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   [12,031] In the Matter of First Savings Bank, Norwood, Ohio, Docket No. 03-059b (3-31-03).

   A cease and desist order was issued, based on findings by the FDIC that it had reason to believe that respondent was engaged in unsafe and unsound practices.

(This order was terminated by order of the FDIC dated 3-29-04; see ¶16,377.)

   [.1] Bank Records—Restore to a Complete and Accurate State

   [.2] Reconciliation of Books and Records—Required

   [.3] Bank Operations—Internal Controls and Procedures—Establish

   [.4] Management—Management Report Required

   [.5] Bank Operations—General Ledger System

   [.6] Data Communication—Improve Operational Stability

   [.7] Disaster Recovery Plan—Required

   [.8] Management—Qualifications Specified

   [.9] Capital—Maintain Tier I Capital

   [.10] Brokered Deposits—Restricted

   [.11] Profit Plan—Preparation of Plan Required

   [.12] Board of Directors—Meetings

   [.13] Compliance Reports—Compliance Reports

In the Matter of
FIRST SAVINGS BANK
NORWOOD, OHIO
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

FDIC-03-059b

   First Savings Bank, Norwood, Ohio ("Bank"), having been advised by the Federal Deposit Insurance Corporation ("FDIC") of its right to a NOTICE OF CHARGES AND OF HEARING ("NOTICE") detailing the unsafe or unsound banking practices and violations of law, rule or regulation alleged to have been committed by the Bank, and of its right to a hearing on the charges under section 8(b) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. §1818(b), and having received from the Division of Financial Institutions for the State of Ohio ("ODFI") a NOTICE OF CHARGES AND INTENT TO ISSUE A CEASE AND DESIST ORDER AND NOTICE OF OPPORTUNITY FOR HEARING pursuant to section 1163.03 of the Ohio Revised Code, and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") with representatives of the FDIC and ODFI dated March 28, 2003, whereby, solely for the purpose of this proceeding and without admitting or denying any of the alleged charges of unsafe or unsound banking practices and violations of law, rule or regulation, the Bank consented to the issuance of an ORDER TO CEASE AND DESIST in the form set forth herein ("ORDER") by the FDIC and ODFI.

   The FDIC and ODFI considered the matter and determined that they had reason to believe that the Bank had engaged in unsafe or unsound banking practices and violations of law, rule or regulation. The FDIC and ODFI, therefore, accepted the CONSENT AGREEMENT and the FDIC and ODFI issued the following:
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ORDER TO CEASE AND DESIST

   IT IS HEREBY ORDERED, that the Bank and its institution-affiliated parties, as that term is defined in section 3(u) of the FDI Act, 12 U.S.C. §1813(u), and its successors and assigns, cease and desist from the following unsafe or unsound banking practices and violations of law, rule or regulation:

   A. Operating with inadequate internal controls and procedures;

   B. Failing to accurately maintain books and records;

   C. Failing to implement adequate information systems ("IS") controls;

   D. Operating with inadequate financial and IS audit programs;

   E. Operating without an adequate disaster recovery plan;

   F. Operating without adequate procedures for information backup;

   G. Operating with policies, procedures and internal controls which result in inadequate earnings;

   H. Operating with an inadequate level of capital protection in light of the Bank's risk profile; and

   I. Operating with a board of directors which fails to provide adequate supervision over and direction to the management.

   IT IS FURTHER ORDERED that the Bank, its institution-affiliated parties, and its successors and assigns take affirmative action as follows:

   [.1] 1. (a) The Bank shall immediately allocate the necessary resources to return the Bank's books and records to a complete and accurate state and to continue to maintain accurate books and records.

   (b) By May 15, 2003, the Bank shall reconcile all general ledger accounts that are presently unreconciled or out of balance. Written documentation of the correction and reconciliation shall be retained for future regulatory review. These general ledger accounts include, but are not limited to the following: correspondent bank accounts; ATM settlement; loans-in-process; office cash; mortgage servicing rights; customer exchange; real estate owned; other receivables; all escrow accounts; and prepaid expenses.

   (c) Upon completion of the reconciliation process required in subsection (b), above, all general ledger debits that have been outstanding for more than 90 days and are unresolved shall be charged off from the Bank's books.

   (d) Upon completion of the reconciliation process required in subsection (b), above, and the charge-offs taken in accordance with subsection (c), above, the Bank shall engage an independent certified public accountant to perform an agreed upon procedures engagement and report on the reconciliation of the Bank's general ledger accounts, the accuracy of the balances reported in the general ledger accounts, and the proprietary of the charge-offs. The Bank's engagement letter shall ensure that the engagement shall be completed within 60 days of the completion of the reconciliation process and charge-offs taken pursuant to subsections (b) and (c), above.

   (e) Within 30 days of the completion of the reconciliation process required in subsection (b), above, and the charge-offs taken in accordance with subsection (c), above, the Bank shall refile, as necessary, any quarterly Reports of Condition and Income ("Call Reports").

