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FDIC Enforcement Decisions and Orders

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{{9-30-92 p.C-1466}}
   [10,337] In the Matter of North Ridge Bank, Oakland Park, Florida, Docket No. FDIC-91-277b (9-24-91).

   Bank to cease and desist from such unsafe or unsound practices as failing to provide adequate supervision over the Bank's affairs; operating with management whose policies are detrimental to the Bank; operating with excessive volumes of adversely classified assets; following hazardous lending and lax collection practices; operating with inadequate liquidity; operating with inadequate income; operating with inadequate allowance for loan and lease losses; and operating in violation of applicable laws or regulations. (This order was terminated by order of the FDIC dated 7-31-92; see15,495.)

   [.1] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.2] Management—Qualifications—Review
   [.3] Allowance for Loan and Lease Losses—Establish/Maintain
   [.4] Assets—Adversely Classified—Eliminate/Reduce
   [.5] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.6] Loans—Overdue—Accrual of Interest
   [.7] Loan Policy—Written Revision—Minimum Requirements
   [.8] Technical Exceptions—Correct/Eliminate
   [.9] Budget and Earnings Forecast—Preparation Required
{{11-30-91 p.C-1467}}
   [.10] Loans—Special Mention—Correct Deficiencies
   [.11] Dividends—Restricted
   [.12] Violations of Law—Eliminate/Correct
   [.13] Funds Management—Written Policy Required
   [.14] Shareholders—Disclosure—Cease and Desist Order
   [.15] Compliance Reports—Frequency

In the Matter of

NORTH RIDGE BANK
OAKLAND PARK, FLORIDA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

   North Ridge Bank, Oakland Park, 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 ("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 21, 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 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, its institution-affiliated parties, as such term is defined in section 3(u) of the Act, 12 U.S.C. § 1818(u), and its successors and assigns 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 with an excessive volume of adversely classified assets;
   D. Engaging in hazardous lending and ineffective and lax collection practices, including but not limited to: (i) extending credit with inadequate documentation; (ii) failing to obtain written agreements to enable the Bank to effectively monitor the borrower's financial condition; and (iii) failing to structure loan repayments in accordance with the purpose for which the loans were made;
   E. Operating the Bank with inadequate liquidity and with an excessive amount of volatile liabilities funding long-term assets;
   F. Operating the Bank with equity capital that is inadequate for the kind and quality of assets held by the Bank;
   G. Engaging in practices which produce inadequate operating income and excessive loan losses;
   H. Failing to provide and maintain an adequate reserve for loan losses for the volume, kind and quality of loans held by the Bank; and
   I. Engaging in violations of applicable Federal and state laws and regulations, as more fully described on pages 6-a through 6-a-2 of the FDIC's Report of Examination of the Bank as of December 14, 1990.
   IT IS FURTHER ORDERED that the Bank, its institution-affiliated parties, and its successors and assigns take affirmative action as follows:

   [.1] 1. (a) Within 120 days from the ef- {{11-30-91 p.C-1468}}fective date of this ORDER, the Bank shall increase its Tier 1 capital by not less than $8,000,000. Such increase in Tier 1 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 noncumulative perpetual preferred stock; or
       (ii) The collection in cash of all or part of the assets classified "Loss" or "Doubtful" as of December 14, 1990, and charged off in accordance with paragraph 4 of this ORDER; or
       (iii) The direct contribution of cash by the directors and/or shareholders of the Bank; or
       (iv) The collection in cash of assets previously charged off; or
       (v) Any other means acceptable to the Regional Director of the FDIC's Atlanta Regional Office ("Regional Director") and the Florida State Comptroller ("Comptroller").
       (b) (i) If all or part of the increase in the Bank's Tier 1 capital required 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 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 Section, 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 1(b)(i) of this ORDER, the Bank shall provide to any subscriber and/or purchaser of Bank securities, 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 1(b)(ii) of the ORDER 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, 1991, 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 Tier 1 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 6.0 percent, the Bank shall, within 90 days from the date of such calculation, increase its Tier 1 capital by an amount sufficient to raise its capital ratio to not less than 6.0 percent as of the nearest preceding June 30 or December 31 date.
       (d) As used in this paragraph 1 of the ORDER, the terms "Tier 1 Capital" and "total assets" shall have the meanings ascribed to them in sections 325.2(m) and 325.2(n), respectively, of the FDIC's Rules and Regulations, 56 Fed. Reg. 10161 (March 11, 1991) (to be codified at 12 C.F.R. §§ 325.2(m) and 325.2(n)), effective April 10, 1991.

   [.2] 2. Within 90 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 with proven ability in managing a bank of comparable size and a qualified senior loan 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 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
{{11-30-91 p.C-1469}}Director and the Comptroller in writing of any 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 30 days prior to the individual assuming the new position.

[.3] 3. (a) Within 30 days from the effective date of this ORDER, and concurrently with compliance with the requirements of paragraph 4 of this ORDER, the Bank shall establish and thereafter continually maintain an adequate allowance for loan and lease 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 3(a) of the ORDER, the Bank's board of directors shall, at a minimum, review the adequacy of the Bank's allowance for loan and lease 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 recommended increases in the allowance, and the basis for determining the amount of allowance 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 December 14, 1990, shall reflect a provision for the allowance for loan and lease losses necessary to comply with paragraph 3(a) of this ORDER. If necessary to comply with this paragraph 3(b) of the ORDER, the Bank shall file amended Reports of Condition and Income within 30 days from the effective date of this ORDER.

   [.4] 4. 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 assets classified "Doubtful" by the FDIC as a result of its examination of the Bank as of December 14, 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 of the ORDER.

