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[12,268] In the Matter of First Bank, Inc., Louisville, Kentucky, Docket No. 04-176b (9-9-04).

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 9-29-05; see ¶16,437.)

[.1] Capital—Tier 1 Capital Increase/Maintain

[.2] Management—Qualifications Specified

[.3] Management—Management Plan Required

[.4] Dividends—Dividends Restricted

[.5] Loans—Extensions of Credit—To Borrowers with Existing Adversely Classified Credits

[.6] Assets—Charge-off or Collection

[.7] Loan Loss Reserve—Establishment of or Increase in Required

[.8] Assets—Problem Assets—Reduce Substandard Assets

[.9] Technical Exceptions—Correction of Technical Exceptions Required

[.10] Loans—Overdue—Written Plan for Reduction Required

[.11] Loan Concentration—Reduction Required

[.12] Loan Committee—Duties Specified

[.13] Asset/Liability Management—Preparation or Revision of Asset/Liability Management Policy Required

[.14] Growth Plan—Assets Restricted

[.15] Strategic Plan—Preparation of Required

[.16] Violations of Law—Corrections of Violations Required

[.17] Bank Operations—Expense Reimbursement, Policy Required

[.18] Bank Operations—Internal Routine and Controls, Correction of Weaknesses Required

[.19] Profit Plan—Preparation of Plan Required

[.20] Shareholders—Disclosure of Cease and Desist Order Required

[.21] Compliance Committee—Establishment Required

[.22] Progress Report—Written Report Required

In the Matter of
FIRST BANK, INC.
LOUISVILLE, KENTUCKY
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

FDIC-04-176b

First Bank, Inc., Louisville, Kentucky ("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, rule, or regulation alleged to have been committed by the Bank, and of its right to a hearing on the charges under section 8(e) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. §1818(b), and under section 287.690 of the Kentucky Revised Statutes, Ky. Rev. Stat. Ann. §287.690 (Michie 1981), regarding hearings before the Office of Financial Institutions for the Commonwealth of Kentucky ("OFI"), 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 Federal Deposit Insurance Corporation ("FDIC") and the OFI, dated September 2, 2004, whereby, solely for the purpose of this proceeding and without admitting or denying the 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
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AND DESIST ("ORDER") by the FDIC and OFI.

The FDIC and OFI considered the matter and determined that they had reason to believe that the Bank had engaged in unsafe or unsound banking practices and had violated laws, rules, or regulations. The FDIC and OFI, therefore, accepted the CONSENT AGREEMENT and issued the following:

ORDER TO CEASE-AND-DESIST

IT IS HEREBY ORDERED, that the Bank, its institution-affiliated parties, as that term is defined in section 3(u) of the 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. Engaging in hazardous lending and lax collection practices, including, but not limited to:

    • The failure to obtain proper loan documentation;

    • The failure to obtain adequate collateral;

    • The failure to establish and monitor collateral margins of secured borrowers;

    • The failure to establish and enforce adequate loan repayment programs;

    • The failure to obtain current and complete financial information;

    • Extending credit with inadequate diversification of risk; and

    • Other poor credit administration practices.

B. Operating with an inadequate level of capital protection for the kind and quality of assets held.

C. Violating law, rule, or regulation, including:

    • Part 323 of the FDIC Rules and Regulations, 12 C.F.R. Part 323; and

    • Regulation F of the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 206.

D. Operating outside of the requirements of Appendix A to Part 364 of the FDIC Rules and Regulations, 12 C.F.R. Part 364, Appendix A.

E. Operating with an excessive level of adversely classified assets.

F. Operating with an inadequate net interest margin.

G. Failing to have a written policy limiting payment of expenses of officers and directors.

H. Operating with inadequate internal routines and controls.

I. Operating with inadequate policies to monitor and control asset growth.

J. Operating with inadequate liquidity in light of the Bank's asset and liability mix.

K. Operating with management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits.

L. Operating with a board of directors which has failed to provide adequate supervision over and direction to the management of the Bank to prevent unsafe or unsound banking practices and violations of law, rule, or regulation.

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

CAPITAL PROVISIONS

[.1]1. (a) Within thirty days from the effective date of this ORDER, the Bank shall submit to the Regional Director of the Chicago Regional Office of the FDIC ("Regional Director") and the Executive Director of OFI ("Director") for review and comment a plan by which it will increase its level of Tier 1 capital as a percentage of its total assets ("capital ratio") to 8 percent by March 31, 2005. After receipt of any comments from the Regional Director and Director, and after the adoption of any recommended changes, the Bank shall implement the plan.

