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FDIC Enforcement Decisions and Orders



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[12,416] In the Matter of First Community Bank of Southwest Florida, Fort Myers, Florida, Docket No. 05-067b (6-13-05).

A cease and desist order was issued, based on findings by the FDIC that it had reason to believe that respondent was engaged in unsafe and unsound practices.

[.1] Management—Qualifications Specified

[.2] Board of Directors—Education Program—Required

[.3] Strategic Plan—Preparation of Required

[.4] Budget Plan—Preparation Required

[.5] Capital—Tier 1 Capital Increase/Maintain

[.6] Assets—Charge-off or Collection

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

[.8] Internal Loan Review and Grading System—Establishment of Required

[.9] Loans—Special Mention

[.10] Loan Concentration—Reduction Required

[.11] Loan Loss Reserve—Establishment of or Increase in Required

[.12] Liquidity Ratio—Written Plan Required

[.13] Bank Operations—Internal Routine and Controls Procedure—Written Plan Required

[.14] Audit—Written Policy Required

[.15] Violations of Law—Corrections of Violations Required

[.16] Bank Secrecy Act—Compliance Program—Written Plan Required

[.17] Bank Secrecy Act—Officer, Designate

[.18] Bank Secrecy Act—Compliance—Board of Directors to Oversee

[.19] Customer Due Diligence Program—Establishment Required

[.20] Dividends—Dividends Restricted

[.21] Progress Report—Written Report Required

[.22] Shareholders—Disclosure of Cease and Desist Order Required
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In the Matter of
FIRST COMMUNITY BANK OF
SOUTHWEST FLORIDA

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

FDIC-05-067b

First Community Bank of Southwest Florida, Fort Myers, Florida ("Bank"), having been advised of its right to a NOTICE OF CHARGES AND OF HEARING detailing the unsafe or unsound banking practices and violations of laws, rules, and/or regulations alleged to have been committed 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") dated May 25, 2005, 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 laws, rules, and/or 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 laws, rules, and/or 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/or violations of law, rules or regulations:

    (a) operating with inadequate management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits;

    (b) following hazardous lending practices, including but not be limited to failing to, maintain adequate documentation in loan files;

    (c) operating with an inadequate loan policy;

    (d) operating with inadequate policies and procedures to monitor and control loan concentrations and subprime lending;

    (e) operating with an inadequate allowance for loan and lease losses ("ALLL") including an inadequate methodology for determining the ALLL;

    (f) operating with inadequate liquidity in light of the Bank's asset growth and loan concentrations;

    (g) operating with inadequate policies and procedures to monitor and control asset growth;

    (h) operating with inadequate internal routine and controls to prevent potential losses;

    (i) operating with an adequate audit program;

    (j) violating laws, rules, regulations, standards, statements of policy, and/or guidelines as identified on pages 18 through 20 of the FDIC Report of Examination of the Bank dated January 18, 2005 ("Report").

    (k) operating the Bank without effective Board of Directors ("Board") oversight and executive management supervision to prevent unsafe or unsound banking practices and violations of law of the Bank Secrecy Act ("BSA"), subchapter II of Chapter 53 of Title 31, the implementing rules and regulations at 31 C.F.R. Part 103, Part 326 of the FDIC's Rules and Regulations, 12 C.F.R. Part 326 and Part 353 of the FDIC's Rules and Regulations, 12 C.F.R. Part 353 ("Part 353") ("collectively, "BSA Rules");

    (l) operating the Bank with an ineffective system of internal controls to assure ongoing compliance with the BSA Rules;

    (m) operating the Bank with an ineffective system of independent testing for compliance with the BSA Rules;

    (n) operating the Bank with an ineffective training program for appropriate Bank personnel to assure compliance with the BSA Rules;

    (o) operating the Bank with ineffective coordinating and monitoring procedures by a single, designated, responsible individual to assure compliance with the BSA Rules; and

    (p) practices the Bank in violation of section


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    103.121 of the FDIC Rules and Regulations of the Department of the Treasury, 31 C.F.R. §103.121, by failing to implement an effective customer identification program ("CIP"). CIP is the collective reference to section 103.121 of the FDIC Rules and Regulations, 12 C.F.R. § of the Department of the Treasury, 31 C.F.R. §103.121.

