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FDIC Enforcement Decisions and Orders



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   [11,988] In the Matter of Southern Commerce Bank, Tampa, Florida, Docket No. 02-105b (11-22-02).

   A cease and desist order was issued, based on findings by the FDIC that it had reason to believe that respondent had engaged in unsafe and unsound practices. (This order was terminated by order of the FDIC dated 10-14-05; see ¶16,441.)

   [.1] Management—Qualifications Specified

   [.2] Workout Specialist Required

   [.3] Strategic Plan—Preparation of Required

   [.4] Capital—Maintain Tier 1 Capital

   [.5] Assets—Charge-off or Collection

   [.6] Loans—Extensions of Credit—To Borrowers with Existing Adversely Classified Credits

   [.7] Dividends—Dividends Restricted

   [.8] Budget Plan—Preparation Required

   [.9] Loan Policy—Preparation or Revision of Policy Required

   [.10] Bank Operations—Internal Controls, Correction of Weaknesses Required

   [.11] Loan Loss Reserve—Review by Board of Directors Required

   [.12] Shareholders—Disclosure of Cease and Desist Order Required

   [.13] Board of Directors—Compliance with Cease and Desist Order—Written Progress Reports Required

In the Matter of
SOUTHERN COMMERCE BANK
TAMPA, FLORIDA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

FDIC-02-105b

   Southern Commerce Bank, Tampa, Florida ("Bank"), having been advised of its right to a Notice of Charges and of Hearing detailing unsafe or unsound banking practices by the Bank and of its right to a hearing on the 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 counsel for the Federal Deposit Insurance Corporation ("FDIC") and with a representative of the Florida Department of Banking and Finance ("Florida Department of Banking"), dated November 22, 2002. The Florida Department of Banking may issue an order to cease and desist pursuant to Fla. Stat. Ch. 655, Section 655.033. Whereby solely for the purpose of this proceeding and without admitting or denying any of the charges of unsafe or unsound banking practices and violations of laws and regulations, the Bank has consented to the issuance of an ORDER TO CEASE AND DESIST ("ORDER") by the FDIC and the Florida Department of Banking.

   The FDIC and the Florida Department of Banking considered the matter and determined that there is reason to believe that the Bank had engaged in unsafe or unsound banking practices. The FDIC and the Florida Department of Banking, 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 that 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 and unsound banking practices:

       1. Operating with management that has
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       been ineffective in restoring the condition of the Bank;

       2. Operating with a business strategy that has resulted in unprofitable operations and poor asset quality;

       3. Operating with inadequate equity capital and reserves in relation to the volume and quality of assets held by the Bank;

       4. Operating the Bank with a large volume of poor quality loans;

       5. Operating with an inadequate allowance for loan and lease losses;

       6. Following hazardous lending and ineffective collection practices; and

       7. Operating in such a manner as to produce net operating losses.

   IT IS HEREBY ORDERED, that the Bank, its institution-affiliated parties, and its successors and assigns take affirmative action as follows:

MANAGEMENT

   [.1]1. (a) Within 120 days of the effective date of this Order, the Board of Directors shall assess the qualifications of management over the lending function. The Bank shall have and retain management having qualifications and experience commensurate with his or her duties and responsibilities at the Bank including the following:

       (i) a senior management official responsible for supervision of the senior lending officer and with oversight responsibility for all other areas of bank operations. This individual must have the proven ability in managing a bank of comparable size and in effectively implementing lending, investment and operating policies in accordance with sound banking practices; and

       (ii) a senior lending officer with significant appropriate lending, collection, and loan supervision experience, and proven success in upgrading a low quality loan portfolio.

   (b) The qualifications of management shall be assessed on each person's 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 asset quality, capital, capital adequacy, earnings, and management effectiveness.

   (c) During the life of this ORDER, the Bank shall notify the Regional Director of the FDIC's Atlanta Regional Office ("Regional Director") and the Comptroller of the State of Florida ("Comptroller") (collectively, "Supervisory Authorities") in writing when it proposes to add any individual to the Bank's board of directors ("Board") or make any changes or additions to senior executive staff. The notification must be received at least 30 days before such addition or employment is intended to become effective and should include a description of the background and experience of the individual or individuals to be added or employed. When the Supervisory Authorities have issued their nonobjections to the proposed changes or appointments, the proposed individual(s) may begin serving in their designated capacities.

