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[¶11,809] In the Matter of Bank of Benoit, Benoit, Mississippi, Docket No.
01-038b (6-15-01).
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 4-12-02; see ¶16,311.)
[.1] Management—Qualifications Specified
[.2] Capital—Increase Required
[.3] Loan Loss Reserve—Review by Board of Directors Required
[.4] Assets—Charge-off or Collection
[.5] Loans—Extensions of Credit—To Borrowers with Existing Adversely
Classified Credits
[.6] Loan Policy—Adherence to Required
[.7] Board of Directors—Internal Loan Review and Grading System
[.8] Dividends—Dividends Restricted
[.9] Profit Plan—Preparation of Plan Required
[.10] Shareholders—Disclosure of Cease and Desist Order Required
In the Matter of
BANK OF BENOIT
BENOIT, MISSISSIPPI
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-01-038b
Bank of Benoit, Benoit, Mississippi ("Bank"), having been
advised of its right
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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 8, 2001, 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:
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) 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 without adequate earnings;
(f) operating with management whose policies and practices are
detrimental to the Bank and jeopardize the safety of its deposits; and
(g) 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) 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. The chief executive officer and the senior lending official
may be the same individual.
(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 earnings adequacy; and
(iii) Comply with all applicable State and Federal laws and
regulations.
(c) During the life of this ORDER, the Bank shall notify the
Regional Director of the Memphis Regional Office ("Regional
Director") and the Department 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.
(d) The Bank shall comply with section 32 of the Act, 12 U.S.C.
§1831i.
[.2]2. (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%) of the Bank's adjusted Part 325
total assets.
(b) Any increase in Tier I capital necessary to meet the ratio
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 the directors, shareholders, 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
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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
convertibility 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).
[.3]3. (a) During the life 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.
(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 3(a).
[.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
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September 30, 2000, 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, 2000, and which aggregated $70,000 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, six months, and twelve months from the
effective date of this ORDER; and
(ii) Provisions for the submissions of quarterly 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.
[.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 who has a loan or other extension of
credit with the Bank that has been charged off or that has been
classified as "loss," and is uncollected as of September 30,
2000. 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. The requirements
of this paragraph will not prohibit the Bank from extending additional
credit to protect its current collateral position pursuant to an
existing perfected lien after 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 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 it is necessary to protect the Bank's interest or that the
extension of credit is adequately secured; and (iii) that all necessary
loan documentation is on file, including current financial and cash
flow information and satisfactory appraisal, title, and lien documents.
(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 in the aggregate of $25,000 or
more are adversely classified "Substandard" as of September 30,
2000, 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 it
affirmatively determined all of the following: (i) that the extension
of credit is in full compliance with the Bank's loan policy; (ii) that
the extension of credit 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, 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 September 30, 2000; (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.
(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).
[.6]6. (a) Within 60 days from the effective date of this Order, the Bank
shall adopt and enforce procedures designed to assure that the Bank's
Loan Policy is properly adhered to by the Bank's lending officers.
These procedures shall include a requirement that
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all extensions of
credit and/or renewals that deviate from the requirements of the
Bank's Loan Policy shall receive the prior approval of the Bank's
board of directors. The minutes of the meeting at which the board of
directors approves any such deviation from the Bank's Loan Policy
shall state the specific Loan Policy exception, and the basis upon
which the board of directors approved the deviation.
[.7]7. (a) During the life of this Order the board shall provide for 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 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."
(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 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 $70,000. 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 extension complies with the
Bank's loan policy and applicable laws, rules and regulations. The
board of directors shall maintain written minutes, which document its
review conclusions, approvals, denials and recommendations, and reasons
for the approval of any credit that does not fully comply with the
review requirements set forth in this paragraph.
[.8]8. 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.
[.9]9. (a) During the life 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.
(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 the board of directors. Thereafter, the
Bank, its directors, officers, and employees
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shall follow the written
profit plan and/or any subsequent modification.
[.10]10. 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.
11. 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 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: June 15, 2001.