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

MANAGEMENT

[.1] 1. Within 60 days from the effective date of this ORDER, the Bank shall have and retain qualified management.

(a) Each member of management shall have the qualifications and experience commensurate with his or her duties and responsibilities at the Bank. Each member of management shall be provided appropriate written authority from the Board to implement the provisions of this ORDER. At a minimum management shall include:

    (i) a chief executive officer with 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 a significant amount of appropriate lending, collection, and loan supervision experience for the type and quality of the Bank's loans.

(b) The qualifications of management shall be assessed on its ability to:

    (i) comply with the requirements of this ORDER;

    (ii) operate the Bank in a safe and sound manner;

    (iii) comply with applicable laws and regulations; and

    (iv) restore all aspects of the Bank to a safe and sound condition, including management effectiveness, risk management, and liquidity.

(c) During the life of this ORDER, the Bank shall notify the Regional Director of the FDIC's Atlanta Regional Office, Division of Supervision and Consumer Protection ("Regional Director") and the Director of the Florida Office of Financial Regulation ("OFR") (collectively, "Supervisory Authorities"), in writing, when it proposes to add any individual to the Bank's Board or employ any individual as a senior executive officer as that term is defined in Part 303 of the FDIC's Rules and Regulations, 12 C.F.R. §303.12, and Fla. Stat. Ch. 655, §655.005(1)(f). The notification should include a description of the background and experience of the individual or individuals to be added or employed and must be received at least 30 days before such addition or employment is intended to become effective. If the Regional Director or OFR Director issues a notice of disapproval pursuant to section 32 of the Act, 12 U.S.C. §1831i, or Fla. Stat. Ch. 655, §655.0385(2), with respect to any proposed individual, then such individual may not be added or employed by the Bank.

(d) To facilitate having and retaining qualified management, the Board shall in no more than 60 days from the effective date of this ORDER, develop 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 other positions needed to manage and supervise properly the affairs of the Bank during the period of rapid growth and specifically considering the labor intensive nature of the Bank's products;

    (ii) evaluation of each officer and staff member to determine 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

    (iii) a plan of action to recruit and hire any additional or replacement personnel with the requisite ability, experience and other qualifications, which the Board determines are necessary to fill those officer or staff member positions consistent with the needs identified in the Management Plan;

    (iv) an organizational chart; and

    (v) a requirement that the Board, or a committee thereof consisting of not less than a majority of the individuals who are independent with respect to the Bank, provide supervision over lending, investment and operating policies of the Bank sufficient to ensure that the Bank complies with the provisions of this ORDER. The Board shall review compliance with this ORDER and


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    record its review in the minutes of each regularly scheduled Board meeting.

(e) an individual who is "independent with respect to the Bank" shall be an individual

    (i) who is not an officer 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 holding company;

    (ii) 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 Bank holding company's outstanding shares, and

    (iii) who is not indebted to the Bank, directly or indirectly (including indebtedness of any entity in which the individual has a substantial financial interest), in an amount exceeding five (5) percent of the Bank's Tier 1 capital.

(f) The Management Plan and any subsequent modification thereto shall be submitted to the Supervisory Authorities for review and comment. No more than 30 days from the receipt of any comment from the Supervisory Authorities, and after consideration of such comment, the Board shall approve the Management Plan and/or any subsequent modification thereto, which approval shall be recorded in the minutes of the Board. Thereafter, the Bank and its institution-affiliated parties shall implement the Management Plan and/or any subsequent modification.

