53.7 F
San Diego
Thursday, Mar 28, 2024
-Advertisement-

Viejas Band’s Bank Is Growing, Making Plenty of New Loans

Borrego Springs Bank reported a net profit of $257,000 for the second quarter, which was much better than its first quarter when it lost $1.1 million, according to its call reports filed with the Federal Deposit Insurance Corp.

That brings its net loss for the first half of 2010 to $864,000. In the first half of last year, BSB reported a net loss of $80,000.

CEO Bill Ruhlman provides a simple explanation. He says when an accounting change mandated by the Financial Accounting Standards Board took effect Jan. 1, it required banks that sell their loans on the secondary market cannot realize the profits for 90 days.

Had the regulation not been in effect, the bank would have made a profit in the first quarter, and the first half’s net income would have been $1,123,000.

Due to the same rules, the bank really isn’t as big as what it reported in its call report, which shows total assets of $152 million. He was unable to say what the actual asset size is, but said it’s not that far from about $100 million, or above the $96.2 million it was at the end of June 2009.

Whatever its actual size, the community bank owned by the Viejas Band of Kumeyaay Indians is growing and making plenty of new loans.

According to the call report, total loans at June 30 were $119.5 million, up from $75.2 million at the prior year’s half.

Most of those new loans are guaranteed by the U.S. Small Business Administration. Ruhlman said the bank has increased that lending activity because of the high producers it now has, and because other banks have exited the program. From October through June, Borrego Springs made $95.6 million in SBA loans, making it the 13th largest SBA lender in the nation, Ruhlman said.

Unfortunately, all those SBA loans aren’t doing so well. As of June 30, it reported $13.1 million in nonaccrual loans or more than twice the amount of problem loans it had on its books at the end of the second quarter of 2009.

It also reported holding $1.4 million in foreclosed real estate.

Again, BSB points out in its call report that the bulk of those loans and real estate owned is guaranteed by the federal government. Of the $13 million, $9.4 million is guaranteed, according to the report.

So using the bank’s number of $3.7 million in bad loans that aren’t covered by government guarantees, the problem loans make up 3 percent of its loan portfolio, not the 9.59 percent if the guarantees aren’t excluded.

Ruhlman says BSB is just about like every other lender in the nation, experiencing higher levels of defaulting loans caused by the lousy economy. He said the bank’s underwriting standards haven’t changed. “If anything, we’ve tightened some things,” he said.

Because of all the problem loans, BSB had to increase its loan loss reserves, which decreases the profits it makes on its performing loans. Through the end of June, it set aside $960,000 into the loss reserves, compared to the first half of 2009 when it increased its reserves by $350,000.

On the positive side, BSB still has plenty of capital, and continues to maintain its status as a well-capitalized bank. As of June 30, its leverage, Tier 1 and total risk-based capital ratios were 6.5 percent, 10.2 percent and 11.39 percent.

But in its call report, BSB said because of the FASB regulation, its real balance of loans and secured borrowings is really overstated.

Had the bank been able to calculate its capital under the previous standards, those capital ratios would have all been higher, including the total risk-based ratio that would have risen to 14.52 percent.

The second quarter report shows that BSB is apparently writing off a big chunk of its defaulting loans. Through the first six months of this year, it charged off $678,000 in loans it deemed uncollectible, up from June 2009 when it reported $133,000 in charge-offs.

Again, a big chunk of those write-offs are government-guaranteed loans, so the bank won’t take the ultimate hit.

That will be borne by the SBA, and by extension, all taxpayers.

• • •

Bank Promotions Increase: Not a week goes by when a commercial bank doesn’t launch a new promotional campaign to grab new customers.

Citibank is offering small businesses a $250 prepaid card when they open a qualifying account with at least $500 and use at least one cash management service such as bill pay or merchant service.

Comerica Bank is handing out $200 to customers opening a new business checking account with a single deposit of $5,000 or more within 90 days of the account opening. The bank is also offering businesses $50 for each employee who opens a Comerica personal checking account and registers online.

On the consumer side, Wells Fargo & Co. eliminated monthly service fees and extended expiration dates on gift cards that the bank and its acquired Wachovia Bank issued.

Previously, the bank charged $2.50 a month from any funds remaining on a card that wasn’t all used after 12 months.

-Advertisement-

Featured Articles

-Advertisement-
-Advertisement-

Related Articles

-Advertisement-
-Advertisement-
-Advertisement-