Regulators Rein in Four Banks

Four more banks have consented to greater levels of regulatory supervision or operational restraint.

 

Pierce Commercial Bank -- the only one of the four to receive government money through the Troubled Asset Relief Program--consented to the issuance of a cease and desist order on Dec. 7.  The contract with the Federal Reserve System and the Washington State Department of Financial Institutions focuses on the Tacoma, Wash.-based bank's administration of residential mortgages.

 

The Federal Reserve had earlier cited Pierce's weaknesses in this area in a supervisory letter dated Oct 2.  The cease and desist order prohibits the bank from underwriting any new mortgages without prior approval, requires it to hire an outside consultant to evaluate its management structure and corporate governance, and also restricts its ability to redeem stock or pay dividends until it corrects its deficiencies.

 

The bank's parent company, Pierce County Bancorp, got $6.8 million in TARP money in January.

 

The First National Bank of Crossett, in Crossett, Ark., signed a consent order with the Office of the Comptroller of the Currency earlier this month that seeks to reduce the bank's level of problem loans, referred to as "criticized assets," and to apply stricter supervision to its commercial real estate portfolio. 

 

Edward Holt, Crossett's president and chief executive, said that the concerns were related to a group of real estate loans in northwest Arkansas, and that this was "the primary reason for the agreement with the Office of the Comptroller of the Currency."  Although the agreement does require Crossett to maintain higher minimums of certain capital levels, the bank as a whole improved its earnings between the third quarters of 2008 and 2009 and even lowered the total of its troubled assets by more than $700,000.

 

The Crossett agreement perhaps signals a greater willingness on the part of federal regulators to take early action to address an undesirable trend in an otherwise healthy bank.  Crossett's balance sheets seem to present a healthy bank with a single red flag, especially when compared with banks that have recently failed or that have been dubbed "troubled."

 

Phoenixville Federal Bank and Trust, of Phoenixville, Pa., entered into a supervisory agreement with the Office of Thrift Supervision on Dec. 8.  The agreement seems to arise from insufficient improvement upon certain weaknesses noted in an earlier examination by the OTS in May.  The agreement requires revised and enhanced underwriting and credit administration policies and procedures, especially in regard to commercial loans.

 

The contract also requires Phoenixville to improve its ability to identify, classify and monitor "criticized assets," and places the onus for that upon the company's directors.  Inherent in the agreement is the opinion that the bank has failed to assess the proper level of risk attached to some of its investments.

 

Saehan Bank of Los Angeles agreed to a consent order with the FDIC and the California Department of Financial Institutions on Dec. 2. Unlike that of the first three institutions, the regulators' criticism of Saehan is sweeping.  The order calls for immediate and specific actions relating to its low retention rate of qualified management, its unhealthy dependence upon brokered deposits, its low level of Tier 1 capital, and its plunging financial performance.

 

Saehan reported a loss of $29.8 million for the first nine months of 2009, compared with a loss of $1.45 million in the same period last year. Its nonperforming loans totaled $55.9 million, up from $27.3 million a year earlier. Indeed, Saehan's troubled assets have increased every quarter since December of 2007.

 

Saehan's provisions for loan losses in the first nine months totaled $47.5 million, compared with $10.3 million a year earlier.

 

The bank's president, Chung Hoon Youk, commented that "We have a number of capital raising options available to the bank and we are weighing these options while proceeding with efforts to raise capital through private sources in the U.S. and South Korea."

 

A search of federal records reveals that Saehan Bank operated under a similar FDIC consent order that was issued in June 2002.  It took the bank nearly two years to see that order lifted in May 2004.