(b) On the last day each calendar quarter beginning June 30, 2005 and throughout the life of this ORDER, the Bank shall determine from its Report of Condition and Income its capital ratio for that calendar quarter. If the capital ratio is less than 8.0 percent, the Bank shall, within 60 days of the date of the required determination, increase its capital ratio to not less than 8.0 percent calculated as of the end of that preceding quarterly period. For purposes of this ORDER, Tier 1 capital and total assets shall be calculated in accordance with Part 325 of the FDIC Rules and Regulations, 12 C.F.R. ("Part 325"), 12 C.F.R. Part 325.

(c) Any increase in Tier 1 capital required
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by this ORDER may be accomplished by the following:

    (i) The sale of common stock and noncumulative perpetual preferred stock constituting Tier 1 capital under Part 325; or

    (ii) The elimination of all or part of the assets classified "Loss" or "Doubtful" as listed in the Report of Examination of the Bank conducted jointly by the FDIC and OFI as of May 17, 2004 ("Joint Report"), without loss of 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 pursuant to this ORDER; or

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

    (iv) The direct contribution of cash by the directors and/or the shareholders of the Bank; or

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

    (vi) Any combination of the above means.

(d) If all or part of the increase in capital required by this paragraph is to be 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 by or controlled by them in favor of said plan. Should the implementation of the plan involve public distribution of Bank securities, including a distribution limited only to the Bank's existing shareholders, the Bank shall prepare detailed 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 other material disclosures necessary to comply with 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 materials used in the sale of the securities shall be submitted to the FDIC Registration and Disclosure Section, 550 17th Street, N.W., Washington, D.C. 20429 and to the Kentucky Office of Financial Institutions, 1025 Capital Center Drive, Suite 200, Frankfort, Kentucky 40601, for their review. Any changes requested to be made in the materials by the FDIC or OFI shall be made prior to their dissemination.

(e) In complying with the provisions of this paragraph, the Bank shall provide to any subscriber and/or purchaser of Bank 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 20 calendar days of the date any material development or change was planned or occurred, whichever is earlier, and shall be furnished to every purchaser and/or subscriber of the Bank's original offering materials.

(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.

MANAGEMENT

[.2] 2. (a) During the life of this ORDER, the Bank shall have and thereafter 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) Comply with applicable laws, rules, and regulations; and

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

(b) During the life of this ORDER, 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. The Bank shall notify the Regional Director and the Director in writing, and shall obtain the written approval of the Regional Director and Director, prior to making any changes in any of the Bank's directors or senior executive officers. For purposes of this ORDER, "senior executive officer" is defined as in section 32 and section 303.101(b) of the FDIC Rules
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and Regulations, 12 C.F.R. §303.101(b), and includes any person identified by the FDIC and OFI, whether or not hired as an employee, with significant influence over, or who participates in, major policy making decisions of the Bank.

(c) Prior to entering into any agreement to pay and prior to making any golden parachute payments or excess nondiscriminatory severance plan payments to any institution-affiliated party, the Bank shall comply with the requirements of Part 359 of the FDIC Rules and Regulations, 12 C.F.R. Part 359. Pursuant to sections 303.244 and 359.6 of the FDIC Rules and Regulations, 12 C.F.R. §§303.244 and 359.6, the Bank shall file an application to obtain the consent of the Regional Director and Director.

(d) For purposes of this ORDER, "golden parachute payment" and "excess nondiscriminatory severance pay" are defined as in sections 359.1(f)(1) and (f)(2)(v), respectively, of the FDIC Rules and Regulations, 12 C.F.R. §§359.1(f)(1) and (f)(2)(v).

[.3] 3. (a) Within 30 days from the effective date of this ORDER, the Bank shall retain a bank consultant acceptable to the Regional Director and Director. The consultant shall develop a written analysis and assessment of the Bank's management and staffing needs ("Management Plan") for the purpose of providing qualified management for the Bank.

