DATE: Sunday, October 5, 1997               TAG: 9710060238

SECTION: BUSINESS                PAGE: D1   EDITION: FINAL 

SOURCE: BY LOUIS HANSEN LINDA MCNATT AND TOM SHEAN, STAFF WRITERS 

DATELINE: WINDSOR                           LENGTH:  224 lines

CASE CLOUDS BANK'S FUTURE BUT COMMUNITY SUPPORTS FATHER AND SON, WHO FACE A LEGAL ORDEAL

Since 1919, three generations of Holland men have served as Windsor's bankers, deciding the financial futures of many of the rural region's homes, farms and businesses.

Farmers Bank was one of the few small banks in Southeastern Virginia to survive the Depression and, so far at least, the recent wave of bank mergers.

Now, the Holland family's future stewardship of the 78-year-old institution is in question.

Nine days ago, a federal grand jury indicted State Sen. Richard J. Holland, Farmers Bank's chairman, and his son, bank president Richard ``Dick'' Holland Jr., charging that they violated banking laws while trying to prop up loans to a Suffolk real estate developer.

On Wednesday, the Hollands pleaded not guilty. They asked for a jury trial, which is scheduled for next April.

If convicted, father and son would be removed from their long-held positions in the bank that Shirley T. Holland, the first generation of bankers, helped start at age 23.

The criminal charges - conspiracy to defraud, misapplication of bank funds and making false entries in the bank's records - raise questions about small-town banking practices in an era of tightening regulation.

Allegations of criminal activity by a bank's officers can also undermine the confidence of customers and prompt a run on deposits.

The Farmers Bank board didn't wait to see how customers might react to the Hollands' indictment. The same day the indictment was announced, the directors issued their own statement on the bank's financial condition and voiced their support for its chairman and president.

``We have assured everyone - depositors and borrowers - that Farmers Bank is rock solid,'' Thomas L. Woodward Jr., a director and retired Suffolk lawyer, said.

``Deposits have been essentially the same since before the indictment was returned,'' he said.

On Friday, the board mailed a letter to the bank's 385 shareholders, notifying them of the Hollands' indictment and the bank's financial condition at the end of September.

The bank loans cited in the Hollands' indictment involved more than $2 million of financing in 1990 and 1991 for a Suffolk real estate project being developed by Dr. Lloyd C. March Jr., a retired dentist.

March was a partner in Oceans Holdings, which helped build the ``Hollywood East'' film studio project. In return for interest payments on previous loans for the project, the Hollands agreed to provide six additional loans to March. By doing so, they bought time and avoided foreclosure on certain March-related properties.

But in the process, they exceeded the limit their bank could legally lend one person, the indictment alleges.

After making the new loans totalling $799,000 in the name of March's wife June and the name of a friend, the Hollands directed bank employees to mask details of the loans, according to the indictment.

Many of these loans later went into default.

The Hollands never stood to profit personally from any of their actions on these loans, their lawyers said last week.

``It's a small community bank where a lot of banking relationships are based on the knowledge of customers over the years,'' said Hunter Sims Jr., a Norfolk attorney who is defending the younger Holland.

With their network of business, family and political ties, the Hollands have received support from the community.

``My son and I are gratified by the support shown to us by the community,'' Sen. Holland said Friday. He declined to discuss details of the case.

Windsor, with a population of 1,100, is the Isle of Wight County community where Shirley, Richard and Richard J. Holland Jr. have run Farmers Bank on the main thoroughfare for nearly 80 years.

The bank is an impressive brick structure that sits at the eastern gateway to the town, amid a collection of fast-food restaurants, gas stations, convenience stores and shops.

Four-lane U.S. Route 460 bisects Windsor, and a steady flow of tractor-trailers rattles the rafters of local homes and businesses. The town has no police officers, but most residents leave their doors unlocked at night.

Almost one-third of the town's $300,000 budget comes from taxes paid by Farmers Bank. As a tribute the bank's role in the community, it was named Business of the Year by the Isle of Wight Chamber of Commerce in August.

Sen. Holland and his son live just blocks apart in similar handsome, Colonial-style brick homes.

It's been a difficult year for the Hollands. A month prior to the indictment, the senator's wife, Jean C. Holland, died unexpectedly while visiting her daughter in Chesapeake.

Since then, friends say, the senator has taken to having breakfast at his son's home.

People know when Richard Holland, 72, enters a room.

A small, trim man, Holland is known for his abundant energy, jovial spirits, and a lit cigarette forever stubbed between his thumb and forefinger.

His raspy voice booms greetings, and he's as quick to crack a joke as to offer a spirited defense of his vote on the latest farm bill in the General Assembly.

Sen. Holland serves as chairman of the Senate Rules Committee and is a member of the Finance Committee. In addition, he sits on the Agriculture, Conservation and Natural Resources Committee, the Commerce and Labor Committee and the Privileges and Elections Committee.

Franklin horse breeder William ``Billy'' Camp Jr., 69, is a life-long friend of the senator and University of Virginia classmate.

``He was very popular and very energetic,'' said Camp. Richard was a gregarious host at his Phi Kappa Alpha fraternity parties and stayed on top his studies, he said.

