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Exhibit 10.4

UNITED STATES OF AMERICA
Before the
OFFICE OF THRIFT SUPERVISION

 
 

 

 
)
   
In the Matter of
)
 
Order No.: CN 09-21
 
)
     
)
   
FIRST FEDERAL BANKSHARES, INC.
)
 
Effective Date: July 31, 2009
 
)
   
Sioux City, Iowa
)
   
OTS Docket No. H3439
)
     
)
   

 
 
ORDER TO CEASE AND DESIST

WHEREAS, First Federal Bankshares, Inc., Sioux City, Iowa, OTS Docket No. H3439
(Holding Company), by and through its Board of Directors (Board), has executed a
Stipulation and Consent to the Issuance of an Order to Cease and Desist
(Stipulation); and
 
WHEREAS, the Holding Company, by executing the Stipulation, has consented and
agreed to the issuance of this Order to Cease and Desist (Order) by the Office
of Thrift Supervision (OTS) pursuant to 12 U.S.C. § 1818(b); and
 
WHEREAS, pursuant to delegated authority, the OTS Regional Director for the
Central Region (Regional Director) is authorized to issue Orders to Cease and
Desist where a savings and loan holding company has consented to the issuance of
an order.
 
NOW, THEREFORE, IT IS ORDERED that:
 
Cease and Desist.
 
1.           The Holding Company and its directors, officers, employees, and
agents shall cease and desist from any action (alone or with another or others)
for or toward causing, bringing about, participating in, counseling or the
aiding and abetting the unsafe or unsound practices that resulted in the
operation of the Holding Company with insufficient capital for its risk profile
and with inadequate earnings.
 

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Business Plan.
 
2.           (a)   By August 31, 2009, the Board shall adopt and submit to the
Regional Director, for review and comment, a detailed business plan for
enhancing the consolidated capital and earnings of the Holding Company (Business
Plan).  The Business Plan shall cover the period beginning with the quarter
ending June 30, 2009 through the quarter ending December 31, 2011.  At a
minimum, the Business Plan shall address the following components:
 

  (i)  Capital infusions to attain no later than December 31, 2009 and
thereafter maintain at the Holding Company’s wholly-owned savings association
subsidiary, Vantus Bank, Sioux City, Iowa, OTS Docket No. 00190 (Association):
(A) Tier 1 (Core) Capital Ratio of at least eight percent (8 %); and (B) Total
Risk-Based Capital Ratio of at least twelve percent (12 %);         (ii) 
Specific strategies for raising additional capital;      
 
(iii)
Quarterly pro forma capital projections taking into consideration the current
and projected earnings and the risk profile of the consolidated Holding
Company’s assets;

     
 
(iv)
Quarterly detailed pro forma balance sheets and income statements for a rolling
three-year period beginning with June 30, 2009 and ending December 31, 2011; and

 
 
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Order to Cease and Desist
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(v)
Detailed descriptions of all relevant assumptions and projections and the
supporting documentation for all relevant assumptions and projections.

 
(b)   Within thirty (30) days after receiving any written comments from the
Regional Director, the Board shall revise the Business Plan based on comments
from the Regional Director.  Thereafter, the Board shall adopt and the Holding
Company shall implement and comply with the Business Plan. Within five (5) days
of Board approval of the Business Plan, the Holding Company shall send a copy of
the final Business Plan adopted by the Board, along with the Board meeting
minutes reflecting its adoption to the Regional Director.
 
               (c)  Once the Business Plan is implemented, the Holding Company
shall operate within the parameters of its Business Plan.  Any proposed material
deviations from the Business Plan, including changes proposed by the Holding
Company, must be submitted for the prior, written non-objection of the Regional
Director.  Requests for any material deviations or changes must be submitted at
least sixty (60) days before a proposed change is implemented.  The Holding
Company shall notify the Regional Director regarding any material event
affecting or that may affect the balance sheet, capital, or the cash flow of the
Holding Company within five (5) business days after such event.
 
3.             (a)  On a quarterly basis, beginning with the quarter ending
September 30, 2009, the Holding Company shall prepare and submit to the Board a
report that compares projected operating results contained within the Business
Plan to actual results (Business Plan Variance Report).  The Board shall review
each Business Plan Variance Report and address external and internal risks that
may affect the Holding Company’s ability to successfully implement the Business
Plan.  This review shall include, but not be limited to, adverse scenarios
relating to asset or liability mixes, interest rates, staffing levels and
expertise, operating expenses, marketing costs, and economic conditions in the
markets where the Holding Company is operating.  The Board’s review of each
Business Plan Variance Report and assessment of the Holding Company’s compliance
with the Business Plan shall be fully documented in the appropriate Board
meeting minutes.
 
 
First Federal Bankshares, Inc.
Order to Cease and Desist
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                (b)  Within forty-five (45) days after the close of each quarter
beginning with the quarter ending September 30, 2009, the Board shall provide
the Regional Director with a copy of each Business Plan Variance Report and the
Board meeting minutes for the Board meeting at which such report was discussed.
 
Dividends.
 
