More than 10 percent of U.S. banks remained in hot water with bank regulators this month, according to data from SNL Financial L.C.
About 9 percent of banks with headquarters in Pennsylvania had regulators on their backs as of Tuesday, SNL said. In New Jersey, the figure was 10 percent. In the Philadelphia region, the figure was higher, nearly 17 percent of 84 local banks.
In 13 states in the West and in the Southeast, where real estate prices were far frothier than in the Mid-Atlantic, more than 20 percent of banks were operating under severe enforcement actions.
Regulators typically crack down on banks through agreements called consent orders, cease-and-desist orders, or supervisory agreements. They are designed to force banks onto a straight and narrow path, so that, in the worst cases, the Federal Deposit Insurance Corp. might be spared the cost of taking over a bank.
But not all the agreements are the same, banking experts said. They do not mean a bank is doomed to fail, though some do.
Some are based on what regulators perceive as lax lending practices and weak management structures for financial controls and compliance. Others, considered more serious, specifically address the amount of troubled loans or capital a bank has.
Regulators look not only at how much capital a bank has today - money that can absorb losses - but also at the likelihood the bank will be able to boost capital through earnings, said Sandy Spratt, chief executive of Ardmore Banking Advisors, which helps banks review loans and deal with other credit issues.
"They get very upset" if they see capital weakness, Spratt said of the regulators.
The biggest of 14 Philadelphia-area banks on the national list of 1,042 institutions are Sun National Bank in Vineland, Royal Bank America in Narberth, and Malvern Federal Savings Bank in Paoli.
Sun National, with $3.2 billion in assets and executive offices in Mount Laurel, has lost $272 million in the last nine quarters through June, more than the nearly $200 million the bank raised by selling stock to WL Ross & Co. and other investors.
Regulators cited Sun National for "inadequate credit-risk management and loan-review practices in the commercial-lending area."
Since that agreement was reached in April 2010, Sun has been hacking away at its commercial loans, selling $236.8 million of them at a net loss of $69.3 million. The bank still has $105 million worth of land and development loans, nearly half which did not get passing grades.
The bank's chief executive, Thomas X. Geisel, declined to be interviewed. Other bank executives did not respond to requests for comment.
At Royal Bank, which has been operating since July 2009 under a cease-and-desist order, the problem has long been a heavy concentration of risky commercial real estate loans. The bank has had 12 straight quarterly losses. Its assets fell by a third, to $900 million, and its loans fell by 28 percent, to $443 million over the same period.
This month, Royal disclosed that the U.S. Treasury Department had appointed a second member to the Royal board, which it had the right to do under the Troubled Asset Relief Program (TARP) if banks missed a certain number of dividend payments. Royal received $30.4 million under TARP in February 2009 and owed $3.2 million in dividends June 30.
The new Royal Bank director is Wayne Huey Jr., who was vice chairman of Millennium Bank before it was sold to Harleysville National Corp. in 2004. Before that, he was a commercial-lending executive at Meridian Bancorp Inc.
Malvern Federal Savings Bank's October 2010 supervisory agreement with its regulator was wide-ranging, apparently designed to sharpen operations at the bank, which has $669 million in assets.
Other local banks with at least $500 million in assets on the SNL list are Nova in Berwyn and Continental in Plymouth Meeting.
Nova's problem is extraordinarily low capital.
Regulators cited Continental for operating with too much risk, too many troubled loans, too little capital for the type of loans on its books, and too little profit to boost capital in the future.
At the end of 2009, 15 area banks were operating under enforcement actions, only one more than now, but the list has changed significantly.
Some, such as Harleysville National Bank and Sterling Bank, under pressure from regulators, found buyers. Others, including ISN Bank in Cherry Hill, Allegiance in Bala Cynwyd, and Earthstar in Southampton, Bucks County, were sold by the FDIC.
Contact staff writer Harold Brubaker at 215-854-4651or email@example.com.