   [.2] 2. (a) Effective immediately and on a daily basis, the Bank shall properly reconcile all transactions posted on or after the date of this ORDER in the following types of general ledger accounts: cash and cash items; due from correspondent banks; deposits, including interest payable; loans, including interest receivable; official checks; federal funds purchased and sold; investments; in-process accounts; suspense accounts; ATM settlement; and capital.

   (b) Effective immediately and on at least a monthly basis, the Bank shall properly reconcile all transactions posted on or after the date of this ORDER for all general ledger accounts not specifically identified in subparagraph (a), above.

   (c) On a monthly basis, all general ledger debits posted on or after the date of this ORDER that remain outstanding and unresolved for more than 90 days shall be charged off from the Bank's books.

   [.3] 3. Within 60 days from the effective date of this ORDER, the Bank shall adopt and implement effective information systems and internal controls and procedures for the operation of the Bank in such a manner as to provide for safe and sound banking practices. The information systems and internal controls and procedures should address, at a minimum, the following:
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       (i) An accounting system that is kept current and in accordance with well-established accounting and banking principles. The accounting system shall: (A) reflect the Bank's actual financial condition on a daily basis and the accurate results of operations; and (B) provide for an audit trail that enables the tracing of any given item as it passes through the Bank's books.

       (ii) The internal controls and procedures shall include: (A) daily reconcilement of those general ledger accounts identified in paragraph 2(a), above; (B) at least monthly reconcilement of general ledger accounts not specifically identified in paragraph 2(a), above; (C) general ledger entries that contain an adequate description of all transactions; (D) current posting of all accounts and records; (E) a system that requires the separation of duties or adequate compensating controls for general ledger posting, signing authorities, and reconciliations, and (F) an audit program that shall include a review of management's actions to address material weaknesses in, and the effectiveness of, the internal control system and information technology systems.

       (iii) Teller and cash control procedures shall include: (A) an adequate description of all transactions; (B) individual accountability of all Bank personnel who handle cash or assets; and (C) dual control/joint custody procedures to provide for the protection of all physical assets, including but not limited to, cash, the vault, the night depository, ATMs, keys to teller cash boxes, and all checks.

   [.4] 4. (a) Within 120 days from the effective date of this ORDER, a management report shall be prepared and signed by its chief executive officer or chief financial officer which contains a statement of management's responsibilities for establishing and maintaining an adequate internal control structure and procedures for financial reporting and an assessment by management of the effectiveness of the internal control structure and procedures.

   (b) Within 150 days from the effective date of this ORDER, an independent accountant, engaged by the Bank, shall provide a report concerning the appropriateness of the policies and procedures and proposed monitoring of the Bank's internal control structure and procedures for financial reporting.

   [.5] 5. Within 45 days from the effective date of this ORDER, the Bank shall ensure that its general ledger system is fully operational, including, but not limited to, the recording and processing of all transactions and the completion of appropriate training.

   [.6] 6. Within 45 days from the effective date of this ORDER, the Bank shall improve the operational stability of the main file server and improve the reliability of data communication. At a minimum, the Bank shall take the following steps:

   (a) The Bank shall upgrade or replace the main file server to ensure that there is adequate storage capacity;

   (b) The Bank shall redesign the network architecture to ensure that the current main file server is no longer a single point of failure in the data communication with the servicer; and

   (c) The Bank shall ensure that necessary service packs and patches are installed on a timely basis.

   [.7] 7. Within 60 days from the effective date of this ORDER, the Bank shall adopt a Contingency Planning and Disaster Recovery Policy, which requires, at a minimum: disaster recovery procedures in the event of an emergency; procedures and systems that provide for the daily back up of all critical systems; procedures and systems that provide for the periodic back up of non-critical systems; and annual testing of the disaster recovery procedures.

   [.8] 8. (a) During the life of this ORDER, the Bank shall have and retain qualified management. Each member of management shall have the qualifications and experience commensurate with his or her duties and responsibilities at the Bank. The qualifications of management shall be assessed on its ability to:

       (i) Comply with the requirements of this ORDER;

       (ii) Operate the Bank in a safe and sound manner;

       (iii) Ensure that the Bank's books and records are in and remain in a complete and accurate state;

       (iv) Comply with applicable laws, rules, and regulations; and

       (v) Restore all aspects of the Bank to a
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       safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness, and liquidity.

   (b) During the life of this ORDER, and prior to the addition of any individual to the board of directors or the employment of any individual as a senior executive officer, the Bank shall comply with the requirements of section 32 of the Act ("section 32"), 12 U.S.C. §1831(i), and Subpart F of Part 303 of the FDIC Rules and Regulations, 12 C.F.R. §§ 303.100–303.104. For purposes of this ORDER, "senior executive officer" is defined as in section 32 and section 303.101(b) of the FDIC Rules and Regulations, 12 C.F.R. §303.101(b), and includes any person identified by the FDIC and ODFI, whether or not hired as an employee, with significant influence over, or who participates in, major policymaking decisions of the Bank. In addition, the Bank shall simultaneously submit a copy of any section 32 application to ODFI for approval.

