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FDIC Enforcement Decisions and Orders

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   [11,352] In the Matter of First American Bank, Jackson, Miss., Docket No. FDIC-96-138b (10-15-96)

   Bank ordered to cease and desist from such unsafe and unsound practices as engaging in hazardous lending and lax collection practices; operating with inadequate capital; operating with a large volume of poor quality loans; operating in such a manner as to produce operating losses; failing to fully implement the bank's written Bank Secrecy Act Policy; paying unverified personal expenses for institution-affiliated parties; operating with management whose polices and practices are detrimental to the bank and jeopardize the safety of its deposits; and operating with a board of directors which has failed to provide adequate supervision over and direction to the active management of the bank. (This order was terminated by order of the FDIC dated 6-17-02; see ¶16,313.)

   [.1] Management—Qualifications Specified
   [.2] Management Policy—Written Plan Required
{{12-31-96 p.C-4273}}
   [.3] Board of Directors—Committee to Review Compliance with Cease and Desist Order
   [.4] Capital—Tier 1 Capital—Increase/Maintain
   [.5] Profit Plan—Development Required
   [.6] Assets—Adversely Classified—Eliminate/Reduce
   [.7] Loans—Risk Position—Reduce—Written Plan Required
   [.8] Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.9] Dividends—Restricted
   [.10] Directors and Officers—Expenses—Written Policies and Procedures for Reimbursement
   [.11] Bank Secrecy Act Policy—Implement
   [.12] Shareholders—Disclosure—Cease and Desist Order
   [.13] Cease and Desist Order—Compliance Reports

In the Matter of

FIRST AMERICAN BANK
JACKSON,MISSISSIPPI
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-96-138b

   First American Bank, Jackson, Mississippi ("Bank"), having been advised of its right to a Notice of Charges and of Hearing detailing the unsafe or unsound banking practices alleged to have been committed by the Bank and of its right to a hearing on the alleged charges under section 8(b)(1) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1818(b)(1), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") with counsel for the Federal Deposit Insurance Corporation ("FDIC"), dated August 26, 1996, whereby solely for the purpose of this proceeding and without admitting or denying the alleged charges of unsafe or unsound banking practices, 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. 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:
   (a) engaging in hazardous lending and lax collection practices;
   (b) operating with inadequate capital in relation to the kind and quality of assets held by the Bank;
   (c) operating with a large volume of poor quality loans;
   (d) operating in such a manner as to produce operating losses;
   (e) failing to fully implement the Bank's written Bank Secrecy Act Policy;
   (f) paying unverified personal expenses for institution-affiliated parties;
   (g) operating with management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits; and
   (h) 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,.2,.3] 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;
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       (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) (i) During the life of this ORDER, the Bank shall notify the Regional Director of the Memphis Regional Office ("Regional Director") and the Commissioner of Banking and Consumer Finance for the State of Mississippi ("Commissioner") in writing of any resignations and/or terminations of any members of its board of directors and/or any of its senior executive officers within 15 days of the event.
    (ii) The Bank shall comply with section 32 of the Act, 12 U.S.C. § 1831i.
   (d) (i) To ensure both compliance with this ORDER and qualified management for the Bank the board of directors, within 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 (1) both the number and type of positions needed to properly manage the Bank, (2) a clear and concise description of the needed experience and pay for each job, (3) an evaluation of present management, (4) a plan to recruit, hire or replace personnel with requisite ability and experience, (5) a periodic evaluation of each individual's job performance, and (6) the establishment of procedures to periodically review and update the Management Policy.
       (ii) The Management Policy and any subsequent modification thereto shall be submitted to the Regional Director and the Commissioner 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 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:
       (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.