(b) The Bank shall provide the Regional Director and Director with a copy of the proposed engagement letter or contract with the consultant for review before it is executed. The contract or engagement letter, at a minimum, should include:

    (i) A description of the work to be performed under the contract or engagement letter;

    (ii) The responsibilities of the consultant;

    (iii) An identification of the professional standards covering the work to be performed;

    (iv) Identification of the specific procedures to be used when carrying out the work to be performed;

    (v) The qualifications of the employee(s) who are to perform the work;

    (vi) The time frame for completion of the work;

    (vii) Any restrictions on the use of the reported findings; and

    (viii) A provision for unrestricted examiner access to workpapers.

(c) The Management Plan shall be developed within 90 days from the effective date of this ORDER. The Management Plan shall include, at a minimum:

    (i) Identification of both the type and number of officer positions needed to properly manage and supervise the affairs of the Bank;

    (ii) Identification and establishment of such Bank committees as are needed to provide guidance and oversight to active management;

    (iii) Evaluation of all Bank officers and lending staff to determine whether these individuals possess the ability, experience and other qualifications required to perform present and anticipated duties, including adherence to the Bank's established policies and practices, and restoration and maintenance of the Bank in a safe and sound condition; and

    (iv) A plan to recruit and hire any additional or replacement personnel with the requisite ability, experience and other qualifications to fill those officer or lending staff positions identified by this paragraph of the ORDER.

(d) The Management Plan shall be submitted to the Regional Director and Director for review and comment upon its completion. Within 30 days from the receipt of any comments from the Regional Director and Director and after the adoption of any recommended changes, the Bank shall approve the Management Plan, and record its approval in the minutes of the board of directors' meeting. Thereafter, the Bank, its directors, officers, and employees shall implement and follow the Management Plan and/or any subsequent modification.

DIVIDEND RESTRICTION

[.4] 4. As of the effective date of this ORDER, the Bank shall not declare or pay any cash dividend without the prior written consent of the Regional Director and Director.

PROHIBITION OF ADDITIONAL LOANS TO CLASSIFIED BORROWERS

[.5] 5. (a) As of 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 is already obligated in any manner to the Bank on any extension of credit (including any portion
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thereof) that has been charged off the books of the Bank or classified "Loss" or "Doubtful" so long as such credit remains uncollected.

(b) As of 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 whose loan or other credit has been classified "Substandard" and is uncollected unless the Bank's board of directors has adopted, prior to such extension of credit, a detailed written statement giving the reasons why such extension of credit is in the best interest of the Bank. A copy of the statement shall be placed in the appropriate loan file and shall be incorporated in the minutes of the applicable board of directors' meeting.

LOSS CHARGE-OFF

[.6] 6. As of the effective date of this ORDER, the Bank shall eliminate from its books, by charge-off or collection, all assets or portions of assets classified "Loss" and 50 percent of all assets classified "Doubtful" in the Joint Report that have not been previously collected or charged-off. Any such charged-off asset shall be rebooked without the prior written consent of the Regional Director and Director. Elimination or reduction of these assets with the proceeds of other Bank extensions of credit is not considered collection for the purpose of this paragraph.

ALLOWANCE FOR LOAN AND LEASE LOSSES ("ALLL")

[.7] 7. (a) Prior to submission or publication of all Reports of Condition and Income required by the FDIC after the effective date of this ORDER, the board of directors of the Bank shall review the adequacy of the Bank's ALLL, provide for an adequate ALLL, and accurately report the same. The minutes of the board meeting at which such review is undertaken shall indicate the findings of the review, the amount of increase in the ALLL recommended, if any, and the basis for determination of the amount of ALLL provided. In making these determinations, the board of directors shall consider the Federal Financial Institutions Examination Council's Instructions for the Consolidated Reports of Condition and Income ("Call Report Instructions"), the Policy Statement on Allowance for Loan and Lease Losses Methodologies and Documentation for Banks and Savings Institutions, and any analysis of the Bank's ALLL provided by the FDIC or OFI.

(b) ALLL entries required by this paragraph shall be made prior to any Tier 1 capital determinations required by this ORDER.