BOARD OF DIRECTORS

[.2] 2. Within 60 days from the effective date of this ORDER, the Board shall develop, adopt, and submit to the Supervisory Authorities for review, an educational program for each member of the Board. The educational program shall include, at a minimum:

(a) specific training in the areas of lending, operations, and compliance with laws, rules and regulations applicable to banks chartered in the State of Florida; and

(b) specific training in the duties and responsibilities of the Board in connection with the safe and sound operation of the Bank.

Upon adoption of the educational program, it shall be submitted to the Supervisory Authorities for review and comment. The Board shall document the training activities in the minutes of the next Board meeting following completion of the training. The Board's actions as required by this paragraph shall be satisfactory to the Supervisory Authorities as determined at subsequent examinations.

STRATEGIC PLAN

[.3] 3. Within 60 days from the effective date of this ORDER, the Bank shall prepare and submit to the Supervisory Authorities a written strategic/business plan covering the overall operation of the Bank. The plan shall be in a form and manner acceptable to the Supervisory Authorities as determined at subsequent examinations and/or visitations. At a minimum the plan shall cover three years and provide specific objectives for asset growth, loan portfolio mix/concentrations, market focus, earnings projections, capital needs, and liquidity position.

BUDGET

[.4] 4. (a) Within 60 days from the effective date of this ORDER, the Bank shall formulate and fully implement a comprehensive budget for all categories of income and expense for the calendar year ending December 31, 2005. The budget required by this paragraph shall include formal goals and strategies, consistent with sound banking practices and taking into account the Bank's other written policies and strategic plan to sustain earnings of the Bank. The budget shall include a description of the operating assumptions that form the basis for, and adequately support, major projected income and expense components. Thereafter, the Bank shall formulate a budget by November 30 of each subsequent year and, by December 15 of each subsequent year, submit the budget to the Supervisory Authorities for review and comment.

(b) The budget required by this paragraph shall be acceptable to the Supervisory Authorities as determined at subsequent examinations and/or visitations.

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

[.5] 5. (a) The terms "Tier 1 capital," "Tier 1 risk based capital," "total risk based capital," and "total assets" shall have the same meanings ascribed to them in Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. §§ 325.2(v)–(y);

(b) From the effective date of this ORDER, the Bank shall maintain Tier 1 capital in such an amount as to equal or exceed seven (7) percent of the Bank's total assets ("Tier 1 Capital Ratio"). In the event that the Tier 1 Capital Ratio falls below seven (7) percent during the life of this ORDER, the Bank shall notify the Supervisory Authorities and shall increase Tier 1 capital in an amount sufficient to meet the Tier 1 Capital Ratio within ninety (90) days.

(c) Additionally, during the life of this ORDER, the Bank shall maintain a Tier 1 risk based capital ratio of at least nine (9) percent and a total risk based capital ratio of at least eleven (11) percent. In the event that the Tier 1 risk based capital ratio falls below nine (9) percent or total risk based capital ratio falls below eleven (11) percent during the life of this ORDER, the Bank shall notify the Supervisory Authorities and shall increase Tier 1 risk based capital or total risk based capital ratio in an amount sufficient to meet the ratio requirements of this paragraph within ninety (90) days.

(d) The level of Tier 1 capital, Tier 1 risk based capital, and total risk based capital to be maintained during the life of this ORDER pursuant to this paragraph shall be in addition to a fully funded ALLL, the adequacy of which shall be satisfactory to the Supervisory Authorities as determined at subsequent examinations and/or visitations.

(e) Any increase in Tier 1 capital necessary to meet the requirements of this paragraph may be accomplished by the following:

    (i) the sale of common stock;

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

    (iii) any other means acceptable to the Supervisory Authorities.

Any increase in Tier 1 capital necessary to meet the requirements of this paragraph may not be accomplished through a deduction from the Bank's ALLL without the prior written authorization of the Supervisory Authorities.

