Business - Business News

POSTED: Tuesday, Nov. 10, 2009

Bellingham-based Horizon Bank now 'critically undercapitalized'

BELLINGHAM - Horizon Bank has now fallen into the "critically undercapitalized" category in the view of federal regulators, further restricting what the bank can do and putting its future in doubt.

On Monday, Nov. 9, the Bellingham-based financial institution publicly released its results for its most recent fiscal quarter, showing severe problems. For its second quarter of fiscal 2010, which ended on Sept. 30, Horizon reported a net loss of $35.1 million. The bank also confirmed its Tier 1 leveraged ratio - also known as equity ratio and a measure of the health of a bank - was at 0.8 percent, down from 3.2 percent in the previous quarter.

Earlier this year the bank received a cease-and-desist order from the Federal Deposit Insurance Corporation, with one its provisions stating Horizon needed to get its Tier 1 leveraged ratio up to 10 percent by the end of November.

"We continue to work through our non-performing asset challenges while working with investment bankers to raise new capital," said CEO Rich Jacobson in a press release accompanying the data. "However, no assurances can be made that we will be successful in this regard."

According to its 10-Q form that was filed Nov. 9 with the Securities and Exchange Commission, the bank acknowledged that it is "highly unlikely" it will be able to comply fully with the provisions of the cease-and-desist order. According to the form, financial institutions that are in the "critically undercapitalized" category must be placed into conservatorship within 90 days of becoming critically undercapitalized, unless the FDIC determines and documents that "other action" would be better for the institution.

While the cease-and-desist order deadline looms for Horizon, there have been instances this year of other financial institutions having missed the deadline yet remained opened.

The FDIC can impose a variety of restrictions on banks in the "critically undercapitalized" category at its discretion, such as restricting interest paid on deposits to prevailing rates and terminating activities deemed to be excessive risk.

Horizon's non-performing assets were $128.4 million, or 9.9 percent of total assets as of Sept. 30, which is an improvement compared to the end of the previous quarter, when it was at $138.4 million, or 10.2 percent of total assets. The bank has also seen improvements in its core deposits, rising 7 percent year over year.