San Diego’s largest bank measured by assets, California Bank & Trust, got larger Feb. 6 when it took over most of the assets of failed Alliance Bank in Culver City.
Under the arrangement, CB & T; assumes all of Alliance’s $951 million in deposits, its five branches in the Los Angeles area and $1.12 billion in assets. All this for a price tag estimated at $30 million.
The state’s Department of Financial Institutions and the Federal Deposit Insurance Corp. seized the bank, citing lack of adequate capital.
It’s the eighth failure so far this year in the nation. Last year, 25 banks failed during the year.
The FDIC paid CB & T; $9.9 million to assume Alliance’s $1.1 billion in assets, some of which are in default.
The deal calls for the bank to assume 20 percent of the loan losses up to $275 million, with the FDIC assuming 80 percent. If there are more losses, the bank assumes 5 percent, while the FDIC assumes the rest.
“Our estimate is that there’s between $200 million to $225 million in losses,” said Clark Hinkley, senior vice president of Zions Bancorp, parent company of Cal Bank & Trust.
At the low end of the number, that would mean the bank is getting Alliance for $30 million.
The FDIC said the cost of the transaction to the government’s insurance fund amounts to $206 million. As of Sept. 30, the fund had $34.6 billion, according to FDIC spokesman David Barr.
Following the acquisition of Alliance, CB & T; is growing to $11 billion in assets, well above Pacific Western Bank, the next largest local bank with $4.5 billion in assets.
For 2008, Cal Bank & Trust reported a net profit of $38.6 million, compared to a net profit of $107.4 million in 2007. The bank said lower real estate values and recessionary conditions caused it to set aside $82.9 million into its loan loss reserve balance to cover expected and potential losses on defaulting loans.
The bank also listed security impairment charges of $117 million for the past year, compared to similar charges of $76 million in 2007.
Despite this, CB & T; reported tangible capital of 8.91 percent as of Dec. 31, and total risk-based capital of 11.05 percent, both above the minimum ratios to be considered well-capitalized.
The bank obtained three infusions of new capital through issuing common and preferred stock, including federal funds through the Treasury Department’s TARP, or Troubled Asset Relief Program.
Yet, even well-run banks are seeing damage to their loan portfolios, and CB & T; is no exception. As of Dec. 31, it held $147 million in problem assets, or 1.87 percent of its total assets. That compared to $62 million at the end of 2007 when it held 0.80 percent in problem assets.
Zions Bancorp., based in Salt Lake City, reported a net loss of $266 million for 2008, mainly on a write-down of $354 million in good will of banks it had acquired.
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BofI Holdings Has Record Profits:
BofI Holdings, parent of Bank of Internet USA in Carmel Valley, reported net profits for its 2009 fiscal year second quarter ended Dec. 31, 2008, of $2.7 million, setting a record and improving on its prior record of $981,000 in net income for the three months ended June 30, 2008, and above the 2007 second quarter net income of $651,000.
The one-office savings bank said the primary reason behind the hefty rise in earnings was the more than doubling of its net interest margin, the average profit on the loans it makes, to 2.98 percent.
Loans increased to $641.5 million from $600 million, while deposits rose to $632.5 million from $600 million in the like quarter of 2007.
For the six months, BofI reported net income of $944,000 compared to net income of $1.4 million for the like six months in 2007.
But not everything was a positive at the bank that makes mainly single-family and apartment mortgages.
BofI said it took a one-time, pre-tax loss of $7.9 million on the sale of Fannie Mae preferred stock after the government seized the mortgage buying agency last year.
BofI also reported $8 million in problem assets, made up nearly equally of nonperforming loans and foreclosed property.
The bulk of the nonperforming loans were on two apartments, one in Cincinnati for $2.2 million and the other in Miami at $1.1 million.
CEO Greg Garrabrants said both loans have collateral, but he already wrote down the Miami loan by $150,000.
The $8 million in problem assets made up only 0.66 percent of the bank’s total assets of $1.22 billion, a negligible number.
The bank listed five RV loans as nonperforming, but the total amount of RV loans in the portfolio is about $55 million.
The bank has plenty of capital, and reported total risk-based capital of 14.98 percent, well above the minimum 10 percent to be regarded as a well-capitalized institution.
Garrabrants said bank regulators recommended BofI apply for the Treasury’s TARP funds, but the board is weighing its decision.
The big question is whether the federal government will step in and change the rules of the program, as it can do anytime it wants, Garrabrants said.
If it decides to accept the money, BofI could get about $15 million, which would allow it to grow faster, but would also prevent the bank from repurchasing its stock on the open market, something BofI has been doing because the company feels the stock is undervalued.
As of Feb. 9, shares that are traded under BOFI on Nasdaq closed at $4.95, and have ranged from $3.01 to $8.19 over the past 52 weeks.
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Temecula Valley Bancorp Reports Loss:
As expected, Temecula Valley Bancorp, with 11 offices, including seven in San Diego County, reported a 2008 net loss of $16 million, compared to the prior year when it had a net profit of $15.1 million.
The major reason for the loss was the addition of $38.8 million into its loan loss reserves in reaction to a surge of problem assets last year, mainly construction loans.
During the past few months, the bank cut staff by 36 workers to reduce expenses and preserve capital.
As of Dec. 31, TVB reported holding Tier 1 leverage capital of 7.69 percent, and total risk-based capital of 10.69 percent, both above the standard to be considered well-capitalized.
TVB said it has contracted with consulting firm Stifel, Nicolaus & Co. to help explore potential capital investment options. It has also applied for capital through TARP.
TVB certainly has its share of troubles. As of Dec. 31, it reported holding $120.6 million in problem assets, including 30 foreclosed properties valued at $32 million. The properties included seven outside the state, with half of them construction-related.
The problem assets made up 7.75 percent of TVB’s total assets of $1.55 billion. That compared to holding $31 million in nonperforming assets at the end of 2007, or 2.35 percent of total assets of $1.3 billion. Most lenders attempt to keep problem assets at 1 percent or below.
TVB said total loans increased 13 percent from 2007 to $1.4 billion, and total deposits rose 12 percent to $1.3 billion.
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Small Change:
Mission Federal Credit Union is doing an online fundraising effort this month for the Zoological Society of San Diego John Sotoodeh, Wells Fargo Bank’s former regional president for the Southern California region with 160 branches in four counties including San Diego, was named as regional president of the Los Angeles metro community banking unit, with 265 offices in four counties.
Send any news about locally based financial companies to Mike Allen via e-mail at mallen@sdbj.com. He can be reached at 858-277-6359.
Editor’s note: This story corrects an earlier version that misstated Cal Bank & Trust’s net profit for 2008. The Business Journal regrets the error.
