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San Marcos-based Discovery Bank held 10.6 percent of its assets in capital as of Dec. 31, meeting the 10 percent minimum to be called well-capitalized. But it still couldn’t avoid getting hit with a cease and desist order from the Federal Deposit Insurance Corp., which was announced Jan. 27.
CEO Frank Mercardante said despite steps he’s taken to correct problems, “They’re still penalizing us for past practices.”
Discovery has agreed to follow the cease and desist order, which calls for a number of corrective measures, including maintaining a minimum 10 percent of Tier 1 leverage capital for at least 12 months of profitability; maintaining adequate loan loss reserves; developing a detailed plan to reduce problem assets; and reducing real estate related loan concentrations.
Of prime concern is the bank’s $11.7 million portfolio of problem assets, including nearly $2 million in foreclosed real estate. It makes up 6.8 percent of total assets, one of the biggest problem loan ratios of any commercial lender in the county.
Discovery held $12.5 million in problem assets at the end of 2007, and $12.2 million at the end of September, so conditions appear to be improving.
The problem loans result from poor decisions made in 2006 and 2007 when the bank joined a syndication of loans with other lenders.
As of Dec. 31, $7 million of its bad loans were connected to the unnamed syn
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