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FDIC Enforcement Decisions and Orders

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{{4-30-95 p.C-2729}}
   [10,647] In the Matter of The Bank of Walnut, Walnut, Mississippi, Docket No. FDIC-91-369b (9-29-92).

   Bank to cease and desist from such unsafe or unsound practices as following hazardous lending and lax collection practices; extending credit in violation of bank's written loan policy; operating with excessive volumes of adversely classified assets; engaging in securities trading without adequate policies and procedures; operating in violation of applicable laws or regulations; operating with management whose policies are detrimental to the Bank; and failing to provide adequate supervision over the Bank's affairs. (This order was terminated by order of the FDIC dated 2-14-95; see ¶15,967.)

   [.1] Management—Qualifications—Review
   [.2] Management—Management Plan Required
   [.3] Ethics—Written Policy Required
   [.4] Assets—Adversely Classified—Eliminate/Reduce
   [.5] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.6] Lending and Collection Policy—Minimum Requirements
   [.7] Loan Portfolio—Review and Grading System Required
   [.8] Loans—Extensions of Credit—Documentation System Required
   [.9] Loan Loss Reserve—Establish/Maintain
   [.10] Violations of Law—Eliminate/Correct
{{4-30-95 p.C-2730}}
   [.11] Reports of Condition and Income—Amendment Required

   [.13] Loans—Specific Category—Out-of-Territory
   [.14] Investment Policy—Revision—Minimum Requirements
   [.15] Audit—External—Annual
   [.16] Dividends—Restricted
   [.17] Board of Directors—Meetings—Frequency
   [.18] Compliance—Written Program Required
   [.19] Community Credit Needs—Plan to Meet
   [.20] Shareholders—Disclosure—Cease and Desist Order

In the Matter of

THE BANK OF WALNUT
WALNUT, MISSISSIPPI
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-91-369b

   The Federal Deposit Insurance Corporation ("FDIC") on November 8, 1991, issued to The Bank of Walnut, Walnut, Mississippi ("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 15, 1992, 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 institution-affiliated parties 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) Extending credit in violation of the Bank's written loan policy;
   (c) Operating with a large volume of poor quality loans;
   (d) Operating with an inadequate loan valuation reserve;
   (e) Engaging in securities trading without adequate policies and procedures; and
   (f) Operating in violation of the following laws, rules and regulations:

       (i) Section 23A of the Federal Reserve Act, 12 U.S.C. § 371c, made applicable to state non-member banks by section 18(j)(1) of the Act, 12 U.S.C. § 1828(j)(1); section 22(h) of the Federal Reserve Act, as amended, 12 U.S.C. § 375b, and sections 215.4(a), 215.4(b), 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(a), 215.4(b), 215.4(c) and 215.4(d), made applicable to state non-member banks by section 18(j)(2) of the Act, 12 U.S.C. § 1828(j)(2);
       (ii) Sections 103.22(f) and 103.33(a) of the Financial Recordkeeping and Reporting of Currency and Foreign Transactions Regulations of the United States Department of the Treasury, 31 C.F.R. 103.22(f) and 103.33(a);
       (iii) Section 226.23(b) of Regulation Z of the Board of Governors of the Federal Reserve System, 12 C.F.R. § 226.23(b);
       (iv) Section 615(b) of the Fair Credit Reporting Act, 15 U.S.C. §§ 1681m(b);
       (v) Section 2604 of the Real Estate Settlement Procedures Act, 12 U.S.C. {{11-30-92 p.C-2731}}§ 2604, and sections 3500.6(a), 3500.7(a), and 3500.8(a) of Regulation X of the Secretary of the Department of Housing and Urban Development, 24 C.F.R. §§ 3500.6(a), 3500.6(a) and 3500.8(a);
       (vi) Sections 227.14(a) and (b) of Regulation AA of the Board of Governors of the Federal Reserve System, 12 C.F.R. §§ 227.14(a) and (b);
       (vii) The Equal Credit Opportunity Act, 15 U.S.C. §§ 1691-1691f, and sections 202.5(d)(1) and 202.5(e) of Regulation B of the Board of Governors of the Federal Reserve System, 12 C.F.R. 202.5(d)(1) and 202.5(e);
       (viii) Section 304.5, 323.1(b), 323.3(a), 323(4)a, 338.4(a)(1)(i), 338.4(b), 339.5, 345.3(a), 345.3(b), 345.4(d) and 345.7 of the FDIC Rules and Regulations, 12 C.F.R. §§ 304.6, 323.1(b), 323.3(a), 323.4(a), 338.4(a)(1)(i), 338.4(b), 339.5, 345.3(a), 345.3(b), 345.4(d) and 345.7; and
   (g) Operating in such a manner as to provide excessive compensation to Larry J. Whitehead and Michael Whitehead;
   (h) Paying expenses to institution-affiliated parties without adequate documentation;
   (i) Operating in such a manner as to cause the books of the Bank to be incomplete or inaccurate;
   (j) Operating with management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits; and
   (k) 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) Within 60 days from the effective date of this ORDER, the Bank shall have management qualified to restore the Bank to a sound condition. Such management shall include an objective outside Board of Directors which shall effectively function as an independent loan committee, as set forth in paragraph 7(c) below. The chief executive officer shall be responsible for supervising the Bank's overall lending function and shall be given written responsibility, by the Bank's board of directors, to implement and maintain lending policies and other Bank policies in accordance with sound banking practices.
   (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 earning adequacy; and
       (iii) Comply with all applicable State and Federal laws and regulations.
   (c) The Bank shall comply with section 32 of the Act, 12 U.S.C. § 1831i, which includes a requirement that the Bank shall notify the Regional Director and the Commissioner in writing at least 30 days prior to any individual assuming an executive position or of any additions to its board of directors and senior executive officers.
    (d) (i) Within 90 days from the effective date of this ORDER, the board of directors shall prepare and forward, to each shareholder of the Bank, a list of potential candidates for nomination to the Bank's board of directors. The list of candidates shall include individuals who are independent with respect to the Bank, in such number that, if elected, would cause a majority of the board of directors to be comprised of outside directors. The actions taken in identifying potential candidates, including any communication with such individuals, shall be documented and made a part of the minutes of the board of directors. Copies of these board minutes shall be provided to the Regional Director within 120 days from the effective date of this ORDER.
       (ii) At the next meeting of the shareholders of the Bank, and at each succeeding meeting of the shareholders at which Bank directors are to be elected, the members of the board of directors who are also shareholders shall nominate and support the election of candidates to the board of directors who are independent with respect to the Bank and who have agreed to stand for election to the board of directors, in such number as are necessary to cause a majority of the board of directors to be and {{11-30-92 p.C-2732}}to remain comprised of outside directors.
   (e) For the purposes of this ORDER, an "outside director" shall be an individual:
       (i) Who shall not be employed, in any capacity, by the Bank or its affiliates other than as a director of the Bank or an affiliate;
       (ii) Who shall not own or control more than 5 percent of the voting stock of the Bank or its holding company;
       (iii) Who shall not be indebted to the Bank or any of its affiliates in an amount greater than 5 percent of the Bank's equity capital and reserves;
       (iv) Who shall not be related to any directors, principal shareholders of the Bank or affiliates of the Bank; and
       (v) Who shall be a resident of, or engage in business in, the Bank's trade area.

[.2] 2. (a) Within 60 days from the date of this ORDER, the board of directors shall review and make a written report ("Management Report") on the Bank's management needs in the lending area. The Management Report shall incorporate an analysis of the Bank's management and staffing requirements and shall, at a minimum:
       (i) Identify both the number and type of positions needed to properly supervise the Bank's lending functions, giving appropriate consideration to the Bank's loan volume, customer base and the number of problem credits.
       (ii) Provide a clear and concise description of the general duties and responsibilities for lending officers and responsibilities for lending officers and their support staff.
       (iii) Identify the skills, experience and pay required for each position.
       (iv) Provide an evaluation of the Bank's senior management and lending officials, indicating whether bank officials possess the necessary lending and collection experience and qualifications required to adequately perform present and anticipated duties.
       (v) Establish a plan to recruit, hire and/or replace personnel based on ability and experience.
       (vi) Establish a plan providing for periodic evaluation of each individual's job performance.
       (vii) Provide for periodic review of Bank's management and updating of lending policies and procedures.
   (b) The Board of directors shall obtain the services of any outside consultant(s), acceptable to the FDIC, who is knowledgeable in the area of lending, collections and personnel evaluation to assist the board of directors in reviewing the Bank's management needs and preparing the Management Report. The acceptability of the consultant(s) shall be based on the consultant's ability to advise the Bank in each of the areas identified in Paragraph 2(a).
   (c) Within 90 days of the effective date of this ORDER, the board of directors, with the assistance of the outside consultant(s), shall prepare a written plan of implementation ("Plan") addressing the findings of the Management Report. The Plan shall specify the actions to be taken by the board of directors and the time frames for each action.
   (d) Within 90 days of the effective date of this ORDER, the board of directors shall prepare a written report ("Written Report") which shall (1) contain a recitation identifying the recommendations made by the outside consultant(s) which have been incorporated in the Management Report and Plan, (2) a recitation identifying the recommendations made by the outside consultant(s) which were not incorporated in the Management Report and Plan and the reasons for not including such recommendations, and (3) a copy of any report(s) prepared by the outside consultant(s).
   (e) A copy of the Management Report, Plan, and Written Report shall be submitted to the Regional Director for review and comment. Within 30 days from receipt of any comment, and after consideration of such comment, the board of directors shall approve the Management Report and Plan which approval shall be recorded in the minutes of the meeting of the board of directors. It shall remain the responsibility of the board to fully implement the plan within the specified time frames. In the event the Plan, or any portion thereof, is not implemented, the board shall immediately advise the Regional Di- {{11-30-92 p.C-2733}}rector, in writing, of specific reasons from deviating from the plans.

