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FDIC Enforcement Decisions and Orders

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{{10-31-92 p.C-2611}}
   [10,613] In the Matter of Hendry County Bank, LaBelle, Florida, Docket No. FDIC-92-245b (8-11-92).

   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; operating with an excessive volume of nonearning assets; following hazardous lending and lax collection practices; operating with inadequate allowance for loan and lease losses; operating with inadequate liquidity; operating with hazardous concentrations of credit; and operating in violation of applicable laws or regulations.

   [.1] Management—Qualifications—Review
   [.2] Assets—Adversely Classified—Eliminate/Reduce
   [.3] Assets—Adversely Classified—Eliminate/Reduce—Timetable
   [.4] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.5] Loans—Special Mention—Correct Deficiencies
   [.6] Loan Policy—Written Revision—Minimum Requirements
   [.7] Loans—Overdue—Accrual of Interest
   [.8] Allowance for Loan and Lease Losses—Establish/Maintain
   [.9] Funds Management—Written Policy Required
   [.10] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.11] Growth Plan—Minimum Requirements
   [.12] Dividends—Restricted
   [.13] Violations of Law—Eliminate/Correct
   [.14] Shareholders—Disclosure—Cease and Desist Order
   [.15] Compliance Reports—Frequency
{{10-31-92 p.C-2612}}
In the Matter of

HENDRY COUNTY BANK
LABELLE, FLORIDA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-92-245b

   Hendry County Bank, LaBelle, 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 July 15, 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:

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 and past due loans;
   D. Operating the Bank with an excessive volume of nonearning assets;
   E. Engaging in hazardous lending and ineffective collection practices, including but not limited to: (i) failing to provide an adequate loan policy for the Bank; (ii) extending credit which has inadequate or deficient supporting loan documentation, including current financial statements and cash flow and/or operating information; (iii) failing to establish and/or enforce repayment programs; and (iv) extending credit to borrowers who lack sufficient repayment ability;
   F. 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;
   G. Operating the Bank with inadequate liquidity and with an excessive amount of volatile liabilities funding long-term assets;
   H. Operating the Bank with a concentration of loans related to agriculture, as described on page 2-b of the FDIC's Report of Examination of the Bank as of January 9, 1992, with an excessive volume of such loans being adversely classified, past due, and/or nonearning, such that the risk resulting from the concentration of assets of such kind and quality poses a threat to the adequacy of the Bank's capital; and
   I. Engaging in violations of applicable state laws and regulations, as more fully described on page 6-b of the FDIC's Report of Examination of the Bank as of January 9, 1992.
   IT IS FURTHER ORDERED that the Bank and its institution-affiliated parties 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 board of directors which shall be responsible for supervising and directing the policies and activities of the Bank; a chief executive officer who shall possess the necessary experience and qualifications to provide daily supervision over the Bank's affairs; and a senior lending officer who has an appropriate level of lending, collection and loan supervision ex- {{10-31-92 p.C-2613}}perience necessary to supervise the upgrading of a low-quality loan portfolio. Such persons shall be provided the necessary written authority to implement the provisions of this ORDER. The qualifications of management shall be assessed on its ability to (i) comply with the requirements of this ORDER, (ii) 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 Officer ("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 with the Bank.
       (b) To ensure both compliance with this Order and the retention of qualified management for the Bank, the board of directors shall, within 60 days from the effective date of this ORDER, conduct or cause to be conducted a review of all delegations to employees, and an evaluation of the qualifications of all senior officers to meet the responsibilities of their positions. The board of directors shall consider such review and evaluation in reaching its conclusions regarding having and retaining qualified management.
   [.2] 2. 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's Report of Examination of the Bank as of January 9, 1992, 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 2 of the ORDER.

    [.3] 3. (a) Within 180 days from the effective date of this ORDER, the Bank shall reduce the aggregate dollar volume of all remaining assets classified "Substandard" and "Doubtful" in the FDIC's Report of Examination of the Bank as of January 9, 1992, to not more than $11,000,000; within 360 days from the effective date of this ORDER, the Bank shall reduce such aggregate total to not more than $8,500,000; within 540 days from the effective date of this ORDER, the Bank shall reduce such aggregate total to not more than $6,000,000; and within 720 days from the effective date of this ORDER, the Bank shall reduce such aggregate total to not more than $3,700,000. The requirements of this paragraph 3(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 January 9, 1992, and which aggregated $100,000 or more as of that date. Such plan of action shall thereafter be implemented and monitored by the Bank, 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 15 of this ORDER.
       (c) As used in this paragraph 3, "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.

