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FDIC Enforcement Decisions and Orders

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{{12-31-90 p.C-498}}
   [10,102] In the Matter of Florida Bank of Commerce, Clearwater, Florida, Docket No. FDIC-90-157b (8-10-90).

   Bank to cease and desist from such practices as operating with inadequate supervisions and direction by the Board of Directors, and with management whose policies and practices detrimental to Bank; operating in a manner as to produce unsatisfactory earnings; engaging in practices which produce inadequate operating income and excessive loan losses; engaging in hazardous lending and lax collection practices; operating with excessive volume of adversely classified assets, overdue loans, and nonearning assets; operating with inadequate equity {{12-31-90 p.C-499}}capital; failing to provide and maintain adequate reserve for loan losses; and engaging in violation of applicable federal and state laws and regulations.
   [.1] Management—Qualifications—Review
   [.2] Primary Capital—Increase—Methods
   [.3] Assets—Adversely Classified—Reduce/Eliminate
   [.4] Definition—"Reduce"
   [.5] Budget and Earnings Forecast—Minimum Requirements—Progress
   [.6] Loan Loss Reserve—Adequacy—Review
   [.7] Loans—Extension of Credit—Existing Borrower—Curtail
   [.8] Loans—Accrual of Interest—Overdue
   [.9] Loan Policy—Minimum Requirements—Review
   [.10] Loans—Extension of Credit—New—Minimum Requirements
   [.11] Dividends—Restricted
   [.12] Violations of Law and Regulations—Eliminate and/or Correct
   [.13] Shareholders—Disclosure—Cease and Desist Order
   [.14] Compliance—Progress Reports

In the Matter of

FLORIDA BANK OF COMMERCE CLEARWATER, FLORIDA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-90-157b

   Florida Bank of Commerce, Clearwater, 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 comitted 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 August 9, 1990, 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 3(u) of the Act, 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 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. Operating the Bank in such a manner as to produce unsatisfactory earnings;
   D. Engaging in practices which produce inadequate operating income and excessive loan losses;
   E. Engaging in hazardous lending and ineffective and lax collection practices including but not limited to: (i) failing to provide an adequate loan policy for the Bank; and (ii) extending credit which is inadequately secured and/or which has in- {{12-31-90 p.C-500}}adequate or deficient equity investment by borrowers;
   F. Operating with an excessive volume of adversely classified assets, overdue loans, and nonearning assets;
   G. Operating the Bank with equity capital that is inadequate for the kind and quality of assets held by the Bank;
   H. Failing to provide and maintain an adequate reserve for loan losses; and
   I. Engaging in violations of applicable Federal and state laws and regulations, as more fully set forth on page 6-a of the FDIC's Report of Examination of the Bank as of January 19, 1990.
   IT IS FURTHER ORDERED that the Bank and its institution-affiliated parties take affirmative action as follows:

   [.1] 1. Within 60 days from the effective date of this ORDER, the Bank shall have and retain qualified management. In order to have and retain qualified management, the board of directors of the Bank shall conduct or cause to be conducted a review of all delegations to employees, and an evaluation of the qualifications of all senior officers to meet the responsibilities of their positions. At a minimum such review should ensure that the Bank has the services of: 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 having an appropriate level of lending, collection and loan supervision experience necessary to supervise the upgrading of 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) oeprate 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 proposed changes in management. Such notification shall be in addition to any application and prior approval requirements established by section 32 of the Act, 12 U.S.C. § 1831i, and implementing regulations; must include the names and qualifications of any replacement personnel; and must be provided at least thirty (30) days prior to the individual assuming the new position.

   [.2] 2. (a) No later than December 31, 1990, the Bank shall increase its primary capital by not less than $1,500,000. 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 January 19, 1990, 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 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
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    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.
   (c) Within 30 days after December 31, 1990, and within 30 days after each June 30 and December 31 thereafter while this ORDER remains in effect, the Bank's board of directors shall calculate the Bank's primary capital as a percentage of its total assets ("capital ratio") as of the nearest preceding June 30 or December 31 date. If such capital ratio is less than 8 percent, the Bank shall, within 90 days from the date of such calculation, increase its primary capital by an amount sufficient to raise its capital ratio to not less than 8 percent as of the nearest preceding June 30 or December 31 date.
   (d) As used in this paragraph 2, the terms "primary capital" and "total assets" shall have the meanings ascribed to them in sections 325.2(h) and 325.2(k), respectively, of the FDIC's Rules and Regulations, 12 C.F.R. §§ 325.2(h) and 325.2(k).

   [.3] 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 of assets classified "Loss" and one-half of all assets or portions of of assets classified "Doubtful" by the FDIC as a result of its examination of the Bank as of January 19, 1990, 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 remaining assets classified "Substandard" and "Doubtful" in the FDIC's Report of Examination of the Bank as of January 19, 1990, to not more than $5,000,000; within 360 days from the effective date of this ORDER, the Bank shall reduce such aggregate total to not more than $3,500,000; within 540 days from the effective date of this ORDER, the Bank shall reduce such aggregate total to not more than $2,000,000; and within 720 days from the effective date of this ORDER, the Bank shall reduce such aggregate total to not more than $1,000,000. The requirements of this paragraph 4(a) 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 asset which was adversely classified by the FDIC as of January 19, 1990, 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 14 of this ORDER.