   [.3] 3. Within 60 days from the effective date of this ORDER, the Bank shall develop, adopt and implement a written ethics policy and procedure with regard to the ethical conduct and other standards of conduct and responsibilities for its directors, officers, employees, agents and other persons participating in the conduct of the affairs of the Bank. ("Ethics Program") At a minimum the Ethics Program shall address the following:

       (a) Ethical and other conduct and responsibilities of individuals in the acceptance of gifts, entertainment, favors and loans; in the case of the use of official information; employment of relatives; use of Bank property; travel expenses; and indebtedness to the Bank or any other financial institution.
       (b) The financial interests and obligations of individuals that appear to conflict with that individual's duties and responsibilities such as:
         (i) Participating in any manner in any transaction or loan in which the individual, his spouse, child, partner, or organization is involved; or in which the individual serves as an officer, director, trustee, partner, or employee, or has a financial interest;
         (ii) Purchasing of Bank property;
         (iii) Providing goods or services to the Bank; and
         (iv) Outside employment and other activities.
       (c) A periodic written method of reporting each individual's compliance with the Ethics Program to an Ethics Counselor and/or committee who shall review compliance with the Ethics Program and report his findings to the board of directors.

[.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 June 21, 1991, 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 90 days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" as of June 21, 1991 to not more than $2,500,000.
   (c) Within 180 days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" as of June 21, 1991 to not more than $2,100,000.
   (d) Within 270 days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" as of June 21, 1991 to not more than $1,700,000.
   (e) Within 360 days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" as of June 21, 1991 to not more than $1,300,000.
   (f) The requirements of Paragraphs 4(a), 4(b), 4(c), 4(d), and 4(e) are not to be construed as standards for future operations and, in addition to the foregoing, the Bank shall eventually reduce the total of all adversely classified assets. As used in Paragraphs 4(b), 4(c), 4(d), 4(e), and 4(f) the word "reduce" means (i) to collect, (ii) to charge-off, or (iii) 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 extend, directly or indirectly, any additional credit to, or for the benefit of, any borrower or related interest of that borrower, who has a loan or other extension of credit with the Bank that has been charged off or classified, in whole or in part, "Loss" or "Doubtful" and is uncollected. The requirements of this paragraph shall not prohibit the Bank from renewing (after collection in cash of interest due from the borrower) any credit already extended to any borrower.
   (b) Beginning with the effective date of this ORDER, the Bank shall not make any further extension of credit to any borrower or related interests thereof, whose loans in the aggregate exceed $50,000 and are adversely classified "Substandard" as of June 21, 1991, 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 how {{11-30-92 p.C-2734}}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 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 at the Bank's premises, 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 June 21, 1991, (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.

[.6] 6. (a) Beginning with the effective date of this ORDER, the Bank shall review and strengthen its collection policies and procedures and adopt and implement written lending and collection policies to provide effective guidance and control over the Bank's lending functions which policies shall include specific guidelines for planing loans on a nonaccrual basis, consistent with the requirements contained in Instructions for Preparation of Reports of Condition and Income published by the Federal Financial Institution Examination Council.
   (b) Beginning with the effective date of this ORDER, the Bank shall initiate and implement a program to strengthen its credit files and correct the technical exceptions as detailed on page 2-e of the June 21, 1991 Report of Examination. In all future operation, the Bank shall ascertain that all documents or evidence thereof, properly completed, are obtained and physically located on the Bank premises before credit is extended.

