TierOne Corp. in Lincoln, Neb., got a new chief executive and struck a deal to sell nearly half its branches, but remains under the gun to raise a relatively large amount of capital.
The $3.1 billion-asset company reported last week that its thrift unit was significantly undercapitalized and that it will not file any financial results until it completes a regulator-requested restatement of its second-quarter results.
Restatements are occurring more often because of the decline in real estate prices and regulators' tough stance on when such hits must be taken. TierOne's delay in filing is both a signal of the severity of its problems as well as a hurdle in its search to find more capital.
"Restatements are becoming more common, but you really want to address that uncertainty as soon as possible," said Kip Weissman, a partner at Luse Gorman Pomerenk & Schick PC, a Washington law firm. "You can't do much of anything without financial results."
Michael J. Falbo, who joined TierOne last month as its chairman and CEO, agreed in an interview Thursday.
"We have a clear picture as to where we are, but I don't think a lot of people will be standing in line with their checkbooks until we have audited results," Falbo said. "We are putting a lot of resources into getting this resolved."
Falbo said the company plans to balance preserving its retail base while working through problem credits and finding new capital.
"Dealing with troubled assets is what drives the institution right now. You can't control your organization when problems are high, they control you," he said. "The good news is that we don't have to spend much time on the retail side because there is nothing there to fix, but we have to make sure we don't let that slip."
Falbo succeeded Gilbert G. Lundstrom, who retired as CEO but stayed on as the company's vice chairman. Falbo was formerly the chairman and CEO of State Financial Services Corp. in Milwaukee, which was acquired by Associated Banc-Corp in 2005.
TierOne needs at least $129 million in capital, according to Karen Dorway, the CEO of BauerFinancial Inc., a bank-rating firm in Coral Gables, Fla. But that estimate is based on Sept. 30 data, and she said a fourth-quarter loss would increase that hole.
TierOne provided a glimpse of its results for the latter part of 2009 in its recent Securities and Exchange Commission filing. Its provisions for loan losses totaled $50.3 million for the fourth quarter, down 40% from a year earlier. The company also reported that its TierOne Bank unit had a leverage ratio of 3.28% and a total risk-based capital ratio of 5.41%. The thrift has been operating under a supervisory agreement with the Office of Thrift Supervision since January 2009 that requires the thrift's ratios to be 8.50% and 11%, respectively.
Falbo said TierOne is "exploring every avenue" to raise capital and return the thrift to well-capitalized status.
One of those avenues is TierOne's plan to sell 32 of its 69 branches, along with $1.1 billion of deposits and $800 million in loans, to Great Western Bank for $39 million. Falbo said the company is also courting private-equity investors. While a public offering is unlikely a sale of the thrift is possible, Falbo said.
TierOne has yet to gain regulatory approval for the branch-sale deal, which was struck in September and faces a March closing deadline.
Other struggling companies have run into regulatory roadblocks in their attempts to repair capital through branch sales. Last month, the Office of the Comptroller of the Currency told Amcore Financial Inc. in Rockford, Ill., that it viewed "recently announced asset sales" as increasing the risk to its bank's capital base. A week earlier, Amcore had announced it was selling 12 of its branches. In July, the OTS seized Peoples Community Bank in West Chester, Ohio, despite a deal its holding company had struck to sell 17 of its 19 branches. At the time, an OTS spokesman said the proposed sale would not have dealt with the problem assets and the regulator saw failure as the least costly solution.
With Great Western not expected to take any of TierOne's nonperforming assets, which made up more than 13% of assets at Sept. 30, the regulators could be left with a less-valuable organization should TierOne eventually fail.
"I don't think the regulators would let them sell a cherry-picked portion of their franchise that left the rest of the company in the pits," said Theodore Kovaleff, an analyst at Horwitz & Associates Inc. and a former TierOne shareholder. "Especially if it is not going to fix the problems."
But Jeff K. Davis, an analyst formerly at First Horizon National Corp.'s FTN Equity Capital Markets Corp., said endorsing the deal could make a resolution easier, especially because buyers for such large banks are scarce in Nebraska.
"A smaller institution would likely be easier to resolve in that part of the country," he said.
TierOne's problems are related to ventures outside of Nebraska. Early last decade, TierOne sought to offset its slow growth by opening loan-production offices in higher growth areas, such as Arizona, Florida and Nevada. Those offices primarily make residential construction loans, which now represent the bulk of the company's problems. TierOne has closed its loan-production offices and sold a pool of mortgages in Florida.