WORKOUT SPECIALIST

   [.2]2. (a) Within 60 days of the effective date of this ORDER, the Bank shall hire or appoint a qualified person to serve as the Bank's workout specialist. The workout specialist shall have training in the underwriting and collection of assets and demonstrated loan workout experience in a financial institution. The workout specialist's qualifications shall be assessed on his/her ability to: comply with the applicable requirements of this ORDER, applicable laws and regulations, and the Bank's written loan and collection policies.

   (b) The workout specialist shall be responsible for the collection of delinquent loans and disposal of assets taken for debts previously contracted, with Board approval when required. The workout specialist shall report monthly and directly to the Board. The written reports shall:

       (i) identify all outstanding problem and delinquent loans and assets taken for debts previously contracted;

       (ii) provide the status of collection efforts during the preceding month and the prospects for full collection and/or the strengthening of the quality of all problem and delinquent loans which aggregate $50,000 or more; and

       (iii) provide the status of efforts during the preceding month to dispose of assets acquired for debts previously contracted.

   (c) The Bank shall submit a copy of the most recent reports required by Paragraph 2(b) above to the Supervisory Authorities
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   in accordance with the reporting requirements of Paragraph 13.

   (d) The Bank shall provide prior notice to the Supervisory Authorities of the individual proposed as its workout specialist. The notification should include a description of the background and experience of the individual to be hired or appointed. When the Supervisory Authorities have issued their nonobjection to the appointment, the proposed individual may begin serving as the Bank's workout specialist.

STRATEGIC PLAN

   [.3]3. Within 120 days from the effective date of this ORDER, the Bank shall prepare and submit to the Supervisory Authorities for review and comment, a three year written business/strategic plan covering the overall operation of the Bank. At a minimum, the plan shall establish objectives for the Bank's earnings performance, growth, balance sheet mix, liability structure, capital adequacy, and reduction of nonperforming and nonperforming and underperforming assets, together with strategies for achieving those objectives. The plan shall also identify capital, funding, managerial and other resources needed to accomplish its objectives. Such plan shall specifically provide for the following:

       (a) Goals for the composition of the loan portfolio by loan type including strategies to diversify the type and improve the quality of loans held;

       (b) Goals for the composition of the deposit base including strategies to reduce reliance on volatile and costly deposits;

       (c) Plans for effective risk management and collection practices.

   The plan shall be acceptable to the Supervisory Authorities as determined at subsequent examinations and/or visitations.

CAPITAL

   [.4]4. (a) During the life of this ORDER, the Bank shall maintain Tier 1 capital in such an amount as to equal or exceed 7.0 percent of the Bank's total assets ("Tier 1 capital ratio"). If, after the end of any calendar quarter, the Bank's Tier 1 capital ratio falls below 7.0 percent, the Bank shall, within 30 days, develop and implement a written plan for restoring the Bank's Tier 1 capital ratio to 7.0 percent within 90 days of the prior quarter end.

   (b) During the life of this ORDER, the Bank shall maintain risk-based capital ratios such as will cause the bank to be "well capitalized" for purposes of section 38 of the Act, 12 U.S.C. §1831o and Subpart B of Part 325 of the FDIC Rules and Regulations, 12 C.F.R. Part 325, Subpart B. The ratios shall be calculated pursuant to the FDIC Statement of Policy on Risk-Based Capital contained in Appendix A to Part 325 of the FDIC Rules and Regulations, 12 C.F.R. Part 325, Appendix A. If, after the end of any calendar quarter, the Bank's risk-based capital ratio falls below this requirement, the Bank shall, within 30 days, develop and implement a written plan for restoring the Bank's risk based capital ratio to the required minimum within 90 days of the prior quarter end.

   (c) The level of Tier 1 capital to be maintained during the life of this ORDER pursuant to Subparagraph 4(a) shall be in addition to a fully funded allowance for loan and lease losses, the adequacy of which shall be satisfactory to the Supervisory Authorities as determined at subsequent examinations and/or visitations.

   (d) Any increase in Tier 1 capital necessary to meet the requirements of Paragraph 4 of this ORDER may be accomplished by the following:

       (i) sale of common stock, subject to approval by the Florida Department of Banking;

       (ii) direct contribution of cash by the Board, shareholders, and/or parent holding company; or

       (iii) other means acceptable to the Supervisory Authorities.

   Any increase in Tier 1 capital necessary to meet the requirements of Paragraph 4 of this ORDER may not be accomplished through a deduction from the Bank's allowance for loan and lease losses except with the prior written consent of the Supervisory Authorities.

