At first glance, it looks like the New Mex' business editor Bob Quick had an uncharacteristic scoop in yesterday's paper: Federal regulators have put the smack down on Santa Fe's own Charter Bank. Quick's lead, with emphasis by SFR on the soft-pedaling:
Following what appeared to be some problems with its commercial-loan portfolio, at least in the eyes of federal regulators, Charter Bank Santa Fe received an order to "cease and desist" from certain practices from the Office of Thrift Supervision.
Farther down, Quick mentions a Nov. 16 American Banker story that provides some context for regulators' actions. He does not mention the Nov. 30 story in that trade paper, "New Mexico Thrift Hit with OTS Order," which was quicker to break the bad news about Charter.*
The New Mex' much softer headline (which Quick may not have written): "Charter Bank moves to fix problems." From there on down, the difference in tone is stark. Here's American Banker's lead, with emphasis by SFR on the actual news therein:
The significantly undercapitalized Charter Bank in Sante Fe, N.M., must come up with a plan to sell itself if it cannot boost its capital ratios by yearend...
That's about three weeks. Quick's story doesn't mention [until the second-to-last paragraph] this little detail about the bank's likely sale, which just might be of interest to Charter's business customers (checking-account type depositors should be OK, thanks to FDIC insurance—which is about the only clear takeaway from the New Mex piece).
You heard it there first, folks. If it matters to Santa Feans, it's in American Banker. Unfortunately, the rest of the Banker story requires a subscription.
What does "significantly undercaptialized" mean, anyway? This very handy "bank tracker" tool explains—and the answer is, it's bad:
Here's how the American University Investigative Reporting Workshop explains "troubled asset ratio," that key figure:
It is derived by adding the amounts of loans past due 90 days or more, loans in non-accrual status and other real estate owned (primarily properties obtained through foreclosure) and dividing that amount by the bank's capital and loan loss reserves. It is reported as a percentage. For example, a bank with $100,000 in "troubled assets" and $1,000,000 in capital would have a "troubled asset ratio" of 10 percent. For a fuller explanation, see our methodology.
So, by this indicator, Charter is doing slightly better than it was earlier this year—but its total "troubled asset" load has more than doubled since last summer. Here's more on what the ratio means:
"While it is not an official FDIC statistic, nor is it intended as a definitive predictor of the likelihood of bank failure, the troubled asset ratio apparently is a strong indicator of severe stress inside a bank because it shows the bank's ability to withstand loan losses. Of the 92 banks that have failed so far this year, 84 had troubled asset ratios of 100 percent or greater in the final quarter they reported data before they closed."
Now, what did the federal Office of Thrift Supervision actually say to Charter? Download the Nov. 20 orders in PDF form here and here. The text is also pasted below, with interesting parts in bold.
NOW, THEREFORE, IT IS ORDERED that:
Cease and Desist.
I. The Association and its directors, officers, employees, and agents shall cease and desist from any action (alone or with another or others) for or toward causing, bringing about, participating in, counseling or the aiding and abetting the unsafe or unsound banking practices that resulted in the current high level of classified assets, inadequate capital, and the failure to implement policies and strategies to address liquidity risks. The Association and its directors, officers, employees, and agents also shall cease and desist from any action (alone or with another or others) for or toward causing, bringing about, participating in, counseling, or the aiding and abetting violations ofthe following regulations:
(a) 12 C.F.R. § 560.160 (failure to classify assets and establish allowances in accordance with generally accepted accounting principles and the guidelines ofthe Federal banking agencies);
(b) 12 C.F.R. § 560. 170(d) (failure to properly administer commercial real estate loans);
(c) 12 C.F.R. §§ 562.1(b) and 562.2 (failure to file an accurate Thrift Financial Report);
(d) 12 C.F.R. § 563.161(a) (failure to pursue financial polices that are consistent with the purpose of savings associations and to maintain adequate liquidity planning); and
(e) 12 C.F.R. § 563.170(c) (failure to maintain accurate and complete books and records).
2. By December 31, 2009, and at all times thereafter, the Association shall have and maintain "adequately capitalized" status as defined at 12 C.F.R. § 565.4(b)(2).
