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FDIC Enforcement Decisions and Orders

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   [10,012] In the Matter of First Acadiana Bank, Eunice, Louisiana, Docket No. FDIC-89-38b (10-12-89).

   Bank to cease and desist from practices such as engaging in hazardous lending and lax collection practices and operating with inadequate primary capital, with a large volume of poor quality loans, with an inadequate loan value reserve, with inadequate provisions for liquidity, in such a manner as to produce operating losses, in violation of state and federal law, with management whose policies are detrimental to Bank, and with Directors who have failed to adequately supervise Bank. (This order was terminated by order of the FDIC, dated 1-2-90, see15,073)

   [.1] Management—Qualifications—Compliance
   [.2] Primary Capital—Increase—Methods
   [.3] Profit Plan—Minimum Requirements—Review
   [.4] Assets—Adversely Classified—Reduce
   [.5] Loans—Extensions of Credit—Curtail
   [.6] Technical Exceptions—Correct—Compliance
   [.7] Loan Policy—Revision—Minimum Requirements
   [.8] Loan Concentrations—Percentage Reduction
   [.9] Loan Loss Reserve—Adequacy—Review
   [.10] Violations of Law—Eliminate and/or Correct—Compliance
   [.11] Liquidity and Funds Management Policy—Review
   [.12] Shareholders—Dividends—Approval
{{5-31-94 p.C-55}}
   [.13] Shareholders—Disclosure—Cease and Desist Order
   [.14] Compliance—Progress Reports—Frequency

In the Matter of
FIRST ACADIANA BANK
EUNICE, LOUISIANA

(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

   The Federal Deposit Insurance Corporation ("FDIC"), on March 1, 1989, issued to First Acadiana Bank, Eunice, 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 7, 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 with inadequate provisions for liquidity;
   (f) operating in such a manner as to produce operating losses;
   (g) operating in violation of section 22(h) of the Federal Reserve Act, as amended, 12 U.S.C. § 375b, and sections 215.4(c), and 215.4(d) of Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. §§ 215.4(c), and 215.4(d), made applicable to state nonmember banks by section 18(j)(2) of the Act, 12 U.S.C. § 1828(j)(2);
   (h) operating with management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits; and
   (i) operating with a board of directors which has failed to provide adequate supervision over and direction to the active management of 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
{{4-1-90 p.C-56}}provided prior to the individual assuming the new position.
   (d) To ensure both compliance with this ORDER and qualified management for the Bank, the board of directors, within sixty (60) days from the effective date of this ORDER shall develop a written policy ("Management Policy") which shall incorporate an analysis of the Bank's management and staffing requirements and shall, at a minimum, address (i) both the number and type of positions needed to properly manage the bank, (ii) a clear and concise description of the needed experience and pay for each job, (iii) an evaluation of present management, (iv) a plan to recruit, hire or replace personnel with requisite ability and experience, (v) a periodic evaluation of each individual's job performance, and (vi) the establishment of procedures to periodically review and update the Management Policy.
   The Management Policy and any subsequent modification thereto shall be submitted to the Regional Director and the Commissioner for review and comment. Within thirty (30) days from receipt of any comment, and after consideration of such comment, the board of directors shall approve the Management Policy which approval shall be recorded in the minutes of the meeting of the board of directors. Thereafter, the Bank and its directors, officers and employees shall implement and follow the Management Policy and any modifications thereto.
   (e) 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 herein. 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.
   (f) 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 or its holding company.

   [.2] 2. (a) The Bank shall increase its primary capital in an amount as determined by a final decision in the separate pending action entitled "In the Matter of First Acadiana Bank, Eunice, Louisiana, Docket No. FDIC-89-22a".
   (b) Any increase in primary capital as required by Paragraph 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, shareholders, or parent bank holding company 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 Paragraph 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 twenty (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 {{4-1-90 p.C-57}}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 ten (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 term "primary capital" shall have the meaning ascribed to it in Part 325 of the FDIC's Rules and Regulations, 12 C.F.R. § 325.2(h), (1), (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 60 days from the effective date of this ORDER, and annually thereafter, the board of directors shall develop a written profit plan consisting of goals and strategies for improving the earnings of the Bank, which written profit plan shall include, at a minimum:

       (i) Identification of the major areas in, and means by, which the board of directors will seek to improve the Bank's operating performance;
       (ii) Realistic and comprehensive budgets;
       (iii) A budget review process to monitor the income and expenses of the Bank to compare actual figures with budgetary projections on not less than a quarterly basis; and
       (iv) A description of the operating assumptions that form the basis for, and adequately support, major projected income and expense components.
   (b) The written profit plan and any subsequent modification thereto shall be submitted to the Regional Director and the Commissioner for review and comment. No more than 30 days after the receipt of any comment from the Regional Director, the board of directors shall approve the written profit plan which approval shall be recorded in the minutes of the board of directors. Thereafter, the Bank, its directors, officers, and employees shall follow the written profit plan and/or any subsequent modification.

   [.4] 4. (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 July 22, 1988, 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 and the Commissioner for review and approval a written plan of action directed at lessening the Bank's risk position in each line of credit or other assets which were classified "Substandard" as of July 22, 1988 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 4 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.

   [.5] 5. (a) Beginning with the effective date of this ORDER, the Bank shall not make any further extension of credit to any borrower whose loans are charged off, in whole or in part, or are adversely classified "Loss" as of July 22, 1988 and remain uncollected.

