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FDIC Enforcement Decisions and Orders

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   [10,004] In the Matter of First American Bank and Trust, North Palm Beach, Florida, Docket No. FDIC-89-178b (9-13-89).

   Bank to cease and desist from practices such as operating with management policies and practices detrimental to the safety of deposits and with inadequate capital in relation to assets; engaging in hazardous lending and ineffective collection; maintaining excessive and disproportionately large volume of poor quality assets; maintaining excessive volume of nonearning assets; operating in such a manner as to produce unsatisfactory earnings; failing to provide and maintain adequate reserve for loan losses; operating with excessive volatile liabilities to fund long-term assets; and violating applicable federal laws and regulations. (This order was terminated by order of the FDIC, dated 1-25-90, see15,080.)

   [.1] Primary Capital—Increase—Methods
   [.2] Management—Qualifications—Compliance
   [.3] Principal Shareholder—Prohibition of Involvement
   [.4] Subsidiaries—Restrictions on Investment—Written Plan—Exceptions
   [.5] Definition—"ORE Subsidiaries"—Exception to Restrictions on Investment
   [.6] Subsidiaries—Restrictions on Investment—Permitted
   [.7] Loans—Extensions of Credit—Restrictions
   [.8] Loans—Enforcement of Terms—Exceptions
   [.9] Board of Directors—Conduct—Exemption
   [.10] Subsidiaries—Principal Business Activity—Written Reports
   [.11] Assets—Adversely Classified—Reduce
   [.12] Lines of Credit—Adversely Classified—Reduce
   [.13] Loans—Acquisition, Development and Construction—Reduce
   [.14] Definition—"Acquisition, Development and Construction Loans"
   [.15] Loan Loss Reserve—Adequacy
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   [.16] Loan Loss Reserve—Reports of Condition and Income—State and FDIC Compliance
   [.17] Trust Committee—Composition—Duties
   [.18] Employee Stock Ownership Plan—Comprehensive Review—Correction of Violation—Prohibited Transactions
   [.19] Short-term Assets—Increase Relative and Total Assets—Decrease Funding by Volatile Liabilities
   [.20] Performance Progress Reports—Frequency
   [.21] Definition—"Short-term Assets"—"Long-term Assets"—"Volatile Liabilities"
   [.22] Compliance—Corrective Steps
   [.23] Shareholders—Dividends—Approval
   [.24] Shareholders—Disclosure—Cease and Desist Order
   [.25] Compliance—Progress Reports—Frequency

In the Matter of

FIRST AMERICAN BANK AND
TRUST

NORTH PALM BEACH, FLORIDA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

   First American Bank and Trust, North Palm Beach, Florida ("Bank"), having been advised of its right to a written NOTICE OF CHARGES AND OF HEARING ("NOTICE") detailing alleged charges of unsafe or unsound banking practices and violations of applicable laws and regulations by the Bank and of its right to a hearing regarding such alleged charges under section 8(b)(1) of the Federal Deposit Insurance Act, 12 U.S.C. § 1818(b)(1), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") with a representative of the Legal Division of the Federal Deposit Insurance Corporation ("FDIC"), dated September 5, 1989, whereby solely for the purposes of this proceeding and without admitting or denying any of the alleged charges of unsafe or unsound banking practices and violations of applicable laws and regulations disclosed in the FDIC Report of Examination of the Bank as of September 30, 1988, the Bank consented to the issuance of an ORDER TO CEASE AND DESIST ("ORDER") by the FDIC.
   The FDIC considered the matter and determined that it had reason to believe that the Bank had engaged in unsafe or unsound banking practices and committed violations of applicable laws and regulations. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

