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CSI Financial earning healthy profits on loans to hospital patients

CSI Financial Services makes its business extending credit to hospital patients, one of the highest risk sectors of lending.

The privately held firm counts more than 100 hospitals in 35 states as it positions itself as an alternative to a collection agency when patients don’t pay.

“We provide hospitals with an automated means to provide patients with loans at competitive rates,” said Chief Executive Officer Mitch Patridge.

While many patients have health insurance to cover their bills, a growing number who are hospitalized have little or no coverage.

The total of unpaid hospital debt is staggering.

According to the Healthcare Financial Management Association, a trade group of health care financial professionals, during 1999 to 2004, uncompensated health care rose to $27 billion from $21 billion.

Patridge said the typical borrowers are those who have gaps in their plans or who are under-insured.

San Diego-based CSI can loan up to $25,000, but the typical limit is $5,000. The average loan is about $2,000, Patridge said.

The company has provided hospitals with about $150 million in advance payments for patient accounts it purchased, and has borrowers in all 50 states.

CSI works with banks to provide credit and to collect on the loans.

People are more inclined to repay a loan from a bank than they are from a hospital, said Patridge.

“In the hierarchy of bill-paying, paying your mortgage or rent is at the top. Near the bottom is repaying a bill from a physician and at the very bottom are hospitals,” Patridge said.

Among the four banks working with CSI is Torrey Pines Bank in Carmel Valley. CSI acts as the underwriter and originator, and services the loans. The banks, which fund the loans, receive the principle and part of the interest collected.

Interest rates for most loans are at 15 percent, but some hospitals request lower rates, causing the hospitals to pay a little more for servicing, Patridge said.

CSI declined to reveal details about its portfolio or any financials. Patridge said his firm is the leader in the space that has fewer than six competitors.

He said loan growth in the first quarter was 8 percent over the like quarter in 2005, and should break 25 percent by year end, though the target is 50 percent.

While CSI incurs some risk with its business, the debts are guaranteed by the hospitals, so the company’s risk is confined to interest rate risk and cost of servicing, Patridge said.

CSI was founded in 1992, but Patridge and his partner, Mike Mines, acquired controlling interest in 2002. It has about 40 employees, including 18 in San Diego.

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Interest rates on CDs rising:

Fixed-rate depositors are finally seeing a little boost on the interest rates offered by lenders, and ads for escalating teaser rates are all over the business pages of newspapers.

Locally, one credit union is claiming that it offers the highest deposit rate for an 18-month certificate of deposit at 6 percent annual percentage yield, which is the total percentage gain over the term of the CD.

USE Credit Union said it has checked with Bankrate.com, a national research firm that confirmed the rate was indeed the best.

Bankrate.com shows that as of July 17, the highest annual rate yield offered at a commercial bank for the same 18-month term was 5.7 percent from Advanta Bank in Utah, with a minimum deposit of $10,000.

USE’s 18-month CD requires a minimum deposit of $5,000. The total yield on the investment would be $5,456.

Kevin Moyle, a USE spokesman, said since the promotion began in June, it’s attracted about $20 million in deposits and hundreds of new customers, about half who took out the 18-month CD.

The credit union is also offering a seven-month CD at 7 percent, but in that one, the deposit is limited to $2,500, no more or less. Both CDs require a minimum deposit in a USE checking account of $100.

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San Diego Trust earnings rise:

San Diego Trust Bank reported net income of $335,000 for the second quarter, up from $142,000 for the year ago period.

For the six months, net income was $648,000, more than three times the $204,000 income for 2005.

Total assets grew to $81.6 million, up from $72 million in June 2005, while total loans increased to $57 million, up from $46.4 million in the same period last year.

Founded in October 2003, San Diego Trust said it hasn’t had a single loan go bad yet.

CEO Mike Perry noted that the bank generated more net income for the first six months of this year than it did for all of 2005.

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Coronado First grows nicely:

Open 10 months, Coronado First Bank is ahead of its business plan, and seeing some nice loan expansion both in its main market and in San Diego, said CEO Bruce Ives.

Assets stood at $26 million as of June 30, compared with $20 million as of Dec. 31. Loans were $10.6 million as of the end of the second quarter. Counting untapped lines of credit and other commitments, it was more than $21 million.

“We are very pleased to see the strong growth in our loan portfolio over the first nine months of operation,” Ives said.

Most of the recent loans are real estate related, as well as equity lines of credit, Ives said.

For the quarter, the bank sustained a loss of $280,000, 35 percent below the loss in the fourth quarter. Ives said the bank is on track to reach about $40 million in assets by year end.

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Embarcadero views August completion:

Steve Rippe, who heads up the launch of Embarcadero Bank in downtown San Diego, said the capital raising campaign is nearly completed with its $20 million target almost in hand.

“The capital raising should be completed by August 2 and we are expecting to open the bank in September,” Rippe said.

The former CEO of First National Bank has been organizing the bank since last year, and obtained approval to begin raising capital in March.

Nearly 30 high-net-worth individual investors make up the bank’s initial capital contributors, each investing a minimum of $100,000, Rippe said.

The $20 million is about twice the average base raised by recent new community banks, and would allow the bank to offer maximum loans of about $5 million, but most loans would be in the $1 million range, and focus on commercial real estate.

The office for the bank was designated at 110 W. A St.

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Shareholders approve bank sale:

Shareholders of San Diego Community Bank, based in Chula Vista, with $92 million in assets, overwhelmingly approved a sale to First Bank of St. Louis at a special meeting July 11.

“About 70 percent of the outstanding shares voted, and of those who voted, 99.9 percent voted in favor of the sale,” said CEO Tom King, who helped steer the community bank back to profitability.

Assuming the transaction obtains regulatory approval, the new owners should take over in late August.

First Bank is paying $9 per share, or $25.5 million, for San Diego Community, which was formerly called First International Bank and chaired by Roque De La Fuente. After a lengthy legal battle, the Federal Deposit Insurance Corp. removed him from the board in the mid-1990s and then banned him from ever holding any board seat on a financial institution and prohibited voting shares he owned in the bank.

King said De La Fuente didn’t vote on the sale.

First Bank, which has an office in downtown San Diego, said it wants to expand in this region. The bank has $9.4 billion in assets and 182 offices in California, Illinois, Missouri and Texas.

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Washington Mutual cuts some more:

Washington Mutual Bank announced it is cutting 900 more jobs this year, the third time this year it has made a significant reduction in staff. In May, it said it would cut 1,400 jobs, and in February, it announced it was reducing its staff by 2,500 positions.

Spokeswoman Olivia Riley said the concentration of the latest round of cuts was in Houston and in Long Island, N.Y.

The Seattle-based WaMu is closing its consumer loan processing centers in those two locations.

Riley said there were no significant reductions in the San Diego area, where it has 68 retail offices and about 1,200 employees.

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Small change:

Steve Cushman, the president of Cush Enterprises and longtime San Diego Unified Port District commissioner, was named to the U.S. Small Business Administration regulatory fairness board for Region IX Carlsbad City Credit Union, a division of Cabrillo Credit Union, opened a new branch at 1265 Carlsbad Village Drive. Wheeler/Frost Associates Inc. was included on the list of top wealth managers by Bloomberg Wealth Manager magazine.


Send any news about local finance firms to Mike Allen via e-mail at

mallen@sdbj.com

. He can be reached at (858) 277-6359.

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