   (b) Beginning with the effective date of this ORDER, the Bank shall not make any further extension of credit to any borrower thereof whose loans in the aggregate exceed $50,000 and are adversely classified "Substandard" as of July 22, 1988 unless such extension has been approved by a majority of the Bank's board of directors in advance and the Bank's board of directors has detailed in the written minutes of the meeting {{4-1-90 p.C-58}}how it has affirmatively determined all of the following: (i) that the extension of credit is in full compliance with the Bank's loan policy, (ii) that it is necessary to protect the Bank's interest or that the extension of credit is adequately secured, (iii) that based upon credit analysis the customer is deemed to be creditworthy, and (iv) that all necessary loan documentation is on file, including current financial and cash flow information and satisfactory appraisal, title, and lien documents. The minutes shall also include the following information about the extension of credit: (i) the amount adversely classified as of July 22, 1988, (ii) the current balance, (iii) the amount of credit requested, (iv) a description of the collateral and its value securing the credit, and (v) a full description of the documentation presented to the board of directors including the date of the borrower's most recent financial information and the borrower's current income or cash flow data.
   (c) Beginning with the effective date of this ORDER, the Bank shall not renew any loan without the full collection of interest due. The issuance of separate notes, to the borrowing customer or a third party, the proceeds of which pay interest due, shall not satisfy the requirements of this paragraph unless these separate notes receive prior board approval in the same manner as outlined in Paragraph 5(b) above.

   [.6] 6. (a) Beginning with the effective date of this ORDER, the Bank shall review and strengthen its collection policies.

   (b) Beginning with the effective date of this ORDER, the Bank shall initiate and implement a program to strengthen its credit files and correct technical exceptions as of July 22, 1988, to the satisfaction of the Regional Director and the Commissioner. In all future operations, the Bank shall ascertain that all documents or evidence thereof, properly completed, are obtained before credit is extended.

   [.7] 7. Within 30 days of the effective date of this ORDER, the Board shall establish a loan review system to periodically review the Bank's loan portfolio to identify and categorize problem credits. The system shall provide for a written report to be filed with the Board after each review. Such reports shall, at a minimum, include the following information:

   (a) The overall quality of the loan portfolio;
   (b) The identification by type and amount of each problem loan;
   (c) The identification and amount of each delinquent loan;
   (d) Credit and collateral documentation exceptions;
   (e) The identification and status of each violation of law, rule or regulation;
   (f) Loans not in conformance with the Bank's lending policy, and exceptions to the Bank's lending policy; and
   (g) Insider loan transactions.
   A copy of the reports submitted to the Board, as well as documentation of the action taken by the Bank to collect or strengthen assets identified as problem credits, shall be kept with the minutes of the board of directors.

   [.8] 8. (a) Within 180 days from the effective date of this ORDER (unless within 60 days an alternative timetable or proposal is submitted by the Bank and approved in writing by the Regional Director and the Commissioner), the Bank shall reduce each loan concentration as of July 22, 1988, to an amount which shall be less than twenty-five (25) percent of the Bank's total equity capital and reserves for each individual concentration.

   (b) Bank shall not make any new extensions of credit, directly or indirectly, to any borrower whose loans in the aggregate will equal twenty-five (25) percent or more of the Bank's total equity capital and reserves, unless such extension has been approved by the Bank's executive committee or by a majority of the Bank's board of directors in advance and the following determinations have been made and documented in the minutes of the meeting:

       (i) the borrower has had no adversely classified extensions of credit in the Bank;
       (ii) the extension of credit is in full compliance with the Bank's loan policy;
       (iii) that based upon credit analysis, the borrower is deemed to be creditworthy;
       (iv) that all necessary loan documentation is on file, including current financial and cash flow information and satisfactory appraisal, title, and lien documents;
       (v) that alternative avenues of avoiding a concentration of credit (such as through a loan participation) were sought {{4-1-90 p.C-59}}and documented prior to extending the credit; and
       (vi) that the borrower is an established customer of the Bank with whom the Bank has had a satisfactory banking relationship and the new extension of credit is necessary to preserve that relationship.
   [.9] 9. (a) 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.

   (b) Within 90 days from the effective date of this ORDER, the Bank shall review all Reports of Condition and Income filed with the FDIC on and after July 22, 1988 and shall amend and file with the FDIC amended Reports of Condition and Income which accurately reflect the financial condition of the Bank as of the date of each such Report. At a minimum each such Report shall be amended to reflect elimination of all assets classified "Loss" as required by Paragraph 4(a) of this Order and shall incorporate an adequate reserve for loan losses accurately reflecting the Bank's loan portfolio as of July 22, 1988, as required by Paragraph 9(a).

   [.10] 10. Within 60 days from the effective date of this ORDER, the Bank shall eliminate and/or correct the violations of section 22(h) of the Federal Reserve Act, 12 U.S.C. § 375b, and sections 215.4(c) and 215.4(d) of Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. §§ 215.4(c) and 215.4(d), which are set out on pages 6-a and 6-a-1 of the Report of Examination of the Bank as of July 22, 1988. In addition, the Bank shall henceforth comply with all applicable laws and regulations.

   [.11] 11. Within 60 days from the effective date of this ORDER, the Bank shall formulate and adopt a written liquidity and funds management policy. Such policy shall include the establishment of acceptable ranges of ratios in the following areas: volatile liability dependence, total loans to total deposits and temporary investments to volatile liabilities. In addition, the liquidity policy shall incorporate a funds management program which designates acceptable levels for: volatile liabilities, including borrowings; asset mix, including temporary funds and investments, long-term investment securities and classes of obligors, and loans to deposits; and rate-sensitive assets as a percent of rate-sensitive liabilities. The written liquidity and funds management policy shall be submitted to the Regional Director and the Commissioner for review and approval.

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

   [.13] 13. Following the effective date of this ORDER, the Bank shall send to its shareholders 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 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.

   [.14] 14. 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. {{11-30-93 p.C-60}}
   This ORDER shall become effective ten (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.
   Pursuant to delegated authority.
   Dated: October 12, 1989

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