[.12] ShareholdersDisclosure of Cease and Desist Order Required
In the Matter of
FIRST BANK OF NORTHERN KENTUCKY, INC. FORT MITCHELL, KENTUCKY (Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
First Bank of Northern Kentucky, Inc., Fort Mitchell, 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 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 ("Act"), 12 U.S.C.
§1818(b), 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 November 10, 2005, 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 or regulation, 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 violated laws 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 institution-affiliated
parties, as that term is defined in section 3(u) of the Act, 12 U.S.C.
§1813(u), successors, and assigns, cease and desist from the
following unsafe or unsound banking practices and violations of law or
A. Operating with management whose policies and practices in
the area of Consumer Compliance are detrimental to the Bank and
jeopardize the safety of its deposits.
B. Operating with a board of directors which has failed to provide
adequate supervision over, and direction to, the active management of
the Bank in the area of Consumer Compliance.
C. Failing to develop and administer and effective compliance
management system that ensures compliance with federal consumer
protection laws, regulations, and policies ("Consumer Laws").
D. Violating Consumer Laws as set forth in the FDIC's Compliance
Report of Examination of the Bank as of May 9, 2005 ("Compliance
IT IS FURTHER ORDERED, that the Bank, its institution-affiliated
parties, successors, and assigns, take affirmative action as follows:
[.1] 1. The Bank shall have and retain qualified management.
(a) Each member of management shall have qualifications and
experience commensurate with his or her duties and responsibilities at
the Bank. Each member of management shall be provided appropriate
written authority from the Bank's board of directors to implement the
provisions of this ORDER.
(b) The qualifications of management shall be assessed on its ability
(i) comply with the requirements of this ORDER;
(ii) operate the Bank in a safe and sound manner;
(iii) comply with applicable laws and regulations; and
(iv) develop, implement and administer a satisfactory Compliance
(c) During the life of this ORDER, the Bank shall notify the
Regional Director of the Chicago Regional Office of the FDIC
("Regional Director") in writing of 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 of
the Act ("section 32"), 12 U.S.C. §1831(i), 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, whether or not hired as
an employee, with significant influence over, or who participates in,
major policymaking decisions of the Bank.
(d) 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 and Subpart F of
Part 303 of the FDIC Rules and Regulations, 12 C.F.R.
(e) Within 30 days from the effective date of this ORDER, the Bank
shall have and retain a full-time Compliance Officer who possesses the
requisite knowledge and experience to administer an effective
Compliance Management System.
(i) If the Compliance Officer retained pursuant to this ORDER is to
be added as a director or employed as a senior executive officer of the
Bank, the Bank shall comply with the requirements of section 32 of the
Act, 12 U.S.C. §1831i, and Subpart F of Part 303 of the FDIC Rules
and Regulations, 12 C.F.R. §§ 303.100303.104, before the addition
of the Compliance Officer to such position(s).
(ii) The responsibilities of the Compliance Officer shall include:
(A) Developing compliance policies and procedures, and conducting
regular reviews to ensure that updates are accomplished as necessary;
(B) Administering a compliance training program and providing training
in Consumer Laws to both Bank management and employees on a continuing
(C) Coordinating responses to consumer complaints.
(iii) The ongoing determination of whether the Bank is retaining a
qualified Compliance Officer within the meaning of this ORDER shall be
based upon the continued effectiveness of the Bank in achieving
compliance with the requirements of this ORDER and with the Consumer
[.2] 2. From the effective date of this ORDER, the board of directors shall
increase its participation in the affairs of the Bank, assuming full
responsibility for the approval of sound policies and objectives and
for the supervision of all of the Bank's activities, consistent with
the role and expertise commonly expected for directors of Banks of
(a) Within 30 days from the effective date of this ORDER, the
Bank's board of directors shall designate a committee ("Compliance
Committee") comprised of at least 2 directors who are not active
officers of the Bank and at least 1 member of senior management,
including the Compliance Officer retained pursuant to this ORDER.