ORDER TO CEASE AND DESIST

   IT IS ORDERED, that First American Bank and Trust, North Palm Beach, Florida, its directors, officers, employees, agents, successors and assigns, and other persons participating in the conduct of the affairs of the Bank, cease and desist from the following unsafe or unsound banking practices and violations of applicable laws and regulations:
   1. Operating the Bank with management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits.
   2. Operating the Bank with capital that is inadequate to support the kind and quality of assets held by the Bank.
   3. Engaging in hazardous lending and ineffective and lax collection practices.
   4. Maintaining an excessive and disproportionately large volume of poor quality assets, including investments in Bank-owned subsidiaries.
   5. Maintaining an excessive volume of nonearning assets.
   6. Operating the Bank in such a manner as to produce unsatisfactory earnings.
   7. Failing to provide and maintain an adequate reserve for loan losses.
   8. Operating the Bank with excessive volatile liabilities to fund long-term assets.
   9. Violating applicable laws and regulations as more fully described on pages 6-b through 6-b-4 of the FDIC Report of Exam- {{4-1-90 p.C-16}}ination of the Bank as of September 30, 1988, and page 3-c of the FDIC Report of Examination of the Trust Department as of December 31, 1988.
   IT IS FURTHER ORDERED that First American Bank and Trust, North Palm Beach, Florida take affirmative action as follows:

   [.1] 1. (a) During the period September 30, 1988, through June 30, 1990, the Bank shall raise not less than $65,000,000 of primary capital, excluding any additional minority interests in consolidated subsidiaries. As used in this ORDER, the term "primary capital" shall have the same meaning as that provided in section 325.2(h) of the FDIC rules and regulations, 12 C.F.R. § 325.2(h). The addition to primary capital of the Bank required by this paragraph of the ORDER may be accomplished by any one or more of the following:

       (1) The sale of equity securities, or
       (2) The elimination of all or part of the "Loss" and "Doubtful" assets referred to in paragraph 9(a) of this ORDER, without loss or liability to the Bank; or
       (3) The direct contribution in cash by the directors and/or shareholders of the Bank; or
       (4) The collection in cash of assets previously charged off; or
       (5) The sales of assets at a profit recorded in accordance with generally accepted accounting principles; or
       (6) Any other means acceptable to the Regional Director of the FDIC Atlanta Regional Office ("Regional Director") and the State Comptroller, State of Florida ("Comptroller").
   (b)(1) If the required increase of the Bank's primary capital under paragraph 1(a) of this ORDER involves a public distribution of the Bank's securities (including a distribution limited to the Bank's existing shareholders), the Bank shall prepare detailed offering materials fully describing the securities being offered, including an accurate description of the financial condition of the Bank and the circumstances giving rise to the offering, and any other material disclosures necessary to comply with applicable Federal securities laws. Prior to final implementation of the sale of such securities and, in any event, not less than 20 days prior to the dissemination of any offering materials used in such sale, such offering materials shall be submitted to the FDIC, Registration and Disclosure Unit, Washington, D.C. 20429 and to the Comptroller for review. Any changes in such offering materials requested by the FDIC Registration and Disclosure Unit or the Comptroller shall be made prior to their public dissemination.
       (2) In complying with the provisions of paragraph 1(b)(1) of this ORDER, the Bank shall provide written notice to any subscriber and/or purchaser of Bank stock of any planned or existing development or other change which is materially different from that reflected in any offering materials used incidental to such sale of Bank stock. The written notice required by this paragraph of the ORDER shall be furnished within 10 calendar days from the date that such material development or change was planned or occurred, whichever is earlier, and shall be furnished to every purchaser and/or subscriber of Bank stock who received or was tendered the information contained in the Bank's original offering materials.
   (c) Within 30 days after December 31, 1990, and within 30 days after each June 30 and December 31 for each calendar year this ORDER remains in effect, the Bank shall calculate the Bank's total primary capital as a percentage of its total assets for the applicable June 30 or December 31 date. If such percentage is less than 5.5 percent as of December 31, 1990, less than 6.5 percent as of June 30, 1991, or less than 7.5 percent as of December 31, 1991, the Bank shall, within 90 days from the date of that determination, increase the primary capital by an amount sufficient to raise such percentage to the prescribed levels. As used herein, the terms "primary capital" and "total assets" shall have the same meanings as the definitions of such terms provided in sections 325.2(h) and 325.2(k) of the FDIC rules and regulations, 12 C.F.R. §§ 325.2(h) and 325.2(k).

