The bank must now raise additional capital and shore up financial buffers against the rising tide of nonperforming loans.

Sterling Financial Corp., the parent company of Washington’s second largest bank, announced a management shakeup early Thursday morning on the heels of receiving a cease-and-desist order from state and federal regulators.

Sterling’s stock dropped more than 12 percent to $1.45 in early morning trading on the news. The Spokane-based bank ousted its chairman and chief executive Harold Gilkey, 70, who co-founded Sterling in 1983. It also ousted Heidi Stanley, the chief executive of Sterling Savings Bank.

Greg Seibly, formerly president of the bank, was named chief executive of the holding company in Gilkey’s place. Two other executives, Donn Costa and Ezra Eckhardt, were also given leadership roles at the bank.

In an interview Thursday following the announcement, Eckhardt, newly promoted to acting president of the bank, said he and other executives were surprised by the board of directors’ decision to shake up management.

“We definitely did not know about it in advance,” he said.

The bank (NASDAQ: STSA) is now operating under tighter regulatory oversight due to the cease-and-desist order and has until Dec. 15 to raise more capital to buffer against a pileup of bad commercial real estate loans. Sterling is the 14th bank statewide that is operating under a cease-and-desist order, an enforcement action that also requires it to come up with a turnaround plan to bolster the institution’s financial position.

Sterling Bank, with 170 branches in four states, has seen its bad loans increase steadily in the past couple of years. By the second quarter of this year, nonperforming assets — one measure of bad loans — had jumped to about $787 million, compared with about $300 million during the same quarter in 2008. Sterling posted a second quarter loss of $29.5 million.

The bank, with a commercial loan portfolio of more than $2.5 billion, is now only making commercial real estate loans to a “select” group of people, said Seibly in an interview following the announcement.

In an effort to raise capital, the bank is “looking at a range of options,” said Seibly, although he declined to specify whether it’s looking at private equity. The bank filed a shelf registration statement in July with the Securities and Exchange Commission, giving it the ability to raise up to $500 million in the next three years.

It’s also engaged in what Seibly called “passive reductions:” reducing its employee count by about 8 percent in the last year through attrition. The bank employs about 2,100 people, in addition to other employees at the holding company and at Golf Savings Bank, a subsidiary based in Lynnwood.

More than 15 percent of the bank’s employees are working on taking care of its bad loans, according to executives.

Sterling has also seen its total assets decline to $12.4 billion from $12.7 billion, a decrease that has caused the bank to fall from its position as the largest financial institution headquartered in Washington. Washington Federal Inc. (NASDAQ: WSFL) of Seattle now holds that title.

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In a Form 8-K last night, First Mariner Bank, the wholly-owned bank subsidiary of First Mariner Bancorp (Nasdaq: FMAR) reports that it has agreed with the FDIC and The Maryland Division of Financial Regulation to the entry of an Order to Cease and Desist, dated and effective September 18, 2009, which directs the Bank to increase its capitalization, improve earnings, reduce non-performing loans, strengthen management policies and practices, and reduce reliance on non-core funding.

You can see the official order for First Mariner Bank  by clicking here.

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Taylor, Bean & Whitaker’s deal with Colonial may not be such a sure thing afterall. Forbes today reported the FDIC and the Alabama State Banking Dept. have issued a Cease and Desist order against Colonial Bancgroup. Fitch Ratings had downgraded Colonial “deeper into junk status” the day before.

“Because of the order, the likelihood of Colonial BancGroup executing the investment deal may be “negatively impacted,” Fitch said in a statement.”

For more information visit the official FDIC web page.

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The “cease and desist” order, issued Dec. 3 and released Friday, said the regulators had reason to believe the bank violated requirements of the federal Bank Secrecy Act, which demands that banks monitor customer transactions and submit reports of suspicious money movements to federal authorities.

West Suburban consented to the order without admitting or denying the charges.

Regulators are requiring the bank to designate a senior executive to be responsible for Bank Secrecy Act compliance, analyze whether it needs to hire additional staff, and create a new board committee focused solely on the issue.

Another unusual aspect of West Suburban is that it was actually profitable in 2008. You can read the PDF from the official FDIC webpage here.

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Federal and state banking regulators have filed cease-and-desist orders against West Suburban Bank of Lombard and Corn Belt Bank & Trust Co. of Pittsfield.

Grievances against West Suburban include a board of directors that has failed to provide adequate supervision to the bank’s management and an ineffective system of internal controls to ensure compliance with the Bank Secrecy Act, according to the 21-page order filed jointly by the FDIC and the Illinois Department of Financial and Professional Regulation.

You can read the PDF from the official FDIC webpage here.

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Mainstreet Bank of Forest Lake, one of Minnesota’s largest and oldest community banks, has received a cease-and-desist order from the Federal Deposit Insurance Corp., alleging “hazardous lending and lax collection practices.”  

You can read the PDF from the official FDIC webpage here.

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The cease-and-desist order, which was effective Dec. 2, but not reported publicly until Friday, states that the bank was involved in “unsafe or unsound banking practices and violations of law and regulations.” The order requires the bank to provide plans to deal with several problems, including finding more capital, reducing bad debt, restating its finances and requiring better oversight of operations. The deal also demands the removal of president Larry Seastrom and chief lending officer Greg Bell from their positions, giving the bank one more month to find replacements. 

You can read the official FDIC press release here.

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AmTrust Financial Corp of Cleveland has been ordered by a government regulator not to take on new loans or extend new lines of credit for land acquisition and development until it has more cash in its coffers.

The company must also revise its current business plan by the end of the month.

Crain’s Cleveland Business cites cease and desist orders from the federal Office of Thrift Supervision that say AmTrust engaged in unsafe and unsound banking practices.

The orders do not apply to consumer or residential mortgage loans, or home equity lines of credit.

Crains says the orders also prohibit AmTrust from paying dividends without approval, and from making golden parachute payments or adding new board members without 30 days notice.

AmTrust was ranked as the 20th-largest residential mortgage originator in the nation during 2007, according to Inside Mortgage Finance. The bank has 36 branches in Ohio and other branches in Florida and Arizona.

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