Holland left the university after earning his bachelor's degree in commerce and spending two years in law school. He headed back to Windsor in 1951 to start a family and join his father's business.

In 1979, Holland announced he would leave his 22-year post on Windsor Town Council and make his first run at a state office: senator for the 15th District.

A lifelong Democrat like his father - who represented the region in the House of Delegates for 20 years - Richard entered state politics during the era of Sen. Harry Byrd's Democratic machine, when chumming around was the preferred political style.

The style suited Richard well, Camp said. ``Richard is more friendly'' than his father was, he said.

He won the seat in 1979 and has held onto it ever since.

The senator's eldest son, Dick, 45, is more like his grandfather - less gregarious than the senator, say those who know the family.

But the younger Holland, who has few interests outside his church, has an inner strength that was evident even when he was a child, friends say.

Dick Holland was a ``scrawny'' youngster, said Terry Lee, a high school friend. A quiet young man, he fought a speech impediment that still causes him to stutter.

As a teen, he took up weight lifting and body building. He was a standout football player at Windsor High School, and, after he graduated in 1970, he went on to play defensive back at Hampden-Sydney College in Farmville.

The younger Holland was so promising, in fact, that he was signed as a free agent by the Baltimore Colts. He spent two weeks in training camp, Lee said.

``If Dick wanted something, he went after it hard,'' Lee said. ``He didn't drink. He didn't smoke. He avoided the temptations a lot of us fell to. Whatever he wanted to do, he just did it.''

By all accounts, his spiritual life is central to his character.

Dick Holland holds a daily Bible study and prayer meeting in his bank at 8:30 a.m.

His license plate reads WE7RHS - ``We 7 are His.'' It refers to Dick, his wife, Cindy, and their five children - one in college, one in high school, and three in elementary school. The younger children attend Greenbrier Christian Academy.

Last Sunday, more than 200 parishioners at Antioch Church, where Dick Holland serves as a deacon and Sunday school teacher, stood in solidarity when a brief statement written by the deacon board was read:

``This is a solid vote of confidence for our brother Dick Holland. We will pray daily for him and for his entire family.''

``He takes a tremendous stand for the Lord,'' said the Rev. James Dunn, minister at Antioch. ``He is one of the most ethical people I've ever known.''

But Holland and his father have their critics among bank regulators.

Farmers Bank's lending practices came in for blistering criticism from federal regulators in early 1993. In a cease-and-desist order signed by most of the bank's directors, the FDIC said the bank had engaged in practices that produced inadequate income and excessive loan losses.

The bank, it said, also operated without adequate internal controls and accounting systems. In addition, Farmers Bank had an excessive volume of troubled assets and overdue loans, the FDIC said.

The regulatory agency ordered the board to make several changes, including the preparation of more detailed reports from the board of directors.

Retired Suffolk lawyer Woodward, who joined the bank's board four years years ago, said Farmers abided by the FDIC's directions and adopted the policies it ordered. ``To my knowledge, the compliance by Farmers Bank was complete,'' he said.

The FDIC terminated its order in early 1994.

Like many other banks, Farmers was caught in the collapse of commercial real estate values in the early '90s, which prompted more aggressive oversight by banking regulators.

At many banks, loans that seemed to make sense turned sour a few years later when projects stalled and buyers disappeared.

Meanwhile, federal banking regulators began demanding that banks shed more of their troubled real estate loans and obtain additional collateral for others.

The debacle in commercial real estate fueled an epidemic of bank failures during the late 1980s and early 1990s. By 1992, Congress had provided federal regulators with more powerful tools to protect the banking system's deposit-insurance fund.

``The powers that accrued to the banking agencies were considerable, and regulators have taken these powers very seriously,'' said Diane Casey, national director of financial services at the accounting and consulting firm Grant Thornton in Washington, D.C.

Still, it's been unusual in recent years for the FDIC to seek criminal sanctions against a bank, Casey said. For this to happen, ``something must have been seriously wrong,'' she said.

What went wrong at Farmers Bank?

Among bank officers and directors in the region, news of the Hollands' indictments provoked degrees of sympathy and surprise.

One director at another bank said he understood the pressure the Hollands might have felt to prop up a troubled loan. However, the director expressed surprise at allegations that the Hollands made false entries in the bank's records.

``I can see this happening, but in banking you've got to play by the rules,'' he said.

The abundance of financial records gathered by the FDIC over five years means the Hollands probably will be engaged in a complicated battle with prosecutors.

``It's likely that there will be more than 20,000 pages of material,'' said one attorney involved in the case. ``It will not be a short trial.''

The bank's board, however, has no plans to bring in additional management while the Hollands are involved in their court case, Woodward said. ``At present,'' he said, ``we're continuing to operate as we did before the indictment.'' ILLUSTRATION: Color photo

MICHAEL KESTNER/The Virginian-Pilot

...State Sen. Richard Holland...

Illustration by BETTY WELLS

Sen. Holland and his son, Richard Holland Jr....

Graphics

THE BACKGROUND

WHAT'S NEXT

KEN WRIGHT/The Virginian-Pilot

FARMERS BANK

SOURCE: Federal Deposit Insurance Corporation

[For complete graphic, please see microfilm] KEYWORDS: BANK FRAUD