Regulators Take Untroubled Bank From Its Owners

The federal Office of Thrift Supervision (OTS) closed family-owned Charter Bank in New Mexico on Friday afternoon and handed it to the Federal Deposit Insurance Corporation (FDIC), which gave it to Beal Financial Corporation of Plano, Texas. The FDIC said all bank branches would reopen on Monday under Beal's ownership.

The closure was a surprise because the bank was not having problems, except with its regulators.

Last fall, Office of Thrift Supervision examiners, responding to the national collapse of real estate development, ordered Charter to increase its allowance for loan losses from $10.8 million to $55.4 million, even though Charter had no delinquent commercial construction loans and only .34 percent of the loans in its commercial real estate portfolio were behind on their payments. That order reduced the level of capital Charter had on its books.

Then, last Wednesday, "OTS ordered Charter to find new capital as a buffer against insolvency or face closure." That order was followed by OTS' closing the bank just two days later.

Let's look at those figures again. This bank, which the regulators said was so troubled it had to be closed, had no delinquent commercial construction loans and just .34 percent — one third of one percent of its commercial real estate loans that were behind in their payments. That's a record I suspect very few banks in the country could match.

"This was not indicative of any instability on the part of the bank," New Mexico State Regulation and Licensing Secretary Kelly O'Donnell said Friday.

In an interview Saturday, Charter Bank President Glenn Wertheim said politics played a role in his bank's death. He noted that the AIG unit considered to have been the "linchpin" in the financial system collapse in September of 2008 was regulated by OTS, which ended up with much of the blame for the collapse. As a result, "OTS found itself fighting for its life as politicians called for its abolition or merger into other regulatory bodies." As a result, they "had a shift in examination standards", which subsequently resulted in Charter's untroubled loans being reclassified as toxic.

Charter's management, led since 2001 by bank President Glenn Wertheim, insisted that loans, mostly commercial real estate loans — which OTS said were troubled — were, in fact, being paid on time. OTS disagreed and ordered tens of millions of dollars of those loans to be classified as toxic.

That classification, recorded as an entry on the bank's balance sheet, on paper lowered Charter's capital (money regulators require banks to make sure their deposits are safe) to levels well below those regulators regard as sound, even though virtually all of Charter's commercial real estate borrowers continued to pay their bills on time.

Charter Bank specialized in mortgage loans designed to help first-time home buyers get affordable mortgages, even though they could have made more money offering other types of loans. Many of its loans were made in cooperation with Mortgage Finance Authority (MFA), established by the New Mexico legislature to help finance low-income home construction. According to MFA executive director Jay Czar, Charter Bank services "about 95 percent of the mortgages issued through the agency." It is unclear how the Charter Bank closure may affect MFA programs.

— Subscription to the Albuquerque Journal is apparently required for access to most of its news articles.