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The Federal Deposit  Insurance Corp., the main federal bank regulator, has hit PBI Bank with an order compelling the Louisville-based bank to increase working capital.

Or else.

These sanctions/consent decrees from the FDIC are pretty standard, with a fair amount of boilerplate and lecturing in bureaucratese about hiring better execs and putting together recovery plans in 30 days or whatever, key to digging the bank out of the hole, right?

Not this one.

In the consent order made public today, and issued October 12, FDIC officials reiterated an earlier order from this summer, then added the “or else” part.

Seven pages into the 17-page decree is this stunning stipulation:

Should the Bank be unable to maintain the required capital levels specified in subparagraph (a) above, then within thirty (30) days of receipt of written direction from the Regional Director and the KDFI, the Bank shall develop, adopt, and implement a written plan to sell or merge itself into another federally insured financial institution or otherwise immediately obtain a sufficient capital investment into the Bank to fully meet the capital requirements of this paragraph.


This is as close as the FDIC ever comes to using the word “toast.”

Just in case PBI officials are so completely obtuse not to “get it,” FDIC officials threw in the stipulation that within 45 days, bank executives have to come up with a plan to reduce risk positions by $1 million in each asset classified as “substandard” in the FDIC’s examination as of January 30, 2012. Which is the equivilent of saying, “Don’t forget to wave a magic wand over all those non-performing assets that got you here in the first place.”

PBI’s most recent earnings report for the third quarter of 2012 stated the bank’s risked-base capital was dangerously below levels demanded by FDIC sanctions issued June 24.

As of September 30, PBI’s Tier 1 leverage ratio was 5.53 percent and its total risk-based capital ratio was 9.85 percent.

The FDIC’s consent order specified minimum capital ratios of 9 percent and 12 respectively.

From the Oct. 12 order:

While this ORDER is in effect, if either ratio is less than the required minimum required by paragraph (a) above, the Bank shall immediately notify the Supervisory Authorities and within 30 days shall: (1) increase capital in an amount sufficient to comply with paragraph (a), or (2) submit a written plan to the Regional Director of the FDIC Chicago Regional Office (“Regional Director”) and the Commissioner of the Commonwealth of Kentucky, Department of Financial Institutions (“Commissioner”) describing the primary means and timing by which the Bank shall increase its capital ratios up to or in excess of the minimum requirements set forth above, as well as contingency plans.

In the consent order (these used to be called “cease & desist orders,” but it’s a kinder, gentler agency post-Recession), FDIC officials note that PBI is a publicly traded entity.

To that point, it noted PBI execs can raise money many ways including:

• The sale of common stock and noncumulative perpetual preferred stock

• The elimination of all or part of the assets classified as “Loss” as of January 30, 2012, “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 pursuant to this ORDER”

• Collect cash from assets previously charged off (which obviously hasn’t happened during the past four years of crisis)

• Or failing all of the above, direct contribution of cash by the directors or the shareholders (good luck with that, with shares at .90 cents.)

Should PBI executives go with the obvious and try to recap through selling more stock, the FDIC consent decree stipulates they must report to potential purchasers “an accurate description of the financial condition of the Bank and the circumstances giving rise to the offering ….”

PBI’s total risk-based capital ratio had been 11.94 percent as of June 30, and 11.22 percent as December 31, 2011.

In a separate consent agreement, the FDIC terminated the June 24 consent decree.

There’s so much more including instructions to NOT increase total assets (read: “make loans”) more than 5 percent over any consecutive three-month period, or 10 percent over the year as well as orders to quit making commercial real estate loans (which comes under the financial rubric of locking the barn doors after the horses have escaped), or at least to quit making commercial loans to entities that have already defaulted.

But the first sections pretty much say everything left to say about this bank.

In the usual boilerplate, the current consent decree states PBI officials neither admit nor deny unsafe banking practices.

In its most recent earnings report, PBI Bank reported a net loss of $26.9 million – ($2.29) per diluted share – for the third quarter of 2012.  PBI Bank lost a total of $105.2 million for 2011.

Shockingly, PBI, which trades under the symbol “PBIB” on the NASDAQ, has seen its share price decline 68.4 percent to date.