Abundant Assets Position Niche Private Bank Ahead of Its Peers

Three-year-old San Diego Private Bank planned to be bigger by this time, but with assets at about $150 million and growing at an annual rate of more than 40 percent, it has to be pleased, especially in this economy.

“We’ve had a good year relative to our peer group,” said CEO Robert Armstrong, who spearheaded the bank’s founding in August 2006 together with Chairman Selwyn Isakow.

During the 12 months from September 2008, SDPB increased its size by nearly half to $148 million in total assets, up from $101.4 million. Most of its loans are to individuals and secured, but the bank that caters to wealthier customers also does unsecured loans, Armstrong says.

Total loans at the end of the third quarter were $81.3 million, up 41 percent, while deposits increased 52 percent to $120.6 million.

“There’s a definite need for this niche bank in this marketplace,” said Armstrong, when asked to explain the rapid growth. “We think we’re very well-positioned.”

To ensure this rate of growth continues, the bank completed a private stock offering in June that boosted shareholders equity by nearly $3 million, bringing total shareholders equity to $12.8 million.

That extra equity provided SDPB a robust capital base, sporting ratios that are well above the well-capitalized levels. As of Sept. 30, its total risk-based capital ratio was 15.31 percent, compared with last year’s third quarter when it had 16.08 percent of that measurement. Banks holding 10 percent in this measurement are considered well-capitalized.

But this economy has spared few lenders and there are blemishes on SDPB’s portfolio as well. It reported $498,000 in nonperforming loans as of Sept. 30, as well as holding about $2 million in foreclosed real estate from a few other problem credits. Still, those nonperforming assets make up only 0.6 percent of its total assets, well below the average.

During the third quarter, SDPB broke into the black with a small profit. For the nine months, it reported a net loss of $575,000, compared to a net loss of $277,000 for the like period of 2008.

Armstrong says the bank is on track for a net profit in the fourth quarter but will still have a net loss for the year.

Recently, SDPB filed a request with regulators to form a bank holding company. The arrangement is slightly dilutive to shareholders, notably to majority owner Isakow, but will allow the bank to do a variety of things such as acquire another bank, open a branch or establish another business unit, Armstrong said.

Regarding expansion plans beyond its University Towne Center office, Armstrong says it’s considering sites somewhere north, most likely in a wealthier neighborhood such as Rancho Santa Fe, where there are lots of folks who fit the market the bank is trying to reach. Specifically, SDPB seeks out customers with a net worth of at least $5 million, excluding their personal residence.

There are plenty of takers. During last year’s credit crisis when a few Banks melted down, SDPB picked up lots of new customers, who moved their business and deposits to what they perceived as safer confines.

To give some idea of their confidence, some 70 percent of SDPB’s deposits exceed the Federal Deposit Insurance Corp. maximum guarantee of $250,000.

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1st Pacific Bancorp Problem Loans Rise: For the third quarter, problem assets at 1st Pacific Bank continued to rise, which may have had something to do with the blowup of a merger it planned with another lender.

As of Sept. 30, the University Towne Center-based bank reported total nonperforming assets of $21 million, up from nearly $13 million at the end of June and $15 million at the end of December. The bank’s NPAs now make up 5.35 percent of its total assets of $393.5 million, compared to 3 percent in the second quarter and 3.5 percent at the end of December.

The bank said it put aside another $1.5 million into its loan loss reserves to bring the total loan loss reserves to $6.3 million, or 1.8 percent of its total loans.

As a consequence of this and other higher expenses, 1st Pacific reported a third-quarter net loss of $1.86 million, and a nine-month net loss of $3.1 million. That compared to last year’s third-quarter profit of $9,531, and its nine-month net loss of $1.25 million.

Among the added expenses was $289,000 it spent to pave the way for its planned sale to First Business Bank, which was previously expected to close by this quarter.

Yet, in October the Banks terminated their agreement citing “unanticipated complications that couldn’t be overcome.”

Sources said the unusual deal, in which FBB with far less assets would acquire 1st Pacific, was unable to pass muster with federal or state regulators.

Another possible turn-off to regulators, who are taking an ultraconservative stance these days, was FBB’s past. The $100 million bank, previously known as Ramona National Bank, received a consent order from its primary regulator in 2005 to replace management and take other corrective steps to its operations.

Subsequent to the order, the bank raised $18 million in new capital, moved to Carmel Valley, and hired a new management team, including CEO Nathan Rogge.

At the time they agreed to terminate their merger pact, both FBB and 1st Pacific said they would be exploring other alternative transactions, but given 1st Pacific’s current portfolio, there may be few white knights riding to the rescue.

1st Pacific’s shareholders meeting on Dec. 16 may not be such a merry affair. Though the bank’s capital levels are considered adequate, two of the three capital ratios do not meet the minimum levels to be well-capitalized.

In October, a founding director and a longtime chief credit officer left the bank.

As for the share price, after the FBB deal evaporated, shares fell below a buck. As of Nov. 27, it was at 65 cents.

About a year ago, the stock, traded under FPBN on Nasdaq, was trading at around $5.

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U.S. Bancorp Selling Three FBOP Banks: U.S. Bancorp, which acquired nine banks in four states formerly belonging to FBOP Corp. including San Diego National Bank, said that it’s selling its three Texas banks.

No surprise there as USB didn’t have any banks in the Lone Star State and wasn’t interested in building a franchise there.

The Texas banks now up for sale are Citizens National Bank in Teague, Madisonville State Bank in Madisonville, and North Houston Bank in Houston. Together the lenders have five branches and $701 million in assets and $631 million in deposits.

The bank said it expects to sell the three lenders by the second quarter of 2010.

USB got 28 branches from its SDNB acquisition, which increased its total in the county to 88. It hasn’t said how many of those it intends to retain. USB’s total assets are $265 billion, making it the sixth largest bank in the nation. It operates 2,851 branches in 24 states.

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Small Change: Bank of Internet USA filed a securities document allowing it to raise up to $125 million in additional capital when needed. The bank said it has no plans to raise new capital in the short term.

Send any news of locally based financial institutions to Mike Allen via e-mail at mallen@sdbj.com. He can be reached at 858-277-6359.