REDUCTION OF SUBSTANDARD ASSETS

[.8] 8. (a) Within 30 days from the effective date of this ORDER, the Bank shall adopt and implement a written plan to reduce the Bank's risk position in each asset in excess of $100,000 which is classified "Substandard" in the Joint Report, and in any subsequent examination report issued while this ORDER is in effect. A copy of the written plan shall be submitted to the Regional Director and Director upon its completion. In developing such plan, the Bank shall, at a minimum:

    (i) Review the financial position of each such borrower, including source of repayment, repayment ability, and alternative repayment sources; and

    (ii) Evaluate the available collateral for each such credit, including possible actions to improve the Bank's collateral position;

    (iii) Include dollar levels to which the Bank shall reduce each asset within six (6) months from the effective date of this ORDER; and

    (iv) Require the submission of monthly written progress reports to the Bank's board of directors for review and notation in minutes of the meetings of the board of directors.

(b) As used in this paragraph, "reduce" means to collect, charge off, or improve the quality of such assets so as to warrant the removal of any adverse classification by the FDIC or OFI.

TECHNICAL EXCEPTIONS

[.9] 9. Within 60 days from the effective date of this ORDER, the Bank shall take action to correct the technical exceptions listed in the Joint Report.

REDUCTION OF DELINQUENCIES

[.10] 10. Within 60 days from the effective date of this ORDER, the Bank shall formulate and submit to the Regional Director and Director for review and comment a written plan for the reduction and collection
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of delinquent loans. The plan shall include, but not be limited to, provisions which:

    (a) Prohibit the extension of credit for the payment of interest;

    (b) Delineate areas of responsibility for reducing delinquencies;

    (c) Establish acceptable guidelines for the collection of delinquent credits;

    (d) Establish dollar levels to which the Bank shall reduce delinquencies within 6 and 12 months from the effective date of this ORDER; and

    (e) Provide for the submission of monthly written progress reports to the Bank's board of directors for review and notation in minutes of the meetings of the board of directors.

REDUCTION OF CONCENTRATIONS

[.11] 11. Within 60 days from the effective date of this ORDER, the Bank shall formulate, adopt and implement a written plan to reduce each of the loan concentrations of credit identified in the Joint Report. Such plan, at a minimum, shall:

    (a) Prohibit any additional extensions of credit that would create new concentrations;

    (b) Set out a scheduled reduction in the dollar levels of the existing concentrations; and

    (c) Include provisions for the submission of monthly written progress reports to the Bank's board of directors for review and notation in minutes of the meetings of the board of directors.

LOAN COMMITTEE

[.12] 12. (a) As of the effective date of this ORDER, the Bank's loan committee shall meet at least twice monthly, and shall be composed of a majority of independent directors. For purposes of this ORDER, "independent director" is defined as a member of the board: (i) who is not an officer of the Bank, any Bank subsidiary, or any of its affiliated organizations; and (ii) who does not own more than 5 percent of the outstanding shares of the Bank; and (iii) who is not related by blood or marriage to an officer or director of the Bank or to any shareholder owning more than 5 percent of the Bank's outstanding shares, and who does not otherwise share a common financial interest with such officer, director or shareholder; and (iv) who is not indebted to the Bank directly or indirectly by blood, marriage or common financial interest, including the indebtedness of any entity in which the individual has a substantial financial interest in an amount exceeding 5 percent of the Bank's total Tier 1 capital and allowance for loan and lease losses; or (v) who is deemed to be an independent for purposes of this ORDER by the Regional Director and Director.

(b) The loan committee shall, at a minimum, perform the following functions:

    (i) Evaluate, grant and/or approve loans in accordance with the Bank's loan policy. The loan committee shall provide a thorough written explanation of any deviations from the loan policy, which explanation shall address how said exceptions are in the Bank's best interest. The written explanation shall be included in the minutes of the corresponding committee meeting.

    (ii) Review and monitor the status of repayment and collection of overdue and maturing loans, as well as all loans classified "Substandard" or "Doubtful" in the Joint Report, or that are included on the Bank's internal watch list.

    (iii) Review and give prior written approval for all advances, renewals, or extensions of credit to any borrower or the borrower's related interests when the aggregate volume of credit extended to the borrower and the borrower's related interests exceeds $500,000. For purposes of this ORDER, the term "related interest" is defined pursuant to section 215.2(n) of Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. §215.2(n).

    (iv) Review all applications for new loans and renewals of existing loans to Bank directors, executive officers, and their related interests, and prepare a written opinion as to whether the credit is in conformance with the Bank's loan policy and all applicable laws, rules, and regulations. Such applications, renewals, and written opinions shall be referred to the Bank's board of directors for consideration.

