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FDIC Enforcement Decisions and Orders

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   [10,010] In the Matter of Bank of St. John, Reserve, Louisiana, Docket No. FDIC-89-149b (10-5-89).

   Bank to cease and desist from practices such as hazardous lending and lax collection policies and operating with inadequate primary capital, with a large volume of poor quality loans, with inadequate loan valuation reserve, in such a manner as to produce low earnings, violating Regulation O, and with management policies and practices detrimental to Bank. (This order was terminated by order of the FDIC, dated 4-18-91; see15,263.)

   [.1] Management—Qualifications—Compliance
   [.2] Primary Capital—Increase—Method
   [.3] Assets—Adversely Classified—Reduce
   [.4] Technical Exceptions—Eliminate and/or Correct—Compliance
   [.5] Loan Loss Reserve—Adequacy—Review
   [.6] Profit Plan—Overhead and Expenses—Review
   [.7] Violations of Law—Eliminate and/or Correct—Compliance
   [.8] Shareholders—Dividends—Approval
   [.9] Covered Transactions—Affiliates—Approval
   [.10] Loans—Extensions of Credit—Prior Approval
{{6-30-91 p.C-46}}
   [.11] Definition—"Related Bank"
   [.12] Shareholders—Disclosure—Cease and Desist Order
   [.13] Compliance—Progress Reports—Frequency

In the Matter of
BANK OF ST. JOHN
RESERVE, LOUISIANA

(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

   The Federal Deposit Insurance Corporation ("FDIC"), on July 18, 1989, issued to Bank of St. John, Reserve, Louisiana ("Bank"), a NOTICE OF CHARGES AND OF HEARING ("NOTICE"), pursuant to section 8(b)(1) of the Federal Deposit Insurance Act ("Act"(, 12 U.S.C. § 1818(b)(1). The NOTICE charges the Bank with having engaged in unsafe or unsound banking practices and violations of law and/or regulations.
   The Bank and counsel for the FDIC thereafter executed a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT"), dated September 19, 1989, whereby, solely for the purpose of this proceeding and without admitting or denying the allegations 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 had committed violations of law 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 directors, officers, employees, agents, successors, assigns, and other persons participating in the conduct of affairs of the Bank, cease and desist from the following unsafe or unsound banking practices and violations:
   (a) engaging in hazardous lending and lax collection practices:
   (b) operating with inadequate primary capital;
   (c) operating with a large volume of poor quality loans:
   (d) operating with an inadequate loan valuation reserve;
   (e) operating in such a manner as to produce low earnings;
   (f) operating in violation of section 22(h) of the Federal Reserve Act, as amended, 12 U.S.C. § 375b; section 215.4(d) of Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. § 215.4(d), made applicable to state nonmember banks by section 18(j)(2) of the Act, 12 U.S.C. § 1828(j)(2); and
   (g) having operated with management whose policies and practices were detrimental to the Bank.
   IT IS FURTHER ORDERED that the Bank take affirmative action as follows:

   [.1] 1. (a) During the life of this ORDER, the Bank shall have management qualified to restore the Bank to a sound condition. Such management shall include a chief executive officer and an experienced senior lending officer responsible for supervising the Bank's overall lending function.
   (b) Present management shall be assessed on its ability to:

       (i) Comply with the requirements of this ORDER;
       (ii) Improve and thereafter maintain the bank in a safe and sound condition, including asset quality, capital adequacy, liquidity adequacy, and earnings adequacy; and
       (iii) Comply with all applicable State and Federal laws and regulations.
   (c) During the life of this ORDER, the Bank shall notify the Regional Director of the Memphis Regional Office ("Regional Director") and the Commissioner of Financial Institutions for the State of Louisiana ("Commissioner") in writing of any changes in management. The notification must include the names and background of any replacement personnel and must be provided prior to the individual assuming the new position.
   (d) Within 30 days from the effective date of this ORDER, the board of directors shall establish a committee of the board of directors with the responsibility to ensure that the Bank complies with the provisions of this ORDER. At least two-thirds of the members of such committee shall be independent, outside directors as defined here- {{6-30-91 p.C-47}}in. The committee shall report monthly to the entire board of directors, and a copy of the report and any discussion relating to the report or the ORDER shall be included in the minutes of the board of directors. Nothing contained herein shall diminish the responsibility of the entire board of directors to ensure compliance with the provisions of this ORDER.
   (e) For the purposes of this ORDER, an "outside director" shall be an individual who is neither an officer nor full-time employee of the bank.

   [.2] 2. (a) Within 120 days from the effective date of this ORDER, and during the life of this ORDER, the Bank shall maintain adjusted primary capital equal to or greater than seven and one-half percent (7.5%) of the Bank's adjusted Part 325 total assets.
   (b) Any increase in primary capital necessary to meet the requirements of Subparagraph 2(a) of this ORDER may be accomplished by the following:

       (i) The sale of new securities in the form of common stock or perpetual preferred stock; or
       (ii) The direct contribution of cash by the directors or shareholders of the Bank; or
       (iii) The collection in cash of assets classified "Loss" without loss or liability to the Bank; or
       (iv) The collection of assets previously charged off; or
       (v) Any other method acceptable to the FDIC.
   (c) If all or part of the increase in primary capital required by Subparagraph 2(a) of this ORDER is accomplished by the sale of new securities, the board of directors of the Bank shall 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 the Federal securities laws. Prior to the implementation of the plan and, in any event, not less than 20 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 Unit, Washington, D.C. 20429. Any changes requested to be made in the plan or materials by the FDIC shall be made prior to their dissemination.
   (d) In complying with the provisions of Paragraph 2 of this ORDER, the Bank shall provide to any subscriber and/or purchaser of the Bank's securities written notice of any planned or existing development or other changes which are 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 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.
   (e) For purposes of this ORDER the terms "primary capital", "total capital" and "Part 325 total assets" shall have the meanings ascribed to them in Part 325 of the FDIC's Rules and Regulations, respectively, subsections 325.2(h), 325.2(l) and 325.2(k), 12 C.F.R. § 325.2(h), (l), (k). The "Analysis of Capital" schedule on page 3 of the FDIC Report of Examination provides the method for determining the ratio of adjusted primary capital to adjusted Part 325 total assets as required by this ORDER.

