By Mike Benbow Herald Writer
EVERETT — Cascade Financial Corp., the last Snohomish County-based bank to avoid action from federal regulators, was put under closer government scrutiny Wednesday.
The bank announced that it had signed a consent decree with the Federal Deposit Insurance Corp. to develop a plan to improve its finances on the same day that it revealed a quarterly loss of $24.8 million, or $2.02 per diluted common share.
The consent decree prompted the resignation of bank directors Dwayne Lane and Craig Skotdal, who had earlier vowed a proxy fight over how the bank was run. That battle was resolved when the bank added new directors proposed by Lane and Skotdal, but both resigned earlier this week, saying they expected regulators to “impose unreasonable and untenable conditions.”
“I am not willing to serve as a director under these circumstances,” Lane and Skotdal said in resignation letters included in the bank’s filing Wednesday with the Securities and Exchange Commission.
“It’s sad to see people who are part of the institution and part of our decision-making process depart at this point,” said Carol Nelson, the bank’s president and chief executive.
The consent order requires the bank’s directors to become more involved in day-to-day operations, improve the quality of its assets, raise the bank’s profitability and increase its capital.
It also must develop a three-year improvement plan.
Nelson said Cascade’s capital ratio is at 10.7 percent, down from 11 percent the previous quarter, but still labeled “well capitalized” by regulators, their highest rating.
Nelson noted that all other banks in Snohomish County are operating under a similar consent order. “We were the last one (to receive the order) because our numbers have been the best,” she said.
The FDIC website shows cease and desist orders for The Bank of Washington in Lynnwood; City Bank, also of Lynnwood; Frontier Bank of Everett; First Heritage Bank of Snohomish; North County Bank of Arlington; 1st Security Bank of Washington of Mountlake Terrace; and Mountain Pacific Bank of Everett. Information wasn’t immediately available for Coastal Community Bank in Everett, which is regulated by the state. Earlier this year, regulators ordered forced sales of Frontier Bank and City Bank.
When Frontier failed, it had been labeled critically undercapitalized and had a capital ratio of less than 2 percent.
In its quarterly earnings report, Cascade noted that its loss included a noncash charge of $12.9 million for a loss in value of Issaquah Bank, which it purchased in 2004. The the so-called goodwill impairment is for accounting purposes and doesn’t affect the bank’s capital, Nelson said.
The loss also included $11.7 million that the bank set aside in a fund for expected loan losses.
Nelson said that the money needed for losses was a 63 percent decrease from the previous quarter and a 36 percent drop from a year ago.
She said the bank’s nonperforming loans have dropped to 6.3 percent of its total loans from 8.4 percent previously. Nonperforming assets also fell.
“What we’re seeing is improved asset quality and I’m encouraged by that,” she said.
Nelson said further improvement will hinge in part on the recovery of the real estate market. Cascade has taken ownership of many of the properties used to secure its loans and hopes to sell them. It owned $26 million in real estate at the beginning of the quarter and $40 million at the end.
“Now we can try to sell it and get our money back,” Nelson said. “It’s a migration and its going in the right direction. It depends on the continued success of the real estate market.”