   (e) For the purposes of this ORDER, the terms "Tier 1 capital" and "total assets" shall have, the meanings ascribed to them in Part 325 of the FDIC Rules and Regulations, 12 C.F.R. §§ 325.2(t) and 325.2(v).

   (f) If all or part of any necessary increase in Tier 1 capital required by this Paragraph is accomplished by the sale of new securities, the Board shall forthwith 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
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   of the Bank's securities (including a distribution limited only to the Bank's existing shareholders), the Bank shall prepare offering materials fully describing the securities being offered, including an accurate description of the financial condition of the Bank and the circumstances giving rise to the offering, and any other material disclosures necessary to comply with any applicable securities laws. Prior to the implementation of the plan and, in any event, not less than 15 days prior to the dissemination of such materials, the plan and any materials used in the sale of the securities shall be submitted to the FDIC, Registration and Disclosure Section, 550 17th Street, N.W., Washington, D.C. 20429, and the Florida State Banking Department for review. Any changes requested to be made in the plan or materials shall be made prior to their dissemination.

   (g) In complying with the provisions of Paragraph 4 of this ORDER, the Bank shall provide to any subscriber and/or purchaser of the Bank's securities, a written notice of any planned or existing development or other changes which are materially different from information reflected in any offering materials used in connection with the sale of Bank securities. The written notice required by this Paragraph shall be furnished within 10 days from the date such material development or change was planned or occurred, whichever is earlier, and shall be furnished to every subscriber and/or purchaser of the Bank's securities who received or was tendered the information contained in the Bank's original offering materials.

CHARGE-OFF

   [.5]5. (a) As of the effective date of this ORDER, the Bank shall eliminate from its books, by charge-off or collection, all assets or portions of assets classified "Loss" as of the Report of Examination ("Report") dated March 31, 2002, that have not been previously collected or charged-off.

   (b) As of the effective date of this ORDER, the Bank shall eliminate from its books, by collection, charge-off, or other proper entries, 50 percent of those assets classified "Doubtful" in the Report that have not been previously collected or charged off. If an asset classified "Doubtful" is a loan or a lease, the Bank may, in the alternative, increase its allowance for loan and lease losses by an amount equal to 50 percent of the loan or lease classified "Doubtful".

   (c) Additionally, while this ORDER remains in effect, the Bank shall, within 30 days of the receipt of any official Report of Examination of the Bank from the FDIC or the Florida State Banking Department, eliminate from its books, by collection, charge-off, or other proper entries, the remaining balance of any assets classified "Loss" and 50 percent of those classified "Doubtful" unless otherwise approved in writing by the Supervisory Authorities. If an asset classified "Doubtful" is a loan or lease, the Bank may, in the alternative, increase its allowance for loan and lease losses by an amount equal to 50 percent of the loan or lease classified "Doubtful."

   (d) Within 180 days of the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" in the Report and those assets classified "Doubtful" in the Report that have not previously been charged off to not more than $3,800,000.

   (e) Within 360 days of the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" in the Report that have not previously been charged off to not more than $2,500,000.

   (f) Within 540 days of the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" and those assets classified "Doubtful" in the Report that have not been previously been charged off to not more than $2,000,000.

   (g) The requirements of Subparagraphs 5(a), 5(b), 5(c), 5(d), 5(e), and 5(f) of this ORDER are not to be construed as standards for future operations and, in addition to the foregoing, the Bank shall eventually reduce the total of all adversely classified assets. Reduction of these assets through proceeds of other loans made by the Bank is not considered collection for the purpose of this paragraph. As used in Subparagraphs 5(d), 5(e) and 5(f) the word "reduce" means:

       (i) to collect;

       (ii) to charge-off; or

       (iii) to sufficiently improve the quality of assets adversely classified to warrant removing any adverse classification, as determined by the Supervisory Authorities.


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NO ADDITIONAL CREDIT

   [.6]6. (a) Beginning with the effective 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 from the Bank that has been classified, in whole or part, "Loss" or "Doubtful" and is uncollected. The requirements of this Paragraph shall not prohibit the Bank from renewing (after collection in cash of interest due from the borrowers) any credit already extended to any borrower.

   (b) Additionally, during the life 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 from the Bank that has been classified, in whole or in part, "Substandard" and is uncollected.

   (c) Paragraph 6(b) shall not apply if the Bank's failure to extend further credit to a particular borrower would be detrimental to the best interests of the Bank. Prior to the extension of any additional credit pursuant to this Paragraph, either in the form of a renewal, extension, or further advance of funds, such additional credit shall be approved by a majority of the Board or a designated committee thereof, who shall certify in writing as follows:

       (i) why the failure of the Bank to extend such credit would be detrimental to the best interests of the Bank;

       (ii) that the Bank's position would be improved thereby; and

       (iii) how the Bank's position would be improved.

