Regulators put Seattle Bank on tighter leash

Seattle Bank said Friday it has agreed with state and federal regulators to reduce its problem loans and raise its capital ratios.

In an interview, President and CEO Ellen Sas said that "we can actually get our ratios in order" by shrinking the bank's lending portfolio and resolving problem loans. But Seattle Bank is also exploring ways to raise new capital, looking at amounts from "zero to $30 million ... which would allow us to grow," she said.

The agreement with the Federal Deposit Insurance Corp. (FDIC) and the state Department of Financial Institutions calls for the bank to reach a 10 percent Tier 1 capital ratio and 12 percent risk-based capital ratio, she said.

As of March 31, the bank's actual ratios were 7.72 percent and 11.85 percent, respectively.

The bank's parent company, Seattle Financial Group, signed a similar agreement with its regulator, the Office of Thrift Supervision.

Seattle Bank ranked among the most seriously troubled in each of three stress measures examined in a May 31 Seattle Times analysis of first-quarter results from 53 Washington banks.

The bank's problem loans came mainly from its heavy focus on residential construction and development, which accounted for more than half its business as of spring 2008. Seattle Bank stopped lending to residential and commercial real-estate developers last year, Sas said Friday.

While the bank's reserves have been judged adequate and the bank qualifies as well-capitalized, its heavy past concentration in real estate means "our risk profile looks greater," she said.

Spokeswoman Mary Grace Roske said the FDIC won't disclose the text of the regulatory agreement until early next month, and bank officials were unsure whether they can release it themselves.

The bank joins about a dozen others in Washington that are operating under tightened regulatory scrutiny, including HomeStreet Bank of Seattle, Horizon Bank of Bellingham, City Bank of Lynnwood, and Frontier Bank and Mountain Pacific Bank, both headquartered in Everett.

Material from Seattle Times archives is included in this report.