a cease addressing all matters were 19. Bank The provisions prevent Bank, the Division or any current any and desist substantially other or former order the of directors issuance of, in fulfill of the and by the Division requirements of this fulfilled. the Board action fail, to substantially to the of this federal of directors the board to consent not or otherwise taking Agreement, for which estop from its board of the Division, cause Agreement and Agreement of Governors, or state affecting institution-affiliated shall the agency Bank parties. not bar, the Reserve or department or any of its 21 20. purposes This of section Agreement 8 of the FDI Act IN WITNESS Agreement is a "written HEREOF, to be executed agreement" (12 U.S.C. the parties as of the2lst have for the 1818). caused day of this August I 1998. Ohio Division of anancial Institutions Federal Reserve of Cleveland Deputy for Banks ShoreBank, Vice Bank President Cleveland The undersigned having read the foregoing there&o by the Bank. directors Agreement of the Bank each acknowledges and approves of the consent James Fletcher i / /’ ,’ c Brian Stuart Kohl John ;_‘._:,. )/i -‘IL/ E. Hall Shields , 21 20. purposes This of section IN WITNESS Agreement Agreement is a "written 8 of the FDI Act HEREOF, to be executed agreement" (12 U.S.C. the parties as of the21st have day of for the 1818). caused this August I 1998. Ohio Division Federal Reserve of Cleveland of Vice Bank President for Banks ShoreBank, Cleveland, Cleveland Ohio By: The undersigned having read the foregoing thereto by the Bank. directors Agreement of the Bank each acknowledges and approves of the consent James Stuart Kohl Fletcher ?