[.7] 7. (a) Within 90 days of the effective date of this ORDER, the board shall establish and implement an internal loan review and grading system ("System") to periodically review the Bank's loan portfolio and identify and categorize problem credits. At a minimum the System shall provide credits. At a minimum the System shall provide for:

       (i) Identifying the overall quality of the loan portfolio;
       (ii) The identification and amount of each delinquent loan;
       (iii) An identification or grouping of loans that warrant the special attention of management;
       (iv) For each loan identified, a statement of the amount and an indication of the degree of risk that the loan will not be fully repaid according to its terms and the reason(s) why the particular loan merits special attention;
       (v) An identification of credit and collateral documentation exceptions;
       (vi) The identification and status of each violation of law, rule or regulation;
       (vii) An identification of loans not in conformance with the Bank's lending policy, and exceptions to the Bank's lending policy;
       (viii) An identification of all out of territory loans and amounts;
       (ix) An identification of insider loan transactions; and
       (x) A mechanism for reporting periodically, no less than quarterly, to the board of directors on the status of each loan identified and the action(s) taken by management.
   (b) 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.
   (c) Within 60 days from the effective date of this ORDER the Bank's board of directors shall establish and appoint a loan committee to review and approve in advance all extensions of credit, and/or renewals that when aggregated with all other extensions of credit to that borrower, either, directly or indirectly, exceed or would exceed $50,000. The loan committee must consist of a majority of outside directors and shall include the senior loan officer required by Paragraph 1, above. The review should include financial, income, and cash flow information, collateral values and lien information, repayment terms, past performance by the borrower, the purpose of the extension, and whether the {{11-30-92 p.C-2735}}extension complies with the Bank's loan policy and applicable laws, rules and regulations. The loan committee shall meet at least twice monthly and shall maintain written minutes which detail the information reviewed by the loan committee, its conclusions, approvals, denials, recommendations, and reasons for the approval of any credit which does not fully comply with the review requirements set forth in this paragraph. At least monthly, the loan committee shall submit its written minutes to the board of directors. The minutes submitted shall be signed by each member of the committee certifying that the minutes are complete and accurate.

   [.8] 8. 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; and
   (c) Maintain all loan and wire transfer documentation on Bank premises.

[.9] 9. (a) Within 30 days from the effective date of this ORDER, the Bank shall establish and shall thereafter maintain, through charges to current operating income, an adequate valuation reserve for loan and lease losses. In determining the adequacy of the valuation reserve for loan and lease losses, the board of directors of the Bank shall at a minimum consider the following:

       (i) Prevailing instructions contained in the Federal Financial Institutions Examination Council booklet entitled "Instructions-Consolidated Reports of Condition and Income";
       (ii) The volume and mix of the existing loan portfolio, including the volume and severity of nonperforming loans and adversely classified credits, as well as an analysis of net charge-oofs experienced on previously adversely classified loans and the results of the Bank's internal loan review;
       (iii) The extent to which loan renewals and extensions are used to maintain loans on a current basis and the degree of risk associated with such loans;
       (iv) The trend in loan growth, including any rapid increase in loan volume within a relatively short time period;
       (v) General and local economic conditions affecting the collectibility of the Bank's loans;
       (vi) Previous loan loss experience by loan type, including the trend of net charge-offs as a percent of average loans over the past several years;
       (vii) Off balance sheet credit risks;
       (viii) The overall risk associated with each concentration of credit together with the degree of risk associated with each related individual borrower; and
       (ix) Any other factors appropriate in determining future valuation reserves.
   (b) Prior to the submission of any Report of Condition or Report of Income, the board of directors of the Bank shall review the adequacy of the Bank's valuation reserve for loan and lease losses. The minutes of the board meetings at which each review is undertaken shall indicate the results of the review, the amount of any increase to the reserve, and the basis for the amount of the valuation reserve. The criteria for the review shall be as set forth in Paragraph 9(a).
   (c) Notwithstanding the provisions of Paragraphs 9(a) and 9(b) above, the Bank shall achieve, within 30 days of the effective date of this ORDER, a valuation reserve for loan and lease losses, after charge-off of loans classified "Loss" as required in Paragraph 4, above, of not less than $565,000.
   (d) In the event that the Regional Director determines, at subsequent examinations and/or visitations, that the Bank's valuation reserve for loan and lease losses is inadequate, the Bank shall amend its Consolidated Reports of Condition and Income in accordance with Paragraph 11, below.
   (e) The requirements of Paragraph 9(c) above are not to be construed as a standard for future operations.