   [.2] 2. The Bank shall have and retain qualified management. Such management shall include a board of directors which shall be responsible for supervising and directing the policies and activities of the Bank; a chief executive officer with proven ability in managing a Bank of comparable size; a senior lending officer having an appropriate level of lending, collection and loan supervision experience necessary to supervise the upgrading of a low quality {{4-1-90 p.C-17}}loan portfolio; and a qualified operations officer. Such persons shall be provided the necessary written authority to implement the provisions of this ORDER. The qualifications of management shall be assessed on the ability to (1) comply with the requirements of this ORDER, (2) operate the Bank in a safe and sound manner, (3) comply with applicable laws and regulations, and (4) restore all aspects of the Bank to a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness, and liquidity. During the life of this ORDER, the Bank shall notify the Regional Director and the Comptroller in writing of any changes in senior management including directors. The notification must include the name and background of any replacement personnel and must be provided prior to the individual assuming the new position.

   [.3] 3. As of the effective date of this ORDER, the Bank's board of directors shall take all necessary measures to eliminate the activities of principal shareholder Roy W. Talmo with respect to the operation of the Bank which are in contravention of or inconsistent with Bank policy as adopted by the board of directors, the safe and sound operations of the Bank or any provision of this ORDER.

   [.4] 4. (a) As of December 31, 1990, subject to the provisions of paragraph 4(c) of this ORDER, the Bank's investment in all subsidiaries shall not exceed 50 percent of the Bank's primary capital. As of December 31, 1991, the Bank's investment in subsidiaries shall (1) not exceed 50 percent of the Bank's primary capital with respect to all subsidiaries, and (2) not exceed 15 percent of the Bank's primary capital with respect to any one subsidiary.
   (b) Within 90 days from the effective date of this ORDER, the Bank shall submit to the Regional Director and the Comptroller detailed plans for reducing the Bank's aggregate investment in all subsidiaries to not more than 50 percent of the Bank's primary capital; and shall submit detailed plans for reducing the Bank's investment in any one subsidiary to not more than 15 percent of the Bank's primary capital.
   (c) The investment restrictions of paragraph 4(a) of this ORDER may be exceeded only if:

       (1) in the case of any one subsidiary, the Bank's investment in excess of the 15 percent limitation is accompanied by a corresponding dollar-for-dollar increase in the Bank's primary capital; and
       (2) in the case of all subsidiaries, the aggregate investment in excess of the 50 percent limitation is accompanied by a corresponding dollar-for-dollar increase in the Bank's primary capital.
   (d) The capital increases required by paragraph 4(c) hereof shall be separate from, and in addition to, the requirements of paragraphs 1(a) and 1(c) of this ORDER.
   (e) For the purpose of this ORDER, an investment in a subsidiary includes (1) the purchase of stock or other securities, (2) the extension of credit and advances directly or indirectly to the subsidiary, and (3) any other item that must be reported as an investment in subsidiaries in Reports of Condition submitted to the FDIC pursuant to section 7(a) of the Federal Deposit Insurance Act, 12 U.S.C. § 1817(a).

   [.5] (f) Provided, however, the provisions of this paragraph 4 shall not be applicable to Bank subsidiaries created solely for the purpose of holding title to other real estate, or other assets acquired by the Bank for debts previously contracted. The subsidiaries described in this paragraph shall be referred to as "ORE subsidiaries".