(b) The Bank's board of directors, in conjunction with the Compliance
Committee, shall allocate resources to the compliance area that are:
(i) Commensurate with the level of complexity of the Bank's
operations to ensure the establishment and implementation of an
adequate Compliance Management System, including procedures ensuring
the Bank's compliance with Consumer Laws; and
(ii) Sufficient to ensure the Bank's timely compliance with the
provisions of this ORDER.
(c) The Bank's board of directors shall ensure that the
(i) has and retains sufficient authority and independence to
implement policies related to Consumer Laws and to institute corrective
action as needed. This authority shall include the ability to cross
departmental lines, have access to all areas of the Bank's operations,
and effectuate corrective action upon discovering deficiencies.
(ii) receives ongoing training, sufficient time, and adequate resources
to effectively oversee, coordinate, and implement the Bank's
Compliance Management System.
(d) The Bank's board of directors, in conjunction with the
Compliance Committee, shall:
(i) Ensure that the duties and responsibilities of the Compliance
Officer are clearly defined and provide for accessibility to both the
board and senior management;
(ii) Require the Compliance Officer to provide monthly reports to the
board or Compliance Committee;
(iii) Require the Compliance Officer to review and respond promptly to
audit reports relating to all areas of the Bank's Compliance
Management System; and
(iv) Require the Compliance Officer to prepare a schedule of
requirements for Consumer Laws (such as the type and timing of
disclosures), so that Bank employees will be informed of the
requirements relating to their duties.
(e) Within 30 days from the effective date of this ORDER, the
Bank's board of directors shall have in place a procedure that will
provide for monitoring of the Bank's compliance with this ORDER.
(i) The procedure shall include, but not be limited to, meetings to
be held no less frequently than monthly at which, at a minimum, the
following areas shall be reviewed and approved: minutes of the
Compliance Committee, Compliance Officer reports, Compliance Management
Program audit reports, compliance program policies, and compliance with
this ORDER. Board minutes shall document these reviews and approvals,
including the names of any dissenting directors.
(ii) All progress reports and other written responses to this ORDER
shall be reviewed and signed by each member of the board, and such
reviews shall be recorded in the minutes of the applicable meeting of
the board of directors. Such reports may
be discontinued when the
corrections required by this ORDER have been accomplished and the
Regional Director has released, in writing, the Bank from making
(f) The board shall ensure proper follow-up and resolution to
(g) The board shall ensure that the Bank's Home Mortgage Disclosure
Act Loan Application Register is filed by March 1 of each respective
(h) The board shall provide appropriate oversight of established broker
relationships to ensure compliance with Regulation X promulgated
pursuant to the Real Estate Settlement Procedures Act.
[.3] 3. (a) The Compliance Committee shall establish and implement an
effective Compliance Management System, as described in Financial
Institution Letter 52-2003, "Compliance Examination Procedures,"
and the attachment thereto, "Overview of the Compliance
Examination" (June 20, 2003) ("Compliance Management System
(b) The Compliance Committee shall meet at least monthly to
discuss the Bank's Compliance Management System, and shall maintain
minutes of its meetings, which minutes shall be reviewed and approved
by the Bank's board of directors at its monthly meetings.
(c) Establishment of the Compliance Committee in no way diminishes the
responsibility of the entire board of directors for ensuring compliance
with the provisions of this ORDER.
[.4] 4. Within 60 days from the effective date of this ORDER, the Bank shall
ensure that effective compliance monitoring procedures, which shall be
acceptable to the Regional Director as determined at subsequent
examinations or visitations, are developed and incorporated into the
normal activities of every department. At a minimum, monitoring
procedures should include ongoing reviews of:
(a) Applicable departments;
(b) Disclosures and calculations for various loan and deposit products;
(c) Document filing and retention procedures;
(d) Marketing literature and advertising; and
(e) Internal compliance communication system that provides to Bank
personnel appropriate updates resulting from revisions to Consumer
[.5] 5. (a) Within 30 days from the effective date of this ORDER, the Bank
shall have and retain a qualified consultant with the requisite
knowledge and experience to establish and administer an effective
Compliance Management System. The consultant will be required to
maintain reliable and accurate records as they relate to the services
performed on behalf of the Bank and will submit written reports on
(b) Within 90 days from the effective date of this ORDER, and quarterly
thereafter, the Bank must monitor the performance of the consultant to
ensure committed goods and services are received.
