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[¶10,081] In the Matter of Central Louisiana Bank & Trust Company, Inc., Marksville, Louisiana, Docket No. FDIC-90-29b (6-8-90).
Bank to cease and desist from practices such as operating with inadequate primary capital, with a large volume of poor quality loans, with an inadequate loan valuation reserve, and with inadequate provisions for liquidity and funds management; engaging in hazardous lending and lax collection practices; operating in a manner to produce low earnings; and operating in violation of state law, with management whose policies are detrimental to the Bank, and with a Board of Directors which has failed to supervise the management of the Bank. (This order was terminated by order of the FDIC dated 11-23-93; see ¶ 15,755.)
[.1] Management—Qualifications—Compliance
[.2] Board of Directors—Compliance Committee—Review
[.3] Definition—"Outside Director"
[.4] Primary Capital—Increase—Methods
[.5] Assets—Adversely Classified—Reduce
[.6] Loans—Extension of Credit—Curtail
[.7] Loans—Renewal—Collection of Interest
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[.8] Loan Policy—Written Policies—Review
[.9] Loan Portfolio—Periodic Review—Grading System
[.10] Loan Policy—Loan Committee—Review
[.11] Loans—Loan Concentration—Reduce
[.12] Loan Loss Reserve—Adequacy—Review
[.13] Profit Plan—Minimum Requirements—Review
[.14] Violations of Law—Eliminate/Correct—Compliance
[.15] Liquidity and Funds Management—Minimum Requirements—Review
[.16] Auditing—Statement of Policy—External Auditing Programs
[.17] Shareholders—Dividends—Approval
[.18] Shareholders—Disclosure—Cease and Desist Order
[.19] Compliance—Progress Reports—Frequency
In the Matter of
CENTRAL LOUISIANA BANK &
TRUST COMPANY, INC.
MARKSVILLE, LOUISIANA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
The Federal Deposit Insurance Corporation ("FDIC"), on March 2, 1990, issued to Central Louisiana Bank & Trust Company, Inc., Marksville, Louisiana ("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 April 27, 1990, 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 institutionaffiliated parties of the Bank, cease and desist from the following unsafe or unsound banking practices and violations:
(a) operating with inadequate primary capital;
(b) operating with a large volume of poor quality loans;
(c) operating with an inadequate loan valuation reserve;
(d) engaging in hazardous lending and collection practices;
(e) operating with inadequate provisions for liquidity and funds management;
(f) operating in such a manner as to produce low earnings;
(g) operating in violation of section 243(B) of Title 6 of the Louisiana Revised Statutes of 1950, La. Rev. Stat. Ann. § 6:243(B) (West 1986) and section 303(A) of Title 6 of the Louisiana Revised Statutes of 1950, La. Rev. Stat. Ann. § 6:303(A) (West 1986);
(h) operating with management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits; and
(i) 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 a senior lending officer
{{1-31-94 p.C-407}}experienced in supervising the Bank's overall lending function in a bank of equivalent size and asset quality.
(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) (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 Financial Institutions for the State of Louisiana ("Commissioner") in writing of any resignations and/or terminations of any members of its board of directors and/or any of its officer(s).
(ii) 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 of any additions to its board of directors and senior executive officers.
(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.
[.2] (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.
[.3] (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 primary capital;
(iv) Who shall not be related to any directors, principal shareholders of the Bank or affiliate of the Bank; and
(v) Who shall be a resident of, or engage in business in, the Bank's trade area.
[.4] 2. (a) Within 180 days from the effective date of this ORDER, the Bank shall increase its primary capital by no less than $1,000,000. On or before March 31, 1991, the Bank shall achieve and maintain adjusted primary capital equal to or greater than seven and one-half (7.5) percent of the Bank's adjusted Part 325.
(b) Any increase in primary capital necessary to meet the requirements of Paragraph
{{1-31-94 p.C-408}}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 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.
(c) If all or part of the increase in primary 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, Washington, D.C. 20429. Any changes requested to be made in the plan or materials by the FDIC shall be made prior to their dissemination.
(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 "primary capital", "total 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(h), 325.2(l) and 325.2(k), 12 C.F.R. 325.2(h), (l), (k). The "Analysis of Capital" schedule on page 3 of the FDIC Report of Examination provides the method for determining the ratio of adjusted primary capital to adjusted Part 325 total assets as required by this ORDER.
[.5] 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" and one-half of the assets classified "Doubtful" as of November 22, 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 November 22, 1989 and those assets classified "Doubtful" that have not previously been charged-off pursuant to this ORDER to not more than $3,200,000.
(c) Within 180 days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" as of November 22, 1989 and those assets classified "Doubtful" that have not previously been charged-off pursuant to this ORDER to not more than $2,825,000.
(d) Within 270 days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" as of November 22, 1989 and those assets classified "Doubtful" that have not previously been charged-off pursuant to this ORDER to not more than $2,450,000.
