Posted on Wednesday, December 1, 2010
Federal regulators hit Palm Beach Gardens-based SouthBank, its parent company and its sister institution with cease and desist orders.
Issued on Nov. 19 and made public on Wednesday by the Office of Thrift Supervision (OTS), the orders require the Florida bank and its larger Huntsville, Ala.-based affiliate of the same name to raise capital by the end of the first quarter. Their parent company, Huntsville-based Commonwealth Savingshares Corp., was told to show regulators how it would support its banks with capital.
SouthBank is the smallest bank chartered in South Florida with $24.7 million in assets. Being tiny hasn’t let it escape the notice of the OTS, which put it under a supervisory agreement in May 2009.
The new order tells SouthBank to cease and desist from 14 “unsafe and unsound” banking practices covering many areas of its operations. These include:
• Operating a savings association with management whose polices and practices are “detrimental to the association and jeopardize the safety of its depositors.”
• Having a board of directors that failed to exercise adequate supervision over the bank’s management to prevent violations of law.
• Not accurately filing its financial reports.
• Failing to properly report problem assets on its books and regulatory filing.
• Operating with an inadequate level of capital protection.
• Having an excessive level of problem loans and not properly identifying risk levels.
• Not following rules on getting appraisals on properties secured by problem loans.
The most daunting challenge in the order is the OTS’ demand that SouthBank obtain a Tier 1 leverage capital ratio of 8 percent and a total risk-based capital ratio of 13 percent by March 31. As of Sept. 30, those ratios were 6.08 percent and 13.95 percent, respectively.
Its sister bank in Alabama already exceeds the capital requirements.
The bank has until Dec. 15 to give the OTS a plan showing how it would accomplish that goal. If SouthBank doesn’t meet that capital requirement, it would have 15 days to give the OTS a “contingency plan” to sell or dissolve the bank.
In the meantime, the executives at SouthBank will be under scrutiny. The OTS told the bank to hire a third party that must evaluate the “effectiveness and performance” of the bank’s senior executive officers, the level of its accounting staff and its management compensation policies. This study must address the concerns that regulators expressed in the bank’s confidential report of examination from March.
SouthBank Chairman Danny Wiginton couldn’t immediately be reached for comment. The order against the parent company included the requirement that it conduct a third-party review of loans granted to “related interests” of the chairman and CEO. This report must address whether those loans should be classified as “troubled debt restructurings.”
For such a small institution, it’s hard to imagine how the Palm Beach Gardens-based bank can have so many problems with regulators, said Miami-based banking analyst and economist Kenneth H. Thomas. The cease and desist orders are severe and the latest financial reports from these banks show problems in almost every area, he added.
In addressing SouthBank’s loan troubles, the OTS told it to develop a plan to reduce its level of problem assets. The bank has until Dec. 31 to make sure that none of the appraisals on its troubled assets are more than one year old.
On Sept. 30, the bank reported that 12.2 percent of its loans were noncurrent, but it had only $3.9 million in total loans. It also had $872,000 in repossessed property.
However, the cease and desist order calls the accuracy of the bank’s reports into question.
The bank lost $183,000 in the first nine months of this year.
SouthBank was told to revise its policy on setting reserves for future loan losses. Its reserves covered 42 percent of its noncurrent loans on Sept. 30.
The OTS also told SouthBank to reduce its concentration in speculative construction loans and land loans, better address the risks from changes in interest rates and to not grow the asset size of the bank more than a small amount without regulatory approval.
South Florida Business Journal - by Brian Bandell