Federal Deposit
Insurance Corporation

FDIC ENFORCEMENT DECISIONS AND ORDERS 1990
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   [¶10,038] In the Matter of Totalbank, Miami, Florida, Docket No. FDIC-90-2b (1-9-90).

   Bank to cease and desist from practices such as failing to provide adequate supervision over the affairs of the Bank by the Board of Directors, operating the Bank with management whose policies are detrimental to the Bank; engaging in hazardous lending and ineffective and lax collection practices; operating with an excessive number of adversely classified assets, overdue loans and nonearning assets, and with inadequate equity capital; maintaining an inadequate loan reserve; engaging in practices which produce inadequate income and excessive loan losses; operating with excessive volatile liabilities funding long-term assets, and violating federal and state laws.

   [.1] Management—Qualifications—Changes
   [.2] Primary Capital—Increase—Methods
   [.3] Primary Capital—Capital Ratio—Minimum Requirements
   [.4] Assets—Adversely Classified—Reduce
   [.5] Assets—Short-term Assets to Total Assets—Increase
   [.6] Volatile Liabilities—Funding for Long-term Assets—Decrease
   [.7] Budget and Earnings Forecasts—Preparation—Review
   [.8] Loan Loss Reserve—Adequacy—Review
   [.9] Loan Policy—Revision—Minimum Requirements
   [.10] Extensions of Credit—New—Minimum Requirements
   [.11] Asset/Liability Management Policy—Revision—Minimum Requirements
   [.12] Brokered Deposits—Acceptance—Prior Approval
   [.13] Shareholders—Disclosure—Cease and Desist Order
   [.14] Compliance—Progress Reports—Frequency

In the Matter of

TOTALBANK
MIAMI, FLORIDA

(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
   Totalbank, Miami, Florida ("Bank"), having been advised of its right to a written Notice of Charges and of Hearing detailing unsafe or unsound banking practices and violations of applicable laws and regulations alleged to have been committed 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 December 22, 1989, whereby solely for the purpose 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, 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 had 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 HEREBY ORDERED, that the Bank and its institution-affiliated parties, as such term is defined in section 204(u) of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), Pub. L. No. 101-73, section 926(u), 103 Stat. 183, _____ (1989) (to be codified at 12 U.S.C. §1813(u)), cease and desist from the following unsafe or unsound banking practices and violations of laws and regulations:
   A. Failing to provide adequate supervision and direction over the affairs of the Bank by the board of directors of the Bank {{10-31-92 p.C-198}}to prevent unsafe or unsound practices and violations of laws and regulations;
   B. Operating the Bank with management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits;
   C. Engaging in hazardous lending and ineffective and lax collection practices, including but not limited to: (i) operating the Bank in contravention of its written loan policies and procedures; and (ii) extending credit which is inadequately secured and/or which has inadequate or deficient supporting loan documentation, including current financial statements, insurance coverage, title searches or legal opinions, and cash flow and/or operating information;
   D. Operating with an excessive volume of adversely classified assets, overdue loans, and nonearning assets;
   E. Operating the Bank with equity capital that is inadequate for the kind and quality of assets held by the Bank;
   F. Failing to provide and maintain an adequate reserve for loan losses;
   G. Engaging in practices which produce inadequate operating income and excessive loan losses;
   H. Operating the Bank with excessive volatile liabilities funding long-term assets; and
   I. Engaging in violations of applicable Federal and state laws and regulations, as more fully set forth on pages 6-a and 6-a-1 of the FDIC's Report of Examination of the Bank as of April 28, 1989.
   IT IS FURTHER ORDERED that the Bank and its institution-affiliated parties take affirmative action as follows:

   [.1] 1. Within 30 days from the effective date of this ORDER, the Bank shall have and retain qualified management. At a minimum, such management shall include a chief executive officer and/or president and an operations officer with proven ability in managing a Bank of comparable size and a loan department supervisor with experience in upgrading a low quality loan portfolio. Such persons shall be provided the necessary written authority to implement the provisions of this ORDER. 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 and regulations, and (iv) restore all aspects of the Bank to a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness, and liquidity. So long as this ORDER remains in effect, the Bank shall notify the Regional Director of the FDIC's Atlanta Regional Office ("Regional Director") and the Florida State Comptroller ("Comptroller") in writing of any changes in management. The notification must include the names and qualifications of any replacement personnel and must be provided at least 30 days prior to the individual assuming the new position.

