The bank is already facing a June hearing for its loan practices. Regulators from the Office of Thrift Supervision issued the latest cease-and-desist order — one of the strongest enforcement actions the agency can take — on Friday against Colombo Bancshares Inc. the holding company of Colombo Bank.
The holding company’s board agreed not to make any “golden parachute” payments to officers as well as abide by restrictions on buying or redeeming shares of stock without written permission from the OTS. They also agreed to adhere to the stipulations in the 2009 order.
Calls to Colombo Bank Monday for comment were not returned.
In October 2009, Colombo Bank entered into a cease-and-desist order with the OTS after regulators said it had operated without qualified management and without appropriate levels of capital. The bank also faces a June hearing before the OTS over its loan underwriting and capital levels required to cover bad loans.
Friday’s order is Colombo’s third cease-and-desist order in the last seven years. The first, in 2004, was resolved satisfactorily in 2006, according to the OTS.
“When you see these problems continue on and on and things keep sliding down it’s only a matter of time before a bank gets taken over,” said Bert Ely, a banking consultant based in Virginia. “They either raise the capital or get acquired, but when that could happen — who knows?”
According to the Federal Deposit Insurance Corp., as of Sept. 30, 2010, Colombo Bank had assets of $169.7 million, compared with $169 million the prior year. The bank also reported a $2.39 million loss for the quarter, compared with a $2.01 million loss for the same quarter in 2009.
“It’s definitely not good to get a second order,” said Lewis Sosnowik, vice president of bank securities at Bethesda-based Koonce Securities. “Unfortunately, Colombo’s problems are augmented by the fact it has been poorly managed.”
Colombo also needs to have an approved management plan in place, according to the orders. Former Colombo CEO Lester Johnson resigned in 2010 and the bank has not named a new chief executive.
Washington developer Morton Bender is the majority shareholder and chairman of the board at Colombo.
The 96-year-old bank got its start in Baltimore’s Little Italy neighborhood. The bank opened in 1914 and still maintains a branch in Little Italy, but it moved its headquarters to Rockville in 2002. Colombo has four locations — the one in Baltimore, two in Montgomery County and another in Washington, D.C.
Given Colombo’s balance sheet, analysts are unsure about Colombo’s prospects as a merger candidate. An earlier merger attempt with Washington-based Independence Federal Savings Bank was abandoned after the 2009 cease-and-desist order.
Bender also holds a majority share in Independence Federal, and was the primary driver behind the failed merger of the two institutions.
“Colombo’s attraction is probably quite anemic,” Sosnowik said. “That means the primary shareholder will have to put in more capital, or the bank could be forcibly closed.”