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FDIC Enforcement Decisions and Orders

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{{5-31-95 p.C-2065}}
   [10,479] In the Matter of Peoples State Bank of Groveland, Groveland, Florida, Docket No. FDIC-92-65b (3-20-92).

   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; and operating with inadequate allowance for loan and lease losses. (This order was terminated by order of the FDIC dated 3-3-95; see ¶ 15,974.)

   [.1] Management—Qualifications—Review
   [.2] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.3] Allowance for Loan and Lease Losses—Establish/Maintain
   [.4] Assets—Adversely Classified—Eliminate/Reduce
   [.5] Assets—Problem Assets—Individual Written Plans Required
   [.6] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.7] Dividends—Restricted
   [.8] Technical Exceptions—Eliminate/Correct
   [.9] Bank Operations—Operating Deficiencies—Correction Required
{{5-31-95 p.C-2066}}
   [.10] Compensation—Review—Written Plan Required
   [.11] Shareholders—Disclosure—Cease and Desist Order
   [.12] Compliance Reports—Frequency

In the Matter of

PEOPLES STATE BANK OF
GROVELAND

GROVELAND, FLORIDA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

   Peoples State Bank of Groveland, Groveland, Florida ("Bank"), having been advised of its right to a written Notice of Charges and of Hearing detailing unsafe or unsound banking practices 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 March 4, 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, 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. 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. § 1813(u), and its successors and assigns cease and desist from the following unsafe or unsound banking practices:

       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;
       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 and past due loans;
       D. Engaging in hazardous lending and ineffective and lax collection practices, including but not limited to: (i) capitalization of accrued overdue interest on renewal loans, and (ii) extending credit to borrowers without supporting documentation; and
       E. 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.
   IT IS FURTHER ORDERED that the Bank 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 retain qualified management. At a minimum, such management shall include a senior lending officer with proven ability in managing a loan portfolio of comparable size and with an appropriate level of lending, collection and loan supervision experience necessary to supervise the upgrading of a low quality loan portfolio. Such person 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 all aspects of the Bank, including the lending function, in a safe and sound condition. 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 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) {{5-31-92 p.C-2067}}days prior to the individual's assuming the new position.
   (b) To ensure both compliance with this ORDER and the retention of qualified management for the Bank, within 60 days from the effective date of this ORDER, the board of directors shall develop a written analysis and assessment of the Bank's management and staffing requirements ("Management Policy"). At a minimum the Management Policy shall address: (i) both the number and type of positions needed to properly manage the Bank, (ii) a clear and concise description of the required experience and level of compensation for each such position, (iii) an evaluation of each member of the Bank's present management, (iv) a plan to recruit and hire any replacement personnel with the requisite ability and experience necessary to fill management positions at the Bank, (v) a periodic evaluation of each Bank employee's job performance, and (vi) the establishment of procedures to periodically review and update the Management Policy. The Management Policy and all subsequent modifications to the Management Policy shall be submitted to the Regional Director and to the Comptroller for review and comment. Within 30 days from receipt of any comment from the Regional Director or from the Comptroller, and after consideration of such comment, the board of directors shall approve the Management Policy which approval shall be recorded in the minutes of the board of directors' meeting. Thereafter, the Bank and its successors and assigns shall implement and follow the Management Policy and shall implement and follow any modifications to the Management Policy as such modifications may be made from time to time.

   [.2] 2. (a) Within 30 days from the effective date of this ORDER, and within 30 days after each March 31, June 30, September 30, and December 31, thereafter while this ORDER remains in effect, the Bank shall calculate its Tier 1 capital as a percentage of its total assets (this percentage shall be referred to as the Bank's "capital ratio") as of the nearest preceding March 31, June 30, September 30 or December 31 date. If such capital ratio is less than 6.0 percent, then, within 90 days from the date of such calculation, the Bank shall increase its Tier 1 capital by an amount sufficient to raise its capital ratio to not less than 6.0 percent. Any such increase in Tier 1 capital required by this paragraph 2(a) of the ORDER may be accomplished by any one or more of the following:

       (i) The sale of new securities in the form of common stock;
       (ii) The collection in cash of all or part of the assets other than loans classified "Loss" or "Doubtful" as of August 19, 1991, and charged off in accordance with paragraph 4 of this ORDER;
       (iii) The direct contribution of cash by the directors and shareholders of the Bank;
       (iv) The collection in cash of assets other than loans 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 Tier 1 capital required under paragraph 2(a) of this ORDER is accomplished by the sale of new securities, the board of directors shall take all necessary steps to adopt and implement a plan for the sale of such additional securities, including the voting of any shares owned or proxies held or controlled by them in favor of the plan. Should the implementation of the plan involve 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 Section, Washington, D.C. 20429, and to the Comptroller for review. All changes requested by the FDIC or by the Comptroller to be made in such
{{5-31-92 p.C-2068}}offering materials 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 each subscriber and/or purchaser of Bank's 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 2(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 securities who received or was tendered the information contained in the Bank's original offering materials.
   (c) 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," as such minimum ratio requirements and deadlines may be modified from time to time by amendments to the FDIC's Rules and Regulations.
   (d) 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 325.2(n)), effective April 10, 1991.

   [.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 review shall include consideration of loans internally classified during the Bank's loan review process, loans adversely classified at FDIC or State of Florida Banking Department examinations of the Bank, and delinquent non-performing loans. 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 31, 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 the FDIC Report of Examination of the Bank as of August 19, 1991, 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] 5. (a) 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 asset which was adversely classified by the FDIC as of August 19, 1991, and which aggregated $75,000 or more as of that date. Such plan of action shall be implemented by the Bank and monitored, and progress reports regarding the implementation of such plan shall be submitted by the Bank to the Regional
{{5-31-92 p.C-2069}}Director and the Comptroller at 90-day intervals concurrently with the other reporting requirements set forth in paragraph 12 of this ORDER.
   (b) 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.
   (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, prior to the extension of credit, a majority of the Bank's board of directors: (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(a) of this ORDER as to such borrower; (iii) determines that the extension of credit is in full compliance with the Bank's loan policy; (iv) determines that all necessary loan documentation is on file, including but not limited to, current financial and cash flow information and satisfactory appraisal, title and lien documents; and (v) 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 of each affected borrower as well as in 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. Effective the 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.

   [.8] 8. Within 60 days from the effective date of this ORDER, the Bank shall take steps to correct the technical exceptions on loans listed on pages 2-c and 2-c-1 of the FDIC's Report of Examination of the Bank as of August 19, 1991. Additionally, effective the date of this ORDER, the Bank shall not extend any credit, whether secured or unsecured, without first providing a complete review of the credit and obtaining and analyzing credit information and documentation sufficient to identify the borrower's source of funds to repay the debt and support the scheduled repayment plan. Further, the Bank shall adopt appropriate procedures to assure correction of any deficiencies in loan documentation and credit information for any credit extended by the Bank.

   [.9] 9. Within 60 days of this ORDER, the Bank shall correct the operational deficiencies noted on pages 6-a and 6-a-1 of the FDIC's Report of Examination of the Bank as of August 19, 1991, and adopt measures to prevent their recurrence.

   [.10] 10. Within 60 days from the effective date of this ORDER, the Bank's board of directors shall: (1) review all salaries, bonuses, stipends, fees or other means of compensation, including but not limited to appraisal fees and fees paid to Bank officers for their attendance at meetings of the Bank's Board of Directors or of any committees of the Bank's Board of Directors, paid directly or indirectly to or for the benefit of any director, officer, any other institution-affiliated party of the Bank, as such term is defined in section 3(u) of the Act, 12 U.S.C. § 1813(u), and any Bank affiliate, to ensure that such payments constitute reasonable compensation for services performed, or to be performed, for or on behalf of the Bank; (2) prepare a written report of the board of directors' findings, including a plan to correct and adjust any insupportable type or amount of compensation; and (3) send such report to the Regional Director and the Comptroller for review and comment. Within 30 days after the receipt of comments from the Regional Director or the Commissioner, the board of directors shall approve the written report and any subsequent modification to
{{5-31-92 p.C-2070}}the written report, 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 report and any subsequent modification to the report.

   [.11] 11. Following the effective date of this ORDER, the Bank shall send to its shareholder 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 twenty (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.

   [.12] 12. 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 of such actions. 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.
   13. 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 30 day of March, 1992.
   Pursuant to delegated authority.

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