   The signed certification shall be made a part of the minutes of the Board or its designated committee and a copy of the signed certification shall be retained in the borrower's credit file.

CASH DIVIDENDS

   [.7]7. The Bank shall not pay cash dividends without the prior written consent of the Supervisory Authorities.

BUDGET

   [.8]8. Within 120 days from the effective date of this ORDER, the Bank shall formulate and fully implement a written plan to improve earnings. This plan shall be forwarded to the Supervisory Authorities for review and comment and shall, at a minimum:

   (a) Identify goals and strategies for improving and sustaining the earnings of the Bank;

   (b) Identify the major areas in, and means by which, the Board will seek to improve the Bank's operating performance;

   (c) Require realistic and comprehensive budgets;

   (d) Describe the operating assumptions that form the basis for, and adequately support, major projected income and expense components; and

   (e) Require a budget review process to monitor the income and expenses of the Bank to compare the actual figures with budgetary projection;

   Following the end of each calendar quarter, the Board shall evaluate the Bank's actual performance in relation to the plan required by this paragraph and shall record the results of the evaluation, and any actions taken by the Bank, in the minutes of the Board meeting at which such an evaluation is undertaken.

LENDING POLICIES

   [.9]9. Within 120 days from the effective date of this ORDER, the Bank shall revise its written lending and collection policy to address changes in the Bank's lending function dictated by the Bank's strategic plan required by paragraph 3 of this ORDER. Such policy and its implementation shall be in a form and manner acceptable to the Supervisory Authorities as determined at subsequent examinations and visitations.

INTERNAL LOAN REVIEW

   [.10]10. The bank shall immediately ensure that going forward, its loan review and grading system timely and accurately assesses the credit quality of the Bank's loan portfolio.

ALLOWANCE FOR LOAN AND LEASE LOSSES

   [.11]11. Within 30 days from the effective date of this ORDER, the Board shall review the adequacy of the allowance for loan and lease losses ("Allowance") and establish a comprehensive policy for determining the adequacy of the Allowance. For the purpose of this determination, the adequacy of the Allowance shall be determined after the charge-off of all loans or other items classified "Loss". The policy shall provide for a review of the Allowance at least once each calendar quarter. Said review should be completed in order that the findings of the Board with respect to the Allowance may be properly
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   reported in the quarterly Reports of Condition and Income. The review should focus on the results of the Bank's internal loan review, loan and lease loss experience, trends of delinquent and non-accrual loans, an estimate of potential loss exposure of significant credits, concentrations of credit, and present and prospective economic conditions, and may include such other factors as the Board deems relevant. A deficiency in the Allowance shall be remedied in the calendar quarter it is discovered, prior to submitting the Report of Condition and Income, by a charge to current operating earnings. The minutes of the Board meeting at which such review is undertaken shall indicate the results of the review. The Bank's policy for determining the adequacy of the Allowance and its implementation shall be satisfactory to the Supervisory Authorities as determined at subsequent examinations and/or visitations.

NOTICE TO SHAREHOLDERS

   [.12]12. Following the effective date of this ORDER, the Bank shall send to its shareholders or otherwise furnish a description of this ORDER in conjunction with the Bank's next shareholder communication and also in conjunction with its notice or proxy statement preceding the Bank's next shareholder meeting. The description shall fully describe the ORDER in all material respects. The description and any accompanying communication, statement, or notice shall be sent to the FDIC, Registration and Disclosure Section, 550 17th Street, N.W., Washington, D.C. 20429, at least 15 days prior to dissemination to shareholders. Any changes requested to be made by the FDIC shall be made prior to dissemination of the description, communication, notice, or statement.

PROGRESS REPORTS

   [.13]13. Within 30 days of the end of the first quarter following the effective date of this ORDER, and within 30 days of the end of each quarter thereafter, the Bank shall furnish written progress reports to the Supervisory Authorities detailing the form and manner of any actions taken to secure compliance with this ORDER and the results thereof. Such reports shall include a copy of the Bank's Report of Condition and the Bank's Report of Income. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Supervisory Authorities have released the Bank in writing from making further reports.

   This ORDER shall become effective 10 days from the date of its issuance.

   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 Supervisory Authorities.

   Pursuant to delegated Authority.

   Dated at Atlanta, Georgia, this 22nd day of November, 2002.



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