(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 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 to be used in the sale of the securities shall be submitted to the FDIC, Division of Supervision and Consumer Protection, Accounting and Securities Disclosure Section, 550 17th Street, N.W., Room F-6043, Washington, D.C. 20429, and the OFR, 200 East Gaines Street, Tallahassee, Florida, 32399-0371, 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 this paragraph, 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 that are materially different from the information reflected in any offering materials and 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 developed 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

[.6] 6. (a) Within 30 days from 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" in the Report that have not been previously collected or charged-off. Elimination of any of these assets through
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proceeds of other loans made by the Bank is not considered collection for purposes of this paragraph.

(b) Additionally, while this ORDER remains in effect, the Bank shall, within 30 days from the receipt of any official Report of Examination of the Bank from the FDIC or the OFR, eliminate from its books, by collection, charge-off, or other proper entries, the remaining balance of any asset classified "Loss" and 50 percent of those classified "Doubtful" unless otherwise approved in writing by the Supervisory Authorities.

LENDING AND COLLECTION POLICIES

[.7] 7. (a) Within 60 days from the effective date of this ORDER, the Bank shall revise, adopt, and implement its written lending and collection policy to provide effective guidance and control over the Bank's lending function. In addition, the Bank shall use its best efforts and document those efforts to obtain adequate and current documentation for all loans in the Bank's loan portfolio. Such policy and its implementation shall be in a form and manner acceptable to the Supervisory Authorities as determined at subsequent examinations and/or visitations.

(b) The revisions to the Bank's loan policy and practices, required by this paragraph, at a minimum, shall include the following:

    (i) provisions which establish maximum dollar amounts for concentration limits for all product lines, including the Residential Loan Construction Program ("Construction Program");

    (ii) within the Construction Program, establishment of the maximum dollar amount for concentration limits for outstanding construction loans dependent upon the performance of a single builder;

    (iii) provisions which establish the policies and procedures for the underwriting performed on all loans including the Construction Program;

    (iv) a risk assessment plan to determine the volume of subprime loans;

    (v) guidance for originating, tracking and monitoring the volume of subprime loans; and

    (vi) provisions that establish policies and procedures to ensure compliance with the "Expanded Guidance for Subprime Lending Programs", Financial Institution Letter-9-2001.

INTERNAL LOAN REVIEW

[.8] 8. Within 60 days from the effective date of this ORDER, the Bank shall adopt and submit to the Supervisory Authorities for review an effective internal loan review and grading system for the periodic review of the Bank's loan portfolio to identify and categorize all of the Bank's loans, and other extensions of credit which are carried on the Bank's books as loans, on the basis of credit quality. The system shall include, at a minimum:

(a) specification of standards and criteria for assessing the credit quality of the Bank's loans;

(b) categorization of the Bank's loans into groupings based on the varying degrees of credit and other risks that may be presented under the applicable grading standards and criteria, but in no case, will a loan be assigned a rating higher than that assigned by examiners at the last examination of the Bank without prior written notification to the Supervisory Authorities;

(c) identification of any loan that is not in conformance with the Bank's loan policy; and

(d) requirement of a written report to be made to the Board and Audit Committee, not less than quarterly after the effective date of this ORDER. The report shall identify the status of those loans that exhibit credit and other risks under the applicable grading standard/criteria and the prospects for full collection and/or strengthening of the quality of such loans.

SPECIAL MENTION

[.9] 9. Within 90 days from the effective date of this ORDER, the Bank shall use its best efforts and document its efforts to correct the cited deficiencies in the loans listed for "Special Mention" on pages 27 and 28 of the Report.

REDUCE CONCENTRATIONS OF CREDIT

[.10] 10. (a) Within 30 days from the effective date of this ORDER, the Bank shall perform a risk segmentation analysis with respect to the Construction Program as described on page 29 of the Report. Concentrations
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should be identified by product type, geographic distribution, underlying collateral or other asset groups which are considered economically related and in the aggregate represent more than 25 percent of the Bank's Tier 1 capital. A copy of this analysis shall be provided to the Supervisory Authorities for their review and comment. In addition, the Bank shall develop a written plan, approved by the Board, for systematically reducing the amount of loans or other extensions of credit advanced, directly or indirectly to or for the benefit of, any borrowers in the Construction Program as listed on page 29 of the Report. The plan and its implementation shall be in a form and manner acceptable to the Supervisory Authorities.

