Federal Deposit
Insurance Corporation

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   [¶11,615] In the Matter of Bank of Benoit, Benoit, Mississippi, Docket No. 99-026b (5-21-99)

   A 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. (This order was terminated by order of the FDIC dated 6-29-01; see ¶16,283.)

   [.1] Cease and Desist Orders—Banking Practices Unsafe and Unsound—Management—Qualifications Specified
   [.2] Cease and Desist Orders—Banking Practices Unsafe and Unsound—Meetings, Agenda and Minutes—Requirements
   [.3] Cease and Desist Orders—Banking Practices Unsafe and Unsound—Capital—Tier I Capital—Increase/Maintain
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   [.4] Cease and Desist Orders—Banking Practices Unsafe and Unsound—Loan and Lease Losses—Adequate Allowance Required
   [.5] Cease and Desist Orders—Banking Practices Unsafe and Unsound—Loan and Lease Losses—Eliminate/Reduce
   [.6] Cease and Desist Orders—Banking Practices Unsafe and Unsound—Loans—Extensions of Credit—Existing Borrowers—Curtail
   [.7] Cease and Desist Orders—Banking Practices Unsafe and Unsound—Loans—Assets with Credit Data or Collateral Documentation—Correction
   [.8] Cease and Desist Orders—Banking Practices Unsafe and Unsound—Loans—Written Plan Required
   [.9] Cease and Desist Orders—Banking Practices Unsafe and Unsound—Loans Policy—Internal Review and Grading—Establish
   [.10] Cease and Desist Orders—Banking Practices Unsafe and Unsound—Loan Policy—Written Revision
   [.11] Cease and Desist Orders—Banking Practices Unsafe and Unsound—Violations of Law—Eliminate—Correct
   [.12] Cease and Desist Orders—Banking Practices Unsafe and Unsound—Dividends—Restricted
   [.13] Cease and Desist Orders—Banking Practices Unsafe and Unsound—Internal Audit Procedures—Written/Develop
   [.14] Cease and Desist Orders—Banking Practices Unsafe and Unsound—Profit Plan—Develop/Adopt
   [.15] Cease and Desist orders—Banking Practices Unsafe and Unsound—Shareholders—Disclosures—Cease and Desist Order
   [.16] Cease and Desist Orders—Banking Practices Unsafe and Unsound—Written Progress Report Required

In the Matter of
BANK OF BENOIT
BENOIT, MISSISSIPPI
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-99-026b

   Bank of Benoit, Benoit, Mississippi ("Bank"), having been advised of its right to a Notice of Charges and of Hearing detailing the unsafe or unsound banking practices and violations of law and/or regulations 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 May 11, 1999, whereby solely for the purpose of this proceeding and without admitting or denying the alleged charges of unsafe or unsound banking practices and violations of law and/or regulations, 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:

   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:
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   (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 with an inadequate loan valuation reserve;
   (e) operating with inadequate internal routine and controls policies;
   (g) operating in such a manner as to produce operating losses;
   (h) operating in violation of section 326.8(c)(2) of the FDIC Rules and Regulations, 12 C.F.R. §326.8(c)(2); and Miss. Code Ann.§81-1-91.
   (i) operating with management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits; and
   (j) operating with a board of directors which has failed to provide adequate supervision over and direction to the active management of the Bank.

   [.1]1. (a) During the life of this ORDER, the Bank shall have management qualified to restore the Bank to a sound condition. Such managementshall include a chief executive officer and an experienced senior lending officer responsible for supervising the Bank's overall lending function. To ensure compliance with this Paragraph:

   (i) Within 30 days from the effective date of this ORDER, the Bank shall establish and implement a plan to recruit and hire an experienced lending officer and Chief Executive Officer.
   (ii) The chief executive officer and the senior lending official may be the same individual.

   (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.

   [.2]2. During the life of this ORDER, the agenda of all meetings of the Bank's board of directors shall also include and the meeting minutes shall reflect, a full review of the following:

   (a) the current Balance Sheet and Report(s) of Income and Expense;
   (b) New, overdue, renewed, and insider loans;
   (c) Charged-off and recovered activity;
   (d) Personnel actions; and
   (e) Committee actions.

   [.3]3. (a) Within 60 days from the effective date of this ORDER, the Bank shall have Tier I capital equal to or greater than seven (7.0) percent of the Bank's adjusted Part 325 total assets. Thereafter, during the life of this ORDER, the Bank shall maintain Tier I capital equal to or greater than seven (7.0) percent of the Bank's adjusted Part 325 total assets.
   (b) Any increase in Tier I capital necessary to meet the ratio required by Paragraph 3(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 the directors, shareholders, or
   (iii) Any other method acceptable to the FDIC.

   [.4] 4. (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-offs experienced on previously adversely classified loans;
   (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.

