First National Bank of Absecon is raising capital levels, hiring a chief financial officer and taking many other actions to comply with a formal written agreement with its federal regulator to ensure the bank’s safe and sound future.
Eric Gaupp, president and CEO of First National Bank of Absecon, described the actions as steps to meet the new level of regulations on the banking industry, not a response to problems.
“Our assets are strong, there is not a problem with delinquent loans or something of that nature,” said Gaupp, of Egg Harbor City. “They’re just raising capital levels for everyone, because of the financial crisis.”
The federal Comptroller of the Currency executed the agreement in March with the bank’s board of directors based on information gathered by its bank examiners.
“The comptroller has found unsafe and unsound banking practices relating to earnings performance, planning and budgeting; capital planning; asset-liability management; credit-risk management; the compliance program; and the audit program at the bank,” says the agreement, provided by the regulator.
Dean DeBuck, spokesman for the Office of the Comptroller of the Currency, part of the U.S. Treasury Department, said the regulator would not disclose the conditions that prompted the formal written agreement nor the progress the bank was making toward meeting its requirements.
“We are required by law to disclose the attached action, but we do not comment on them. That is standard practice that applies to all such actions,” DeBuck said.
DeBuck said there were 59 such agreements between the comptroller and banks last year. Sun National Bank, based in Vineland, entered into a written agreement with 10 articles in 2010, and the comptroller entered into a consent order with Crown Bank, then based in Ocean City, in 2008.
A written agreement is one of the formal enforcement actions the comptroller can take. More serious actions include cease-and-desist orders and consent orders.
The Comptroller of the Currency says a formal written agreement’s provisions “are set out in article-by-article form and prescribe those restrictions, corrective and remedial measures necessary to correct deficiencies or violations in the bank and return it to a safe and sound condition.”
The regulator’s agreement with First National Bank of Absecon consists of 12 articles that require a broad range of actions, including (given in the order they appear in the agreement):
- quickly appoint a compliance committee of at least four directors;
- conduct a review to ensure the bank has the executive management and staffing needed to carry out the agreement, comply with regulations and manage operations in a safe and sound manner;
- appoint a chief financial officer and a compliance officer who are independent of the operational areas of the bank, submitting information about the appointments to the assistant deputy comptroller, who has the power to disapprove of the appointments;
- maintain a performance appraisal program for each senior manager and a compensation program tied to performance;
- adopt, implement and adhere to a written strategic three-year plan establishing “objectives for the bank’s overall risk profile, earnings performance, growth, balance sheet mix, off-balance sheet activities, liability structure, capital adequacy, and product line development.” Further, the bank must give the assistant deputy comptroller at least 60-days notice of any intent to deviate from the strategic plan.
- create and follow a three-year capital program, and a written interest-rate-risk policy;
- revise the bank’s investment policy and implement and adhere to the revised policy;
- strengthen the bank’s contingency funding plan consistent with regulations;
- develop and follow a program to improve the bank’s loan portfolio management;
- adopt and adhere to a written program to ensure the bank is in compliance with all consumer protection laws;
- adopt and adhere to a sufficient and independent internal audit program;
- and “take all necessary steps to ensure that bank management corrects each violation of law, rule or regulation cited in the report of examination or in any subsequent report of examination.” (If any violations exist, none are referenced in the written agreement.)
According to Comptroller of the Currency regulations, violations of a formal written agreement “can provide the legal basis for assessing civil money penalties against directors, officers and other institution-affiliated parties.”
Unlike a consent order, though, written agreements are not enforceable through the federal court system. A consent order may also be used as grounds to appoint a bank receiver, while a formal written agreement may not.
In the fourth quarter of 2011, the most recent reports available, Bankrate.com gave First National Bank of Absecon four out of five stars, “indicative of a sound financial condition.” Negative factors in the rating included earnings and net interest margin, the latter of which Bankrate.com considered an area of potential concern.
First National Bank of Absecon had a loss of $262,000 in the first quarter, which included a $293,000 provision for loan and lease losses, according to the bank’s regular report to the Federal Financial Institutions Examination Council.
Gaupp, who has been president since 2004, said he was pleased with the bank’s progress in fulfilling the requirements of the formal written agreement and was “meeting all the deadlines so far.”
“We continue to work closely with the regulators and full expect positive results,” Gaupp said. “We’re confident First National Bank of Absecon will continue to service the needs of stockholders and customers for many years into the future.”
Founded in 1916, the bank will mark a century in business in four years.
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