Sun Savings & Loan Assn., its net worth now below zero, entered into a consent agreement Friday that allows federal regulators to actively negotiate for either a capital infusion or merger, and enables authorities to eventually appoint a receiver to take control of Sun.
The agreement with the Federal Savings & Loan Insurance Corp. means that regulators "will play a more active role in negotiating our recapitalization," according to John McEwan, Sun president and chief executive.
Concurrent with the consent agreement, regulators also ordered Sun to write off nearly $1.4 million in additional bad loans. That action dropped Sun's net worth to a negative $818,000, which means Sun's liabilities exceed its assets by that amount.
McEwan said that Sun management disagreed with the regulators' decision to write off the loans--for two condominium projects that Sun participated in with several other thrifts--because the company already had established a $1-million reserve for the bad loans.
Sun officials claim that the company's net worth is $1.27 million as of Dec. 31, while regulators calculated Sun's year-end net worth at $850,000. The two figures are different because of prior disagreements over the total of loan-loss reserves.
Sun's outside auditors, Deloitte Haskins & Sells, "concur in management's position on this matter," Sun officials said Friday.
The consent agreement continues a supervisory agreement entered into by Sun in January, which limits the company's asset and liability growth.
Although the agreement opens the door to a possible appointment of a receiver, McEwan said that regulators have given him "no indication" of such a move.
Sun's efforts to obtain new capital is continuing, McEwan said. "The consent resolution may make it easier to get recapitalized because the regulators have the authority to assist us," he said.