       5. (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 December 14, 1990, to not more than $15,000,000; within 360 days from the effective date of this ORDER, the Bank shall reduce such aggregate total to not more than $12,500,000; within 540 days from the effective date of this ORDER, the Bank shall reduce such aggregate total to not more than $10,000,000; and within 720 days from the effective date of this order, the Bank shall reduce such aggregate total to not more than $7,500,000. The requirements of this paragraph 5(a) of the ORDER shall not be construed to establish a standard for future operations of the Bank.
       (b) Within 90 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 December 14, 1990, and which aggregated $300,000 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 90-day intervals concurrently with the other reporting requirements set forth in paragraph 16 of this ORDER.
       (c) As used in this paragraph 5 of the ORDER, "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. (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 uncollected.
   (b) Effective the date of this ORDER,
{{11-30-91 p.C-1470}}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: (i) determines that such advance is in the best interest of the Bank, (ii) determines that the Bank has satisfied the requirements set out in paragraph 5(b) of this ORDER as to such borrower, and (iii) approves such advance. A written record of the board of directors' determination and approval of any advance under this paragraph 6(b) of the ORDER 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 6 of the ORDER 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.

[.6] 7. (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 uncollected interest to the unpaid principal 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 uncollected 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 uncollected interest by any other means in contravention of the Instructions for Reports of Condition and Income.
   (c) For purposes of this paragraph 7 of the ORDER, "well secured" and "in the process of collection" shall have the same meanings as those terms have in the prevailing Instructions for the Reports of Condition and Income.

   [.7] 8. Within 60 days from the effective date of the Order, the Bank shall revise its written loan policy, the board of directors shall approve such revision, and the 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 as revised and/or any subsequent modification thereto. Revisions to the Bank's written loan policy shall, at a minimum, include:

       (a) A requirement that the Bank maintain and review complete and current credit files of each borrower;
       (b) Specific policies governing extension of credit, whether by means of loans or overdrafts, to executive officers, directors, principal shareholders, and their interests, and providing disciplinary actions for noncompliance with such policies; and
       (c) Provisions requiring written documentation of the borrower's ability to repay each extension of credit or renewal thereof and the establishment of a written repayment plan for each loan which takes into consideration the source of repayment and the purpose of the loan.

   [.8] 9. Within 60 days from the effective date of this ORDER, the Bank shall establish an effective system of loan documentation and shall take all necessary steps to correct and/or eliminate all technical exceptions on loans listed on page 2-c of the FDIC's Report of Examination of the Bank as of December 14, 1990. In addition and so long as this ORDER remains in effect, the Bank shall ascertain that all necessary supporting documentation, or evidence thereof, is obtained and evaluated before any further credit is extended by the Bank.

[.9] 10. (a) Within 30 days from the effective date of the Order, the Bank shall prepare a realistic and comprehensive budget and earnings forecast for calendar year 1991 and shall submit this budget and earnings forecast to the Regional Director and the Comptroller for review and comment.
   (b) A long as this ORDER remains in
{{11-30-91 p.C-1471}}effect, the Bank shall prepare realistic and comprehensive calendar year budgets and earnings forecasts on a consolidated basis as of January 1 of each subsequent 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.
   (c) In preparing the budgets and earnings forecasts required by this paragraph 10 of the 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; and
       (ii) Describe the operating assumptions that form the basis for, and adequately support, major projected income and expense components.
   (d) In preparing the budget and earnings forecast particular emphasis shall be given to reducing overhead expenses and increasing the Bank's net interest margin.
   (e) 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 16 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.

   [.10] 11. Within 90 days from the effective date of this ORDER, the Bank shall correct the cited deficiencies in the assets listed for "Special Mention" on page 2-b of the FDIC's Report of Examination of the Bank as of December 14, 1990. Thereafter, the Bank shall service these loans in accordance with its written loan policy.

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

   [.12] 13. 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 through 6-a-2 of the FDIC's Report of Examination of the Bank as of December 14, 1990. In addition, the Bank shall adopt appropriate procedures to ensure its future compliance with all applicable laws and regulations.

[.13] 14. (a) Within 60 days from the effective date of this ORDER, the Bank shall revise its written funds management policy to include, at a minimum:

       (i) Plans for increasing the Bank's liquidity ratio, as calculated on page 5-a of the FDIC's Report of Examination of the Bank as of December 14, 19990, to at least 20 percent, and thereafter maintaining such ratio at or above 20 percent. The requirements of this paragraph 14(a)(i) of the ORDER shall not be construed to establish a standard for future operations of the Bank;
       (ii) Goals and strategies for managing and reducing the Bank's dependence on volatile liabilities to fund long-term assets, for reducing the ratio of total loans to total deposits, and for reducing the ratio of total loans to total assets; and
       (iii) Monthly monitoring by the Bank's board of directors of the Bank's performance in meeting the requirements and goals established pursuant to paragraphs 14(a)(i) and (ii) of this ORDER.
   (b) The board of directors shall approve the revised written funds management policy and any subsequent modification thereto which approval shall be recorded in the minutes of the board of directors. Thereafter, the Bank, its directors, officers and employees shall follow the written funds management policy and/or any subsequent modification thereto, and shall report its funds subsequent modification thereto, and shall report its funds management performance to the Regional Director and the Comptroller concurrently with the other reporting requirements specified in paragraph 16 of this ORDER.

   [.14] 15. 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
{{11-30-91 p.C-1472}}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.

   [.15] 16. Within 90 days from the effective date of this ORDER, and every 90 days thereafter, 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.
   17. The provisions of this ORDER shall become effective ten (10) days from the date of its issuance and shall be binding upon the Bank, its institution-affiliated parties, and its successors and assigns. 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.
   Dated at Atlanta, Georgia, this 24th day of September, 1991.
   Pursuant to delegated authority.

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