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FDIC Enforcement Decisions and Orders

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   [10,280] In the Matter of Robert Beall, Louis T. Fortenberry, Doris Palmer, Mary H. Ray, Larry Whitehead, and The Bank of Walnut, Walnut, Mississippi, Docket No. FDIC-91-152c&b (7-19-91).

   Bank and institution-affiliated parties to cease and desist from such unsafe or unsound practices as extending credit without adequate documentation; operating in violation of applicable laws or regulations; extending credit in violation of Bank's loan policy; extending credit prior to the Bank's receipt of a promissory note; keeping incomplete and inaccurate books; purchasing loans without obtaining and maintaining loan documents; and failing to follow acceptable lending practices. (This order was modified by order of the FDIC, dated 8-5-91; see ¶15,312. It was terminated by orders of the FDIC dated 2-14-95 and 4-12-95, see ¶15,966 and ¶15,993.)

   [.1] Loans—Documentation—Minimum Requirements
   [.2] Real Estate—Appraisals Required—Standards
   [.3] Loans—Extensions of Credit—Documentation Required
   [.4] Directors—Compliance with Regulation O Required
   [.5] Loans—Execution of Promissory Notes Required
   [.6] Compliance Reports—Frequency

In the Matter of
ROBERT BEALL, LOUIS T. FORTENBERRY, DORIS PALMER, MARY H. RAY, and LARRY WHITEHEAD, individually and as institution-affiliated parties of the Bank of Walnut
THE BANK OF WALNUT
WALNUT, MISSISSIPPI
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-91-152c&b

   The Federal Deposit Insurance Corporation ("FDIC") on June 6, 1991, issued to {{6-30-95 p.C-1198}}The Bank of Walnut, Walnut, Mississippi ("Bank"), and Robert Beall, Louis T. Fortenberry, Doris Palmer, Mary H. Ray and Larry Whitehead ("Respondents"), 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) and a TEMPORARY ORDER TO CEASE AND DESIST ("Temporary Order") pursuant to section 8(c)(3)(A) of the Act, 12 U.S.C. § 1818(c)(3)(A). The NOTICE charges the Bank and/or Respondents with having engaged in unsafe or unsound banking practices.
   The Bank, Respondents and Counsel for the FDIC thereafter executed a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT"), dated June 26, 1991 whereby, solely for the purpose of this proceeding and without admitting or denying the allegations in the NOTICE, the Bank and Respondents consent 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 and Respondents had engaged in unsafe or unsound banking practices. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following ORDER:

ORDER TO CEASE AND DESIST
   IT IS HEREBY ORDERED that the Bank, Respondents and the directors, officers, employees, agents, successors, assigns, and other institution-affiliated parties of the Bank, cease and desist from the following unsafe or unsound banking practices:
   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 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).
   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.
   8. Failing to maintain accurate books and records.
   9. Failing to follow acceptable lending practices.
   IT IS FURTHER ORDERED, that the Bank, the 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:

   [.1] 10. Beginning with the effective date of this ORDER, 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.

   [.2] (iii) All real estate appraisals, prepared subsequent to September 18, 1990, for Federally-related transaction in excess of $50,000 shall comply with the requirements of Part 323 of the FDIC 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 of 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;
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   (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 development-type 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) All outstanding loans and leases, which lack the required documentation outlined in this paragraph, shall be fully documented in accordance with this paragraph.

   [.3] 11. Beginning with the effective date of this ORDER, the Bank shall prepare and maintain a current list of all extensions of credit made by the Bank within the preceding 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.

   12. Beginning with the effective date of this ORDER, the Bank shall prepare and maintain a list of all extensions of credit which, as of June 6, 1991, were outstanding but not booked.

   [.4] 13. Beginning with the effective date of this ORDER, the Bank shall prepare and maintain signed and dated statements from each director indicating all of his corporate and partnership interests, as required by section 215.7 of Regulation O, 12 C.F.R. § 215.7.

   [.5] 14. Beginning with the effective date of this ORDER, 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;
   (c) Maintain all loan and wire transfer documentation on Bank premises.

   [.6] 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 of the Department of Banking and Consumer Finance of the State of Mississippi detailing the form and manner of any actions taken to secure compliance with this ORDER and 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, the Respondents and the directors, officers, employees, agents, successors, assigns, and other institution-affiliated parties of the Bank.
   The effective date of this ORDER shall be (10) days from the date of its issuance.
   The provisions of this ORDER shall remain effective and enforceable except to the {{9-30-91 p.C-1200}}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: July 19, 1991.

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