   [.6] 5. Each investment in subsidiaries, excluding ORE subsidiaries, made after 30 days from the effective date of this ORDER, shall only be made if required by joint venture agreement, a formal written loan commitment, or if specifically approved by the FDIC and the Comptroller, and shall:
   (a) Be supported by a written analysis prepared for the Bank's board of directors which includes, at a minimum, the following information:

       (1) The specific use of the funds invested or loans and a description of the project involved.
       (2) The size and timing of the investment to be made.
       (3) The size and timing of any loans or advances that will be required.
       (4) Income and expense projections.
       (5) A comparison of projected profits with estimated profits that could be ob- {{4-1-90 p.C-18}}tained if the funds were invested in alternative investments, including Federal funds sold, U.S. Treasury securities, and loans.
       (6) Whether a Bank director, officer, or principal shareholder is directly or indirectly involved in the subsidiary or any asset to be acquired through the investment.
   (b) Receive the prior written approval of the Bank's board of directors.

   [.7] 6. As of the effective date of this ORDER, the Bank shall not extend credit the proceeds of which are to be used by the borrower, directly or indirectly, to acquire any interest in real estate or any other asset owned or developed by a subsidiary of the Bank, unless:
   (a) Such extension of credit is made on credit terms substantially similar to those prevailing at the time for comparable transactions by the Bank with other borrowers.
   (b) Minimum requirements are to include:

       (1) A cash down payment of not less than 20 percent of the purchase price;
       (2) Amortization of not more than 20 years;
       (3) A balloon payment of not more than 2 years; and
       (4) An interest rate of not less than the prime rate reported in the local edition of the Wall Street Journal as of the last day of the previous month.
   (c) Such credit receives the prior written approval of a majority of the Bank's board of directors.

   [.8] 7. As of the effective date of this ORDER, the Bank shall strictly enforce the terms of all existing extensions of credit to any borrower where the purpose of the credit was to acquire, directly or indirectly, any interest whatsoever in real estate or any other asset owned or developed by a subsidiary, joint venture or similar entity of the Bank. Provided, however, the terms of this paragraph shall not apply to ORE subsidiaries, and provided further that the terms of this paragraph shall not be construed to prevent the Bank from accepting a deed in lieu of foreclosure, or otherwise entering into a work out arrangement with the borrowers. Any such work out arrangements shall receive the prior written approval of a majority of the Bank's board of directors, and the Regional Director and the Comptroller shall be notified prior to implementation of such work out arrangements.

   [.9] 8. (a) As of the effective date of this ORDER, the Bank shall require the board of directors of each wholly-owned or majority-owned subsidiary to:

       (1) Maintain separate and distinct accounting and other corporate records;
       (2) Conduct separate board of directors meetings;
       (3) Conduct business pursuant to independent policies and procedures.
   (b) Provided, however, the Bank's ORE subsidiaries shall be exempt from the requirements of paragraph 8(a).

   [.10] (c) As of the end of the first calendar quarter following the effective date of this ORDER, the Bank's board of directors shall obtain from the board of directors of each subsidiary a written report concerning the principal business activity and financial operations of such subsidiary during that quarter. Thereafter, written reports shall be required to be submitted by each subsidiary not less frequently than quarterly as long as this ORDER remains in effect. The minutes of the Bank's board of directors meeting at which the quarterly review is undertaken shall indicate the results of the review.

   [.11] 9. (a) Within 30 days from the effect date of this ORDER, the Bank shall eliminate from its books, by collection, charge-off or other proper entries, 100 percent of all assets or portions of assets classified "Loss" and 50 percent of all assets or portions of assets classified "Doubtful" as of September 30, 1988, not previously charged off or collected, unless otherwise approved in writing by the Regional Director and the Comptroller.
   (b) Within 270 days from the effective date of this ORDER, the Bank shall reduce the remaining total of all assets classified "Substandard" and "Doubtful" as of September 30, 1988, to not more than $200,000,000; within 360 days from the effective date of this ORDER, such assets of the Bank shall be reduced to not more than $150,000,000; within 540 days from the effective date of this ORDER, such assets of the Bank shall be reduced to not more than $100,000,000; and within 720 days from the effective date of this ORDER, such assets of the Bank shall be reduced to not more than $50,000,000. The requirements of this paragraph of the OR- {{4-1-90 p.C-19}}DER shall not be construed as the standard for future operations of the Bank.
   (c) As used in paragraph 9(b) of this ORDER, the term "reduce" means (1) to collect, (2) to charge-off, or (3) to sufficiently improve the quality of assets adversely classified to warrant removing any adverse classification determined by the FDIC and/or the Florida Department of Banking and Finance.

