More Washington banks in trouble

December 29th, 2009 6:18 PM

Four more Washington banks placed under tighter FDIC oversight

The latest actions mean that nearly a third of the 95 banks headquartered in Washington are operating under some degree of enhanced regulatory oversight. That's one of the highest rates in the nation, and an indication of just how troubled the state' community-banking sector is.

By Drew DeSilver

Seattle Times business reporter

Four more Washington banks have been placed under tighter oversight by state and federal regulators, bringing to 28 the number of state-based banks operating under closer government scrutiny.

The orders, disclosed Monday by the Federal Deposit Insurance Corp., the Federal Reserve Board and the state Department of Financial Institutions (DFI), were issued between Nov. 4 and Dec. 4 and subject the banks to a variety of restrictions on their operations and management.

The banks are Viking Bank of Seattle, Lynnwood-based Bank of Washington, Pierce Commercial Bank of Tacoma and American Marine Bank of Bainbridge Island.

The orders vary in their specific terms and conditions, but in general they require banks to clear senior-management changes with regulators; increase capital levels; adopt plans to purge bad loans from their books; and reduce overreliance on certain loan categories, such as commercial real estate.

In addition, the banks generally cannot pay cash dividends, either to individual shareholders or their holding companies, without regulators' approval.

The latest actions mean 29.5 percent of the 95 banks headquartered in Washington, representing 39.2 percent of the assets of all state-based banks, are operating under some degree of greater regulatory oversight.

That's one of the highest rates in the nation, and an indication of just how troubled the state's community-banking sector is.

Besides the four newly disclosed banks, two companies previously under "cease and desist" orders from the FDIC and DFI were subjected to additional restrictions last month.

They were Regal Financial Bank of Seattle and County Bancorp, parent of Arlington's North County Bank.

Separately, a report last week from research firm SNL Financial said four Washington bank-holding companies that received government aid under the Troubled Asset Relief Program, or TARP, did not make their scheduled November dividend payments.

Those four companies are Sterling Financial of Spokane, Cascade Financial of Everett, Pierce County Bancorp of Tacoma and Pacific International Bancorp of Seattle.

Regulators have shortened the leashes on banks owned by all those companies except Pacific International.

Nationwide, 55 TARP recipients missed their November payments, SNL said.

Banks that received TARP money are required to pay 5 percent dividends to the federal government, typically in quarterly installments.

Banks can defer payments, but the dividends accumulate.

If a bank skips six dividend payments the government can elect two directors to its board.

Since holding companies rely on dividends from their subsidiary banks for funding, restrictions on those dividends can force the holding companies to defer their TARP payments.

For instance, Cascade Bank, the banking subsidiary of Cascade Financial, was notified by the FDIC in late September that due to concerns about liquidity, deteriorating asset quality and overconcentration in real-estate lending, it would be subjected to a "corrective action program."

In the meantime, the agency said it would prohibit the bank from paying dividends to its parent company.

As a result, Cascade's board Nov. 5 decided to defer dividends on the preferred stock owned by the government, as well as on other securities owned by private investors.

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com

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