Federal regulators block TierOne’s proposed sale of 32 branches, leaving bank’s future unclear

Feds block TierOne’s proposed sale of 32 branches

OMAHA, Neb. — Federal regulators have blocked TierOne Bank’s proposed sale of 32 branches to Great Western Bank, leaving the future of the Lincoln-based financial institution uncertain.

The federal Office of Thrift Supervision denied the proposal for the bank to sell nearly half its full-service branches in a filing late Friday, saying the sale would leave TierOne in worse financial straits.

Friday was the deadline for TierOne to find an investor, buyer or merger partner. The bank, which holds about $2.9 billion in assets, has been struggling under the weight of bad loans in areas hit hard by the subprime crisis.

Last month, federal regulators rejected TierOne’s earlier plan to improve its balance sheet. They ordered the bank to have an agreement to improve its capital position by the end of April, and said the bank had to receive an infusion of funds by the end of May, unless regulators extended the deadlines.

TierOne spokesman Ed Swotek said the bank was continuing to comply with previous directions from regulators and would move forward.

The bank had agreed last fall to sell 32 of its full-service branches to Sioux Falls, S.D.-based Great Western to help raise capital. The banks had been awaiting regulatory approval of the sale. TierOne Corp., the parent company of the bank, said in a statement late Friday that since approval from the Office of Thrift Supervision was a condition of the deal, it cannot be completed.

Officials at Great Western did not immediately respond to a message left late Friday.

The proposed sale detailed in the denial would have included the transfer of $1 billion to $1.1 billion in deposit liabilities.

TierOne’s troubles are primarily related to nonperforming loans generated by nine loan offices in other states that TierOne closed in 2008. Those offices were in states — including Arizona, Florida and Nevada — where foreclosure rates on subprime loans have been high.

Regulators became concerned about TierOne after the bank reported four consecutive quarters of losses totaling $98.5 million from late 2007 into 2008.

TierOne tried to sell itself to commercial lender CapitalSource Inc., but that deal fell apart in 2008 after turmoil in the credit markets and regulatory delays. Falling stock prices trimmed the value of the deal from $652 million when it was announced to $322 million when TierOne’s parent company backed out.

In early 2009, TierOne signed an agreement with regulators that restricted certain activities and required the bank to keep more capital on hand than is typically required for similar thrifts.

Through the first six months of 2009, TierOne reported a $25.9 million net loss, or $1.53 per share, but the bank has said it plans to amend its second-quarter report because regulators directed TierOne to increase how much money it set aside to cover bad loans.

TierOne has not submitted financial reports for the third or fourth quarters of 2009, but the bank said in a regulatory filing in February that at the end of December it had less than half the capital regulators require.

On the Net:

TierOne Corp.: www.tieronebank.com