   [.12] 10. Within 90 days from the effective date of this ORDER, the Bank shall submit to the Regional Director and the Comptroller specific plans and proposals to effect the reduction and/or collection of any lines of credit which are adversely classified by the FDIC as of September 30, 1988, and which aggregate $1,000,000 or more as of that date. Such plans shall thereafter be monitored and progress reports thereon submitted by the Bank at 90-day intervals concurrently with the other reporting requirements set forth in paragraph 18 of this ORDER.

   [.13] 11. (a) Within 90 days from the effective date of this ORDER, the Bank shall submit to the Regional Director and the Comptroller for their review and approval a specific plan to reduce the total concentration in Acquisition, Development and Construction loans ("ADC loans"), as defined in paragraph 11(b) of this ORDER, including the unused balance of partially funded ADC loans and unfunded commitments for new ADC loans.

   [.14] (b) As used in paragraph 11(a) of this ORDER, the term "Acquisition, Development and Construction loan" shall mean any loan in excess of $1,000,000 originated or purchased (in whole or in part) by the Bank which is secured by real estate and has a maturity of 60 months or less and the proceeds of which are used to acquire and/or develop real estate; provided, however, said term shall not apply to (1) any loan where a borrower will occupy at least 50 percent of the real estate securing the loan and will have a 20 percent equity interest in the property securing the loan at the time the loan is funded. As used herein, the term "develop" shall mean the construction and/or renovation of any building or other structure and shall, without limiting the generality of the foregoing, include the erection of a new building or other structure, the addition to or alteration of an existing building or structure, or the demolition of an existing building or other structure in preparation for a new building or structure.

   [.15] 12. (a) Within 30 days from the effective date of this ORDER, and concurrently with the charge-off requirements under paragraph 9(a) of this ORDER, the Bank shall establish and thereafter maintain an adequate reserve for loan losses by charges against current operating income. In complying with the requirements of this paragraph of the ORDER, the Bank's board of directors shall review the adequacy of the Bank's reserve for loan losses prior to the end of each calendar quarter. The minutes of the board meeting at which such review is undertaken shall indicate the results of the review, the amount of any increase in the reserve recommended, if any, and the basis for determination of the amount of reserve provided.

   [.16] (b) Reports of Condition and Income required by the FDIC and the Florida Department of Banking and Finance filed by the Bank prior to the effective date of this ORDER and subsequent to September 30, 1988, shall reflect a provision for loan loss reserve necessary to comply with paragraph 12(a) of this ORDER. If necessary to comply with this paragraph, the Bank shall file amended Reports of Condition and Income within 30 days from the effective date of this ORDER.

   [.17] 13 (a) Within 30 days from the effective date of this ORDER, the Bank's board of directors shall appoint and maintain a Trust Committee consisting of at least three directors, at least one of whom shall not be an officer of the Bank, to be responsible for and supervise the activities of the Bank's Trust Department.
   (b) Beginning 30 days after designation, the Trust Committee shall:

       (1) Meet at least once each month;
       (2) Review the assets of each trust account at least once during each 12 month period;
       (3) Approve all purchases, sales and changes of trust assets;
       (4) Approve the opening of all new trust accounts;
       (5) Approve the closing of trust accounts;
       (6) Keep minutes of its actions;
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       (7) Make not less than quarterly reports to the Bank's board of directors of its actions.