    (v) Maintain written minutes of the committee meetings, including a record of the review and status of the aforementioned loans.

ASSET/LIABILITY MANAGEMENT

[.13] 13. Within 90 days from the effective date of this ORDER, the Bank shall develop and submit to the Regional Director
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and Director for review and comment a written plan addressing the Bank's relationship of volatile liabilities to temporary investment. Annually thereafter during the life of this ORDER, the Bank shall review this plan for adequacy and, based upon such review, shall make appropriate revisions to the plan that are necessary to strengthen funds management procedures. The initial plan shall include, at a minimum, provisions:

    (a) Establishing a desirable range for its net non-core funding ratio as computed in the Uniform Bank Performance Report;

    (b) Identifying the source and use of borrowed and/or volatile funds; and

    (c) Addressing the proper use of borrowings (e.g., seasonal credit needs, match funding mortgage loans, etc.) and providing for appropriate tenor commensurate with the use of the borrowed funds, addressing concentration of funding sources, pricing and collateral requirements with specific allowable funding channels identified (i.e., brokered deposits, internet deposits, Fed funds purchased and other correspondent borrowings).

GROWTH PLAN

[.14] 14. During the life of this ORDER, the Bank shall not increase its total assets by more than 4 percent during any consecutive three-month period without providing, at least 30 days prior to its implementation, a growth plan to the Regional Director and Director. Such growth plan, at a minimum, shall include the funding source to support the projected growth, as well as the anticipated use of funds. This growth plan shall not be implemented without the prior written consent of the Regional Director and Director. In no event shall the Bank increase its total assets by more than 16 percent annually. For the purpose of this paragraph, "total assets" shall be defined as in the Call Report Instructions.

STRATEGIC PLAN

[.15] 15. (a) Within 90 days from the effective date of this ORDER, the Bank shall formulate and adopt a realistic, comprehensive strategic plan. The plan required by this paragraph shall contain an assessment of the Bank's current financial condition and market area, and a description of the operating assumptions that form the basis for major projected income and expense components.

    (b) The written strategic plan shall address, at a minimum:

      (i) The organization's mission statement;

      (ii) Economic issues of the industry and the market areas served;

      (iii) Internal strengths and weaknesses;

      (iv) Succession of management;

      (v) Staffing needs at the management level;

      (vi) Staff training;

      (vii) Financial goals, including, but not limited to target ranges for asset growth, capital adequacy, and earnings performance; and

      (viii) Identification of any new lines of business and new types of lending, as well as the Bank's expertise in these areas.

    (c) The strategic plan shall include the development of detailed pro forma balance sheets and income statements. Key operating ratios such as Return on Average Assets, Return on Equity, and Net Interest Margin shall be forecast.

    (d) The Bank shall submit the strategic plan to the Regional Director and Director for review and comment. After consideration of all such comments, the Bank shall approve the plan, which approval shall be recorded in the minutes of a board of directors' meeting.

    (e) Within 30 days from the end of each calendar quarter following the effective date of this ORDER, the Bank's board of directors shall evaluate the Bank's actual performance in relation to the strategic plan required by this paragraph and record the results of the evaluation, and any actions taken by the Bank, in the minutes of the board of directors' meeting at which such evaluation is undertaken.

    (f) The strategic plan required by this ORDER shall be revised and submitted to the Regional Director and Director for review and comment 30 days after the end of each calendar year for which this ORDER is in effect. Within 30 days of receipt of any comments from the Regional Director and Director, and after the adoption of any recommended changes, the Bank shall approve the revised plan, which approval shall be recorded in the minutes of a board of directors' meeting. Thereafter, the Bank shall implement the revised plan.


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CORRECTION OF VIOLATIONS

[.16] 16. (a) Within 60 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of law, rule, and regulation listed in the Joint Report.

(b) Within 60 days from the effective date of this ORDER, the Bank shall implement procedures to ensure future compliance with all applicable laws, rules, and regulations.

POLICY FOR EXPENSE REIMBURSEMENTS

[.17] 17. (a) Within 60 days from the effective date of this ORDER, the Bank shall formulate and submit to the Regional Director and Director for review and comment a written policy covering expense reimbursements to its directors, officers, and employees. At a minimum, the policy shall include:

    (i) Provisions which specify reasonable limitations for all categories of expenses related to customer entertainment and business development;

    (ii) Provisions which require submission of documentation related to customer entertainment and business development expenses prior to Bank reimbursement. At a minimum, the Bank shall require the submission of original receipt(s), identification of the person(s) entertained, and the business purpose of the expense; and

    (iii) Provisions which prohibit the reimbursement of personal expenses of the Bank's directors, officers, and employees.