   [.10] 10. Within 60 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of law and regulations which are set out on pages 6-b through 6-b-10 of the Report of Exam- {{11-30-92 p.C-2736}}ination of the Bank as of June 21, 1991, and on pages 2 through 2-a-2 of the Compliance Report dated as of close of business on April 2, 1991. In addition, the Bank shall henceforth comply with all applicable laws and regulations.

[.11] 11. (a) Within 30 days from the effective date of this ORDER, the Bank shall review all Consolidated Reports of Condition and Income filed with the FDIC on and after December 31, 1990 and shall amend and file with the FDIC amended Consolidated Reports of Condition and Income which accurately reflect the financial condition (including an adequate loan loss reserve) and trading account of the Bank as of the date of each such Report.
   (b) In addition to the above and during the life of this ORDER, the Bank shall file with the FDIC Consolidated Reports of Condition and Income which accurately reflect the Bank's financial condition (including an adequate loan loss reserve) and trading account as of the reporting period. In particular such Reports shall include any adjustment in the Bank's books made necessary or appropriate as a consequence of any State or FDIC examination of the Bank during that reporting period.

[.12] 12. (a) Within 60 days from the effective date of this ORDER, the Bank shall commence an audit, which shall be performed by an independent external auditor, acceptable to the Regional Director, to determine if the total compensation (both current and deferred) and expenses paid to Larry J. Whitehead, Michael Whitehead and John J. Whitehead, Jr. and any of the their related interests for the years 1990 and 1991 were reasonable in relation to the services provided to the Bank and whether the expenses are properly documented. Within 10 days after submission to the Bank, the Bank shall submit a copy of the auditor's report to the Regional Director. For the purpose of this paragraph, "compensation" refers to any and all salaries, bonuses, and other benefits of every kind and nature whatsoever, whether paid directly or indirectly.
   (b) Within 30 days of the effective date of this ORDER, the Bank shall formulate a plan acceptable to the Regional Director which will be used by the auditor for determining the reasonableness of the compensation particularly paid to Larry J. Whitehead for the years 1990 and 1991. The plan shall address, at a minimum:

       (i) Comparable salaries for similarly situated individuals in a bank of less than $30,000,000 in assets;
       (ii) The amount of documented time spent by him performing Bank business;
       (iii) The percentage of loans extended by him which fail to comply with the Bank's written loan policy;
       (iv) The amount of time spent by him on the Bank premises;
       (v) The Mississippi Bankers Association 1990 Salary Survey and any updates thereof;
       (vi) Any of his activities which are or result in a violation of any law, rule or regulation;
       (vii) Whether the compensation paid was properly documented.
   (c) Within 75 days from the effective date of this ORDER, the Bank shall take whatever action is necessary to obtain reimbursement for any of the expenses paid since January 1, 1990 to Larry J. Whitehead, Michael Whitehead and John J. Whitehead, Jr. which expenses are determined by the auditor to lack proper documentation or are not reasonable in relation to the services provided. Proper documentation shall be determined by the auditor using generally accepted accounting standards.
   (d) Within 74 days of the effective date of this ORDER, the Bank shall acquire possession of any automobile titled to the Bank which is in the possession of Michael Whitehead.

[.13] 13. (a) Within 90 days from the effective date of this ORDER, the Bank shall reduce the total outstanding balance of all out of territory loans as of June 21, 1991 to not more than $4,000,000.
   (b) Within 180 days from the effective date of this ORDER, the Bank shall reduce the total outstanding balance of all out of territory loans as of June 21, 1991 to not more than $3,100,000.
   (c) Within 270 days from the effective date of this ORDER, the Bank shall reduce the total outstanding balance of all out of territory loans as of June 21, 1991, to not more than $2,300,000.
   (d) Within 360 days from the effective {{11-30-92 p.C-2737}}date of this ORDER, the Bank shall reduce the total outstanding balance all out of territory loans as of June 21, 1991, to not more than $1,500,000.
   (e) The requirements of Paragraphs 13(a), 13(b), 13(c), and 13(d), are not to be construed as standards for future operations. In addition to the foregoing, the Bank shall eventually reduce and shall maintain the total outstanding balance of all out of territory loans to no more than one-third of the Bank's total equity capital and reserves. As used in Paragraph 13(a), 13(b), 13(c), and 13(d) the word "reduce" means (i) to collect, (ii) to charge-off, or (iii) otherwise remove from the books of the Bank.

