Premier Financial Bancorp Inc. announced a settlement with the Securities and Exchange Commission concerning concealed loan losses at a bank subsidiary.
Loan losses at Farmers Deposit Bank in Kentucky, hidden by its former president, caused that unit's and Premier's accounting records to be inaccurate from 2001 through 2003, the company said.
While neither admitting nor denying the SEC's findings in an administrative proceeding, Premier has agreed to a cease-and-desist order. The SEC said Premier's internal accounting controls were inadequate, allowing the errors to go undetected for at least three years. Actions taken to hide the problems included recording loans under fake names; using proceeds from those loans to keep earlier loans current; and altering documents presented to the bank's board of directors, the SEC said.
"The combination of Premier's hands-off approach to managing its subsidiary banks, along with its delay in preparing standardized loan policies and procedures, contributed to the record-keeping and reporting errors," the SEC said in a statement.
As a result of the errors, Premier overstated its net income for 2001 by 94 percent and understated its net loss for 2002 by 63 percent. After discovering the errors, Premier restated its financial information in April 2004. Premier, which has $537 million in assets, implemented a company-wide policy in 2003 mandating that subsidiaries follow uniform loan policies and procedures.
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