Federal Deposit
Insurance Corporation

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   [¶10,011] In the Matter of Citizens Bank and Trust Company, Covington, Louisiana, Docket No. FDIC-89-194b (10-5-89).

   Bank to cease and desist from engaging in hazardous lending and lax collection practices; operating with a large volume of poor quality loans, with an inadequate loan valuation reserve, with inadequate routine and control policies in such a manner as to produce low earnings; violating federal and state laws; operating with management whose policies and practices are detrimental to Bank; and operating with Directors who have failed to adequately supervise Bank. (This order was terminated by order of the FDIC dated 3-15-94; see ¶ 15,826.)

   [.1] Management—Qualifications—Compliance
   [.2] Definition—"Outside Director"
   [.3] Primary Capital—Increase—Methods
   [.4] Assets—Adversely Classified—Reduce
   [.5] Loans—Extensions of Credit—Curtail
   [.6] Loan Policy—Revision—Minimum Requirements
   [.7] Loan Loss Reserve—Adequacy—Review
   [.8] Profit Plan—Overhead and Expenses—Review
   [.9] Violations of Law—Eliminate/Correct—Compliance
   [.10] Bank Operations—Written Policy—Review
   [.11] Shareholders—Disclosure—Cease and Desist Order
   [.12] Compliance—Progress Reports—Frequency

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In the Matter of
CITIZENS BANK & TRUST
COMPANY
COVINGTON, LOUISIANA

(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
   CITIZENS BANK & TRUST COMPANY, COVINGTON, LOUISIANA ("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 September 20, 1989, 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 persons participating in the conduct of affairs 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 a large volume of poor quality loans;
   (c) operating with an inadequate loan valuation reserve;
   (d) operating with inadequate routine and control policies;
   (e) operating in such a manner as to produce low earnings;
   (f) operating in violation of section 337.2(d) of FDIC Rules and Regulations, 12 C.F.R. §337.2(d); sections 243(B), 285(A), and 287(A) of Title 6 of the Louisiana Revised Statutes of 1950, La. Rev. Stat. Ann. §§ 243(B), 6:285(A) and 6:287(A) (West 1986 & Supp. 1989);
   (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] 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;
   (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] (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 five 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 five percent of the Bank's primary capital; and
   (iv) Who shall be a resident of, or engage in business in, the Bank's trade area.

   (i) The sale of new securities in the form of common stock or perpetual preferred stock; or
   (ii) The direct contribution of cash by the directors, shareholders, or parent bank holding company of the Bank; or
   (iii) The collection in cash of assets classified "Loss" without loss or liability to the Bank; or
   (iv) The collection of assets previously charged off; or
   (v) Any other method acceptable to the FDIC.

   [.4] 3. (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 May 5, 1989, 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 May 5, 1989 to not more than $5,800,000.
   (c) Within 180 days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" as of May 5, 1989 to not more than $5,200,000.
   (d) Within 270 days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" as of May 5, 1989 to not more than $4,800,000.
   (e) Within 360 days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" as of May 5, 1989 to not more than $4,500,000.
   (f) The requirements of Subparagraphs 4(a), 4(b), 4(c), 4(d), and 4(e) above 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 Subparagraphs 4(b), 4(c), 4(d), 4(e), and 4(f) 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] 4. (a) Beginning with the effective date of this ORDER, the Bank shall not make any further extension of credit to any borrower whose loans are charged off, in whole or in part, or are adversely classified "Loss" as of May 5, 1989 and remain uncollected.
   (b) Beginning with the effective date of this ORDER, the Bank shall not make any further extension of credit to any borrower thereof whose loans in the aggregate exceed $50,000 and are adversely classified "Substandard" as of May 5, 1989 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 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, (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 May 5, 1989, (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 and 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 {{5-31-94 p.C-53}}prior board approval in the same manner as outlined in Paragraph 4(b).

   [.6] 5. (a) Within 60 days from the effective date of this ORDER, the Bank shall review its written loan policy and procedures and make whatever changes may be necessary to provide for the safe and sound administration of all aspects of the lending function. Proper and adequate loan documentation or evidence thereof as is required by sound banking practices before disbursement of the loan proceeds to borrowers or before renewal or extensions of existing loans shall be part of the review. Evidence of the review and establishment of procedures to ensure compliance with the loan policy shall be reduced to writing. The policy and its implementation shall be in a form and manner acceptable to the Regional Director and the Commissioner as determined at subsequent examinations and/or visitations.
   (b) The revisions to the Bank's loan policy and procedures required by this ORDER shall include:

   (i) Correction of the deficiencies found on pages 6 and 6-a of the May 5, 1989 Report of Examination; and
   (ii) The adoption and implementation of nonaccrual loan procedures that conform with the "Instructions for Preparation of Reports of Condition and Income" published by the Federal Financial Examination Council. These procedures shall include a requirement that all existing accrued and uncollected interest be reversed on all loans where principal and interest have been in default for a period of 90 days or more unless the loan is both well secured and in the process of collection.

   (i) The overall quality of the loan portfolio;
   (ii) The identification by type and amount of each problem loan;
   (iii) The identification and amount of each delinquent loan;
   (iv) Credit and collateral documentation exceptions;
   (v) The identification and status of each violation of law, rule or regulation;
   (vi) Loans not in conformance with the Bank's lending policy, and exceptions to the Bank's lending policy; and
   (vii) Insider loan transactions.

   [.7] 7. Within 30 days from the effective date of this ORDER, the Bank shall establish and thereafter maintain an adequate reserve for loan losses. Such reserve shall be established by charges to current operating income, together with collection of assets previously charged off. In complying with the provisions of this paragraph, the board of directors of the Bank shall review the adequacy of the Bank's reserve for loan losses prior to the end of each quarter. The minutes of the board meeting at which such review is undertaken shall indicate the results of the review, the amount of any increase in the reserve, and the basis for determination of the amount of the reserve provided.

   [.8] 8. Within 60 days from the effective date of this ORDER, the Bank shall develop, adopt, and implement a written plan to control overhead and other expenses and restore the Bank's profitability. The plan and its implementation shall be in a form and manner acceptable to the Regional Director as determined at subsequent examinations and/or visitations.

   [.9] 9. Within 60 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of law {{5-31-94 p.C-53}}which are set out on page 6-b of the Report of Examination of the Bank as of May 5, 1989. In addition, the Bank shall henceforth comply with all applicable laws and regulations.

   [.10] 10. 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 internal routine and controls consistent with safe and sound banking practices. Such policy and its implementation shall be satisfactory to the Regional Director as determined at subsequent examinations and/or visitations.

   [.11] 11. 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.

   [.12] 12. 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 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 persons participating in the conduct of the affairs 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: 10-5-89