Neighborhood National Bank, plans to raise $5 million to $10 million in new capital this quarter, both to satisfy a regulatory order and generate more business loans, said its new chief executive, Dan Yates.
Yates, 53, was named president and CEO for the San Diego bank earlier this month replacing longtime CEO Bob McGill, who moved to the chairman’s position, and the former president, Barbara Hosaka, who retired Dec. 31.
NNB, one of 85 banks designated as a community development financial institution in the nation, has three branches — one each in South San Diego, National City and Rancho San Diego. It generally makes loans in areas where traditional banks haven’t been serving.
The bank, among the smallest headquartered here, has been operating under a cease-and-desist order from its main regulator, the federal Office of the Comptroller of the Currency, since 2010.
Money Changes Everything
Yates said the new capital would help bring NBB into regulatory compliance and would give the bank more funds to lend. The capital could generate some $40 million in new loans, which would likely be in the range of $500,000 to $2.5 million, he said.
While NBB is a well-capitalized bank by the standards set by regulators, it must boost its capital to even higher levels because it is operating under a special order. For its Tier 1 capital ratio, most banks holding 5 percent of assets are classified as well-capitalized. The OCC order requires NBB to have 9 percent of assets in Tier 1 capital.
As of the end of 2013, NBB is about $2.5 million short in reaching that level, Yates said.
NBB got into trouble in the years leading up to the recession and was burned by several larger business loans made to gas station operators, Yates said.
At of the end of 2011, NBB held about $14 million in nonaccrual loans and foreclosed real estate on its books, or nearly 14 percent of its total assets. Most banks try to keep their problem loans below 1 percent, and those holding 3 to 5 percent in that category are generally flagged by regulators.
As of Sept. 30, NBB reported holding about $7 million in nonaccrual loans and foreclosed real estate or 7.8 percent of its total assets of nearly $90 million. Yates said the bank will likely report a net loss of more than $1 million for 2013. That would make it the sixth straight year of net losses, going back to 2008.
Committed to the Mission
Yates said the bank will be seeking the new funds from long-term investors — mainly large national and regional banks — as well as private companies, nonprofits, and individuals who are committed to the bank’s mission.
Among NBB’s shareholders are JPMorgan Chase & Co. (NYSE: JPM), Citibank (NYSE: C), Wells Fargo Bank (NYSE: WFC), U.S. Bank (NYSE: USB), Union Bank (Nasdaq: UNB), Zions Bancorporation, Pacific Life, State Farm Insurance and Neighborhood House Association.
The banks that make up most of NBB’s shareholders derive benefits from these investments by helping them achieve improved ratings on their community reinvestment activities from bank regulators.
Yates is well-known in local banking circles, having spearheaded the founding of Regents Bank, which was acquired by Grandpoint Capital of Los Angeles in 2012. After that transaction, Yates was named president of Grandpoint Bank, a job he left last year.
“I have three sons who are living in San Diego, and [I] wanted to be closer to them,” he said. Before his hiring was blessed by regulators, Yates had been working as a consultant to NBB since October. He has been a banker for 34 years, and he worked at Mellon 1st Business Bank, Union Bank and Manufacturers Bank in Los Angeles.
In the Beginning
Former CEO McGill was the driving force in founding NBB, which launched in 1997, and focused on providing banking services to low- and moderate-income areas. About 60 percent of its portfolio is concentrated in these areas.
Kurt Chilcott, a director on NBB’s board, said McGill “safely steered the bank through one of the most severe financial crises of our time.” As chairman, McGill will assist Yates in customer retention, shareholder relations and providing strategic direction, Chilcott said.