Federal Deposit
Insurance Corporation

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   [¶10,862] In the Matter of First State Bank of Sarasota, Sarasota, Florida, Docket No. FDIC-92-192b (8-19-93).

   Bank to cease and desist from such unsafe or unsound practices as failing to provide adequate supervision over the Bank's affairs; operating with management whose policies are detrimental to the Bank; operating with excessive volumes of adversely classified assets; following hazardous lending and lax collection practices; operating with inadequate capital; engaging in practices which produce inadequate operating income and excessive loan losses; operating with inadequate allowance for loan and lease losses; operating without proper internal routine and controls; and operating in violation of applicable laws or regulations. (This order was terminated by order of the FDIC dated 2-10-95; see ¶15,965.)

   [.1] Management—Qualifications—Review
   [.2] Management—Management Plan—Minimum Requirements
   [.3] Capital—Tier 1 Capital—Increase/Maintain—Methods
   [.4] Allowance for Loan and Lease Losses—Establish/Maintain
   [.5] Assets—Adversely Classified—Eliminate/Reduce
   [.6] Assets—Adversely Classified—Individual Written Plans
   [.7] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.8] Loans—Overdue—Accrual of Interest
   [.9] Loan Policy—Written Revision—Minimum Requirements
   [.10] Loans—Extensions of Credit—Prior Loan Committee Approval Required
   [.11] Budget and Earnings Forecast—Preparation Required
   [.12] Violations of Law—Eliminate/Correct
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   [.13] Liquidity — Written Policy — Minimum Requirements
   [.14] Asset/Liability Management — Written Policy — Minimum Requirements
   [.15] Bank Operations—Internal Routine and Controls—Deficiencies Corrected    [.16] Dividends — Restricted
   [.17] Shareholders — Disclosure — Cease and Desist Order

In the Matter of

FIRST STATE BANK OF SARASOTA
SARASOTA, FLORIDA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-92-192b
   First State Bank of Sarasota, Sarasota, Florida ("Bank"), having received a written NOTICE OF CHARGES AND OF HEARING ("NOTICE") on July 2, 1992, detailing unsafe or unsound banking practices and a violation of law alleged to have been committed by the Bank, and advising the Bank 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), filed an Answer dated July 24, 1992, and have 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 August 18, 1993, 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 a violation of law contained in the NOTICE, 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 a violation of law. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

   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 a violation of law:
   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 a violation of law;
   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 non-earning assets;
   D. Engaging in hazardous lending and ineffective and lax collection practices, including but not limited to: (i) failing to establish or enforce repayment programs; (ii) failing to provide adequate diversification of risk by allowing an excessive concentration of unsecured loans to two (2) related borrowers; (iii) advancing funds on lines of credit in order to pay accrued interest on delinquent or non-performing loans; and (iv) extending credit with inadequate financial information and other loan documentation to support the extensions of credit;
   E. Operating the Bank with inadequate capital for the kind and quality of assets held;
   F. Engaging in practices which produce inadequate operating income and excessive loan losses;
   G. Failing to provide and maintain an adequate allowance for loan and lease losses for the volume, kind, and quality of loans held by the Bank;
   H. Failing to operate the Bank with adequate internal controls and accounting systems to prevent unsafe and unsound practices, as more fully described on page 6-b of the FDIC's Report of Examination of the Bank as of August 12, 1991; and
   I. Engaging in a violation of applicable state law, as more fully described on page {{10-31-93 p.C-3380}}6-a of the FDIC's Report of Examination of the Bank as of August 12, 1991.
   IT IS FURTHER ORDERED that the Bank and its successors and assigns take affirmative action as follows:

[.1] 1. (a) Within ninety (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 chief executive officer with proven ability in managing a bank of comparable size and with comparable asset problems and 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 management shall be provided with 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) restore all aspects of the Bank to a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness, and liquidity. As long as this ORDER remains in effect, the Bank shall notify the Regional Director of the FDIC's Atlanta Regional Office ("Regional Director") and the Florida State Comptroller ("Comptroller") in writing of any 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) days prior to the individual's assuming the new position.

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

   (i) identification of both the type and number of officer positions needed to manage and supervise properly the affairs of the Bank;
   (ii) identification and establishment of such Bank committees as are needed to provide guidance and oversight to active management;
   (iii) evaluation of each Bank officer and 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
   (iv) a plan of action to recruit and hire any additional or replacement personnel with the requisite ability, experience and other qualifications, which the board of directors determines are necessary to fill Bank officer or staff member positions consistent with the analysis, evaluation and assessment as provided in paragraphs 1(b)(i) and 1(b)(iii) of this ORDER.

[.3] 2. (a) Within ninety (90) days from the effective date of this ORDER, the Bank shall increase its Tier 1 capital by not less than one million five hundred thousand dollars ($1,500,000). 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 12, 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 shareholders), 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 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.

[.4] 3. (a) Within thirty (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 August 12, 1991, shall reflect a provision for the allowance for loan and lease losses necessary to comply with paragraph 3(a) of this ORDER. If necessary to comply with this paragraph 3(b) of the ORDER, the Bank shall file amended Reports of Condition and Income within thirty (30) days from the effective date of this ORDER.

   [.5] 4. Within thirty (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 August 12, 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.

   [.6] 5. (a) Within sixty (60) days from the effective date of this ORDER, the Bank shall submit to the Regional Director and the Comptroller a written plan of action to reduce each asset which was adversely classified by the FDIC as of August 12, 1991, and which aggregated one hundred thousand dollars ($100,000) 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 Director and the Comptroller at ninety (90) day intervals concurrently with the other reporting requirements set forth in paragraph 17 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.

