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FDIC Enforcement Decisions and Orders

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   [10,461] In the Matter of The Village Bank of Florida, Tampa, Florida, Docket No. FDIC-92-55b (2-28-92).

   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 capital; engaging in practices which produce inadequate operating 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 2-22-94; see ¶ 15,813.)

   [.1] Management—Qualifications—Review
   [.2] Management—Management Plan—Minimum Requirements
   [.3] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.4] Allowance for Loan and Lease Losses—Establish/Maintain
   [.5] Assets—Adversely Classified—Eliminate/Reduce
   [.6] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.7] Loans—Overdue—Accrual of Interest
   [.8] Loan Policy—Written Revision—Minimum Requirements
   [.9] Loans—Acquisition, Development and Construction
   [.10] Budget and Earnings Forecast—Preparation Required
   [.11] Dividends—Restricted
   [.12] Violations of Law—Eliminate/Correct
   [.13] Funds Management—Written Policy Required
   [.14] Investment Policy—Revision—Minimum Requirements
   [.15] Shareholders—Disclosure—Cease and Desist Order
   [.16] Compliance Reports—Frequency

In the Matter of

THE VILLAGE BANK OF FLORIDA
TAMPA, FLORIDA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-92-55b

   The Village Bank of Florida, Tampa, 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 February 3, 1992, 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:

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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. § 1813(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, non-earning assets, and overdue loans;
   D. Engaging in hazardous lending and ineffective and lax collection practices, including but not limited to: (i) failing to establish and/or enforce repayment programs; (ii) failing to provide adequate diversification of risk by allowing an excessive concentration of real estate acquisition, development and construction loans; (iii) continuing to accrue interest on loans that are 90 days or more delinquent in principal or interest payments and which are not both well secured and in the process of collection; (iv) advancing funds on lines of credit in order to pay accrued interest on delinquent or nonperforming loans; and (v) extending credit with inadequate financial information to support the extensions of credit;
   E. Operating the Bank with equity capital that is inadequate for the kind and quality of assets held by the Bank;
   F. Engaging in practices which produce inadequate operating income and excessive loan losses;
   G. Failing to provide and maintain an adequate allowance for loan and lease losses for the volume, kind and quality of loans held by the Bank; and
   H. Engaging in violations of applicable Federal laws and regulations, as more fully described on page 6-a through 6-a-2 of the FDIC's Report of Examination of the Bank as of June 24, 1991.
   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 90 days from the effective date of this ORDER, the Bank shall have and/or 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) maintain or 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 Florida State Comptroller ("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.

   [.2] (b) To facilitate compliance with paragraph 1(a) of this ORDER, the board of directors shall in no more than 30 days from the effective date of this ORDER appoint an individual or a committee of individuals who are independent with respect to the Bank to develop, within 90 days from the effective date of this ORDER, a written analysis and assessment of the Bank's management and staffing needs ("management plan"), which shall include, at a minimum:

       (i) identification of both the type and number of officer positions needed to manage and supervise properly the affairs of the Bank;
       (ii) identification and establishment of such Bank committees as are needed to provide guidance and oversight to active management;
       (iii) evaluation of each Bank officer, and in particular the chief executive officer, and staff member to determine
    {{4-30-92 p.C-2005}}whether these individuals possess the ability, experience and other qualifications required to perform present and anticipated duties, including adherence to the Bank's established policies and practices, and maintenance of the Bank in a safe and sound condition; and
       (iv) a plan of action to recruit and hire any additional or replacement personnel with the requisite ability, experience and other qualifications, which the board of directors determines are necessary to fill Bank officer or staff member positions consistent with the analysis, evaluation and assessment as provided in paragraphs 1(b)(i) and 1(b)(iii) of this ORDER.
   (c) The written management plan and any subsequent modification thereto shall be submitted to the Regional Director and the Comptroller for review and comment. No more than 30 days from the receipt of any comment from the Regional Director and the Comptroller, and after consideration of such comment, the board of directors shall approve the written management plan 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 management plan and/or any subsequent modification thereto as adopted by the Bank's board of directors.
   (d) For purposes of this ORDER, an individual who is "independent with respect to the Bank" shall be any individual (1) who is not an officer or director of the Bank or any of its affiliated organizations and who does not own more than five (5) percent of the outstanding shares of the Bank or any of its affiliated organizations, (2) who is not related by blood, marriage or common financial interest to an officer or director of the Bank or to any stockholder owning more than five (5) percent of the outstanding shares of the Bank or any of its affiliated organizations, and (3) who is not indebted to the Bank, directly or indirectly (including the indebtedness of any entity in which the individual has a substantial financial interest), in an amount exceeding five (5) percent of the Banks' total equity capital and allowance for loan and lease losses.

   [.3] 2. (a) Within 30 days after December 31, 1991, and within 30 days after each March 31, June 30, September 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 March 31, June 30, September 30 and December 31 date. If such capital ratio is less than 6.0 percent, the Bank shall, within 120 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 March 31, June 30, September 30 or December 31 date.
   (b) In addition to the requirements of paragraph 2(a) of this ORDER, for as long as this ORDER remains in effect, the Bank shall meet the minimum ratio requirements established for "risk-based capital" by the deadlines set out in 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.
   (c) For the purposes of this 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 (n)).