[.4] 4. (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 {{10-31-92 p.C-2614}}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 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 3(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 4(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 4 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.

   [.5] 5. Within 120 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-c of the FDIC's Report of Examination of the Bank as of January 9, 1992. Thereafter, the Bank shall service these loans in accordance with its written loan policy and in accordance with safe and sound banking practices.

    [.6] 6. (a) Within 60 days from the effective date of this ORDER, the Bank shall review and revise its written loan policy, and the board of directors shall approve the revised 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 shall implement and follow the written loan policy and/or any subsequent modification thereto.
       (b) The Bank's written loan policy, as revised, shall include, but not necessarily be limited to, the following:    (i) The establishment and implementation of an effective internal loan review and grading system, which identifies those loans warranting special attention for reasons relating to their ultimate collectibility, and, 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 6(b)(i)(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 6(b)(i)(A), and the action(s) taken by management thereon;
   (ii) The maintenance and review of complete and current credit files on each borrower;
   (iii) Appropriate and adequate collection procedures, including, but not limited to, the action to be taken against borrowers who fail to make timely payments;
   (iv) A requirement providing for 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;
   (v) Standards for agricultural lending which address acquisition of credit information, factors that determine the need for collateral acquisition, acceptable collateral margins, perfecting of liens on collateral, and lending terms; and
   (vi) A prohibition against:
       (A) The addition of uncollected interest to the unpaid principal balance of any loan on which such interest is due;
       (B) The extension of credit by means of a separate note for uncollected interest due on any loan unless the new extension is supported by additional tangible collateral which adequately and completely secures the loan;
       (C) Continuing to accrue interest on any loan that is, or becomes, 90 days or more delinquent in principal or interest unless the loan is both well secured and in the process of collection; and
       (D) Any other devise that essentially avoids recognition of overdue {{10-31-92 p.C-2615}}loans and/or artificially inflates the income of the Bank.

[.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 paragraphs 6(b)(vi) and 7 of this 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 30 days from the effective date 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 8(a), 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 January 9, 1992, shall reflect a provision for the allowance for loan and lease losses necessary to comply with paragraph 8(a) of this ORDER. If necessary to comply with this paragraph 8(b), the Bank shall file amended Reports of Condition and Income within 30 days from the effective date of this ORDER.
   [.9] 9. Within 90 days from the effective date of this ORDER, the Bank shall submit to the Regional Director and the Comptroller for review and comment a revised written funds management policy, which shall include appropriate timetables to maintain or attain an adequate liquidity position, maintain or attain an adequate level of volatile liability dependence, and a written plan of action to maintain or achieve compliance with the Bank's written funds management policy. No more than 30 days after the receipt of any comment from the Regional Director and/or the Comptroller, the board of directors shall approve the Bank's written funds management policy as revised, 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 Comptroller at 90-day intervals concurrently with the other reporting requirements set forth in paragraph 15 of this ORDER.

    [.10] 10. (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'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, 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 March 31, June 30, September 30, or December 31 date.
    {{10-31-92 p.C-2616}}   (b) In addition to the requirements of paragraph 10(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 325.2(n)), effective April 10, 1991.

   [.11] 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, include maximum levels for loans as a percentage of deposits and address the effect of planned asset growth on capital, earnings, and liquidity.

   [.12] 12. 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.

   [.13] 13. 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 January 9, 1992. In addition, the Bank shall adopt appropriate procedures to ensure its future compliance with all applicable laws and regulations.

   [.14] 14. 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.

   [.15] 15. Within 45 days from the effective date of this ORDER, and within 45 days from the end of each calendar quarter thereafter while this ORDER in effect, 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 meetings.
   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, 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.
   Dated at Atlanta, Georgia, this 11th day of August, 1992.
   Pursuant to delegated authority.

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