   9. Effective as of the date of this ORDER, the Bank shall not, without the prior written approval of the FDIC and ODFI, enter into any material transaction other than in the usual course of business, including any investment, expansion, acquisition, sale of assets, or other similar action with respect to which the Bank is required to provide notice to the FDIC or ODFI.

   [.9] 10. (a) From the effective date of this ORDER through December 31, 2003, the Bank shall have and maintain its level of Tier I capital as a percentage of its total assets ("Tier I Capital Ratio") at not less than 6.25 percent. For purposes of this ORDER, Tier I capital and total assets shall be calculated in accordance with Part 325 of the FDIC Rules and Regulations ("Part 325"), 12 C.F.R. Part 325.

   (b) By December 31, 2003, the Bank shall increase its level of Tier I Capital Ratio to not less than 6.5 percent.

   (c) By June 30, 2003, the Bank shall have and maintain a Total Risk-based Capital Ratio ("Total Risk-Based Capital Ratio") of not less than 10.0 percent. For purposes of this ORDER, the Bank's Total Risk-Based Capital Ratio means the ratio of qualifying total capital to risk-weighted assets, as calculated in accordance with the FDIC's Statement of Policy on Risk-Based Capital (appendix A to subpart A of Part 325).

   (d) Within 30 days from the last day of each calendar quarter beginning with the calendar quarter ending March 31, 2004, the Bank shall determine from its Report of Condition and Income its Tier I and Total Risk-Based Capital Ratios for that calendar quarter. If the Tier I Capital Ratio is less than 6.5 percent, the Bank shall, within 60 days of the date of the required documentation, increase its Tier I Capital Ratio to not less than 6.5 percent calculated as of the end of that preceding quarterly period. If the Bank's Total Risk-Based Capital Ratio is less than 10.0 percent, the Bank shall, within 60 days of the date of the required determination, increase its Total Risk-Based Capital Ratio to not less than 10.0 percent calculated as of the end of that preceding quarterly period.

   (e) Any such increase in the Tier I capital or total capital ratios may be accomplished by the following:

       (i) The elimination of all or part of the assets classified "Loss" without loss or liability to the Bank, provided any such collection on a partially charged-off asset shall first be applied to that portion of the asset which was not charged off; or

       (ii) The collection in cash of assets previously charged off; or

       (iii) Reduce its asset size by using liquid assets to reduce deposit liabilities; or

       (iv) Reduce assets having risk-weightings above 0%; or

       (v) Any other means acceptable to the Regional Director and ODFI; or

       (vi) Any combination of the above means.

   (f) The capital ratio analysis required by this paragraph shall not negate the responsibility of the Bank and its board of directors for maintaining throughout the year an adequate level of capital protection for the kind, quality and degree of market depreciation of assets held by the Bank.

   [.10]11. Effective immediately, the Bank shall not renew brokered deposits or obtain new brokered deposits without the prior written approval of the Regional Director and ODFI. Any request for approval to renew brokered deposits or obtain new brokered deposits shall be made in accordance with the waiver provision of section 337.6(c) of the FDIC Rules and Regulations, 12 C.F.R. §337.6(c). For purposes of this ORDER,
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   brokered deposits are defined as described in section 337.6(a) of the FDIC Rules and Regulations, 12 C.F.R. §337.6(a).

   [.11] 12. Within 90 days from the effective date of this ORDER, the Bank shall update its Profit Plan ("Plan") which was submitted to the FDIC and ODFI on November 14, 2002. The Plan should be consistent with the Bank's Loan, Investment, and Funds Management Policies. The Plan, and any subsequent revisions to the Plan, shall be submitted to the Regional Director and ODFI upon completion for review and comment. The Plan shall include the Bank's goals and strategies to improve and sustain earnings. At a minimum, the Plan shall:

   (a) identify the major areas for improving the Bank's operating performance and capital;

   (b) provide descriptions of the assumptions to support projections of income and expense components;

   (c) contain realistic and comprehensive budgets;

   (d) include a budget review process to monitor the Bank's income and expenses and compare the actual results to budget projections; and

   (e) require periodic management job and salary reviews in relation to operating results.

   [.12] 13. During the life of this ORDER, regular Board of Director meetings shall be held at least bi-weekly.

   [.13] 14. During the life of this ORDER and within three days following each meeting of the Bank's Board of Directors as required in paragraph 13, above, the Board shall submit a written report to the Regional Director and ODFI detailing the Bank's compliance with this ORDER.

   The effective date of this ORDER shall be 10 calendar days after its issuance by the FDIC and ODFI.

   The provisions of this ORDER shall be binding upon the Bank, its institution-affiliated parties, and any successors and assigns thereof.

   The provisions of this ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provision has been modified, terminated, suspended, or set aside by the FDIC and ODFI.

   Pursuant to delegated authority.

   Dated: March 31, 2003.

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