[.6] 6. Within 60 days from the effective date of this ORDER, the Bank shall
develop a training program, acceptable to the Regional Director as
determined at subsequent examinations or visitations, related to
Consumer Laws for all Bank personnel, including senior management and
the directorate, commensurate with their individual job functions and
[.7] 7. Within 60 days from the effective date of this ORDER, the Bank shall
develop and implement a Compliance Policy, acceptable to the Regional
Director as determined at subsequent examinations or visitations. At a
minimum, this Policy shall:
(a) Require the adoption of a comprehensive compliance program,
which will be reviewed and approved annually by the board; and
(b) Require the development of internal monitoring procedures to ensure
(i) The Bank's actual practices reflect the Compliance Policy;
(ii) All Consumer Laws are being followed; and
(iii) Reviews are conducted at the transactional level during the
normal daily activities of employees in all operating units of the
[.8] 8. (a) Within 90 days from the effective date of this ORDER, and
quarterly thereafter, the Bank shall conduct or shall cause an internal
or external audit to be conducted to ensure compliance with Consumer
Laws. Further, the audit will assess the Bank's Compliance Management
Program in conjunction with the Compliance Management Program
Guidelines, and at a minimum, shall:
(ii) Identify the number of transactions sampled by category or product
(iii) Identify deficiencies;
(iv) Provide descriptions of or suggestions for corrective actions and
time frames for correction; and
(v) Establish follow-up procedures to verify that corrective actions
were implemented and effective.
(b) Audit findings, deficiencies, and recommendations must be
documented in a written report and provided to the board of directors.
Detailed written responses that specifically address the audit
findings, deficiencies or recommendations must also be provided in a
[.9] 9. Within 90 days from the effective date of this ORDER, the Bank shall
formulate, adopt, and implement procedures, acceptable to the Regional
Director as determined at subsequent examinations or visitations, to
ensure that Bank responses to audit findings, as well as Bank
corrective actions in response to audit findings, are documented and
reported to the board of directors.
[.10] 10. Within 30 days from the effective date of this ORDER, the Bank
shall eliminate or correct all violations of Consumer Laws identified
on pages 13 through 17 in the Compliance Report dated May 9, 2005 and
more specifically addressed in this ORDER. In addition, the Bank shall
establish and implement procedures, acceptable to the Regional Director
as determined at subsequent examinations or visitations, as part of its
Compliance Policy to ensure future compliance with all Consumer Laws.
[.11] 11. Within 30 days from the end of the first calendar quarter following
the effective date of this ORDER, and within 30 days after the end of
each successive calendar quarter thereafter, the Bank shall furnish
written progress reports to the Regional Director detailing the form
and manner of any action taken to secure compliance with this ORDER and
the results thereof.
[.12] 12. Following the effective date of this ORDER, the Bank shall send its
shareholders a description of this ORDER: (a) in conjunction with the
Bank's next shareholder communication; and (b) 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, notice,
or statement shall be sent to the FDIC Registration and Disclosure
Section, 550 17th Street, N.W., 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.
The effective date of this ORDER shall be ten calendar days after
the date of its issuance by the FDIC.
The provisions of this ORDER shall be binding upon the Bank, its
institution-affiliated parties, successors, and assigns.
The provisions of this ORDER shall remain effective and enforceable
except to the extent that, and until such time as, any provision of
this ORDER shall have been modified, terminated, suspended, or set
aside by the FDIC.