By Kirk Ross
Staff Writer
When news broke in August 2009 that Harrington Bank had been put on notice by the federal Office of Thrift Supervision, the bank’s officials were quick to point out that they had signed a Supervisory Agreement to improve its bottom line and Harrington was not under the more serious threat of a cease and desist order.
As of last week, that changed. The bank is now under a cease and desist order, and with it, CEO Larry Loeser said Wednesday, Harrington faces a significant challenge to reassure its customers that the conditions that led to the order have passed and the bank is healthy.
The Nov. 23 order from the Office of Thrift Supervision (OTS) Southeastern Regional director said results of an annual audit on June 1 found the bank had failed to meet a Dec. 31, 2009 deadline to improve its risk-based capital ratio, one of several measures of a bank’s health and one that regulators insisted Harrington fix.
Loeser said the order comes long after facts on the ground have changed for Harrington, which took a big hit in 2008 on securities it held in two failed financial firms, Lehman Brothers and Washington Mutual.
To raise the capital to meet the regulator’s target of a 12 percent ratio, Harrington, which is majority owned by Duke University business professor and Chapel Hill investment manager Doug Breeden, opted to sell a sister bank in Los Angeles. Loeser said the intention was to close the deal before the OTS’s Dec. 31 deadline, but the sale was delayed several times and wasn’t closed until Sept. 30 of this year.
He said he doesn’t understand why the OTS would issue a cease and desist order now, given that regulators know the bank to be above the 12 percent threshold. The bank, he said, was rebuilding its ratio even without the sale.
In a release circulated by the bank this week, Harrington announced a $3.7-million infusion from its parent company Community First Financial Corporation, and that as of Sept. 30 its risk capital ratio stood at 12.78 percent.
Loeser said he and other company officials were “shocked and disappointed†after getting notice of the cease and desist order.
“It doesn’t restrict our operation in any way,†Loeser said. “We were well above 12 percent when we got the order. What it does do to us is it gives us a PR problem.â€
The bank’s record with OTS also worried members of the Carrboro Board of Aldermen, who this fall settled a deadlock over moving from Bank of America to either BB&T or Harrington by agreeing to pick Harrington only if it settled the regulators’ concerns by the end of the year. Loeser said even before getting the cease and desist notice, Harrington had decided last month it was not likely it could meet the town deadline and withdrew its offer. Under rules passed by the board of aldermen, the town’s bank contract will automatically be awarded to BB&T.
Loeser said he is not sure when the cease and desist order will be lifted. Further complicating the issue is that under last summer’s financial reform legislation, the OTS will be closed next June and its functions assumed by the Office of the Comptroller of the Currency.
“We’re at the mercy of regulators to take the order off,†Loeser said. “That’s now more complicated in that [the OTS] is being merged out of existence next summer.â€