3. By November 30,2009, the Board shall prepare and submit for Regional Director's review and comment a written plan to have and maintain well capitalized status as defined at 12 C.F.R. § 565.4(b)(1) (Capital Augmentation Plan). At a minimum, the Capital Augmentation Plan shall:
(a) consider the requirements and restrictions imposed by this Order;
(b) consider and address different scenarios based on current asset quality trends and real estate market conditions;
(c) require the Senior Executive Officersl (Management) to continually assess the sufficiency of the Association's capital levels relative to the Association's risk profile, classified asset levels, allowance for loan and lease losses (ALLL), asset concentrations, liquidity requirements, earnings, and trends in all of the above-listed areas;
(d) establish the timeframes by which additional capital will be raised;
(e) detail the method by which the additional capital will be raised and identify the sources of such capital; and
(f) require Management to prepare and submit for Board review at each regular monthly Board meeting, a written report on the Association's compliance with the Capital Augmentation Plan and the Association's current capital levels (Capital Status Report).
4. Within ten (10) days after receipt of comments from the Regional Director, if any, the Board will revise the Capital Augmentation Plan to incorporate any recommended changes by the Regional Director and adopt the Capital Augmentation Plan as revised. Thereafter, the Association shall implement and adhere to the Capital Augmentation Plan. Within five (5) days after the Board meeting, the Association shall provide a copy of the Capital Augmentation Plan and the Board meeting minutes reflecting the Board's adoption thereof to the Regional Director.
5. Effective immediately, the Board shall
(a) review the Association's capital levels and the Capital Status Report at each regular monthly Board meeting; and
(b) ensure that Management continually assesses the sufficiency ofthe Association's capital levels relative to the factors listed in Paragraph 3(c) above. The Board's review of items (a) and (b) above at each regular monthly Board meeting shall be fully detailed in the Board meeting minutes. Within five (5) days after the Board meeting, the Association shall provide a copy of the Capital Status Report, any supporting documents, reports, or other information reviewed by the Board, and the Board meeting minutes detailing the Board's review to the Regional Director.
6. Within fifteen (15) days, the Board shall submit a written Contingency Plan acceptable to the Regional Director. The Contingency Plan shall detail the actions to be taken, with specific time frames, to achieve one of the following results by the later of the date of receipt of all required regulatory approvals or sixty (60) days after the implementation of the Contingency Plan:
(a) merger with, or acquisition by another federally insured depository institution or holding company thereof; or
(b) voluntary liquidation by filing an appropriate application with the OTS in conformity with federal laws and regulations. The Association shall implement the Contingency Plan immediately upon the direction ofthe Regional Director. The Board shall make any changes to the Contingency Plan required by the Regional Director within twenty (20) days after being notified of such changes and provide a copy of the revised Contingency Plan to the Regional Director for review.
7. Upon implementation of the Contingency Plan, the Association shall provide the Regional Director with written status reports detailing the Association's progress in implementing the Contingency Plan by no later than the first (15t) and fifteenth (15th) ofeach month following implementation of the Contingency Plan.
8. Effective immediately, the Board shall require that Management review the Association's liquidity position and prepare a liquidity report each business day (Daily Liquidity Report), in a format acceptable to the Regional Director. The Daily Liquidity Report shall set forth the uses and sources of funds for the Association's operation and cash flow projections for a sixty (60) day period. The Association shall submit the Daily Liquidity Report to the Regional Director and the Association's Asset/Liability Committee by the close of business each business day.
9. Effective immediately, at each Board meeting, the Board shall review the Daily Liquidity Reports. The Board's review and any corrective actions required by the Board shall be fully documented in the Board meeting minutes. Within five (5) days after the Board meeting, the Board shall submit a copy ofthe Board meeting minutes reflecting its review ofthe Daily Liquidity Reports and any corrective actions to the Regional Director.
10. Effective immediately, except with the prior written notice of non-objection of the Regional Director, the Association shall not:
(a) engage in any new activity or service in which the Association was not actively engaged as of the Effective Date of this Order;
(b) offer any loan or deposit product that was not offered as of the Effective Date of this Order;
(c) establish any new delivery channel, or modify any existing delivery channel, for lending or any other product or service; or
(d) purchase a non-agency mortgage-backed security.
