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FDIC Enforcement Decisions and Orders

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   [10,259A] In the Matter of Robert Beall, Louis T. Fortenberry, Doris Palmer, Mary H. Ray, and Larry Whitehead, The Bank of Walnut, Walnut, Mississippi, Docket No. 91-152c&b (6-6-91)

   A temporary cease and desist order was issued, based on findings by the FDIC that it had reason to believe that respondent had engaged in unsafe and unsound practices.

   [.1] Loans—Extensions of Credit—Documentation

   In the Matter of
ROBERT BEALL,
individually, and as a director and institution-affiliated party of
The Bank of Walnut,
Walnut, Mississippi, and
LOUIS T. FORTENBERRY,
individually, and as a director and institution-affiliated party of
The Bank of Walnut,
Walnut, Mississippi, and
DORIS PALMER,
individually, and as cashier, director and institution-affiliated party of
The Bank of Walnut,
Walnut, Mississippi, and
MARY H. RAY,
individually, and as assistant cashier, director and institution-affiliated party of
The Bank of Walnut,
Walnut, Mississippi, and
LARRY WHITEHEAD,
individually, and as president/chief executive officer, chairman of the board of directors and institution-affiliated party of
The Bank of Walnut,
Walnut, Mississippi, and
THE BANK OF WALNUT
WALNUT, MISSISSIPPI
(Insured State Nonmember Bank)
TEMPORARY ORDER TO CEASE AND DESIST

FDIC-91-152c&b

   The Federal Deposit Insurance Corporation ("FDIC") has determined that the books and records of The Bank of Walnut, Walnut, Mississippi ("Bank"), are so incomplete or inaccurate that the FDIC is unable, through the normal supervisory process, to determine the financial condition of the Bank, and/or the details and/or purpose of transactions that may have a material effect on the financial condition of the Bank, and/or whether the Bank and/or Robert Beall, Louis T. Fortenberry, Doris Palmer, Mary H. Ray and Larry Whitehead ("Respondents") may have violated a law, rule or regulation, as specified in the NOTICE OF CHARGES AND OF HEARING attached hereto and made a part hereof. Therefore, the FDIC hereby issues this TEMPORARY ORDER TO CEASE AND DESIST ("TEMPORARY ORDER") and hereby gives notice pursuant to section 8(c)(3)(A) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. 1818(c)(3)(A), that the Bank, the Respondents and any other institution-affiliated parties of the Bank, as defined at section 3(u) of the Act, 12 U.S.C. 1813(u), be, and hereby are, ORDERED TO CEASE AND DESIST FROM:

   1. Extending credit without adequate documentation being maintained in the Bank's files.

   2. Operating in violation of section 22(h) of the Federal Reserve Act, 12 U.S.C. 375b, and section 215.7 of Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. 215.7, made applicable to State nonmember banks by section 18(j)(2) of the Act, 12 U.S.C. 1828(j)(2) (hereinafter collectively referred to as "Regulation O").

   3. Extending credit in violation of the Bank's loan policy.

   4. Extending credit prior to the Bank's receipt of a promissory note.

   5. Operating in such a manner as to cause the books of the Bank to be incomplete and/or inaccurate.

   6. Purchasing loans without obtaining and maintaining all loan documentation.

   7. Violating applicable laws, rules and regulations.

   IT IS FURTHER ORDERED, that the Bank, the individual Respondents and any other institution-affiliated parties of the Bank take immediate affirmative action to restore the books and records of the Bank to a complete and accurate state as follows:

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   [.1] 8. The following documentation shall be maintained at Walnut, Mississippi, in the loan files of the Bank:

   (a) For all loans and leases to borrowers whose aggregate indebtedness to the Bank exceeds $50,000 and for all loans purchased by the Bank:

       (i) All loan documentation required by the Bank's written loan policy as of April 12, 1990, attached hereto and made a part hereof.

       (ii) Proof, acceptable to the FDIC, that all mortgages, deeds of trust and UCC- 1 filings are properly filed and recorded with the applicable state and/or county officials.

       (iii) All real estate appraisals, prepared subsequent to September 18, 1990, for Federally-related transactions in excess of $50,000 shall comply with the requirements of Part 323 of the FDIC's Rules and Regulations, 12 C.F.R. Part 323.

       (iv) All other appraisals shall be prepared in accordance with the following:

         (a) Be performed by a qualified, independent staff or fee-paid appraiser selected by the Bank who is competent and knowledgeable of relevant markets and who is not involved in the lending and collection functions and has no interest, financial or otherwise, in the property;

         (b) Result in a market value as defined by the major appraisal associations;

         (c) Be written and presented in a narrative format;

         (d) Be sufficiently descriptive to enable the reader to ascertain the estimated market value;

         (e) Follow a reasonable valuation method which addresses all recognized approaches to market value unless the appraiser fully explains and documents the elimination of an approach;

         (f) Support the current valuation. All assumptions and projections should be supported and conform to current market conditions. In the case of income property, the capitalization rate, discount rate, net income and/or loss projections, cash flow, financing terms, and absorption rate should be reasonable;

         (g) Document and explain how discount and capitalization rates used in generating present value estimates were derived;

         (h) Take into consideration and make provision for all appropriate deductions and discounts for any developmenttype property;

         (i) Include a sales history analysis in cases where values have increased significantly over a short period of time; and

         (j) Address a proposed project's marketability and feasibility prospects. Studies prepared by a party other than the appraiser must be verified to the extent assumptions are utilized. The appraiser's acceptance or rejection of the third party study and its impact on value must be fully explained.

       (v) All financial statements shall be signed and dated by the borrower and detail his assets, debts, net worth, and income. The statements shall be as of a date within twelve months of the date of the loan.

       (vi) For all outstanding loans and leases, as of the date this TEMPORARY ORDER is issued, which lack the required documentation outlined in this paragraph, the Bank shall have 10 days from the issuance of this TEMPORARY ORDER to comply.

   9. The Bank shall prepare and maintain a list of all extensions of credit made by the Bank within the last two years for which the Bank disbursed the loan proceeds to an individual or entity other than an individual or entity who signed the promissory note.

   10. The Bank shall prepare and maintain a list of all extensions of credit which, as of the date of the Temporary Order, are outstanding but not booked.

   11. The Bank shall prepare and maintain signed and dated statements from each director indicating all of his or her corporate and partnership interests, as required by section 215.7 of Regulation O, 12 C.F.R. 215.7.

   12. The Bank shall:

       (a) Not advance any funds pursuant to a loan transaction unless an executed promissory note for the transaction and all loan documentation required by the Bank's loan policy is maintained on the Bank's premises;

       (b) Post all transactions to the Bank's general ledger within 24 hours of the transaction;

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       (c) Maintain all loan and wire transfer documentation on the Bank's premises.

   Following the effective date of this TEMPORARY ORDER, the Bank shall send its shareholders or otherwise furnish a description of this TEMPORARY ORDER: (1) in conjunction with the Bank's next shareholder communication and (2) in conjunction with its notice or proxy statement preceding the Bank's next shareholder meeting. The description and any accompanying communication, statement or notice shall be sent to the Federal Deposit Insurance Corporation, Registration and Disclosure Section, 550 - 17th Street, N.W., Washington, D.C. 20429, for review at least 15 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.

   This TEMPORARY ORDER shall become effective immediately upon service, and shall remain in full force and effect pending conclusion of the administrative proceedings initiated pursuant to the attached NOTICE OF CHARGES AND OF HEARING.

   Pursuant to delegated authority.

   Dated at Washington, D.C., this 6th day of June, 1991.

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