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Harrington official says bank is healthy

Posted on August 14, 2009 by Staff

Recent agreement with regulators draws questions

By Kirk Ross
Staff Writer

Harrington Bank is profitable and healthy, its CEO says, adding that reports about the bank’s recent agreement with regulators unfairly portray its financial condition.

Larry Loeser, CEO of the Chapel Hill-based bank, said an agreement between the bank and the U.S. Treasury Department’s Office of Thrift Supervision was the result of losses last year in securities and not because of concerns about the bank’s loan portfolio.

Published reports recently cited a 28-page supervisory agreement signed in late July by the bank’s board of directors and regulators from the Office of Thrift Supervision that called on the bank to change its loan practices in order to improve its risk-based capital ratio.

That language, along with most of the agreement, Loeser said, is mainly boiler plate aimed at addressing typical reasons why banks get into capitalization troubles.

“That’s not us,” he said, “our issue was due 100 percent to several securities.”

In Harrington’s case, Loeser said, the risk-based capital ratio — one of three measures regulators use to determine a bank’s capital strength — dropped from “well capitalized” to “adequately capitalized” last September after the bank suffered losses on corporate bonds. Loeser did not specify what bonds the bank held, except to say they were financial institutions — a sector that was generally pummeled in the last quarter of 2008. [Update: A Harrington vice president told the News and Observer that the failure of Lehman Brothers and Washington Mutual were the reasons for the loss.]

Harrington is still growing and usually ran close on its risk-based capital ratio, Loeser said, but had never fallen below a “well capitalized” in any of the three capital strength measures.

Last year, when the bonds took a hit, he said, “we were not in a position to absorb a surprise.”

Loeser did not specify how much the bank lost, but said it was enough to change the status of the risk-based capital ratio.

The bank subsequently rebuilt its capital to what they thought was enough to satisfy regulators. But with bank problems in the headlines and a new administration, the Office of Thrift Supervision has taken a tougher line, and Harrington officials were somewhat surprised that the regulators required the written agreement, which requires the bank to return its risk-based ratio to “well capitalized” by Dec. 31.

Loeser said the confusion about what regulators were asking was compounded when the agreement was first labeled in news reports as a “cease and desist order” — a much more serious regulatory step.

Harrington employees have fielded questions since the stories broke late last week, but Loeser said the inquiries have now tapered off.

The 10-year old bank, which has a branch in Raleigh and two in Chapel Hill, is moving ahead on plans to build a new branch in Cary.

“We continue to have plans to expand,” Loeser said. “We are profitable. We just beat our budget in July.”

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