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Once-Troubled Bank Seeing Resurgence in Business

In a dramatic departure from its tumultuous past, things are looking up at San Diego Community Bank in Chula Vista.

For those not aware, the bank’s former name, First International Bank, may trigger visions of inadequate capital, regulatory orders and near extinction.

But those days ended in March when the 25-year-old bank raised nearly $7 million in new capital that allowed it to begin acting like a real commercial bank again.

Hindered by a cease-and-desist order and a deficient capital base of less than $4 million, the bank’s lending limits were a paltry $1 million for real estate loans, and about $750,000 for general business loans.

Today, the maximum loan limits are close to $3 million for a real estate-backed loan, and $1.8 million for a business loan, said CEO Tom King.

The capital infusion also diluted the ownership of its former chairman, Roque De La Fuente, whose presence on the board caused potential investors to hesitate, King said.

“One of the biggest problems we faced was that nobody wanted to invest in us because they were fearful of Mr. De La Fuente,” he said.

De La Fuente, a local developer and car dealer, has a long history of litigation, and of winning major judgments against both the county and the city of San Diego.

The city has appealed a $100 million jury award , the highest such judgment in its history.

As part of its new strategy and ownership, the bank officially adopted a new name Aug. 30.

“The name encompasses our strategy of growth, and the marketplace where we perceive that growth,” King said.

When told about possible confusion with more than a dozen lenders with San Diego and Community in their names, King asserts the risk is worth it.

Given the bank’s most recent financial report, the new name appears to be catching on.

The two-office Chula Vista lender reported net income of $429,000 in the third quarter, compared to $25,000 for the same period of 2003. However, the bulk of the profits, about $380,000, came from a legal settlement. About $49,000 was the result of improved operations.

For the first nine months of the year, the bank reported total net income of $481,000, or more than double the $231,000 for the like period of 2003.

Last quarter, the bank originated $16 million in new loans, bringing its total portfolio to $55.5 million, up 77 percent from last year’s third quarter.

Year to date, San Diego Community added some $40 million in new loans to its books, nearly double the amount added in 2003.

Besides its much-improved capital position, San Diego Community also cleaned up its problem assets, getting rid of some $3 million in problem loans, and about $400,000 in REO , real estate owned or property it took back after borrowers defaulted. Problem assets as of Sept. 30 make up a miniscule 0.01 percent of total assets.

As of the end of the third quarter, it held total assets of $67.4 million, up 27.6 percent from $52.8 million held in the same period of 2003.

King, a veteran banker who has helped turn around three other troubled institutions, says he’s not looking around for a new job now that things appear to be straightened out. He’s in the middle of a contract and wants to stick around to see the fruits of a very tough turn-around.

“I’m not going anywhere,” he said. “Now that the heavy lifting is over, the real work begins.”

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First PacTrust Buys Back Stock:

Net income for First PacTrust Bancorp, parent of Pacific Trust Bank, was $1.35 million for the third quarter, compared to $970,000 for the like period of 2003.

For the first nine months of the year, First Pac’s earnings were $4 million, or 34 percent better than the $3 million for the same period of 2003.

The Chula Vista savings bank conducted its first stock repurchase in the last quarter, spending $10.1 million to buy some 520,000 shares of the stock, traded as FPTB on Nasdaq.

CEO Hans Ganz said the repurchase “is a smart move if you have the capital to do it.

“It’s in the shareholders’ best interest because by reducing the float, you’re increasing the percentage of ownership of each shareholder.”

The action also reduced the bank’s shareholders’ equity to $78.4 million. At the end of September 2003, the bank’s equity was $87.6 million.

The bank’s board decided to buy FirstPac shares when the price was around $20, believing the real value of shares was $30, Ganz said.

In other results, total assets increased during the year to $674.6 million, up from $624 million at the end of December. Total loans stood at $644 million, while deposits were $450 million.

For the nine months, the bank reported a return on average assets of 0.81 percent and a return on average equity of 6.59 percent.

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Double Discovery:

San Marcos-based Discovery Bank, formed in 2001, reported $479,951 in net income for the first nine months of this year, nearly twice the $224,812 in profits it earned for the same period of 2003.

The bank’s third quarter net income included a tax benefit of $210,825.

Total assets for the bank increased 63 percent to $98.2 million, while loans rose 59 percent to $78.1 million. Deposits grew 57 percent to $80.1 million.

CEO James Kelley said the bank continues to attract core deposits, primarily via money market and demand deposits, which has helped reduce interest expense and provide stability to the bank’s portfolio structure.

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Issuing Orders:

The California Department of Corporations issued orders against the Olympia Mortgage Corp. of Brooklyn, N.Y., with offices in San Diego, Glendora and San Jose, to cease engaging in unsafe practices and stop violations of the state’s Residential Mortgage Lending Act.

New York state’s banking department notified the Department of Corporations it suspended Olympia’s mortgage banking license for 30 days for diverting mortgage payments and proceeds on at least 270 loans totaling $35 million, according to a DOC report.

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Union Appoints Weber:

Union Bank of California named San Diego State University President Stephen Weber to its community advisory board. The board helps the bank identify the financial needs of low-income communities and ways in which the bank conducts its economic outreach in those areas.

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