(b) While this ORDER is in effect, the Bank's board of directors shall conduct monthly reviews of all expenses submitted for customer entertainment, business development, and/or any other expenses submitted by the Bank's officers and directors, with the results of the reviews stated in the minutes of the meetings of the board of directors at which such reviews are performed. On a monthly basis, the Bank shall seek reimbursement for any expenses paid which are not in conformance with the policy established pursuant to this paragraph.

INTERNAL ROUTINES AND CONTROLS

[.18] 18. Within 60 days from the effective date of this ORDER, the Bank shall correct the deficiencies in internal routines and controls which are listed in the Joint Report. Additionally, the Bank shall establish policies to prevent the recurrence of any deficiencies noted.

BUDGET AND PROFIT PLAN

[.19] 19. (a) Within 90 days from the effective date of this ORDER, the Bank shall formulate and submit to the Regional Director and Director for review and comment a written profit plan and a realistic, comprehensive budget for all categories of income and expense for calendar years 2005 and 2006. The plans required by this paragraph shall contain formal goals and strategies, consistent with sound banking practices, to reduce discretionary expenses and to improve the Bank's overall earnings, and shall contain a description of the operating assumptions that form the basis for major projected income and expense components.

(b) The written profit plan shall address, at a minimum:

    (i) An assessment and recommendations to improve the Bank's net interest margin;

    (ii) An assessment and recommendations to increase the Bank's non-interest income; and

    (iii) An assessment of and recommendations to control the Bank's noninterest expenses.

(c) Within 30 days from the end of each calendar quarter following completion of the profit plan(s) and budget(s) as required by this paragraph, the Bank's board of directors shall evaluate the Bank's actual performance in relation to the plan and budget, record the results of the evaluation, and note any actions taken by the Bank in the minutes of the board of directors' meeting at which such evaluation is undertaken.

DISCLOSURE TO SHAREHOLDERS

[.20] 20. Following the effective date of this ORDER, the Bank shall send to its shareholders a copy or description of this ORDER: (1) in conjunction with the Bank's next shareholder communication; and (2) in conjunction with the Bank's notice or proxy statement preceding the Bank's next shareholder meeting. However, in any case the copy or description of this ORDER shall be sent to its shareholders before January 31, 2005. The description shall fully describe this ORDER in all material respects. The description and any accompanying communication, notice or statement shall be sent to the FDIC Registration and Disclosure Section, 550 17th Street, N.W., Washington, D.C. 20429, and to the Kentucky Office of Financial Institutions, 1025 Capital Center Drive, Suite 200, Frankfort, Kentucky 40601,
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for review at least 20 days prior to dissemination to shareholders. Any changes requested to be made by the FDIC and OFI shall be made prior to dissemination of the description, communication, notice or statement.

COMPLIANCE WITH ORDER

[.21] 21. (a) Within 10 days from the effective date of this ORDER, the Bank shall establish a compliance committee comprised of at least 4 directors, a majority of whom may not be active officers of the Bank, which shall monitor compliance with the ORDER.

(b) Within 30 days from the effective date of this ORDER and on a monthly basis thereafter, the committee shall report in writing to the board of directors on the Bank's compliance with this ORDER. The committee's written report shall be reviewed and considered at the board of directors' regularly scheduled meeting, and shall be incorporated into the minutes of the board meeting. Establishment of this committee does not in any way diminish the responsibility of the entire board of directors to ensure compliance with the provisions of this ORDER.

PROGRESS REPORTS

[.22] 22. Within 30 days from the end of each calendar quarter following the effective date of this ORDER, the Bank shall furnish to the Regional Director and Director written progress reports signed by each member of the Bank's board of directors, detailing the actions taken to secure compliance with the ORDER and the results thereof. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Regional Director and Director have, in writing, released the Bank from making further reports.

CLOSING PARAGRAPHS

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

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 OFI.

Pursuant to delegated authority.

Dated: September 9, 2004.



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Last Updated 12/21/2005 legal@fdic.gov