11. Effective immediately, the Association shall evaluate and classify its assets and establish ALLL and specific valuation allowances in accordance with:
(a) 12 C.F.R. § 560.160;
(b) OTS Examination Handbook § 260 (Classification of Assets) and § 261 (Adequacy of Valuation Allowances);
(c) Section II.G of Appendix A to 12 C.F.R. Part 570;
(d) OTS CEO Letter No. 250, entitled "Interagency Policy Statement on the Allowance for Loan and Lease Losses and Questions and Answers on Accounting for Loan and Lease Losses;"
(e) OTS CEO Letter No. 304, entitled "ALLL - Observed Thrift Practices Including Sound Practices;" and
(f) Statements of Financial Accounting Standards Nos. 5 and 114. Commercial Real Estate Concentration Risk.
12. By November 30, 2009, the Board shall submit to the Regional Director for review and comment a Commercial Real Estate Concentration Plan (CRE Concentration Plan) that addresses:
(a) the reduction of the Association's existing commercial real estate loans to a level and within a timeframe satisfactory to the Regional Director; and
(b) the assessment, monitoring, and control of the risks associated with the Association's commercial real estate portfolio in accordance with the guidelines set forth in: (i) the OTS CEO Letter No. 311, entitled "Risk Management: Asset and Liability Concentrations;" (ii) OTS CEO Letter No. 252, entitled "Guidance on Commercial Real Estate Concentration Risks;" and (iii) OTS CEO Letter No. 245, entitled "Updated Director's Responsibility Guide and Guide to Management Reports." The CRE Concentration Plan, at a minimum, shall contain specific targets for the reductions ofcommercial real estate loans as a percentage of Tier 1 (Core) Capital and ALLL and the time frames for reaching each such target.
13. Within fifteen (15) days after receipt of changes or notice of non-objection from the Regional Director, the Board shall revise the CRE Concentration Plan as required by the Regional Director and adopt the CRE Concentration Plan. Thereafter, the Association shall implement and comply with the CRE Concentration Plan. Within five (5) days after the Board meeting at which the CRE Concentration Plan was adopted, the Association shall provide the Regional Director with a copy of the CRE Concentration Plan and the Board meeting minutes reflecting its adoption by the Board.
14. Within fifteen (15) days after the end of each month, beginning with the month ending November 30, 2009, the Board shall provide to the Regional Director a written report (CRE Concentration Reduction Report) that:
(a) sets forth the Association's efforts to reduce the Association's concentration in commercial real estate during that month in accordance with the targets in the CRE Concentration Plan;
(b) reports and explains in detail the variances of actual operating results from the targets set forth in the CRE Concentration Plan for the reduction of commercial real estate loans; and
(c) provides a specific description of the corrective action or measures that have been implemented, proposed, or are under consideration to correct or address any deviation.
15. Effective immediately, the Association is subject to, and shall comply with the requirements and provisions of the OTS Regulatory Bulletin 3b. The Association shall not increase its total assets during any quarter beginning with the quarter ending September 30, 2009, in excess of an amount equal to net interest credited on deposit liabilities during the quarter.
Brokered Deposits Restriction.
16. Effective immediately, the Association shall not accept brokered deposits, except in compliance with 12 C.F.R. § 337.6(b). The Association shall comply with applicable interest rate restrictions contained in 12 C.F.R. § 337.6. Dividends.
17. Effective immediately, the Association shall pay no dividends or make any other capital distribution, as that term is defined at 12 C.F.R. § 563.141, without receiving the prior written approval ofthe Regional Director. The Association shall submit its written request for written approval to the Regional Director at least sixty (60) days prior to the anticipated date of the proposed dividend payment or distribution of capital.
Severance and Indemnification Payments.
18. Effective immediately, the Association shall not make any golden parachute payment or any prohibited indemnification payment unless, with respect to each such payment, the Association has complied with the requirements of 12 C.F.R. Part 359 and, as to indemnification payments, 12 C.F.R. § 545.121.
Directorate and Management Changes.
19. Effective immediately, the Association shall comply with the prior notification requirements for changes in directors and Management set forth in 12 C.F.R. Part 563, Subpart H. Employment Contracts and Arrangements.