   [.4] (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] 5. (a) Within 10 days from the effective date of this ORDER, the Bank shall prepare a realistic and comprehensive budget and earnings forecast for calendar year 1990 and shall submit this budget and earnings forecast to the Regional Director and the Comptroller for review and comment. Beginning on January 1, 1991, the Bank shall prepare calendar year budgets and earnings forecasts 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 5(a)
{{12-31-90 p.C-502}}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 reducing the Bank's overhead expenses and analyzing and justifying the amounts of any fees, including but not limited to 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.
       (c) Progress reports comparing the Bank's actual income and expense performance with budgetary projections shall be submitted to the Regional Director and the Comptroller concurrently with the other reporting requirements set forth in paragraph 14 of this ORDER. The Bank's board of directors shall review such progress reports, which review shall be recorded in the minutes of the board of directors.

   [.6] 6. 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 6, 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.

   [.7] 7. (a) Effective the date of this ORDER, the Bank shall not extend, directly or indirectly, any additional credit to or for the benefit of any borrower who has a loan or other extension of credit with the Bank that has been charged off or classified, in whole or in part, "Loss" or "Doubtful," and is uncollect.

       (b) The Bank shall not extend, directly or indirectly, any additional credit to or for the benefit of any borrower who has a loan or other extension of credit with the Bank that has been classified, in whole or in part, "Substandard," and is uncollect, unless, prior to the extension of credit a majority of the Bank's board of directors: (1) determines that such advance is in the best interest of the Bank, (2) determines that the Bank has satisfied the requirements set out in paragraph 4(b) of this ORDER as to such borrower, and (3) approves such advance. A written record of the board of directors' determination and approval of any advance under this paragraph 7(b) shall be maintained in the credit file(s) of the affected borrower(s) as well as the minutes of the board of directors.
       (c) The requirements of this paragraph 7 shall not prohibit the Bank from renewing or extending the maturity of any credit already extended to the borrower, provided such action is in accordance with both Federal and state laws, rules and regulations, and further provided all interest due at the time of such renewal or extension is collected in cash from the borrower.

   [.8] 8. (a) Within 30 days from the effective date of this ORDER, and in accordance with the Instructions for the Reports of Condition and Income, the Bank shall reverse on its books all accrued and unpaid interest on any loan that is 90 days or more delinquent in principal or interest payments and is not both well secured and in the process of collection.
       (b) Effective the date of this ORDER, the Bank shall not: (i) accrue interest on any loan that is, or becomes, 90 days or more delinquent in principal or interest payments unless the loan is both well secured and in the process of collection; (ii) add uncollect interest to the unpaid principle balance of any loan on which interest is due unless such addition is supported by additional tangible collateral which adequately and completely secures the loan; (iii) extend credit by means of a new note for uncollect interest due on any loan unless such new extension of credit is supported by additional tangible collateral which adequately and completely secures the loan; or (iv) book uncollect interest by any other means in contravention of the Instruc-
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    tions for Reports of Condition and Income.
       (c) For purposes of this paragraph 8, "well secured" and "in the process of collection" shall have the same meaning as those terms have in the prevailing Instructions for the Reports of Condition and Income.

   [.9] 9. (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, but not necessarily be limited to, the following:
       (i) The establishment of a loan review and grading system which, at a minimum, provides for:
    (A) An identification or grouping of loans that warrant the special attentin of management;
    (B) For each loan identified pursuant to subparagraph 9(a)(i)(A), a written statement of the reason(s) why the particular loan merits special attention; (C) A mechanism for reporting periodically to the board of directors on the status of each loan identified pursuant to subparagraph 9(a)(i)(A), and the action(s) taken by management thereon;
       (ii) Guidelines for adding delinquent loans to and removing loans from nonaccrual of interest status in accordance with the prevailing Instructions for the Reports of Condition and Income;

       (iii) Incorporation of guidelines provided in the Interagency Appraisal Guidelines dated December 14, 1987, into the Bank's real estate appraisal procedures;
       (iv) Specific guidelines which detail the documentation required for each type of loan in order to provide information sufficient for prudent credit decisions;
       (v) Specific guidelines governing land acquisition and development loans, residential and commercial real estate construction loans, and second mortgage lending programs;
       (vi) Appropriate and adequate collection procedures, including, but not limited to, the action to be taken against borrowers who fail to make timely payments; and
       (vii) Specific guidelines and prohibitions designed to limit or preclude unnecessary risk associated with concentrations of credit.
       (b) The revised written loan policy and any subsequent modification thereto shall be submitted to the Regional Director and the Comptroller for review and comment. No more than 30 days after the receipt of any comment from the Regional Director and the Comptroller, the board of directors shall approve the written loan policy and/or 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 loan policy and/or any subsequent modification thereto.

   [.10] 10. (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 $75,000 or more shall require the prior approval of the Bank's board of directors or of a committee which shall include at least two voting members who are directors of the Bank and are not Bank officers or employees, and which is designated by the board to review and approve loans ("loan committee").
       (b) All loans or lines of credit required by paragraph 10(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;
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       (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.

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

   [.12] 12. 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 page 6-a of the FDIC's Report of Examination of the Bank as of January 19, 1990. In addition, the Bank shall adopt appropriate procedures to ensure its future compliance with all applicable laws and regulations.

   [.13] 13. 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] 14. 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.
   15. 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 10th day of August, 1990.

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