The Federal Reserve on Friday issued a cease-and-desist order against Lenexa, Kansas-based Small Business Bank and its holding company, Gardner Bancshares, for “operations deficiencies” the Kansas City Fed and Kansas’ Office of the State Bank Commissioner found during an examination last October.
In its order, the Fed cited shortcomings in “staffing, internal controls, credit risk management, lending and credit administration, capital, information technology and information security, books and records, regulatory reporting, liquidity and funds management, earnings, interest rate risk management [and] third party risk management.”
Examiners also identified deficiencies in risk management and compliance with anti-money laundering regulations, the Fed said.
The Fed is giving the bank’s board of directors 30 days to hire an independent third party “to assess the effectiveness of the Bank’s corporate governance, board and management structure and staffing needs,” it said.
In its order, the Fed noted it aims to ensure the holding company’s board “provides adequate resources to ensure the Bank’s compliance with this Order, including, but not limited to, sufficient staffing levels and succession planning.”
The central bank is ordering the Kansas lender, within 60 days, to submit written strategies on how it plans to maintain sufficient capital, enhance its liquidity risk management, strengthen its internal controls, and improve its IT and AML programs.
The bank must also undergo an audit and a review of its loan book, and within 120 days, submit an improved set of policies surrounding the administration of loans and credit, and revise its methodology for allowing credit losses. In the same time frame, it also must detail how it plans to improve risk management tied to interest rates and third-party relationships.
The bank also must submit a business plan and a budget for the remainder of 2023, detailing how it expects to improve its earnings.
For its part, the bank and holding company agreed not to pay out dividends without sign-off from the Fed, the Kansas City Fed and the state regulator.
