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Regulatory Matters

9 Months Ended

Sep. 30, 2011

Note F Regulatory Matters

On April 19, 2011, the Bank consented to a Memorandum of Understanding (the “MOU”) issued by the Federal Deposit Insurance Corporation (FDIC) and the Office of Financial Institutions (OFI). The MOU provides for, among other things, the following items within specific time periods:

The Bank shall reduce its level of adversely classified assets.

Action taken: In the Report of Examination, 26 loans are classified adversely. Of these, nine had balances aggregating $250,000 or more, for a total of $3,702,000. Of the $3,702,000 in loans, $2,662,000 have been restructured and the remaining $1,040,000 either have or are going through the foreclosure process.

The Bank shall reduce its level of past due loans.

Action taken: The areas of responsibility for implementing and monitoring the Bank’s collection policy as well as specific collection procedures have been addressed. The Loan Committee will review all past due loans weekly and the Executive Committee will review them monthly. It is anticipated that a substantial improvement will begin to show starting in the fourth quarter.

The Bank shall eliminate the extension of credit until all appropriate underwriting documentation is obtained.

Action taken: The Loan policy procedure has been addressed as follows: Installment loans are to be reviewed for complete documentation and credit reviews for all loans made the previous week and presented to the Management Committee monthly, summarizing reviews. Commercial Loans will be reviewed for complete documentation and credit reviews for all loans with maturity dates of the upcoming week. Monthly reports will be made to the Audit and Finance Committee summarizing reviews and actions.

The Bank shall eliminate the extension of credit to borrowers for whom the Bank holds an uncollected charged-off asset or for which their credit is classified as “Substandard”.

Action taken: The Bank will not extend credit to charge-off borrowers, the Bank will not extend credit to a “substandard” borrower unless adequately documented and the Bank acknowledges.

The Bank shall have an outside independent loan review program.

Action taken: Waived and pending visitation.

The Bank shall maintain an appropriate Allowance for Loan and Lease Losses.

Action taken: It is Bank policy to maintain a loan loss reserve that is appropriate when compared to the quality of our loan portfolio and sufficient to meet the losses inherent in the portfolio. The adequacy of the loan loss reserve is determined on a quarterly basis by the Audit and Finance Committee. Any deficit is replenished from current earnings monthly.

The Bank shall maintain a Tier 1 leverage capital ratio equal of at least 9%, a Tier 1 Risk Based Capital Ratio of 11% and a Total Risk Based Capital Ratio of 13%.

Action taken: The Bank maintains these goals. At September 30, 2011 our Tier 1 leverage capital ratio is 13.23%, Tier 1 Risk Based Capital ratio is 20.33% and Total Risk Based Capital Ration is 21.60%.

The Bank shall not declare or pay any cash dividend without regulatory approval.

Action taken: Dividends have not been declared, and will not be declared or approved for payment without prior consent of the Regional Director and the Commissioner.

The Bank shall review and amend its interest rate risk policy and procedures.

Action taken: The Bank’s portfolio has always been shocked downwards by one & two percent. In addition our policy now includes 3 & 4 percent downward. This was implemented as of December 31, 2010. Policy and procedures were already in place to monitor risk, the downward shock of 3% and 4% was included. Reports are presented quarterly at the Audit and Finance Directors’ meeting. A program was purchased to facilitate generating the economic value of equity. Risk is monitored monthly by the ALCO committee which meets monthly in conjunction with the Management Committee.

The Bank shall provide for an independent evaluation of its management and information systems.

Action taken: The Board approved Chaffe & Associates on June 6, 2011. The results of the study were presented to the Board members on 8-23-11 and forwarded to the FDIC & OFI on September 26, 2011. The results were accompanied by G. Harrison Scott’s 9-23-11 memorandum to the Board of Directors addressing the Chaffe Report.

The Bank shall review and update the Bank’s written strategic plan and profit plan.

Action taken: The Bank’s strategic Plan was revised on 1-21-11, to include the services of BankSmart, an outside consulting firm, contracted to review the Bank’s contracts and earnings. The Strategic Plan was presented to the Management Committee on 6-30-11 and the Audit & Finance Committee on 7-5-11.

In addition, the Company entered into an agreement on August 9, 2011, with the Federal Reserve Bank (FRB) whereby the Company will not incur additional debt, declare or pay dividends without approval of the FRB, reduce its capital position by purchasing or redeeming treasury stock, make any distributions of interest or principal on subordinated debentures or trust preferred securities without prior written approval of the FRB and the Louisiana Office of Financial Institutions (OFI), provide the FRB and OFI with quarterly financial updates and provide written confirmation that the Company has complied will all resolutions on a quarterly basis.

While no assurance can be given, Bank management believes it has taken action toward complying with the provisions of the MOU. It is not presently determinable what actions, if any, bank regulators might take if requirements of the Memorandum are not complied with in specified time periods.