   [.4] 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
{{4-30-92 p.C-2006}}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 June 24, 1991, 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.

   [.5] 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 June 24, 1991, which have not been previously collected or charged off, unless otherwise approved in writing by the Regional Director and the Comptroller. The foregoing requirement does not apply to the $84,000 in extensions of credit classified "Loss" on page 2-a-7 of the FDIC's Report of Examination of the Bank as of June 24, 1991. Rather, the Bank shall eliminate from its books, by collection, charge-off, or other proper entries, such $84,000 in extensions of credit classified "Loss" no later than 30 days from the effective date of this ORDER. Reduction of 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 June 24, 1991, to not more than $7,000,000; within 360 days from the effective date of this ORDER, the Bank shall reduce such aggregate total to not more than $5,000,000; within 540 days from the effective date of this ORDER, the Bank shall reduce such aggregate total to not more than $3,500,000; and within 720 days from the effective date of this ORDER, the Bank shall reduce such aggregate total to not more than $1,500,000. 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 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 June 24, 1991, 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 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.

   [.6] 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. Nothing in this paragraph 6(a) of the ORDER shall prohibit the Bank from extending credit reasonably necessary to protect the Bank's interest in collateral securing extensions of credit to borrowers described in this paragraph for such purposes as payment of real estate taxes or protection or perfection of lien positions, provided 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(a) 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.
   (b) Effective the date of this ORDER, the Bank shall not extend, directly or indirectly, any additional credit to or for the {{4-30-92 p.C-2007}}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.

   [.7] 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.

   [.8] 8. (a) Within 60 days from the effective date of this ORDER, the Bank shall review and revise its written loan policy to provide for the safe and sound administration of all aspects of the Bank's lending function. The Bank's loan policy shall, at a minimum, be revised to address the deficiencies in the policy described on page 6 of the FDIC's Report of Examination of the Bank as of June 24, 1991.
   (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.

   [.9] 9. Within 90 days from the effective date of this ORDER, the Bank shall establish a system for identifying its total risk exposure related to acquisition, development, and construction lending, including funded extensions of credit, unfunded commitments, and in-substance foreclosures. Further, within 90 days from the effective date of this ORDER, the Bank shall develop, submit to the Regional Director and the Comptroller for review and comment, and thereafter implement and follow a plan to reduce such risk exposure to a prudent and reasonable level. Such plan need not require that the Bank refuse to extend or renew credit to creditworthy borrowers, consistent with safe and sound banking practices.

   [.10] 10. (a) As long as this ORDER remains in effect, the Bank shall prepare realistic and comprehensive calender year budgets and earnings forecasts on a consolidated basis as of January 1 of each year subsequent to 1992 and shall submit them to the Regional Director and the
{{4-30-92 p.C-2008}}Comptroller for review and comment no later than January 31 of the budget year.
   (b) 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.
   (c) In preparing the budget and earnings forecast, particular emphasis shall be given to limiting overhead expenses and increasing the Bank's net interest margin.
   (d) 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.

   [.11] 11. 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] 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 alleged violations of Federal 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 June 24, 1991. In addition, the Bank shall adopt appropriate procedures to ensure its future compliance with all applicable laws and regulations.

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

       (i) Provisions addressing and adopting the recommendations listed on page 4-a-1 of the FDIC's Report of Examination of the Bank as of June 24, 1991;
       (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) Periodic monitoring by the Bank's board of directors of the Bank's performance in meeting the requirements and goals established pursuant to paragraph 13(a)(ii) of this ORDER.
   (b) The written funds management policy and/or 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 funds management 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 funds management policy and/or any 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] 14. (a) Within 60 days from the effective date of this ORDER, the Bank shall review and revise its written investment policy to include, at a minimum: (i) provisions addressing and adopting the recommendations listed on page 6 of the FDIC's Report of Examination of the Bank as of June 24, 1991; and (ii) guidelines governing the Bank's securities trading account activities.
   (b) The revised written investment 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 investment 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 investment policy and/or any subsequent modification thereto.
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   (c) Effective the date of this ORDER, the Bank shall give the Regional Director and the Comptroller 30-days prior written notification if it: (i) modifies the resolution adopted July 25, 1991, by the Bank's board of directors wherein the board consents and agrees to a total cessation of any and all trading account activity in the Bank's securities portfolio; or (ii) resumes securities trading account activities. For the purpose of this paragraph 12, the term "trading account activity" shall have the meaning ascribed to it in the Federal Financial Institutions Examination Council Supervisory Policy Statement on the Selection of Securities Dealers and Unsuitable Investment Practices, 2 FDIC Law, Regulations, Related Acts 5293 (CCH) (April 13, 1988).

   [.15] 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 respects. The description and any accompanying communication, statement or notice shall be sent to the FDIC, Registration and Disclosure Section, 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.

   [.16] 16. Within 90 days from the effective date of this ORDER, and within 15 days following the end of each calender quarter 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 28th day of February, 1992.
   Pursuant to delegated authority.

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