[.14] 14. (a) Within 60 days of the effective date of this ORDER, the Bank shall submit to the FDIC for its review and comment investment policy and a trading account policy, adopted by the Board, which shall comply with the Federal Financial Institution's Examination Council's Supervisory Policy entitled "Selection of Securities Dealers and Unsuitable Investment Practices" and shall, as a minimum:

       (i) Set specific dollar limits for total securities to be held in the trading account at any one time;
       (ii) Set specific dollar limits for securities sold under agreement to repurchase at any one time;
       (iii) Identify the types of securities which are to be held within the trading account;
       (iv) Explain and justify the strategies and goals for the trading account and specifically identify economic conditions and projections upon which the strategies are based;
       (v) Place specific controls on transfers between the investment account and trading account;
       (vi) Require all security transactions to receive the prior written approval of a majority of the Bank's Board of Directors at a Board meeting physically attended by the members of the Board at the Bank's premises in Walnut, Mississippi;
       (vii) Require that assets in the trading account be valued on the books at the lower of cost or market value, with adjustments no less than each calendar quarter; and
       (viii) Detail the procedure for eliminating positions in securities if substantial losses are incurred or the assumptions upon which the Bank's projections are based prove to be in error.
(b) Within 30 days of the receipt by the Bank of any comments, and after consideration of such comment, the board of directors shall approve the policy, which approval shall be recorded in the minutes of the meeting of the board of directors. The policy approved at this Board meeting shall, within 10 days of its approval, be submitted to the Regional Director and be implemented by the Bank.
   (c) If the Bank fails to comply with Paragraphs 14(a), within the specified time frames, the Bank shall immediately cease any and all trading account activity.

   [.15] 15. Beginning within 90 days of the effective date of this ORDER, and annually thereafter, the Bank shall have an audit of its financial statements performed in accordance with generally accepted accounting standards by an independent public accountant experienced in bank auditing. A copy of the report of that audit shall be submitted to the Regional Director within 10 days after submission to the Bank.

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

   [.17] 17. During the life of this ORDER, the Bank's Board shall meet, at least monthly, at the main office of The Bank. At each meeting, at least a majority of the members of the board must be physically present at the Bank. Detailed written minutes of all board meetings shall be maintained at the Bank and recorded on a timely basis. Copies of all board minutes shall be certified by an officer of the board of directors as to completeness and accuracy, and shall, within 10 days of each meeting, be filed with the Regional Director.

   [.18] 18. Within 60 days of the effective date of this ORDER, the Bank shall adopt and implement a written compliance program which at a minimum shall address the proper maintenance of records, the establishment of appropriate internal controls and {{11-30-92 p.C-2738}}procedures and sufficient training for all compliance personnel to provide effective guidance, control and personnel over the Bank's consumer lending functions. The compliance program shall be in a form and manner acceptable to the Regional Director as determined by subsequent examinations and/or visitations.

    19. (a) Within 60 days of the effective date of this ORDER, the Board of Directors ("Board") shall appoint a qualified compliance officer to oversee and coordinate the Bank's overall compliance efforts, including the training and supervision of all personnel in compliance matters.
       (b) The Board shall ensure that the compliance officer appointed receives the necessary training to fulfill the responsibilities of his or her position.
       (c) The compliance officer shall be assessed on his or her ability to:
         (i) Comply with the requirements of this ORDER;
         (ii) Comply with the approved compliance program referred to in paragraph 18 above, and maintain the Bank's compliance program in a safe and sound manner; and
         (iii) Comply with applicable State and Federal laws and regulations.

[.19] 20. (a) Within 60 days of the effective date of this ORDER, the Bank shall make a reasonable delineation of its entire community in compliance with section 345.3 of the FDIC Rules and Regulations, 12 C.F.R. § 345.3. The delineation shall be in form and substance acceptable to the Regional Director.
   (b) In addition to the above, the Bank shall, at a minimum:
       (i) Develop and implement a written plan, acceptable to the Regional Director, to ascertain and meet the credit needs of the delineated community;
       (ii) Develop a system for monitoring the distribution of credit applications, denials and extensions to ensure that available credit services are offered fairly and without discrimination throughout the delineated community; and
       (iii) Develop and implement a written plan acceptable to the Regional Director, through which the Bank will be continually aware of and become involved in projects that benefit the delineated community.

   [.20] 21. 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 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.
   22. On the fifteenth day of the second month following the effective date of this ORDER, and quarterly 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 institution-affiliated parties 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: 9-29-92
   Pursuant to delegated authority.

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