   [.5] 5. (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 September 30, 1998, 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 which was classified "Substandard" or "Doubtful" in the Report of Examination as of September 30, 1998, 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 three months, six months, and nine months from the effective date of this ORDER; and
   (ii) Provisions for the submissions of monthly written progress reports under this Paragraph 5 to the Bank's board of directors for review and recordation in the board minutes.

   [.6] 6. (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 that has been classified as "Loss," or "Doubtful" and is uncollected. The requirements of this paragraph shall not prohibit the Bank from reviewing (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 September 30, 1998, 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.

   [.7] 7. Within 90 days of the effective date of this ORDER, the Bank shall correct the loan and/or collateral documentation for the Assets with Credit Data or Collateral Documentation Exceptions on pages 36-37 of the Report of Examination as of September 30, 1998.

   [.8] 8. (a) Within 60 days from the effective date of this ORDER, the Bank shall revise, adopt, and implement a written loan policy that provides for the safe and sound administration of all aspects of the lending function. Such policy shall be revised to address, but is not necessarily limited to the following:

   (i) Guidelines for the collection and maintenance of proper and adequate loan documentation as required by sound banking practices prior to the disbursement of loan proceeds or the renewal of existing loans;
   (ii) Guidelines for the identification of primary and secondary sources of repayment;
   (iii) The establishment of and adherence to realistic amortization programs;
   (iv) Guidelines for granting unsecured loans;
   (v) Limitations on amounts advanced in relation to the value of the collateral and the documentation required for each secured loan;
   (vi) Guidelines for concentrations of credit that address goals for portfolio mix and risk diversification, including plans {{7-31-99 p.C-4725}}for monitoring and taking corrective actions on any existing concentrations;
   (vii) guidelines for rates of interest, and terms of repayment for all secured and unsecured loans;
   (viii) Limitations on extensions of credit through overdrafts;
   (ix) Guidelines on appropriate and adequate collection procedures and procedures for actions taken against borrowers who fail to make timely payments;
   (x) Guidelines for granting renewals and extensions of loans; and
   (xi) Procedures for exceptions to the loan policy;

   [.9] 9. (a) Within 90 days of the effective date of this ORDER, the board shall amend the Bank's 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 for:

   (i) The identification of 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 insider loan transactions;
   (ix) 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; and
   (x) A mechanism for ensuring the timely charge-off of all loans identified as "loss."

   [.10] 10. (a) Within 60 days from the effective date of this ORDER, the Bank shall adopt and implement a written policy for the operation of the Bank in such a manner as to provide for an internal control and information system consistent with safe and sound banking practices. The policy should include, at a minimum, the following:

   (i) An accounting system that is kept current and in accordance with well-established accounting and banking principles. The accounting system should:

   (A) reflect the Bank's actual financial condition on a daily basis and the accurate results of operations.
   (B) be designed to provide an audit trail that enables the tracing of any given item as it passes through the bank's books.

   (ii) The internal control system shall require, at a minimum:

   (A) Daily reconcilement of General Ledger Accounts;
   (B) Monthly reconcilement of Correspondent Bank Accounts;
   (C) Ledger entries that contain an adequate description of all transactions;
   (D) Current posting of all accounts and records; and
   (E) Daily reconcilement of all Cashier's Checks.

   (A) An adequate description of all transactions;
   (B) The individual accountability of all bank personnel who handle cash or assets;
   (C) Dual control/Joint Custody procedures to provide for the protection of all physical assets including reserve cash, the vault, the night depository, keys to teller cash boxes, and the issuance of Cashier's Checks.

   [.11] 11. Within 60 days of the effective date of this Order, the Bank shall eliminate and/or correct all violations of law which are set out on page 22 of the Report of Examination as of September 30, 1998.

   [.12] 12. During the life of this ORDER, 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.

   [.13] 13. (a) Within 90 days from the effective date of this ORDER, the Bank shall commence a full-scope audit, which shall be performed by an independent external auditor, acceptable to the Regional Office and the Commissioner, both in terms of preparer and scope, to evaluate the Bank's compliance generally accepted auditing practices, and to identify high risk areas of the Bank's operations and procedures. The audit shall be of sufficient scope so as to enable the auditor to express an opinion as to his/her findings in accordance with generally accepted accounting principles. At a minimum, the auditor(s) shall review:

   (i) All Cash Accounts;
   (ii) All "Due From Bank" accounts;
   (iii) The General Ledger;
   (iv) Loans;
   (v) The Allowance for Loan and Lease Losses;
   (vi) Other Assets;
   (vii) Deposit Accounts;
   (viii) Borrowed Funds;
   (ix) Other Liabilities;
   (x) Capital Accounts and Dividends;
   (xi) Income and Expenses;
   (xii) Premises and Equipment;
   (xiii) Internal Controls;
   (xiv) Valuations of the collectibility of loans and investments; and
   (xv) Insider transactions.

   [.14] 14. (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;
   (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.

   [.15] 15. 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.