[.7] 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 {{10-31-93 p.C-3383}}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.

[.8] 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 ninety (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, ninety (90) days or more delinquent in principal or interest payments unless the loan is both well secured and in the process of collection; (ii) add uncollected interest to the unpaid principal balance of any loan on which interest is due unless such addition is supported by additional tangible collateral which adequately and completely secures the loan; (iii) extend credit by means of a new note for uncollected interest due on any loan unless such new extension of credit is supported by additional tangible collateral which adequately and completely secures the loan; or (iv) book uncollected interest by any other means in contravention of the Instructions for Reports of Condition and Income.
   (c) For purposes of this paragraph 7 of the ORDER, "well secured" and "in the process of collection" shall have the same meanings as those terms have in the prevailing Instructions for the Reports of Condition and Income.

[.9] 8. (a) Within sixty (60) days from the effective date of this ORDER, the Bank shall review and revise its written loan policy. The revised written loan policy and all subsequent modifications shall be submitted to the Regional Director and the Comptroller for review and comment. Each submittal shall highlight or otherwise identify every revision and modification contained in that submittal. No more than thirty (30) days after the receipt of any comment from the Regional Director and the Comptroller, the board of directors shall approve the written loan policy and any subsequent modification, which approval shall be recorded in the minutes of the board of directors. Thereafter, the Bank and its successors and assigns shall implement and follow the loan policy and shall implement and follow any modifications to the loan policy as such modifications may be made from time to time.

[.10] 9. (a) Effective the date of this ORDER, all new loans or lines of credit extended by the Bank (including renewals and extensions of existing loans and lines of credit, but excluding additional advances under existing lines of credit) in an amount of one hundred thousand dollars ($100,000) or more shall require the prior approval of the Bank's board of directors or of a committee which shall include at least two voting members who are directors of the Bank and are not Bank officers or employees, and which is designated by the board to review and approve loans ("Loan Committee").
   (b) All loans or lines of credit required by paragraph 9(a) of this ORDER to be submitted to the board of directors or the Loan Committee for review and approval shall be supported by a written summary that provides information sufficient for the board of directors or the Loan Committee {{10-31-93 p.C-3384}}to make a prudent decision. Such written information shall include, at a minimum, the following:

   (i) The total amount of status of the borrower's current indebtedness to the Bank and the amount of the new extension of credit proposed:
   (ii) The purpose of the proposed extension of credit:
   (iii) The source of repayment:
   (iv) The method of repayment:
   (v) The interest rate payable by the borrower:
   (vi) The maturity of the debt:
   (vii) A description and valuation of collateral, if secured; and
   (viii) A statement of whether the loan or line of credit complies in all respects with the written loan policy of the Bank, and, if not, a statement of the reasons justifying deviation from the Bank's loan policy.

   (i) Identify the major areas in, and means by, which the board of directors will seek to improve the Bank's operating performance; and
   (ii) Describe the operating assumptions that form the basis for, and adequately support, major projected income and expense components.

   [.12] 11. Within thirty (30) days from the effective date of this ORDER, the Bank shall take all necessary steps, consistent with sound banking practices, to eliminate or correct the violation of state law committed by the Bank, as described on page 6-a of the FDIC's Report of Examination of the Bank as of August 12, 1991. In addition, the Bank shall adopt appropriate procedures designed to ensure its future compliance with all applicable Federal and state laws and regulations.

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

   (i) Plans and goals, including but not limited to quantitative goals, for maintaining the Bank's liquidity ratio, as calculated on page 5-a of the FDIC's Report of Examination of the Bank as of August 12, 1991, at an acceptable level:
   (ii) Goals, including but not limited to quantitative goals, and strategies for managing and reducing the Bank's dependence on volatile liabilities to fund long-term assets, and for reducing the ratio of total loans to total assets; and
   (iii) Monthly monitoring by the Bank's board of directors of the Bank's performance in meeting the requirements and goals established pursuant to paragraphs 12(a)(i) and (ii) of this ORDER.

[.14] 13. (a) Within sixty (60) days from {{8-31-97 p.C-3385}}the effective date of this ORDER, the Bank shall revise its Asset/Liability Management Policy to include, at a minimum:

   (i) Definitions of the terms "rate sensitive assets" and "rate sensitive liabilities":
   (ii) Establishment of target ratios of rate sensitive assets to rate sensitive liabilities and of rate sensitive assets less rate sensitive liabilities to total assets for at least time horizons of six (6) months, one (1) year and five (5) years:
   (iii) A requirement that the Bank shall monthly prepare and submit to the board of directors a report calculating the ratios of the Bank's actual rate sensitive assets to rate sensitive liabilities and of the Bank's actual rate sensitive assets less rate sensitive liabilities to total assets for time horizons of at least six (6) months, one (1) year and five (5) years:
   (iv) A requirement for monthly review by the Bank's board of directors of the report prepared pursuant to paragraph 13(a)(iii) of this Order; and       (v) Monthly monitoring by the Bank's board of directors of the Bank's performance in meeting the requirements and goals established pursuant to paragraph 13(a)(ii) of this ORDER.

   [.15] 14. Within 30 days from the effective date of this ORDER, the Bank shall correct the internal routine and control deficiencies as described on page 6-b of the FDIC's Report of Examination of the Bank as of August 12, 1991.

   [.16] 15. 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.

   [.17] 16. 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.
   17. Within ninety (90) days from the effective date of this ORDER and within fifteen (15) days following the end of each calendar quarter thereafter, the Bank shall furnish written progress reports to the Regional Director and the Comptroller detailing the form and manner of any actions taken to secure compliance with this ORDER and the results 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.
   18. 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 19th day of August, 1993.
   Pursuant to delegated authority.