Coastal Banking Co. of Beaufort, S.C., has entered into a formal agreement with regulators to reduce its risky assets.

The $488 million-asset company, which has been weighed down by bad construction loans lately, said the agreement requires its CBC National Bank to strengthen loan underwriting and administration, with particular emphasis on its exposure to commercial real estate.

The bank had nonaccrual loans of $25.9 million at the end of the second quarter, up 6.5% from the first quarter, according to data from the Federal Deposit Insurance Corp. The nonaccruals made up 5.31% of its total loans.

Construction loans account for 27% of the total portfolio but 68% of the problem loans.

Coastal announced the agreement with the Office of the Comptroller of the Currency late Friday. It said in a press release that the requirements are in line with steps it has taken over the last year.

"We have significantly lessened our concentration of commercial real estate-related loans and have worked diligently to strengthen overall loan portfolio management, mitigate credit risk and improve asset quality," said Michael G. Sanchez, its chief executive officer.

Sanchez also said that the company formed a workout division in last year's fourth quarter that has recovered an average of 80 cents on the dollar in the disposition of its foreclosed property.

The agreement did not impose any elevated capital requirements. CBC National had a total risk-based capital ratio of 14.07% at the end of the second quarter, well above the 10% minimum required for a bank to be considered well capitalized.

Besides the operations in its home state, CBC National has a First National Bank of Nassau County division in Fernandina Beach, Fla.

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