Bay Bank and Trust Co. dodged the auction block last week after its owners agreed to pay off a $4.4 million loan to SouthTrust Bank of Alabama within 45 days.

The Panama City, Fla.-based bank was scheduled for auction Aug. 16 because the John Christo family, Bay Bank's owners, are behind on loans totaling $7 million, SouthTrust attorney Jesse H. Austin 3d said.

"I'm still here," said John Christo 3d, Bay Bank's vice chairman and former president.

Mr. Christo, his father, John Jr., and the bank's holding company, Florida Bay Banks Inc., are plaintiffs in a $60 million lawsuit against SouthTrust -- a unit of South Trust Corp. -- and Florida's top banking regulator, Gerald Lewis. The suit alleges the two have conspired to seize the $153 million-asset bank.

|The Piper Must Be Paid'

SouthTrust has countered that the bank has filed "false and fraudulent" call reports. And the state banking department alleges that the Christos have violated insider lending laws.

"There comes a time in every case when the piper must be paid," SouthTrust said in court documents. "In this case, that time is now."

John Christo 3d said he is working to repay the Birmingham-based bank, but he declined to say where he would get the funds.

Mr. Christo said the bank is worth $14 million based on a recent appraisal by Alex Sheshunoff & Company Investment Banking, Austin, Tex.

Owns 97% of Voting Stock

If the Christo family can't pay off the loans, SouthTrust will foreclose and auction Bay Bank on Sept. 30. The Christo family owns 97% of the voting stock of Florida Bay Banks.

At least five banks -- including First Union Corp., First Alabama Bancshares, and Union Planters Corp. -- have shown interest in Bay Bank because it holds a hefty 26% of deposits in the Panama City market.

This is the latest chapter in a bitter feud that pits the Christos, a prominent business family in the panhandle, against SouthTrust and Mr. Lewis, who is publicly elected.

The Christos' suit, filed in January in the U.S. District Court for the Northern District of Florida, alleges that Mr. Lewis is retaliating against the family because it refused to contribute $25,000 to his 1990 reelection campaign.

The suit claims that Mr. Lewis is trying to "destroy the reputation" of the family because it backed the efforts of a member of Florida's House of Representatives to impeach the comptroller earlier this year.

Claims Comptroller Took Gifts

"We are dealing with a bad guy," John Christo 3d said. "He has given me holy hell. I am not the most perfect person in the world, by any means, but I sure don't deserve what I'm getting from him."

Mr. Christo also claims that Mr. Lewis has taken gifts from the family, such as a cases of vodka and Cuban cigars, and accompanied the Christos on hunting trips, free of charge. When the relationship cooled in 1990, they said, Mr. Lewis hammered the bank with tough examinations.

Terence McElroy, a spokesman for Mr. Lewis, denied the allegations that Mr. Lewis has taken gifts from the Christos. He also denied that the comptroller had singled out the Christos for harsh treatment.

"The suggestion that it is some sort of vendetta is absurd," he said. "We believe these guys, John Christo Jr. and John Christo 3d, have operated this institution in an unsafe and unsound manner, and have snubbed their noses" at the regulatory process.

|That Is Preposterous'

As far as the allegations that Mr. Lewis is in cahoots with SouthTrust to seize the bank, Mr. McElroy said, "Absolutely not. That is preposterous."

The rift widened in 1991 when the state conducted an examination of Bay Bank, which regulators say turned up a number of violations. In addition to the bank being under-reserved and falling short of specific capital targets, examiners said, a loan to John Christo Jr., the bank's former chairman, and another to JCJ Irrevocable Trust -- of which he is guarantor -- were in violation of Regulation O, the insider lending rule.

Two $425,000 loans did not receive proper board approval and were made on terms "more favorable than the average person would get," said Terence M. Straub, a director of the division of banking.

Mr. Christo disputed the charges that the loans violated government banking laws.

Cease and Desist Order

State examiners concluded that the bank was engaged in unsafe and unsound practices. In October, the bank entered into a written agreement with the state, and by yearend it had lost $1.5 million.

The Federal Deposit Insurance Corp. is also pursuing a cease and desist order against the bank, for alleged unsafe and unsound banking practices and violations of insider lending laws, according to a spokesman for the agency.

In March 1992, Mr. Lewis' department fined Bay Bank $67,494 for the previous year's examination, and it took steps to throw the Christos out of banking altogether. The Christos disputed the fine, claiming it was "retaliatory and discriminatory," and they have since been fighting the removal action.

The Christos argued that Mr. Lewis' term "unsafe and unsound" was "loosely and inconsistently" applied and had a vague and uncertain meaning. They contend he has used "secret" enforcement rules.

Mr. McElroy said allegations that the banking department uses secret rules are not true.

Besides fighting with the regulators, the Christos have also been at odds with SouthTrust. In the summer of 1991, Florida Bay Banks Inc. defaulted on loans from SouthTrust totaling $7 million, according to court documents. SouthTrust didn't foreclose because the Christos said they would raise funds or sell the bank. The same year, Bay Savings Bank, a West Palm Beach thrift in which John Jr. was a primary investor, failed.

SouthTrust Financed Purchase

The lending relationship between the Christos and SouthTrust went back to 1983, when the bank loaned John Jr. and the family funds to buy Bay Bank. The loan was secured by 100% of Bay Bank common stock. It also made John Jr. and the JCJ Irrevocable Trust loans that today total $2.5 million, and are secured by 51% of the holding company's preferred stock.

"These loans have been in default and have been past due," said SouthTrust's Mr. Austin.

In documents filed this month in federal court, SouthTrust alleges that Bay Bank submitted fraudulent call reports. It says bank numbers don't provide reserves for loans owed to the bank by John Jr. and the JCJ Irrevocable Trust. SouthTrust said the FDIC and Florida's banking department have classified as loss or doubtful $1.6 million out of $2.4 million in loans to John Christo Jr. and the trust. Another $869,000 in loans to John Jr. have been classified by the state as substandard, court documents show.

"As a result, all call reports which Bay Bank has filed since June 1992, with the Federal Reserve on a quarterly basis ... have been false and fraudulent," SouthTrust alleges.

The court document also said that John Elsasser, the former chief financial officer of Bay Bank, refused to sign the call reports unless specifically directed by bank management. He is no longer with Bay Bank.

SouthTrust contends Bay Bank's failure to properly reserve for potential losses has overstated the bank's equity position and earnings by $1.2 million.

Says Bank Is on the Mend

Mr. Christo denies that the bank filed false call reports.

He says the bank is on the mend after posting earnings of $416,000 for the first six months of the year. But it has been hit with the defections of several executive officers and directors. And the acting president, Frank Wood, has not been approved by the FDIC or Mr. Lewis.

Mr. Christo said he is considering converting Bay Bank to a national charter.

How long will he keep up the fight?

"Till I die," he said.

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