   [.4] 2. (a) No later than December 31, 1996, the Bank shall achieve and maintain adjusted Tier I capital equal to or greater than five (5) percent of the Bank's adjusted Part 325 total assets. No later than June 30, 1997, the Bank shall achieve and maintain adjusted Tier I capital equal to or greater than six and one-half (6.5) percent of the Bank's adjusted Part 325 total assets. Thereafter, during the life of this ORDER, the Bank shall maintain adjusted Tier I capital equal to or greater than six and one-half (6.5) percent of the Bank's adjusted Part 325 total assets.
   (b)Any increase in Tier I capital necessary to meet the ratios 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
       (ii) The direct contribution of cash by
    {{12-31-96 p.C-4275}}the directors and/or shareholders of the Bank; or
       (iii) Any other method acceptable to the FDIC.
   (c)If all or part of the increase in Tier I 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 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, 550 17th Street, N.W., Room F-250, Washington, D.C. 20429 for review. Any changes requested to be made in the plan or materials by the FDIC shall be made prior to their dissemination. If the Regional Director allows any part of the increase in Tier I capital to be provided by the sale of noncumulative perpetual preferred stock, then all terms and conditions of the issue, including but not limited to those terms and conditions relative to the interest rate and any convertability factor, shall be presented to the Regional Director for prior approval.
   (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 "Tier I 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(t), and 325.2(v), 12 C.F.R. §§ 325.2 (t) and (v). Page 4.5 of the FDIC Report of Examination provides the basis for determining the ratio of adjusted Tier I capital to adjusted Part 325 total assets as required by this ORDER.
   (f)The Bank shall not lend funds directly or indirectly, whether secured or unsecured, to any purchaser of Bank stock or to any investor by any other means for any portion of any increase in Tier I capital required herein.

   [.5] 3. (a) Within 60 days from the effective date of this ORDER, and within the first 30 days of each calendar year thereafter, the board of directors shall develop a written profit plan consisting of goals and strategies for improving the earnings of the Bank for each calendar year. The 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 prepared with particular emphasis given to limiting overhead expenses;
       (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;
       (iv) A description of the operating assumptions that form the basis for, and adequately support, major projected income and expense components; and
       (v) Periodic salary reviews.
   (b) Such 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 {{12-31-96 p.C-4276}}the board of directors. Thereafter, the Bank, its directors, officers, and employees shall follow the written profit plan and/or any subsequent modification.

   [.6,.7] 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 adversely classified "Loss" as of April 29, 1996, 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 asset which was adversely classified "Substandard" as of April 29, 1996. 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 three months, six months, and twelve months from the effective date of this ORDER; and
       (ii) Provisions for the submissions of monthly written progress reports under this Paragraph 4 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.

   [.8] 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 who has a loan or other extension of credit with the Bank that has been charged off or adversely classified, in whole or in part, "Loss" 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 extensions of credit, directly or indirectly, to any borrower whose loans are adversely classified "Substandard" as of April 29, 1996, without prior approval by 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 Bank's loan policy, that the extension of credit is necessary to protect the Bank's interest or is adequately secured, that credit analysis has determined the customer 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.
       (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).

   [.9] 6. 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.

   [.10] 7. Within 60 days from the effective date of this ORDER, the Bank shall develop, adopt, and implement written policies and procedures for the payment or the reimbursement of necessary Bank expenses incurred by Bank employees, officers, and/or members of the Bank's board of directors. The policies and procedures shall cover all such expenses, whether paid personally by the Bank employee, officer or director or for which the employee, officer or director has obligated the Bank through the use of a Bank credit card or otherwise. At a minimum, such policy shall:

       (a) Require the submission of a written travel/expense request or voucher to the appropriate individual(s) which identify the person or persons entertained, the business purpose of the expense, the date of the expense, and supporting documentation, including original receipts, before payment or reimbursement is made by the Bank;
       (b) Define and establish the categories of expenses which are reimbursable by
    {{12-31-96 p.C-4277}}the Bank and specify reasonable limitations for each category;
       (c) Identify the appropriate individual(s) responsible for reviewing the written travel/expense request or voucher for completeness and to determine if the expense is of a type reimbursable by the Bank. Approval by the board of directors shall be required before any payments or reimbursements are made for expenses incurred by senior management and directors;
       (d) Require the periodic review by the Bank's board of directors of all payments or reimbursements for expenses ensuring that all payments were made in conformance with Bank policy. The results of each review shall be reflected in the minutes of the meeting. The board of directors shall seek reimbursement for any expenses paid which are not in conformance with the policy or expressly identify in the minutes the reason for the deviation; and
       (e) Prohibit payment or reimbursement for personal expenses.

   [.11] 8. Following the effective date of this ORDER, the Bank shall fully implement and follow its written Bank Secrecy Act Policy.

   [.12] 9. 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, Division of Supervision, Registration and Disclosure Unit, 550 17th Street, N.W., Room F-250, 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] 10. Commencing December 31, 1996, and by the fifteenth day of each month following each calendar quarter 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.
   Pursuant to delegated authority.
   Dated this 15th day of October, 1996.

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