(e) Within 360 days from the effective date of this ORDER, the Bank shall have reduced the assets classified "Substandard" as of November 22, 1989 and those assets classified "Doubtful" that have not previously been charged-off pursuant to this ORDER to not more than $2,075,000.
(f) Within 60 days of the effective date of this ORDER, the Bank shall formulate and
{{1-31-94 p.C-409}}submit to the Regional Director for review and approval a written plan setting forth the method by which the Bank will implement the reduction of the amount of classified loans and other real estate required by Paragraphs 3(b), 3(c), 3(d), and 3(e).
(g) The requirements of Paragraphs 3(a), 3(b), 3(c), 3(d), and 3(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 3(b), 3(c), 3(d), 3(e), and 3(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.
[.6] 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 November 22, 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 November 22, 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 November 22, 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 or cash flow data.
[.7] (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 4(b).
[.8] 5. Within 60 days from the effective date of this ORDER, the Bank shall review its written loan policy and make whatever changes may be necessary to provide for the safe and sound administration of all aspects of the lending function. Specific procedures shall be included for prior approval of loans to directors, officers and principal shareholders and their related interests in compliance with applicable laws and regulations. Loan documentation, repayment programs, collection and charge-off procedures and internal loan review shall also be included as a part of the review. The Bank shall adopt changes it considers necessary and appropriate and management shall reaffirm its intent to comply with the policy, as amended. Evidence of management's reaffirmation shall be reduced to writing. The policy and its implementation shall be in a form and manner acceptable to the Regional Director and Commissioner as determined at subsequent examinations and/or visitations.
[.9] 6. (a) Within 30 days of the effective date of this ORDER, the board shall establish 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) 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 reason(s) why the particular loan merits special attention;
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(v) Credit and collateral documentation exceptions;
(vi) The identification and status of each violation of law, rule or regulation;
(vii) Loans not in conformance with the Bank's lending policy, and exceptions to the Bank's lending policy;
(viii) Insider loan transactions; and
(ix) A mechanism for reporting periodically 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.
[10] (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 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 rates and regulations. The loan committee shall meet at least twice monthly and shall maintain written minutes which document its review conclusions, approvals, denials and recommendations. At least two-thirds of the members of the loan committee shall be independent, outside directors as defined in Paragraph 1(f) of this ORDER.
[.11] 7. Within 180 days from the effective date of this ORDER (unless within 60 days an alternative timetable or proposal is submitted by the Bank and approved in writing by the Regional Director and the Commissioner), the Bank shall reduce the loan concentration as of November 22, 1989, to an amount which shall be less than 25 percent of the Bank's total equity capital and reserves. In addition, the Bank shall not make any new extensions of credit, directly or indirectly, to any borrower whose loans in the aggregate equal 25 percent or more of the Bank's total equity capital and reserves.
[.12] 8. (a) 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.
(b) Within 30 days from the effective date of this ORDER, the Bank shall review all Reports of Condition and Income filed with the FDIC on and after November 22, 1989 and shall amend and file with the FDIC amended Reports of Condition and Income which accurately reflect the financial condition of the Bank as of the date of each such Report. At a minimum each such Report shall be amended to reflect elimination of all assets classified "Loss" and one-half of the assets classified "Doubtful" as required by Paragraph 3(a) of this Order and shall incorporate an adequate reserve for loan losses accurately reflecting the Bank's loan portfolio as of November 22, 1989, as required by Paragraph 8(a).
[.13] 9. (a) Within 60 days from the effective date of this ORDER, and within the first 30 days of each calender 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) Each written profit plan and any subsequent modification thereto shall be sub
{{11-30-92 p.C-411}}mitted 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 shall follow the written profit plan and/or any subsequent modification.
[.14] 10. Within 60 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of law which are set out on page 6b of the Report of Examination of the Bank as of November 22, 1989. In addition, the Bank shall henceforth comply with all applicable laws and regulations.
[.15] 11. Within 60 days from the effective date of this ORDER, the Bank shall formulate and adopt a written liquidity and funds management policy. Such policy shall include the establishment of acceptable ranges of ratios in the following areas: volatile liability dependence, total loans to total deposits and temporary investments to volatile liabilities. In addition, the liquidity policy shall incorporate a funds management program which designates acceptable levels for: volatile liabilities, including borrowings; asset mix, including temporary funds and investments, long-term investment securities and classes of obligors, and loans to deposits; and rate-sensitive assets as a percent of rate-sensitive liabilities. The written liquidity and funds management policy shall be submitted to the Regional Director and the Commissioner for review and comment.
[.16] 12. Within 30 days from the effective date of this ORDER, the Bank shall adopt a written policy encompassing the provisions of the FDIC's Statement of Policy Regarding Independent External Auditing Programs of State Nonmember Banks, which become effective December 28, 1988.
[.17] 13. 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.
[.18] 14. 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.
[.19] 15. 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 he 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 8, 1990
