The Federal Reserve has terminated an enforcement action issued three years ago against Capital Community Bank, which like other Utah lenders was struggling with a pile of loans that soured when the real estate market collapsed.
The Fed’s action follows the cancellation in June of a similar move against the Provo-based bank by the Federal Deposit Insurance Corp., Michael Watson, Capital Community’s chief operating officer, said Thursday. A companion action by Utah’s Department of Financial Institutions was also removed that month.
“We are just happy to be off it and to have worked through the issues that were caused to a lot of community banks by the economic downturn,” Watson said.
In 2009, the FDIC ordered Capital Community to boost the bank’s capital reserves to at least 10 percent of its assets, increase its allowance for loan losses and get rid of most of its bad loans.
The Fed weighed in a few months later, ordering it to stop paying dividends to shareholders and to take other precautions to protect its capital unless it got permission from the central bank.
In the summer of 2009, Capital Community’s ratio of bad loans to capital and loan loss reserves was close to 150 percent. Since then, the bank has reduced the ratio to about 50 percent, a level that is still higher than other banks of its size but considered to be healthy.
“We got on them pretty early and were able to work through [the loans], and come to what the FDIC considers [to be a safe level],” Watson said, adding that Capital Community has sold almost $20 million worth of property that it seized after foreclosing on many of its real estate loans.
Watson said the bank’s loan strategy has changed. Although it still makes real estate loans, Capital Community is more focused on making loans for buildings and other commercial projects.
The bank is in good shape today, he said. Capital Community earned $261,000 in the second quarter of this year, while total bank equity capital stood at $15.3 million, according to the FDIC.