4.           Effective immediately, the Holding Company shall not declare, make,
or pay any dividends or other capital distributions or purchase, repurchase or
redeem or commit to purchase, repurchase, or redeem any Holding Company’s common
shares without the prior written non-objection of the Regional Director.  The
Holding Company shall submit its written request for non-objection to the
Regional Director at least sixty (60) days prior to the anticipated date of the
proposed dividend, capital distribution, or stock transaction.  The written
request for such notice of non-objection shall: (a) contain current and pro
forma projections regarding the Holding Company’s capital, asset quality, and
earnings and the Association’s capital, asset quality, and earnings; and (b)
address compliance with the Business Plan required by paragraph 2 of this Order.
 
 
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Order to Cease and Desist
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Debt Restrictions.
 
5.           The Holding Company shall not, directly or indirectly, incur,
renew, roll over, or increase any debt or commit to do so without the prior
written non-objection of the Regional Director.  The Holding Company’s requests
for Regional Director non-objection to engage in such debt transactions, at a
minimum, shall: (a) describe the purpose of the proposed debt; (b) set forth and
analyze the terms of the proposed debt and covenants; (c) analyze the Holding
Company’s current cash flow resources available to satisfy such debt repayment;
and (d) set forth the anticipated source(s) of repayment of the proposed
debt.  For purposes of this paragraph of the Order, the term “debt” includes,
but is not limited to loans, bonds, cumulative preferred stock, hybrid capital
instruments such as subordinated debt or trust preferred securities, and
guarantees of debt.  For purposes of this paragraph of the Order, the term
“debt” does not include liabilities incurred in the ordinary course of business
to acquire goods and services and that are normally recorded as accounts payable
under generally accepted accounting principles.
 
Severance and Indemnification Payments.
 
6.         Effective immediately, the Holding Company shall not make any golden
parachute payment1 or any prohibited indemnification payment2 unless, with
respect to each such payment, the Holding Company has complied with the
requirements of 12 CFR Part 359.
 
Directorate and Management Changes.
 
7.           Effective immediately, the Holding Company shall comply with the
prior notification requirements for changes in directors and Senior Executive
Officers3 set forth in 12 C.F.R. Part 563, Subpart H.
 

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1 The term “golden parachute payment” is defined at 12 C.F.R. § 359.1(f).
2 The term “prohibited indemnification payment” is defined at 12 C.F.R. §
359.1(l).
3 The term “Senior Executive Officer” is defined at 12 C.F.R. § 563.555.
 
 
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Order to Cease and Desist
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Employment Contracts and Compensation Arrangements.
 
8.                      Effective immediately, the Holding Company shall not
enter into, renew, extend, or revise any contractual arrangement related to
compensation or benefits with any director or Senior Executive Officer of the
Holding Company, unless it first provides the Regional Director with not less
than thirty (30) days prior written notice of the proposed transaction.  The
notice to the Regional Director shall include a copy of the proposed employment
contract or compensation arrangement, or a detailed written description of the
compensation arrangement to be offered to such director or officer, including
all benefits and perquisites.  The Board shall ensure that any contract,
agreement, or arrangement submitted to the Regional Director fully complies with
the requirements of 12 C.F.R. Part 359.
 
Effective Date, Incorporation of Stipulation.
 
9.           This Order is effective on the Effective Date as shown on the first
page.  The Stipulation is made a part hereof and is incorporated herein by this
reference.
 
Duration.
 
10.           This Order shall remain in effect until terminated, modified, or
suspended by written notice of such action by the OTS, acting by and through its
authorized representatives.
 
Time Calculations.
 
11.           Calculation of time limitations for compliance with the terms of
this Order run from the Effective Date and shall be based on calendar days,
unless otherwise noted.
 
12.           The Regional Director may extend any of the deadlines set forth in
the provisions of this Order upon written request by the Holding Company that
includes reasons in support for any such extension.  Any OTS extension shall be
made in writing.
 
Submissions and Notices.
 
13.           All submissions, including any reports, to the OTS that are
required by or contemplated by this Order shall be submitted within the
specified timeframes.
 
 
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Order to Cease and Desist
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14.           Except as otherwise provided herein, all submissions, requests,
communications, consents, or other documents relating to this Order shall be in
writing and sent by first class U.S. mail (or by reputable overnight carrier,
electronic facsimile transmission, or hand delivery by messenger) addressed as
follows:

       
(a)
To the OTS:
         
Regional Director
   
Office of Thrift Supervision
   
One South Wacker Drive, Suite 2000
   
Chicago, Illinois 60606
   
Facsimile: (312) 917-5001
       
(b)
To the Holding Company:
         
Chairman of the Board
   
First Federal Bankshares, Inc.
   
329 Pierce Street
   
Sioux City, Iowa 51101
   
Facsimile: (712) 277-0224

 
No Violations Authorized.

15.           Nothing in this Order or the Stipulation shall be construed as
allowing the Holding Company, its Board, officers, or employees to violate any
law, rule, or regulation.
 
IT IS SO ORDERED.

         
OFFICE OF THRIFT SUPERVISION
           
By: 
/s/ Daniel T. McKee
     
Daniel T. McKee
     
Regional Director, Central Region
           
Date: See Effective Date on page 1
 

 
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