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As a bevy of Banks struggle to boost capital levels to bolster reserves under pressure from increased problem loans, they may dream of enjoying the unique position of San Diego’s Embarcadero Bank.
The single office bank opened downtown at the end of 2006, and still hasn’t turned the corner in terms of making a net profit, but the $32 million asset bank enjoys the strongest capital position in the county and among the highest in the state.
As of March 31, Embarcadero’s core capital, or tier 1 leverage ratio, was 63.8 percent to its average assets. To be considered well-capitalized, Banks need to have at least 5 percent of their average assets in that category, which is essentially a bank’s shareholders equity.
Put another way, a well-capitalized bank that’s leveraged 20-1 comes up far behind Embarcadero’s 1.65-1 ratio.
Obviously, adequate capital is not a concern to Embarcadero Bank President Maria Kunac.
“We’ve kept our expenses down and we’ve grown very carefully,” Kunac understated. “A lot of financial institutions that were opened recently spent a lot of money, but Steve Rippe (Embarcadero’s CEO) made sure by the time that we opened our doors, we had income.”
Embarcadero also benefited from a record capital cushion of $21 million when it launched.
That’s just about the size of its loan portfolio, which is minuscule compared with most banks, but given the rivers of red ink flowing from many other banks these days, it suits Kunac just fine.
“We’ve been very selective (about lending) in the past couple of years, and are more focused on creating deposit accounts,” she said.
Thanks to its strong capital position, Embarcadero was able to pick up some good customers from other banks that ran into difficulties, and are shunning anyone in the land development and construction arenas. A year ago, the bank booked a performing development loan of $1 million, which recently paid off. Another borrower needed $2 million to complete 10 units of an 86-unit condo complex downtown. That loan is performing and the condo units are gradually being sold, she says.
Embarcadero is still losing money, having reported a net loss of $142,000 in the first quarter, compared with a net loss of $169,000 for the first quarter of 2008.
For all of 2008, it had a net loss of $631,000. Kunac says profitability is just around the corner.
Recently, Embarcadero added two loan officers, bringing its staff to 11 employees, up from eight a year earlier.
It also has a relatively new chief financial officer, Charles Lanzrath, who came from Desert Commercial Bank in Palm Desert. He replaces the bank’s initial CFO, Stephen Cooper.
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Imperial Capital Sets Shareholders Meeting:
Not that much on the agenda for the shareholders meeting of Imperial Capital Bancorp on Aug. 5 at the Sheraton La Jolla Hotel, other than electing two directors to the six-member board.
It likely won’t be a joyous conclave. ICB has been operating under a cease and desist order since February, and, like many other lenders, is losing money dealing with a burgeoning group of commercial real estate loans that have soured as the recession has taken hold.
Last year, ICB had a net loss of $32.6 million; for the first quarter of 2009, its net loss was $15.5 million. ICB’s problem loans are growing and, as of March 31, stood at $188 million, or more than double the $91.5 million in nonperforming assets it had as of March 31, 2008.
The problem assets make up 5.24 percent of ICB’s assets of $4.5 billion.
Not too far into its annual report, the bank states ominously, “If the real estate market does not improve, our level of nonperforming assets may continue to increase.”
The bank says in the same report that it’s retained an unnamed investment bank to help raise new capital or pursue other alternatives, presumably selling the bank.
ICB’s proxy statement shows its highest paid executive last year was Chairman, President and CEO George Haligowski, who received $1,094,244, including a base salary of $590,000.
Haligowski, 54, has been on medical leave since February. His contract has to be among the best in local banking circles and includes such perks as a minimum monthly housing allowance of $3,500, a minimum monthly car allowance of $2,600, and up to $6,500 per year for maintenance of his personal estate, including tax planning services.
While that compensation is decent, it’s nowhere near the top paid banker in the region, Matt Wagner, CEO of PacWest Bancorp and Pacific Western Bank, who received a compensation package of $2.7 million in 2008.
In other news, ICB revealed in an amended securities filing last week that the Federal Deposit Insurance Corp. determined that the bank erred in assessing the risk levels of certain apartment loans it holds and didn’t set aside sufficient reserves. Based on the revised accounting for the loans, ICB was “undercapitalized” as of March 31, with a risk-based capital ratio of 7.9 percent, below the 8 percent minimum ratio to be considered adequately capitalized.
The change may increase ICB’s borrowing costs, the bank said.
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Small Change:
The state Department of Financial Institutions’ first-quarter report lowlights for its 218 banks: Problem loans went from $2.3 billion in the first quarter of 2008 to $6 billion at the end of March; net losses for the quarter were $175 million, compared with $237.6 million in net profits; and real estate owned went from $163.6 million to $843 million at the end of March.
Send any news of locally based financial companies to Mike Allen via e-mail at mallen@sdbj.com. He can be reached at 858-277-6359.
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