SANTA ROSA — Financial regulators told Santa Rosa’s First Community Bank this month that they have ended a period of heightened scrutiny that began during the peak of the bank’s recession-related losses almost two years ago.
In a joint letter dated Sept. 6, the Federal Department Insurance Corp. and the California Department of Business Oversight told the bank that they had terminated the so-called “consent order” issued in October 2011.
The order represented an agreement between the bank and regulators to set clear benchmarks for the resolution of troubled loans, along with a review of its staff and internal practices. The order did not fault the bank’spractices, but required a greater amount of communication concerning its progress in resolving troubled assets and avoiding future losses.
The bank agreed to set aside more of its loan income as a hedge against losses, and to maintain a reserve of high-quality, liquid capital that was equal to at least 10 percent of its assets. It agreed to retroactively allocate an additional $12.5 million to its allowance for loan losses for the first quarter of 2011, and to review the amount it kept in reserve as a hedge against losses for the life of the order.
The bank also agreed to develop a written three-year strategic plan and a strategy to reduce its concentration of loans for construction and non-owner-occupied real estate.
Today, the bank has cut its proportion of troubled assets by more than half, seeing an increase in interest and overall income while boosting its Tier 1 regulatory capital reserves to 11.8 percent of assets. It has been able to reabsorb millions set aside for troubled loans, with an allowance as of June 30 that was 40 percent smaller than during the same quarter in 2011.
First Community has reported six consecutive quarters of profitability as of June 30.
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