   [.3] 3. (a) Within 10 days from the effective date of this ORDER, the Bank shall eliminate from its books, by charge-off or collection, all assets classified "Loss" as of March 31, 1989, that have not been previously collected or charged-off. Reduction of these assets through proceeds of other loans made by the Bank is not considered collection for the purpose of this paragraph.
   (b) Within 60 days from the effective date of this ORDER, the Bank shall formulate and submit to the Regional Director for review and approval a written plan of action directed at lessening the Bank's risk position in each line of credit or other asset
{{6-30-91 p.C-48}}which was classified "Substandard" as of March 31, 1989 and which aggregated $50,000 or more. Such plan shall include but not be limited to, the following:

       (i) Target dollar levels to which the Bank will reduce each line of credit or other asset within 3 months, 6 months, and 12 months from the effective date of this ORDER; and
       (ii) Provisions for the submissions of monthly written progress reports under this Paragraph 3 to the Bank's board of directors for review and recordation in the board minutes.
   (c) As used in Paragraph 3 the word "reduce" means (1) to collect, (2) to charge off, or (3) to sufficiently improve the quality of assets adversely classified to warrant removing any adverse classification, as determined by the FDIC.

   [.4] 4. Within 60 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all of the technical exceptions which are set out on pages 2-b and 2-b-1 of the Report of Examination of the Bank as of March 31, 1989. In addition, the Bank shall obtain and maintain adequate and current documentation for all loans in the Bank's portfolio.

   [.5] 5. Within 30 days from the effective date of this ORDER, the Bank shall establish and thereafter maintain an adequate reserve for loan losses. Such reserve shall be established by charges to current operating income, together with collection of assets previously charged off. In complying with the provisions of this paragraph, the board of directors of the Bank shall review the adequacy of the Bank's reserve for loan losses prior to the end of each quarter. The minutes of the board meeting at which such review is undertaken shall indicate the results of the review, the amount of any increase in the reserve, and the basis for determination of the amount of the reserve provided.

   [.6] 6. Within 60 days from the effective date of this ORDER, the Bank shall develop, adopt, and implement a written plan to control overhead and other expenses and restore the Bank's profitability. The plan and its implementation shall be in a form and manner acceptable to the Regional Director as determined at subsequent examinations and/or visitations.

   [.7] 7. Within 60 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of law which are set out on page 6-a-1 of the Report of Examination of the Bank as of March 31, 1989. In addition, the Bank shall henceforth comply with all applicable laws and regulations.

   [.8] 8. While this ORDER is in effect, the Bank shall not declare or pay any cash dividends on its capital stock without the prior written approval of the Regional Director and the Commissioner.

   [.9] 9. (a) Beginning with the effective date of this ORDER, the Bank shall not engage in any covered transaction with an affiliate without the prior approval of the Bank's board of directors after the board's affirmative determination, as reflected in the minutes of the meeting, that the covered transaction is in compliance with the provisions of sections 23A and 23B of the Federal Reserve Act, 12 U.S.C. §§ 371c and 371c-1, and that the covered transaction is consistent with safe and sound banking practices.
   (b) For purposes of Paragraphs 9 and 10, the terms "affiliate" and "covered transaction" shall have the meaning ascribed to them in section 23A of the Federal Reserve Act, 12 U.S.C. § 371c.

   [.10] 10. (a) Beginning with the effective date of this ORDER; (i) the Bank shall not extend or renew any credit, directly or indirectly, to any borrower who is either an officer or director of any affiliate or related bank; (ii) nor shall the Bank purchase, renew or enter into any participation loan with any affiliate or related bank, unless in either case, the Bank shall first obtain the approval of the Bank's board of directors after the board's affirmative determination, as reflected in the minutes of the meeting, that the extension of credit is in full compliance with the loan policy, that credit analysis has determined the borrower to be creditworthy, and that all necessary loan documentation is on file, including current financial and cash flow information and satisfactory appraisal, title and lien documents.

   [.11] (b) For purposes of paragraph 10(a) of this ORDER, a "related bank" is any financial institution or bank holding company (collectively referred to as "Company") in which the company or any shareholder(s) of the company, directly or indirectly, or acting through one or more other entities owns, controls, or has the power to
{{5-31-94 p.C-49}}vote 10 percent or more of any voting class of stock in both the Bank and the Company.

   [.12] 11. 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 also (ii) in conjunction with its notice or proxy statement proceeding 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 Unit, Washington, D.C. 20429 for review at least 20 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.

   [.13] 12. On the fifteenth day of the second month following the effective date of this ORDER, and on the fifteenth day of every third month thereafter, the Bank shall furnish written progress reports to the Regional Director and the Commissioner 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 Regional Director has released the Bank in writing from making further reports.
   The provisions of this ORDER shall be binding upon the Bank, its directors, officers, employees, agents, successors, assigns, and other persons participating in the conduct of the affairs of the Bank.
   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 FDIC.
   Dated: 10-5-89
   Pursuant to delegated authority.

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