SAVANNAH — The Coastal Bank has entered into formal agreements with federal and state banking regulators to improve asset quality and maintain capital at certain levels.
According to a news release issued last week, the agreement — or consent order — is between the bank, the Federal Deposit Insurance Corp. and the state Department of Banking and Finance. The consent order isn’t expected to be published until late July, but the bank has been operating under similar terms with regulators for the past three years.
“Local community banks are a reflection of the communities they serve,” said Tom Wiley, chairman, president and CEO of The Coastal Bank. “Unfortunately, our community has experienced significant economic stress and real estate value depreciation over the past several years. We have been working diligently to address the primary issues outlined in the consent order since April 2007 when our management team joined the company.”
Wiley said that because the bank has been implementing similar terms since 2007, customers won’t notice a difference in their local bank.
“The bank has been operating within the framework of the consent order for three years. So no, they won’t notice any changes to service charge routines, interest rates. … When you walk into a branch I think you would say, ‘Wow, this bank is actively soliciting business.’ And that’s precisely what we’re continuing to do.”
He noted that as of March 31, the bank had total assets and total risk-based capital in percentages well in excess of the consent order minimum levels and the “well-capitalized” minimum levels as defined by the regulators — good news for the bank that should help comfort customers, he said.
According to the release, in the past three years, around $13 million of new capital has been raised and injected into the bank — $10 million of this new capital came from increased investment by members of the board of directors and from company officers. The bank also has developed initiatives to reduce overhead expenses.
“We appreciate the confidence shown by our directors and officers in making additional capital investments in our bank, which have allowed us to maintain our strong capital levels,” Wiley said. “In addition, we made the decision to take the necessary overhead reduction steps in a way to preserve capital. Each of our directors and employees has shared in the sacrifice needed to return our bank to healthy financial standing. Their dedication and commitment is a key to our success.”
While problem asset levels remain elevated, the bank’s non-performing assets, including non-accruing loans and other real estate, have declined since January.
Since early 2008, the bank’s management team has focused on the collection or improvement of problem assets. The bank’s largest problem assets, which were concentrated in South Carolina and in Effingham County, have been resolved or written down to realizable value, according to the release.
“Since the examination last October, national data and local trends suggest that economic conditions are improving and that real-estate values are stabilizing,” Wiley noted. “While we expect economic recovery to be a slow process, based upon detailed review and analysis of our loan portfolio, we believe that the larger exposure issues are behind us. Should there be additional deterioration in specific relationships, those exposures will be smaller and more manageable than many with which we have previously dealt.”
Under the agreement, the bank must, among other things:
• Revise written business/strategic plans and budgets detailing strategies to return the bank to profitable operations.
• Review and revise its written capital plan to insure continued maintenance of Tier 1 capital in excess of 8 percent of total assets and total risk-based capital in excess of 10 percent of total risk-weighted assets.
• Reduce problem assets to specific quarterly targets, including no further extension of credit to problem borrowers unless such extension is deemed to be in the best interest of the bank by its board of directors, and to further reduce the bank’s concentration in certain real estate-related credit exposures.
• Limit asset growth to no more than 10 percent annually and limit the use of brokered deposits without regulatory approval.
• Review and revise, as necessary, key operating policies and internal audit processes to assure that the bank continues to operate in a safe and sound manner.
• Refrain from the payment of dividends, preferred distributions, bonuses or other forms of payment that might reduce capital.
• Review the efficiency of its management structure and related compensation costs.
• Appoint a committee of directors to oversee adherence to the agreement and to provide quarterly progress reports to the regulators on all aspects of the agreement.
“We take this consent order seriously and have committed the necessary resources to achieve full compliance as quickly as possible,” Wiley said. “Our board of directors, management team and staff are making every effort to meet the objectives outlined in the order. We will continue to work with the FDIC, the banking department and the Federal Reserve to further improve the bank’s financial performance. We are especially grateful for the confidence and support of our customers.”
The bank’s parent holding company, Coastal Bankshares Inc., will enter into a similar agreement with the Federal Reserve Bank of Atlanta
The consent order does not affect FDIC deposit insurance coverage. Customer deposits remain protected and insured by the FDIC up to $250,000 per depositor. Additionally, as part of the Dodd-Frank Act, unlimited FDIC insurance coverage applies to non-interest-bearing deposit accounts and Lawyer’s Trust accounts through Dec. 31, 2012. No depositor ever has lost a penny of insured deposits since the FDIC was created in 1933.
Locally owned and operated, The Coastal Bank provides a range of services, specializing in small business, consumer banking and real-estate lending. The bank, which has been serving the area since 1954, has branches throughout Coastal Georgia, including Hinesville.