The Federal Deposit Insurance Corp. has issued cease and desist orders against two Kentucky banks — Alliance Banking Co. in Winchester and Farmers Deposit Bank of Middleburg in Casey County — for allegedly violating banking regulations.
The Winchester bank was cited by both the FDIC and the Kentucky Department of Financial Institutions for "hazardous lending and lax collection practices" and for operating with reserves that were too low for its potential loan losses.
The regulators also said the bank had inadequate management oversight of its lending operations.
Alliance was prohibited from making new loans to customers with existing problem loans and was told to develop a plan to reduce its concentration of "construction, land development and commercial real estate" loans.
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In a statement, the bank said it had agreed to make the changes sought by regulators and "to strengthen its lending practices" in general.
"Alliance Bank President Steve Penn, (who was) hired in April 2008, said the bank has already begun to implement improved practices in these areas and that he and the Alliance Bank Board are working closely with the regulatory agencies to ensure all of their concerns are addressed," the bank said.
Alliance said it is also working with borrowers to reduce the number of problem loans and to collect overdue payments.
"We continue to maintain a solid capital base and good liquidity, and we are poised for long-term growth and profitability," Penn said.
Alliance had $45.8 million in deposits on June 30 and Farmers Deposit Bank had $34.9 million, according to the FDIC.
Unlike the Alliance order, the Farmers Deposit cease and desist order involved inadequate policies and practices within the bank as well as inadequate oversight by management and the board of directors.
The bank also was cited for not having flood insurance on properties that were collateral for loans.
Steve Owens, Farmers Deposit's president and chief executive officer, said the bank had hired a full-time compliance officer and taken other steps to comply with the FDIC's order, which did not involve the safety and financial soundness of the bank.
"We are very well capitalized," Owens said Monday. "We just added $1 million to our capital."
The bank is based in Middleburg, but also has a branch in Liberty.