(b) Within 240 days from the effective date of this ORDER, the Bank shall reduce each loan concentration to each builder in the Construction Program identified on page 29 of the Report to an amount which shall be less than 100 percent of the Bank's Tier 1 capital for each individual concentration. In addition, the Bank shall not make new extensions of credit to any borrower or associated entities the aggregate of which will equal 25 percent or more of the Bank's Tier 1 capital.

(c) Bank management will provide monthly reports to the the Board detailing the Bank's progress in reducing the concentration of risk in the Construction Program. The Board minutes shall reflect the Board's review and comment on management's monthly reporting.

(d) Within 30 days from the effective date of this Order, the Bank shall develop effective controls to monitor the concentration of risk in the Construction Program. These controls shall include:

    (i) ensuring that established concentration limits are not exceeded;

    (ii) establishing and implementing procedures to ensure adequate loan file documentation and underwriting; and

    (iii) performing adequate and timely due diligence on the Construction Program brokers, builders, and end-lenders on an ongoing basis.

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 ALLL and establish a comprehensive policy for determining the adequacy of the ALLL. For the purpose of this documentation, the adequacy of the ALLL shall be determined after the charge-off of all loans or other items classified "Loss". The policy shall provide for a review of the ALLL at least once each calendar quarter. Said reviews shall be completed at least ten (10) days prior to the end of each quarter, in order that the findings of the Board with respect to the ALLL may be properly reported in the quarterly Reports of Condition and Income. The review shall 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, concentration of credit including the Construction Program, and present and prospective economic conditions. A deficiency in the ALLL shall be remedied in the calendar quarter it is discovered, prior to submitting the Reports 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 at subsequent examinations and/or visitations.

LIQUIDITY

[.12] 12. (a) Within 60 days from the effective date of this ORDER, the Bank shall revise, adopt, and implement a written plan addressing liquidity, contingent funding, and asset liability management ("Liquidity Plan"). The Bank shall submit the Liquidity Plan to the Supervisory Authorities for review and comment. Upon receipt of comments from the Supervisory Authorities, if any, the Board shall review and approve the plan. Thereafter, the Bank shall implement and follow the plan. Annually during the life of this ORDER, the Bank shall review the plan for adequacy and, based upon such review, shall make appropriate revisions to the plan that are necessary to strengthen funds management procedures and maintain adequate provisions to meet the Bank's liquidity needs. The plan and its implementation shall be in a form and manner acceptable to the Supervisory Authorities as determined at subsequent examinations and/or visitations.

(b) The plan shall include, at a minimum:

    (i) a limitation on the ratio of the Bank's total loans to assets, including a limitation


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    on off-balance sheet items and minimum volumes for short term investments;

    (ii) target and maximum loans-to-total assets ratios;

    (iii) a Contingency Funding Plan ("CFP") to detail sources of funds and the responsibilities of Bank management to implement the CFP;

    (iv) establishment of lines of credit that would allow the Bank to borrow funds to meet depositor demands if the Bank's other provisions for liquidity proved inadequate;

    (v) a requirement for retention of sufficient investments that can be promptly liquidated to ensure the maintenance of the Bank's liquidity posture at a level consistent with short-term and long-term objectives; and

    (vi) establishment of limits on the volume of unfunded loan commitments, including undisbursed Construction Program construction draws.

INTERNAL ROUTINE AND CONTROLS

[.13] 13. Within 30 days from the effective date of this ORDER, the Bank shall adopt and implement a policy for the operation of the Bank in such a manner as to provide adequate internal routine and controls consistent with safe and sound banking practices. Such policy and its implementation shall, at a minimum, eliminate and/or correct all internal routine and control deficiencies as more fully set forth on pages 14 through 16 of the Report and shall be satisfactory to the Supervisory Authorities determined at subsequent examinations and/or visitations.