   [.2] 2. (a) On or before March 31, 1990, the Bank shall increase its primary capital by not less than $1,400,000. Such increase in primary capital may be accomplished by any one or more of the following:

   (i) The sale of new securities in the form of common stock or perpetual preferred stock; or
   (ii) The collection in cash of all or part of assets classified "Loss" or "Doubtful" as of April 28, 1989, and charged off in accordance with paragraph 3 of this ORDER, without loss or liability to the Bank; or
   (iii) The direct contribution of cash by the directors and/or shareholder of the Bank; or
   (iv) The collection in cash of assets previously charged off; or
   (v) Any other means acceptable to the Regional Director and the Comptroller.
   (b) (i) If all or part of the increase in the Bank's primary capital required under paragraph 2(a) of this ORDER involves a public distribution of the Bank's securities (including a distribution limited to the Bank's existing shareholder), 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 of this ORDER as well as the circumstances giving rise to the offering, and any other material disclosures necessary to comply with applicable Federal securities laws. Prior to the sale of such securities, and, in any event, not less than twenty (20) days prior to the dissemination of such materials, the materials used in the sale of the securities shall be {{4-1-90 p.C-199}}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 or the Comptroller shall be made prior to their dissemination.
   (ii) In complying with the provisions of paragraph 2(b)(i) of this ORDER, the Bank shall provide to any subscriber and/or purchaser of Bank stock, written notice of any planned or existing development or other change which is materially different from the information reflected in any offering materials used in connection with the sale of Bank securities. The written notice required by this paragraph 2(b)(ii) shall be furnished within ten (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.

   [.4] 3. Within 30 days from the effective date of this ORDER, the Bank shall eliminate from its books, by collection, charge-off or other proper entries, all assets or portions or assets classified "Loss" and one-half of all assets or portions of assets classified "Doubtful" by the FDIC as a result of its examination of the Bank as of April 28, 1989, which have not been previously collected or charged off, unless otherwise approved in writing by the Regional Director and the Comptroller, Reduction of these assets through use of proceeds of loans made by the Bank does not constitute collection for the purpose of this paragraph.
   4. (a) Within 180 days from the effective date of this ORDER, the Bank shall reduce the aggregate dollar volume of all assets classified "Substandard" in the FDIC's Report of Examination of the Bank as of April 28, 1989, to not more than $17,500,000; within 360 days from the effective date of this ORDER, the Bank shall reduce such aggregate total to not more than $13,500,000; within 540 days from the effective date of this ORDER, the Bank shall reduce such aggregate total to not more than $7,000,000; and within 720 days from the effective date of this ORDER, the Bank shall reduce such aggregate total to not more than $3,000,000. The requirements of this paragraph 4 of the ORDER shall not be construed to establish a standard for future operations of the Bank.
   (b) Within 60 days from the effective date of this ORDER, the Bank shall submit to the Regional Director and the Comptroller a written plan of action to reduce each line of credit which was adversely classified by the FDIC as of April 28, 1989, and which aggregated $100,000 or more as of that date. Such plan of action shall thereafter be implemented by the Bank and monitored, and progress reports thereon shall be submitted by the Bank to the Regional Director and the Comptroller at 60-day intervals concurrently with the other reporting requirements set forth in paragraph 13 of this ORDER.
   (c) As used in this paragraph 4, "reduce" means to (i) collect, (ii) charge off, or (iii) improve the quality of such assets sufficiently to warrant removal of any adverse classification by the FDIC.

