ShoreBank gets Fed order that bars dividends

ShoreBank gets Fed order that bars dividends
By: Steve Daniels Jan. 12, 2010
(Crain’s) — ShoreBank Corp., the holding company for the Chicago-based lender of the same name that operates in low-income South and West Side neighborhoods, has been hit with a new regulatory order restricting it from paying shareholder dividends or making interest and principal payments to some debt holders.
The order from the Federal Reserve Bank, dated Jan. 8 and released Tuesday, follows a “cease and desist” order imposed by state and federal banking regulators on the company’s ShoreBank unit last July.
The Fed order bars the holding company from making dividend payments to shareholders without permission from the regulators. It also bars payment of interest or principal to holders of trust-preferred securities and subordinated debentures without prior regulatory approval.
ShoreBank is given 60 days to produce a plan to boost capital, which has been depleted by heavy loan losses.
At the holding-company level, ShoreBank recorded a net loss of nearly $27 million in the first nine months of 2009. In normal years, ShoreBank pays small dividends on its common stock; through the first nine months of last year, it did not pay a common-stock dividend, according to filings with the Fed.
The last time ShoreBank paid dividends was in 2008.
Assets stood at $2.8 billion as of Sept. 30. Capital was just below the levels needed to be considered “well-capitalized.”
But with $234 million in loans at least 90 days past due — 15% of ShoreBank’s $1.5-billion loan portfolio — the company needs to raise tens of millions in new capital to remain solvent.
Bank CEO George Surgeon is trying to raise the money now, and holding company Chairman Ronald Grzywinski and President Mary Houghton have announced plans to ease out of the company over the course of this year.
A spokesman had no comment on the new regulatory order