TierOne operating under agreement with regulator

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BY MATT OLBERDING / Lincoln Journal Star

TierOne Corp. has signed a supervisory agreement with its federal regulator, the Office of Thrift Supervision, after an examination by the agency determined the Lincoln banking company “violated regulations and engaged in acts and practices that are considered to be unsafe and unsound.”

The agreement did not specify what TierOne practices violated regulations, and an OTS spokesman said the agency does not comment on enforcement actions.

Ed Swotek, TierOne’s senior vice president and investor relations strategic planning officer, said some of the alleged violations were as simple as a missing piece of documentation in a loan file.  

TierOne, however, did not admit any wrongdoing in signing the agreement. TierOne executives said the agreement will have no effect on customers, day-to-day operations or employees.

But the bank will be bound until OTS releases it from commitments TierOne managers made to satisfy the agency that the bank is operating soundly.

Those commitments include:

* Providing a strategic business plan for the years 2009-2011 to the OTS for review and approval;

* Keeping capital levels well above what the OTS normally requires of the institutions it regulates;

* Refraining from paying dividends to stockholders or buying back stock without without written approval from the OTS;

* Limiting the compensation given to members of its board of directors and also evaluating whether the board needs to be expanded or its makeup changed to include more independent members;

* Notifying the OTS of any proposed changes to compensation for senior executives or board members;

* And re-evaluating the appropriateness of bonuses awarded to executives in 2007.

The new demands were imposed after an examination by OTS, which began last June.

TierOne had already voluntarily taken several of the steps required in the agreement.

For instance, it suspended its dividend last fall and was already meeting the increased capital requirements as of Sept. 30.   Capital is a measure of financial strength, the money a bank’s owners invest and must keep on its books to back up its ability to do business.

TierOne also added former state banking director Samuel Baird to its board of directors in September.

“Many of the steps contained in this agreement are consistent with the actions we have previously announced and completed or are in the process of implementing, as TierOne navigates through this period of unprecedented economic disruption,” said Gilbert Lundstrom, chairman and chief executive officer of TierOne.

After TierOne reached the top ten in profitability among U.S. thrifts earlier in this decade, the housing bubble burst and TierOne’s fortunes turned.

Lundstrom said the OTS became concerned after the publicly traded bank reported four consecutive quarterly losses from the second half of 2007 to the first half of 2008. Those losses totaled $55.8 million, not including a $42.1 million goodwill impairment charge the company took in the first quarter of 2008. Previously, TierOne had never declared a loss since becoming a publicly traded company in 2002.

Those losses were largely due to a portfolio of nonperforming loans that were mostly generated out of nine loan production offices the company bought in other states such as Florida, Arizona, Nevada and North Carolina.

TierOne has since stopped making loans in those areas and closed the offices last year. It also sold off $63.8 million worth of nonperforming Florida loans last June.  As of the end of the third quarter, its Florida portfolio included $11.2 million of nonperforming loans.

“By having moved proactively and aggressively, we feel most of this is behind us,” Lundstrom said in an interview with the Journal Star.

He said TierOne still has $180 million worth of real estate loans in Las Vegas in its portfolio, about $80 million of which were nonperforming as of Sept. 30, according to company financial reports.

Overall, the company had $141 million worth of nonperforming loans as of Sept. 30, more than 5 percent of all its outstanding loans.

Despite the continued loan losses, TierOne did report a $2.1 million profit in the third quarter.

The company is required to report its fourth-quarter results by mid-March.

Reach Matt Olberding at 473-2647 or molberding@journalstar.com.