The Federal Reserve issued a consent order against Frankewing Bancshares and its subsidiary after the central bank found deficiencies in its operations, including the company’s ability to “serve as a source of strength” to the bank, the Fed said Thursday.

The enforcement action noted the July 2024 inspection by the Federal Reserve Bank of Atlanta found shortcomings in the company’s operations, for which the bank must take action.

Frankewing’s board of directors must use the company's financial and managerial resources, serve as a source of strength for the bank – including ensuring compliance with an October consent order from the Federal Deposit Insurance Corp. – and adhere to any additional supervisory actions from federal or state regulators, the Fed order states.

The FDIC determined the bank had engaged in unsafe or unsound practices and ordered the bank to develop a written plan to reduce loan concentrations, submit the plan to a regional director for approval, and prevent any new advances that would increase existing loan concentrations or create new ones. 

Frankewing was also required to review its loan program, was banned from declaring or paying any cash dividend without the consent of the regional director, and must develop a methodology for determining the allowance for credit losses, establish a management succession plan, formulate a profit plan and maintain a leverage ratio of no less than 9.5%. 

The lender neither admitted nor denied the allegations but agreed to the consent order.

The Fed’s order imposes two key restrictions on the company: capital distributions and debt transactions. The bank is prohibited from declaring or paying dividends – similar to the FDIC order – repurchasing shares or making capital distributions without prior written approval from the Fed’s board of governors. Requests must be submitted at least 30 days in advance and should include detailed information on capital, earnings, cash flow, asset quality and funding sources.

The lender is also barred from incurring, increasing, prepaying or guaranteeing any debt without the Fed board’s approval. The requests must be submitted at least 30 days in advance and must include details about debt purpose, terms, repayment sources and cash flow analysis.

Additionally, Frankewing needs to submit a written statement of its planned sources and uses of cash for debt service, operating expenses and other purposes for the year. The company must submit a progress report within 30 days after the end of each quarter detailing its actions to comply with the Fed’s order.

Frankewing hired Richard Burleson as CEO and president of its bank in January. Prior to joining the lender, he was the CEO of Community First Bank, where he managed loan portfolios and played a key role in selling the South Carolina-based lender to Dogwood State Bank in August 2024.

“With a deep understanding of financial management and lending, Richard is committed to driving innovation and growth at The Bank of Frankewing,” the bank said.