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FDIC Enforcement Decisions and Orders

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{{1-31-93 p.C-837}}

   [10,185] In the Matter of Georgia Bank & Trust, Calhoun, Georgia, Docket No. FDIC-91-47b (2-25-91).

   Bank to cease and desist from failing to exercise adequate supervision over the Bank's affairs; operating with management whose policies and practices are detrimental to the Bank; operating with inadequate equity capital; engaging in hazardous lending and ineffective collection practices; engaging in practices which produce inadequate operating income and excessive loan losses; operating with an excessive volume of adversely classified assets; operating with an excessive volume of "special mention" loans; failing to maintain an adequate loan loss reserve; operating with inadequate liquidity; operating with excessive volatile liabilities; and violating federal and state laws and regulations. (This order was terminated by order of the FDIC dated 11-4-92; see ¶ 15,553.)

   [.1] Management—Qualifications—Review
   [.2] Capital—Primary Capital—Increase/Maintain
   [.3] Assets—Adversely Classified—Reduce/Eliminate
   [.4] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.5] Loan Loss Reserve—Establish/Maintain—Report
   [.6] Loans—Special Mention—Deficiencies—Correct
   [.7] Loan Policy—Written Revisions Required—Review
   [.8] Loans—Extensions of Credit—Documentation
   [.9] Funds Management and Liquidity—Written Plan Required—Review
   [.10] Growth Plan—Minimum Requirements—Review
   [.11] Violations of Law—Eliminate/Correct
   [.12] Dividends—Restricted
   [.13] Shareholders—Disclosure—Cease and Desist Order
   [.14] Compliance—Progress Reports—Frequency

{{1-31-93 p.C-838}}
In the Matter of

GEORGIA BANK & TRUST
CALHOUN, GEORGIA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

   Georgia Bank & Trust, Calhoun, Georgia ("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 law 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, ("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 to the Legal Division of the Federal Deposit Insurance Corporation ("FDIC"), dated February 1, 1991, 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 law 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 law 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 law and regulations:
   A. Failing to exercise adequate supervision and direction over the affairs of the Bank by the board of directors of the Bank to prevent or correct unsafe or unsound practices and violations of law 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 with equity capital that is inadequate to support the kind and quality of assets held by the Bank;
   D. 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; (ii) extending credit (a) which is unsecured or which is inadequately secured and (b) which has inadequate or deficient supporting loan documentation, including current financial statements, cash flow information and/or operating information; (iii) extending credit to borrowers with inadequate repayment ability and/or without establishing the borrower's means and method of repayment; and (iv) extending credit via overdrafts without adequate credit analysis and documentation;
   E. Engaging in practices which produce inadequate operating income and excessive loan losses;
   F. Operating the Bank with an excessive volume of adversely classified assets;
   G. Operating the Bank with an excessive volume of "Special Mention" loans which have been imprudently originated and/or serviced by lending personnel, and which lack supporting financial and collateral documentation;
   H. Failing to analyze, provide and maintain an adequate reserve for loan losses for the volume, kind, and quality of leans held;
   I. Operating the Bank with inadequate liquidity in contravention of the board's written funds management policy guidelines;
   J. Operating the Bank with excessive volatile liabilities funding long-term investments and loans; and
   K. Violating applicable state law and regulations, as more fully described on page 6-b of the FDIC's Report of Examination of the Bank as of July 17, 1990.
   IT IS FURTHER ORDERED that the Bank and its institution-affiliated parties take affirmative action as follows:

   [.1] 1. Within 90 days from the effective data of this ORDER, the Bank shall have and retain qualified management. At a minimum, such management shall include a board of directors which shall be responsible for supervising and directing the policies and activities of the Bank; and a senior lending officer who shall not also hold the position of chief executive officer and who has an appropriate level of lending, collection and loan supervision experience necessary {{4-30-91 p.C-839}}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) operate the Bank in a safe and sound manner, (iii) comply with all applicable laws and regulations, and (iv) maintain all aspects of the Bank in, or if necessary, restore all aspects of the Bank to a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness, and liquidity. As 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 Georgia Commissioner of Banking and Finance ("Commissioner") in writing of any proposed changes in the composition of the board of directors, executive officers or other officers of the Bank. Such notification shall be in addition to nay 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 any officer or director assuming the new position with the Bank.

   [.2] 2. (a) Within 60 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 120 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 31 or December 31 date.
   (b) 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), as in effect on the effective date of this ORDER.
   (c) Within 60 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 "risk-based capital" ratios as of the nearest preceding June 30 and December 31 date, in accordance with the provisions of Appendix A of Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. Part 325, which Appendix A is entitled "Statement of Policy on Risk-Based Capital," and/or any subsequent amendments or modifications thereto. If such "risk-based capital" ratios are less than the minimum ratio requirements established under said Appendix A and/or any subsequent amendments or modifications thereto, the Bank shall, within 120 days from the date of such calculations; increase its "risk-based capital" by an amount sufficient to meet the minimum "risk-based capital" ratio requirements as of the nearest preceding June 30 or December 31 date.

   [.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, 100 percent of all assets or portions of assets classified "Loss" and 50 percent of all assets or portions of assets classified "Doubtful" by the FDIC as a result of its examination of the Bank as of July 17, 1990, which have not been previously charged off or collected, unless otherwise approved in writing by the Regional Director and the Commissioner. Reduction of these assets through use of proceeds of loans made by the Bank does not constitute collection for purposes of this paragraph 3.
   4. (a) Within 90 days from the effective date of this ORDER, the Bank shall submit to the Regional Director and the Commissioner a written plan of action to reduce each line of credit which was adversely classified "Substandard" by the FDIC as of July 17, 1990, ad 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 Commissioner at 90-day intervals concurrently with the other reporting requirements set forth in paragraph 15 of this ORDER.
   (b) As used in this paragraph 4, the word "reduce" means (i) to collect, (ii) to {{4-30-91 p.C-840}} charge-off, or (iii) to improve the quality of such assets sufficiently to warrant removal of any adverse classification by the FDIC.

