Though it qualifies as well capitalized under the typical standards, Horizon Bank in Bellingham, Wash., is now under a regulatory order to fatten its capital levels.
The $1.4 billion-asset Horizon also must shrink its problem loans and its concentration of construction and land development loans under the order it received last week from the Federal Deposit Insurance Corp. and the Washington Department of Financial Institutions, the bank's parent company, Horizon Financial Corp., disclosed Monday in a Securities and Exchange Commission filing.
The bank consented to the cease-and-desist order, which gives it 270 days to boost its leverage ratio to 10%, double the usual regulatory minimum.
At yearend the bank had a leverage ratio of 8%, according to data from the FDIC.
The bank's noncurrent loans increased to 5.51% of total loans, from 0.08% a year earlier, the data showed. Construction and land development loans made up 41% of the overall $1.2 billion loan portfolio.
"We have focused our attention on identifying and resolving problem credits as expeditiously as possible," Rich Jacobson, the chief executive officer of the company and the bank, said in a press release. "We have further focused on repositioning our balance sheet to lower the concentration in real estate construction and land development loans and to insure that we have appropriate reserves and capital to comply with the order and support these efforts."
The order also requires the bank to improve its capital management, strengthen board oversight, change how it calculates the loss allowance, and reduce its use of brokered deposits, among other things.
Since the September FDIC exam that led to the order, the company said, it has taken steps to address the concerns that regulators raised, including setting aside a higher provision for loan losses and filing a shelf registration with the SEC to facilitate raising capital.
For the quarter that ended Dec. 31, the company swung to a $5.1 million loss, from a profit of $4.7 million the year earlier, largely because it increased the provision 1,400%, to $12 million.
Shares of Horizon Financial fell 43 cents Monday, to $1.94.