Credit Card Dispute Plagues Torrey Pines Bank

Torrey Pines Bank, based in Carmel Valley and with $1 billion in assets, received a “needs to improve” rating from federal regulators because of its alleged discriminatory underwriting at its credit card division.

The bank’s parent firm, Las Vegas-based Western Alliance Bancorp., revealed in a recent securities filing that the Federal Deposit Insurance Corp. found that Torrey Pines’ credit card division, called PartnersFirst, used underwriting practices that discriminated against consumers on the basis of their age and gender. The alleged practices violate provisions of the federal Equal Credit Opportunity Act.

As a consequence of the FDIC’s findings, Torrey Pines Bank received a “needs to improve” rating for its Community Reinvestment Act compliance, below its previous rating of “satisfactory.”

Ongoing Discussions

All Banks are rated for compliance to the CRA, which looks at the bank’s overall lending and community involvement. There are four ratings with most Banks receiving satisfactory. Few are given the highest or lowest ratings, which are “outstanding” and “substantial noncompliance.”

Torrey Pines is disputing the FDIC allegations, but until the issue is resolved, the bank cannot open new offices nor bid to purchase failed banks.

CEO Gary Cady said the bank has been engaged in ongoing discussions with the agency regarding the allegations, and has since changed the way it screens potential credit card customers, eliminating check boxes on the application that ask for a person’s age and gender.

“We have never discriminated against anyone, much less by age and gender,” Cady said.

Torrey Pines, now with seven offices, has been planning to expand its reach north, and opened an office in Los Angeles this year. But the site is primarily for deposit services and does not offer a full array of services, Cady said.

No Effect On Banking Operations

One stock analyst who covers Western Alliance said the FDIC’s order would not affect the company’s operations much since it is dealing with a growing amount of nonperforming loans and probably wouldn’t gain much from acquiring another failed bank with more problem loans.

“In our view, until the FDIC’s loss sharing agreements cover 100 percent or more of the failed bank’s loan portfolio, an assisted merger does little for WAL (Western Alliance ticker),” said John Lucas, vice president of Wedbush Morgan Securities Inc. in San Diego, in a note to investors.

In February, another Western Alliance subsidiary, the Bank of Nevada, acquired failed Security Savings Bank of Henderson, Nev., with $238 million in assets in an FDIC-assisted sale in which the Bank of Nevada took $111 million of the failed bank’s loans. The FDIC assumed the rest of the problem loans.

For its third quarter, Western Alliance reported a $23.9 million net loss, compared with a $94.7 million net loss for the like quarter in 2008. WAB was hit by a surge of problem loans during the third quarter that pushed that number to $239 million, or 4.1 percent of its total assets of $5.8 billion.

Well-Capitalized Bank

Despite the losses, the company still maintains significantly higher capital reserves. As of Sept. 30, its total risk-based capital was 14.7 percent, far above the 10 percent minimum to be considered a well-capitalized bank.

The higher capital levels are the result of WAB raising about $280 million in new capital this year. It also received $140 million in funds through the government’s Troubled Asset Relief Program, which was distributed to all five of its subsidiary banks.

Through the first nine months of the year, Torrey Pines Bank reported a net profit of $479,000, compared with a net loss of $2.4 million for the like period last year.

The fast-growing bank has not been unscathed by the recession. As of Sept. 30, it reported total nonperforming assets of $21.8 million, or 2 percent of its total assets.