Milwaukee-based Guaranty Bank was issued a cease and desist order by the Central division of the U.S. Office of Thrift Supervision last week, in which the bank was ordered to “cease and desist from any unsafe and unsound practice,” which resulted in diminished capital, poor earnings, high levels of classified assets, and inadequate policies and procedures that were discovered in a July, 2008 report by the OTS.
The bank’s board of directors, according to the report, must approve a plan to reduce its levels of poorly performing assets by mid May. It must also review that plan’s performance every quarter, beginning June 30. The board must also report the plan’s progress to the OTS’ regional director.
The order states that Guaranty Bank, after June 30, must maintain a Tier 1 core capital ratio of at least eight percent and a total risk-based capital ratio of at least 12 percent after establishing an appropriate allowance for loan and lease losses.
The cease and desist order is not reflective in what the order asks Guaranty Bank to do, said Kurt Bauer, president and CEO of the Wisconsin Bankers Association.
“When you’re looking at this action, it’s called cease and desist,” he said. “It doesn’t necessarily reflect what they’re asking the bank to do in this case. They’re asking Guaranty to raise capital.”
Doug Levy, president and CEO of Guaranty Bank, said the order asks the bank to raise capital and discusses how it can return to profitability.
“This agreement is a mutual, formal agreement with the OTS issued as a result of our ongoing work with federal regulators and outlines a strategic plan and timeline as we continue our work with regulators toward a common goal of improved financial performance,” he said. “In fact, the agreement does not refer to any specific ‘unsafe’ or ‘unsound’ practice.”
Guaranty Bank, from Dec. 1, 2008 to the end of February, issued more than $1.2 billion in residential first mortgage loans and expects another $400 million to close by the end of this month. The bank voluntarily stopped issuing second mortgages last year, Levy said, and is working with its borrowers that have problem loans.
While the order from OTS is serious, the bank is continuing with its plans to return to profitability, including many of its lending operations, Levy said.
“While we are taking the agreement very seriously, we are moving forward according to plan,” he said. “We are not, however, being asked to cease and desist from any of our basic operating practices.”