AUDITS

[.14] 14. Within 60 days from the effective date of this ORDER, the Bank shall adopt and implement a comprehensive written audit program. The internal audit program shall include procedures to ensure timely and thorough reviews of the Bank's loan portfolio, including reviews of credit quality, loan documentation, and compliance with the Bank's policies and procedures.

As part of the Bank's routine auditing, the Bank's internal and external audit shall include reviews of all BSA Rules and the CIP, with significant exceptions reported directly to the Board.

The Bank shall submit the audit program to the Supervisory Authorities for review and comment. Upon receipt of comments from the Supervisory Authorities, if any, the Bank's Board shall review and approve the audit program. The audit program and its implementation shall be approved by the Board and shall be in a form and manner acceptable to the Supervisory Authorities as determined at subsequent examinations and/or visitations. The Bank shall thereafter implement and enforce an effective system of internal and external audits. The internal auditor shall make written monthly reports of audit findings directly to the Board. The minutes of the meetings of the Board shall reflect consideration of these reports and describe any action taken as a result thereof.

VIOLATIONS OF LAW AND REGULATION

[.15] 15. (a) Within 30 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of law and contraventions of regulatory standards, guidelines, and/or statements of policy, which are more fully set out on pages 18 through 20 of the Report. In addition, the Bank shall take all necessary steps to ensure future compliance with all applicable laws and regulations and regulatory standards, guidelines and statements of policy.

(b) With respect to the Bank's contravention of the Interagency Guidelines for Real Estate Lending Policies identified on page 19 of the Report, within 30 days from the effective date of this ORDER, the Bank shall develop and submit a written plan to correct this contravention of policy. This plan shall provide for the reduction of loans in excess of the supervisory Loan to Value limits within 240 days from the effective date of this ORDER. This plan shall be submitted to the Supervisory Authorities for review and comment and shall be acceptable to the Supervisory Authorities as determined at subsequent examinations and/or visitations.

BSA COMPLIANCE PLAN

[.16] 16. Within sixty (60) days from the effective date of this ORDER, the Bank shall develop and implement a written plan for the continued administration of the Bank's BSA Compliance Program and the CIP designed
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to, among other things, ensure and maintain compliance with the BSA Rules ("Compliance Plan"). The Bank shall submit the Compliance Plan to the Supervisory Authorities for review and comment. Upon receipt of comments from the Supervisory Authorities, if any, the Board shall review and approve the Compliance Plan. The Board's review and approval shall be recorded in the minutes. Thereafter, the Bank shall implement the Compliance Plan. At a minimum, the Compliance Plan shall:

(a) provide for a system of internal controls sufficient to comply in all material respects with the BSA Rules and establish a plan for implementing such internal controls;

(b) provide for independent testing for compliance by the Bank with the BSA Rules to be conducted by an outside party on an annual basis in compliance with the procedures described in the FDIC's "Guidelines for Monitoring Bank Secrecy Act Compliance" and establish a plan for implementing such testing. The independent testing shall, at a minimum:

    (i) test the Bank's internal procedures for monitoring compliance with the BSA Rules, including interviews of employees who handle case transactions;

    (ii) sample large currency transactions followed by a review of the Currency Transaction Report ("CTR") filings;

    (ii) test the validity and reasonableness of the customer exemptions granted by the Bank;

    (iv) test the Bank's recordkeeping system for compliance with the BSA Rules; and

    (v) document the scope of the testing procedures performed and the findings of the testing. The results of each independent test as well as any apparent exceptions noted during the testing shall be presented to the Board. The Board shall record the steps taken to correct any exceptions noted and address any recommendations made during each independent test in the minutes of the meeting; and

(c) provide for a suitable training program to assure that the Board, all appropriate Bank personnel including, without limitation, tellers, customer service representatives, lending officers, private and personal banking officers, and all other customer contact personnel are trained in all aspects of regulatory and internal policies and procedures related to the BSA Rules and the Bank's CIP, and establish a plan to implement and document such training.

