Bend-based Bank of the Cascades has emerged from the supervisory oversight by state and federal regulators that began more than three years ago.

The bank announced Thursday that regulators had lifted restrictions put on the bank in August 2009, after an examination of its finances then showed near-crippling levels of delinquent loans and a shortage of cash reserves to back them up.

The order restricted certain lending activities by the bank, set requirements to raise capital and prohibited it from paying dividends without approval. .

Emerging from the regulatory order has been a multiyear effort, Bank of the Cascades CEO Terry Zink said Thursday. The bank still has to coordinate with its regulators — the Federal Deposit Insurance Corp. and the Oregon Division of Finance and Corporate Securities — through a memorandum of understanding.

The memorandum is essentially an agreement not to engage in the kind of practices that got the bank in trouble in the first place, like dishing out development loans for major construction projects.

“It’s really just an understanding between the FDIC, the (bank) board of directors and myself, where we agree that we’re going to operate the bank according to guidelines we should operate under anyway,” said Zink, who took over operations at Bank of the Cascades in January 2012.

The end of the regulatory order gives the bank more freedom on personnel decisions — such as hiring executives — as well as seeking out growth opportunities, Zink said.

It’s a big turnaround for an institution that seemed on the brink of collapse three years ago.

The real estate and financial market crashes in 2008 wiped out years of gains.

After posting net profits of $22.4 million in 2005, $35.7 million in 2006 and $30 million in 2007, the bank recorded a net loss of $134.6 million in 2008, followed by a $114.8 million loss in 2009, a $13.7 million loss in 2010 and a $47.3 million loss in 2011, according to the company’s annual financial reports.

Bank of the Cascades took painful but necessary steps toward recovery in late 2010 and 2011, Zink said. In November 2010, the company announced it had raised $166 million through the sale of stock.

Then, in September 2011, it sold off $110 million in nonperforming loans, receiving $58 million for the assets — a $52 million loss.

The bulk sale of bad real estate loans was like “pulling a Band-Aid off really fast,” Zink said.

Instead of absorbing losses on the bad loans over several years, the bank took them all at once.

“That was a big help,” Zink said. “It relieved us from some of the most toxic assets we had. It allowed us to start rebuilding.”

Rebuilding was a slow process.

To emerge from the regulatory orders, the bank had to lower its rate of risky loans. Big real estate development loans dragged the bank down when the market crashed in 2008, Zink said, with developers defaulting seemingly en masse as demand for new construction vanished overnight.

Bank officials have spent the last three years shifting the loan portfolio away from development and large commercial projects, moving instead to business loans and single-family mortgages.

Part of that is a product of demand — the large-scale office building construction of the boom times has been absent from Central Oregon’s market for years.

But Zink said the shift comes from a conscious effort not to repeat the mistakes that pushed it to the brink. Development lending is down about 70 percent today from peak levels.

“Our loan portfolio is much more diverse today than it was 31⁄2 years ago,” Zink said.

Bank of the Cascades has 34 offices in Oregon and Idaho and $1.3 billion in assets as of Dec. 31, according to the FDIC.

It was hardly the only bank, locally or nationwide, to get caught up in the real estate collapse. In 2009 alone, 140 banks failed, after a total of 27 failed between 2000 and 2007, according to FDIC figures.

Prineville-based Community First Bank failed in August 2009 and was acquired by Home Federal Bank.

Regulators shut down Columbia River Bank, headquartered in The Dalles, in January 2010. It was bought by Columbia State Bank.

Eugene-based LibertyBank, which was founded in Bend, failed in late July 2010. It was also purchased by Home Federal.

The wave of failures changed the landscape among smaller community banks, Zink said.

“Community banking, in Oregon especially, you see it on the decline,” he said. “Banks have failed at a fairly large rate over the past few years, or been swallowed by larger institutions based outside of Oregon.”

Even in 2012, four banks headquartered in the state were sold, or announced plans to sell, to larger out-of-state banks.

“As we look around today, we’re one of a couple (of) community banks that have made it through the crisis,” Zink said of Bank of the Cascades.

Other community leaders took notice, as well.

“It’s like Easter came early,” said Bill Smith, owner of William Smith Properties and developer of Bend’s Old Mill District. The bank “can do things out of (regulatory) supervision that they couldn’t do when they were under supervision, things this community needs,” Smith said. “It’s good for everybody, all the other banks in town. It’s good for the whole business climate.”