20. Effective immediately, the Association shall not enter into, renew, extend, or revise any contractual arrangement relating to compensation or benefits for any Senior Executive Officer or director of the Association, unless it first provides the Regional Director with not less than thirty (30) days prior written notice ofthe proposed transaction. The written notice to the Regional Director shall include a copy of the proposed employment contract or compensation arrangement or a detailed, written description of the compensation arrangement to be offered to such officer or director, including all benefits and perquisites. The Board shall ensure that any contract, agreement or arrangement submitted to the Regional Director fully complies with the requirements of 12 C.F.R. Part 359, 12 C.F.R. §§ 563.39 and 563.161(b), and Section III of Appendix A to 12 C.F.R. Part 570.
21. Effective immediately, the Association shall not, directly or indirectly, increase any salaries, bonuses, or directors' fees, or make any other similar payments to the Association's directors or Senior Executive Officers without the prior notice of written non-objection of the Regional Director.
Third Party Contracts.
22. Effective immediately, the Association shall not enter into any new arrangement or contract with a third party service provider that is significant to the overall operation or financial condition of the Association, or outside the Association's normal course of business, unless, with respect to each such contract, the Association has: (a) provided the Regional Director with a minimum of thirty (30) days prior written notice of such arrangement or contract; (b) determined that the arrangement or contract complies with the standards and guidelines set forth in Thrift Bulletin 82a and OTS Examination Handbook § 310; and (c) received a written notice of non- objection from the Regional Director.
Transactions with Affiliates and Controlling Parties.
23. Effective immediately, pursuant to 12 C.F.R. § 563.41 (c)(4), the Association shall not engage in any transaction with any affiliate unless, with respect to such transactions the Association has complied with the notice requirements set forth in 12 C.F.R. § 563.41(c)(3). The Board shall ensure that all transactions with an affiliate for which a notice is submitted pursuant to this Paragraph ofthe Order shall comply with 12 C.F.R. § 563.41 and 12 C.F.R. Part 223. Compliance with Order.
24. By the 30th day after the end of each month, beginning with the month ending November 30,2009, the Board shall adopt a Board resolution (Compliance Resolution), formally resolving that, following a diligent inquiry of relevant information, to the best of its knowledge and belief, during the immediately preceding month, the Association complied with each provision of this Order currently in effect, except as otherwise stated. The Compliance Resolution shall specify in detail how, if at all, full compliance was found not to exist and identify all written notices of exemption or non-objection issued by the OTS that were outstanding as of the date of its adoption. The Association shall provide to the OTS a certified copy of each Compliance Resolution as adopted by its Board within five (5) calendar days of the meeting of its Board at which the Compliance Resolution was adopted.
25. The minutes of the meetings of the Board shall set forth the following information with respect to the adoption of the Compliance Resolution: (a) the identity of each director voting in favor of its adoption, and (b) the identity of each director voting in opposition to its adoption or abstaining from voting thereon, setting forth each director's reasoning for opposing or abstaining. The Board, by virtue of the submission of a certified copy of such Compliance Resolution by that Board to the Regional Director, shall be deemed to have certified to the accuracy of the statements set forth in each Compliance Resolution, except as noted therein.
Effective Date, Incorporation of Stipulation.
26. This Order is effective on the Effective Date as shown on the first page. The Stipulation is made a part hereof and is incorporated herein by this reference.
27. This Order shall remain in effect until terminated, modified, or suspended by written notice of such action by the OTS, acting by and through its authorized representatives.
28. Calculation of time limitations for compliance with the terms of this Order run from the Effective Date and shall be based on calendar days, unless otherwise noted.
29. The Regional Director, or an OTS authorized representative, may extend any of the deadlines set forth in the provisions of this Order upon written request by the Association that includes reasons in support for any such extension. Any OTS extension shall be made in writing. Submissions and Notices.
30. All submissions, including any reports, to the OTS that are required by or contemplated by this Order shall be submitted within the specified timeframes.
31. Except as otherwise provided herein, all submissions, requests, communications, consents or other documents relating to this Order shall be in writing and sent by first class U.S. mail (or by reputable overnight carrier, electronic facsimile transmission or hand delivery by messenger) addressed as follows:
* This financial site seems to have been first.