   [.4] 5. (a) Effective the date of this ORDER, except with the prior written consent of the Regional Director and the Commissioner, 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 uncollected.
   (b) 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 classified, in whole or in part, "Substandard," and is uncollected, unless a majority of the Bank's board of directors first (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(a) 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 5(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 5 shall not prohibit the Bank from renewing or extending the maturity of any credit already extended to the borrower, provided all interest due at the time of such renewal or extension is collected in cash from the borrower.

   [.5] 6. (a) 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 undertaking shall indicate the results of the review, the amount of any recommended increases in the reserve, and the basis for determining the amount of reserve provided.
   (b) Reports of Condition and Income required to be filed by the Bank prior to the effective date of this ORDER and subsequent to the September 30, 1990 Reports, shall reflect a provision for loan losses necessary to comply with the requirements of paragraph 6(a) of this ORDER. If necessary to comply with this paragraph 6(b), the Bank shall file Reports of Condition and Income within 30 days from the effective date of this ORDER.

   [.6] 7. Within 60 days from the effective date of this ORDER, the Bank shall correct the cited documentation deficiencies in the loans listed for "Special Mention" on pages 2-c through 2-c-8 of the FDIC's Report of Examination of the Bank as of July 17, 1990. Thereafter, the Bank shall service these loans in accordance with its written loan policy.

   [.7] 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, but not necessarily be limited to, the following:

       (i) The establishment of a board of directors' loan committee constituted such that a majority of the voting members of such loan committee shall consist of directors who do not serve as Bank officers or employees directly participating in the Bank's lending activities;
       (ii) 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 attention of management;
         (B) For each loan identified pursuant to subparagraph 8(a)(ii)(A), a written statement of the reason(s) why the particular loan merits special attention; and
         (C) A mechanism for reporting periodically to the board of directors on the status of each loan identified pursuant to subparagraph 8(a)(ii)(A), and {{5-31-92 p.C-841}} the action(s) taken by management thereon;
       (iii) Incorporation of guidelines on appraisals in connection with real estate transactions a required by 12 C.F.R. Part 323 of the FDIC's Rules and Regulations;
       (iv) Specific guidelines for granting unsecured credit, including necessary documentation sufficient to support prudent credit decisions;
       (v) Specific guidelines for extending credit by means of overdrafts, including clear restrictions as to dollar limits and approval authority;
       (vi) Specific guidelines that define the lending authority and limitations of loan officers, the board of directors' loan committee, and the board of directors; and
       (vii) Specific requirements that any exceptions to the Bank's loan policy in connection with the extension of any credit shall not be made without the prior approval of the board of directors or the board of directors' loan committee.
   (b) The revised written loan policy and any subsequent modification thereto shall be submitted to the Regional Director and the Commissioner for review and comment. No more than 30 days after the receipt of any comment from the Regional Director and/or the Commissioner, 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.

   [.8] 9. Effective the date of this ORDER, the Bank shall not extend any credit, whether secured or unsecured, without first obtaining and analyzing credit information sufficient to identify the borrower's source of funds to repay the debt and support the scheduled repayment plan. In addition, effective the date of this ORDER, the Bank shall not extend or renew the extension of any credit without establishing specific repayment terms, and shall not extend or renew the extension of any secured credit until all required collateral documentation, or evidence thereof, has been obtained and reviewed by the loan officer or the board of directors' loan committee.

   [.9] 10. Within 90 days from the effective date of this ORDER, the Bank shall submit to the Regional Director and the Commissioner for review and comment a written plan of action, including appropriate time-tables, to maintain or attain an adequate liquidity position, maintain or attain an adequate level of volatile liability dependence, and maintain or achieve compliance with the Bank's written funds management policies. No more than 30 days after the receipt of any comment from the Regional Director and/or the Commissioner, the board of directors shall approve the funds management policies and/or any subsequent modification thereto, which approval shall be recorded in the minutes of the board of directors. 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 Commissioner at 90-day intervals concurrently with the other reporting requirements set forth in paragraph 15 of this ORDER.

   [.10] 11. Within 90 days from the effective date of this ORDER, the Bank shall develop a written plan of action to control and monitor future growth. Such plan of action shall, at a minimum, address the effect of planned asset growth on capital, earnings, and liquidity. This plan 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 Commissioner at 90-day intervals concurrently with the other reporting requirements set forth in paragraph 15 of this ORDER.

   [.11] 12. Within 60 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-b of the FDIC's Report of Examination of the Bank as of July 17, 1990. In addition, the Bank shall adopt appropriate procedures to ensure its future compliance with all applicable laws and regulations.

   [.12] 13. Effective the date of this ORDER, the Bank shall not pay any cash or property dividends without the prior written {{5-31-92 p.C-842}}consent of the Regional Director and the Commissioner.

   [.13] 14. Following the effective date of this ORDER, the Bank shall send to its shareholders or otherwise furnish a description of this ORDER (a) in conjunction with the Bank's next shareholder communication and also (b) 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 Commissioner, for review at least 20 days prior to dissemination to shareholders. Any changes requested to be made by the FDIC or the Commissioner shall be made prior to dissemination of the description. communication, notice or statement.

   [.14] 15. Within 90 days from the effective date of this ORDER, and every 90 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 Commissioner 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 Commissioner 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.
   16. 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 25th day of February, 1991.

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