   [.5] [.6] 5. (a) Within 60 days from the effective date of this ORDER, the Bank shall develop a written plan of action designed to increase the Bank's ratio of short-term assets to total assets and to decrease the extent to which volatile liabilities are utilized to fund long-term assets of the Bank. The written plan of action shall be submitted to the Regional Director and the Comptroller for review and comment. No more than 30 days after the receipt of any {{4-1-90 p.C-200}}comment from the Regional Director, the board of directors shall approve the written plan of action and any subsequent modification thereto, which approval shall be recorded in the minutes of the board of directors. Thereafter, the Bank and its institution-affiliated parties shall implement and follow the written plan of action.
   (b) After implementation of the written plan of action required by paragraph 5(a), the Bank shall prepare and submit to the Regional Director and Comptroller at 60-day intervals, concurrent with the other reporting requirements set forth in paragraph 13 of this ORDER, written progress reports comparing the Bank's actual performance with the projections contained in its written plan of action.
   (c) As used in this paragraph 5: (i) the term "short-term assets" means all assets having a maturity of one year or less; (ii) the term "long-term assets" means all assets having a maturity in excess of one year; and (iii) the term "volatile liabilities" means time deposits of $100,000 or more plus debt due in one year or less.

   [.7] 6. (a) The Bank shall prepare realistic and comprehensive calendar year budgets and earnings forecasts on a consolidated basis as of January 1 of each year and shall submit them to the Regional Director and the Comptroller for review and comment no later than January 31 of the budget year for as long as this ORDER remains in effect.
   (b) In preparing the budgets and earnings forecasts required by paragraph 6(a) of this ORDER, the Bank shall, at a minimum:

   (i) identify the major areas in, and means by, which the board of directors will seek to improve the Bank's operating performance, with particular emphasis on increasing the Bank's net interest margin and analyzing and justifying the amounts of any management fees to be paid to the Bank's parent holding company or any of its subsidiaries or affiliates; and
   (ii) describe the operating assumptions that form the basis for, and adequately support, major projected income and expense components.

   [.8] 7. Within 30 days from the effective date of this ORDER, and concurrently with compliance with the requirements of paragraph 3 of this ORDER, the Bank shall establish and thereafter continually maintain an adequate reserve for loan losses in accordance with the prevailing requirements of the Instructions for the Reports of Condition and Income, by charges against current operating income. In complying with the requirements of this paragraph 7, the Bank's board of directors shall, at a minimum, 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 increases in the reserve recommended, and the basis for determining the amount of reserve provided.

   [.9] 8. (a) Within 60 days from the effective date of this ORDER, the Bank shall review and revise its written loan policy. The Bank's written loan policy, as revised, shall include:

   (i) Specific guidelines governing home equity and/or second mortgage lending programs;
   (ii) Appropriate and adequate collection procedures, including, but not limited to, the action to be taken against borrowers who fail to make timely payments, and procedures for the collection of delinquent student loans; and
   (iii) Appropriate limitations on the extension of credit through overdrafts and cash items held against deposit accounts.

   [.10] 9. (a) As of the effective date of this ORDER, all new loans or lines of credit extended by the Bank (including renewals and extensions of existing loans and lines of credit, but excluding additional advances under existing lines of credit) in an amount of $200,000 or more shall require the prior approval of the Bank's board of directors or of a committee which shall include a director of the Bank or the Bank's parent holding company who is not a bank officer or employee and which is designated by the board to review and approve loans ("loan committee").
   (b) All loans or lines of credit required by paragraph 9(a) of this ORDER to be submitted to the board or the loan committee for review and approval shall be supported by a written summary that provides information sufficient for the board or the loan committee to make a prudent decision. Such written information shall include, at a minimum, the following:

   (i) The total amount and status of the borrower's current indebtedness to the Bank and the amount of the new extension of credit proposed;
   (ii) The purpose of the proposed extension of credit;
   (iii) The source of repayment;
   (iv) The method of repayment;
   (v) The interest rate payable by the borrower;
   (vi) The maturity of the debt;
   (vii) A description and valuation of collateral, if secured; and
   (viii) A statement of whether the loan or line of credit complies in all respects with the written loan policy of the Bank, and, if not, a statement of the reasons justifying deviation from the Bank's loan policy.

