Font ResizeThe Federal Deposit Insurance Corp. has ordered a pair of Utah banks to improve their financial strength or face civil fines.
SunFirst Bank of St. George is under a cease-and-desist order to raise its Tier 1 capital to at least 11 percent of total assets within 120 days. The bank has assets of $238 million.
Tier 1 capital is the core measure of an institution's financial strength from a regulator's point of view.
SunFirst must also improve the quality of its loan portfolio by charging off or foreclosing bad loans, according to the FDIC. The bank has 180 days to comply.
Capmark Bank in Midvale was instructed to develop a plan within 30 days that "ensures the ... satisfactory servicing of all loans held by" the bank.
The FDIC also instructed Capmark to make certain it doesn't extend any financial aid to its parent company, Capmark Financial Group, without the government's permission.
Capmark funds loans secured by commercial real estate, apartment buildings, condominium properties and other multi-family housing. Its assets total $10.6 billion
The company is a subsidiary of Horsham, Pa.-based Capmark Financial, a commercial real estate lender. Capmark Financial filed for bankruptcy protection in October after posting a second-quarter loss of $1.6 billion.
Goldman Sachs and KKR & Co. are among its owners.
SunFirst and Capmark are jointly regulated by the FDIC and the Utah Department of Financial
"We don't comment on (cease-and-desist orders). We let them speak for themselves," said FDIC spokeswoman LaJuan Williams-Dickerson.
"We avoid doing that because we don't want people to think the worst. So we don't comment either way," said Paul Allred, deputy commissioner of the state financial institutions agency.
Capmark officials didn't return telephone calls seeking comment.
SunFirst President John Allen said the FDIC didn't criticize his bank for its lending practices. The agency focused on the present value of loans made before the economy crashed.
"What they criticized us for is, we weren't smart enough to know that the appraisals (of property used to secure the loans) would drop by 20 percent to 40 percent," Allen said.
"The criticism is that they would like the asset quality improved -- loan-to-value ratios in better line. We don't disagree with that," he said.
To do that, SunFirst will foreclose on properties, sell them for whatever it can and book any shortfall as a loss.
SunFirst has lost $4.8 million this year. Its return on assets is minus 7 percent. Even so, the bank is stable, Allen said.
He said the bank's capital-to-asset ratio was about 10 percent when the FDIC issued its order. A well-capitalized bank has a Tier 1 ratio of 5 percent or above.