BSA STAFF

[.17] 17. (a) Within thirty (30) days from the effective date of the ORDER, the Board shall engage a qualified BSA officer who shall report directly to the Board or to the Directors BSA compliance committee of the Board. The BSA officer shall devote substantially all of his or her time to this Bank. The Board shall ensure the BSA officer has the necessary authority to implement all aspects of the Bank's Compliance Plan.

(b) Within sixty (60) days from the effective date of this ORDER, the Bank shall complete an independent review of the staff responsible for ensuring the Bank's compliance with the BSA Rules. The BSA Department staff shall be evaluated to determine whether these individuals possess the ability, experience, training, and other necessary qualifications required to perform present and anticipated duties, including adherence to the Bank's Compliance Plan, the requirements of the BSA Rules and the Bank's CIP, and the provisions of this Order. The review shall be conducted by a qualified party with the requisite ability to perform such an analysis and a written report shall be presented to the Bank's Board. A written report shall be submitted to the Supervisory Authorities for review and comment.

DIRECTORS' COMMITTEE

[.18] 18. Within thirty (30) days from the effective date of this ORDER, the Board shall establish a Directors' committee to oversee the Bank's compliance with the BSA Rules and the Bank's CIP. At least two-thirds of the members of this committee shall be independent, outside directors. The Directors' committee shall receive comprehensive monthly reports from the qualified officer appointed pursuant to paragraph 17 of this ORDER regarding the Bank's compliance with the BSA Rules, CIP, and the Compliance Plan as described in paragraph 16. The Directors' committee shall present a report regarding the Bank's BSA compliance to the Board at each regularly scheduled meeting of the Board, which shall be recorded in the appropriate minutes of the Board meeting and retained in the Bank's records. Nothing herein contained shall diminish the responsibility of the entire Board
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to ensure compliance with the provisions of the Compliance Plan.

DUE DILIGENCE PROGRAM

[.19] 19. Within sixty (60) days from the effective date of this ORDER and as acceptable to the Supervisory Authorities, the Bank shall develop, adopt, and implement a written customer due diligence program ("Due Diligence Program"). At a minimum, the customer Due Diligence Program shall provide for a risk focused assessment of the customer base of the Bank to determine the appropriate level of Enhanced Due Diligence ("EDD") necessary for those categories of customers that the Bank has reason to believe pose a heightened risk of illicit activities at the Bank.

(a) The Due Diligence Program shall provide for, at a minimum:

    (i) time limits for Bank personnel to respond to account activity exceptions;

    (ii) time limits for determining if exceptions require a Suspicious Activity Report ("SAR"); and

    (iii) identification of customers requiring site visitations and frequency of visitations.

(b) EDD shall include the following procedures:

    (i) determine the appropriate documentation necessary to confirm the identity and business activity of the customer;

    (ii) understand the normal and expected transactions of the customer; and

    (iii) reasonably ensure the identification and timely, accurate, and complete reporting of known or suspected criminal activity against or involving the Bank to law enforcement and the Supervisory Authorities, as required by the suspicious activity reporting provisions of Part 353.

CASH DIVIDENDS

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

PROGRESS REPORTS

[.21] 21. Within 30 days from 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 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. All progress reports and other written responses to this ORDER shall be reviewed by the Board and made a part of the minutes of the appropriate Board meeting.

DISCLOSURE TO SHAREHOLDERS

[.22] 22. Following the effective date of this ORDER, the Bank shall send to its shareholders or otherwise furnish a description of this ORDER (i) in conjunction with the Bank's next shareholder communication; and (ii) 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, Accounting and Securities Disclosure Section, Washington, D.C. 20429 and to the OFR, 200 East Gaines Street, Tallahassee, Florida 32399-0371, to review at least twenty (20) days prior to dissemination to shareholders. Any changes requested to be made by the FDIC or the OFR shall be made prior to dissemination of the description, communication, notice, or statement.

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 in writing by the FDIC.

Pursuant to delegated authority.

Dated this 13th day of June, 2005.



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