   (i) The establishment of an asset/ liability committee, including a description of its responsibilities, how often it will meet, how it will obtain information and guidance from the board, and how its activities will be reported back to the board;
   (ii) A requirement for periodic review of the Bank's deposit structure, including the volume and trend of total deposits offered, the maturity distribution of time deposits, rates being paid by trade area competition, limitations on large time deposits, public funds, and out-of-area deposits;
   (iii) A description of the manner in which the Bank's cost of funds is calculated;
   (iv) A description of the manner in which the Bank's loans are priced, including cost of funds, overhead and administrative costs, desired profits, and the criteria to be used in establishing fixed loan rates and floating rates;
   (v) In coordination with the Bank's investment policy, a determination of which types of investments are permitted, the desired mix among those investments, the maturity distribution and resultant amount of funds to be made available, and pledging requirements;
   (vi) In coordination with the Bank's loan policy, a determination of which types of loans are permitted and desirable, the desired mix among different types of loans, the desired volume of loans as a percentage of total deposits and total assets, upcoming loan maturities, and loan commitments outstanding;
   (vii) Establishment of the manner and frequency of the Bank's periodic calculation of the extent to which the Bank is funding long-term assets with short-term liabilities, and the establishment of a target ratio and/or parameters regarding the Bank's dependence upon short-term liabilities to fund long-term assets;
   (viii) Establishment of the manner and frequency of the Bank's periodic calculation of the interest rate risk exposure of the Bank at various time horizons, and establishment of target ratios of rate-sensitive assets to rate-sensitive liabilities at such time horizons;
   (ix) A periodic review of the Bank's performance in comparison to the Bank's liquidity ratio target, and a periodic review of the Bank's compliance with required legal reserves:
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   (x) A periodic review of possible alternative sources of funds; and
   (xi) Provisions for tax planning.

   [.12] (c) As of February 9, 1990, the Bank may not accept funds obtained, directly or indirectly, by or through any deposit broker for deposit into one or more deposit accounts without the prior approval of the Regional Director and the Comptroller. For purposes of this paragraph 10(c), the term "deposit broker" shall have the meaning ascribed to it in section 224(f) of FIRREA, Pub. L. No. 101-73 (to be codified at 12 U.S.C. §1839(f)), and compliance with section 224 of FIRREA, Pub. L. No. 101-73 (to be codified at 12 U.S.C. §1839), will be deemed to be compliance with this paragraph 10(c).
   11. Within 30 days from the effective date of this ORDER, the Bank shall take all necessary steps, consistent with sound banking practices, to eliminate and/or correct all violations of law and regulations committed by the Bank, as described on pages 6-a and 6-a-1 of the FDIC's Report of Examination of the Bank as of April 28, 1989. In addition, the Bank shall adopt appropriate procedures to ensure its future compliance with all applicable laws and regulations.

   [.13] 12. Following 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 also (2) in conjunction with its notice or proxy statement preceding the Bank's next shareholder meeting. The description shall fully describe this 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, and to the Comptroller, for review at least 20 days prior to dissemination to shareholders. Any changes requested to be made by the FDIC or the Comptroller shall be made prior to dissemination of the description, communication, notice or statement.

   [.14] 13. Within 60 days from the effective date of this ORDER, and every 60 days 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. All progress reports and other written responses to this ORDER shall be reviewed by the board of directors of the Bank and made a part of the minutes of the appropriate board meeting.
   14. The provisions of this ORDER shall become effective ten (10) days from the date of its issuance and shall be binding upon the Bank and its institution-affiliated parties. Further, the provisions of this ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provisions of this ORDER shall have been modified, terminated, suspended, or set aside by the FDIC.
   Pursuant to delegated authority.
   Dated at Atlanta, Georgia, this 9th day of January, 1990.