   [.18] (c) Within 30 days of the effective date of this ORDER, the Bank's board of directors shall authorize a comprehensive review of The First American Bank and Trust Employee Stock Ownership Trust ("ESOP") and take appropriate measures to:
       (1) Eliminate the influence of Roy W. Talmo upon the ESOP Committee members and/or the administration of the ESOP account;
       (2) Ensure that the ESOP Trust Account is administered solely for the benefit of the ESOP participants;
       (3) Compensate the ESOP Trust for losses resulting from the past administration of the Trust by the ESOP Committee and/or Trust Department as determined by the comprehensive review of the ESOP.
   (d) As of the effective date of this ORDER, the Bank shall initiate procedures to correct the apparent violation scheduled on page 3-c of the December 31, 1988 FDIC Report of Examination of the Trust Department.
   (e) Within 30 days of the effective date of this ORDER, the Bank shall develop a policy prohibiting transactions which involve, or appear to involve, self-dealing and/or conflicts of interest by any person with respect to the ESOP.

   [.19] 14. (a) Within 60 days from the effective date of this ORDER, the Bank shall develop and implement measures designed to increase the volume of short-term assets in relation to total assets and to decrease the extent to which volatile liabilities are utilized to fund long-term assets.

   [.20] (b) In addition, the Bank shall prepare periodic progress reports regarding the Bank's actual performance compared to its plan to increase the volume of short-term assets in relation to total assets and to decrease the extent to which volatile liabilities are utilized to fund long-term assets. The Bank shall submit these progress reports to the Regional Director and the Comptroller at 90-day intervals concurrently with other reporting requirements set forth in paragraph 18 of this ORDER.

   [.21] (c) As used in paragraph 14(a) and (b), the term "short-term assets" means all assets having a maturity of one year or less. The term "long-term assets" means all assets having a maturity in excess of one year. The term "volatile liabilities" means all time deposits over $100,000, federal funds purchased, securities sold under agreements to repurchase and other liabilities for borrowed money.

   [.22] 15. Within 60 days from the effective date of this ORDER, the Bank shall take steps necessary, consistent with sound banking practices, to correct all violations of laws, rules and regulations cited on pages 6-b through 6-b-4 of the September 30, 1988 FDIC Report of Examination of the Bank. In addition, the Bank shall adopt appropriate procedures to ensure the Bank's future compliance with all applicable laws, rules and regulations.

   [.23] 16. As of the effective date of this ORDER, the Bank shall not pay any cash dividends without the prior written consent of the Regional Director and the Comptroller.

   [.24] 17. As of the effective date of this ORDER, the Bank shall send to its shareholders or otherwise furnish a description of this ORDER (1) in conjunction with the Bank's next shareholder communication and (2) in conjunction with its notice of proxy statement preceding the Bank's next shareholder meeting. The description shall fully describe the ORDER in all material respects. The description and any accompanying communication, statement or notice shall be sent to the FDIC, Registration and Disclosure Unit, Washington, D.C. 20429 for review at least 20 days prior to dissemination to shareholders. Any changes requested to be made by the FDIC shall be made prior to dissemination of the description, communication, notice or statement.

   [.25] 18. Within 90 days from the effective date of this ORDER, and at 90-day intervals thereafter, unless and until each and every corrective action required by this ORDER has been accomplished, the Bank shall furnish written progress reports to the Regional Director and the Comptroller detailing the form and manner of any actions taken to secure compliance with this ORDER and the results thereof. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Regional Director and the Comptroller have released the Bank in writing from making further reports.
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   The provisions of this ORDER shall become effective 10 days after its issuance and shall be binding upon the Bank, its directors, officers, employees, agents, successors and assigns, and other persons participating in the conduct of the affairs of the Bank. Further, this ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provision of this ORDER shall be modified, terminated, suspended, or set aside by the FDIC.
   Dated at Atlanta, Georgia, this 13th day of September, 1989.
   Pursuant to delegated authority.

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