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Borrego Springs Bank Reveals Increase in Problem Loans

Borrego Springs Bank, which is owned by the Viejas Band of Kumeyaay Indians and is the first American Indian-owned bank in the state, is still having loan problems.

For the first quarter of the year, the $133 million asset bank reported $12.2 million in non-accrual loans and $812,000 in foreclosed real estate, for a total of $13 million in nonperforming assets. That comes to 9.7 percent of its total assets, certain to grab the attention of banking regulators.

What’s more troubling is the bad stuff is growing. BSB held about $8 million in nonperforming assets, or 7.8 percent of total assets as of the end of 2009.

For context, the best-run banks try to keep their problem loans to less than 1 percent, but in this economy, most are doing well if they’re keeping the problems below 3 percent.

Fortunately for Borrego Springs, a major portion of the lousy loans it made, about $8 million, are guaranteed by the federal Small Business Administration. So, if the borrowers don’t repay, the bank should collect most of the owed money from the feds.

That may give some solace to the bank, but not so much to taxpayers, who ultimately foot the bill.

In other key metrics, BSB shows its problem loans are having a negative impact. For the past quarter, it had a net loss of $1.1 million, compared with a net loss for the same quarter in 2009 of $666,000.

The losses have damaged the bank’s equity, which stood at $8.9 million as of March 31. At the end of last year, it had $10 million in equity. That’s the key measurement when figuring a bank’s capital health. Generally, the greater equity or capital a bank has, the safer it is.

In BSB’s case, its capital levels are still strong. At the end of March, the bank’s total risk-based capital was 12 percent. But that’s down from 13.9 percent at the end of December. The ratio is enough to qualify the bank as a well-capitalized institution (having a minimum of 10 percent in total risk-based capital), but clearly, things seem to be headed in the wrong direction.

Borrego Springs has obviously been a big SBA lender and has gained recognition for extending credit to small-business borrowers. It remains to be seen about how great a job it’s done in collecting the loans it’s made.

Calls to the bank for comment weren’t returned by last week’s deadline.

Founded in 1982, BSB is among the oldest community banks in the county. Only two others have been around longer.

It has four offices in the region, including its headquarters in La Mesa, and nine loan production offices — six in California and one each in Florida, Oregon and Texas.

• • •

Regents’ Profits Fall, But Still Making Some: Regents Bank appears to be weathering the Great Recession in fine form, but that doesn’t mean it’s escaped without some wounds.

In the first quarter, it reported net profit of $29,000, compared with net profit of $191,000 for the first quarter of 2009.

Chief Financial Officer Randy Krenelka said the bank had to put aside higher provisions, about $843,000, to cover real and potential problem loans on its books. Those totaled $8.7 million as of March, compared with $6.3 million in nonperforming loans for the prior year’s first quarter. It has no real estate owned. Problem assets make up 2.37 percent of its total assets.

Growth has been comparatively robust, with assets rising 24 percent to $366 million and deposits increasing 21 percent to $327 million. Total loans declined to $225 million from $249 million.

Regents got $12.7 million in federal bailout funding last year, as well as raising $5 million from shareholders, so its capital levels are superb, with total risk-based capital at 16.99 percent.

The La Jolla-based bank opened a loan production office in El Cajon in January. It has four full-service branches, and the LPO.

• • •

Home Bank Toughens Up Underwriting: Home Bank of California, with two offices, reported $907,000 in net income for the first quarter, up from about $500,000 in the like quarter of last year.

But the higher profit is tempered by the fact that a good part of its niche business, lending on rent-generating properties, has taken a beating.

Chief Executive Officer Byron Webb said commercial real estate has become a much riskier proposition, and his bank is scrutinizing deals much more than ever before to ensure borrowers have sufficient cash flow to pay their debts.

As a consequence, Home Bank reported loans dipped to $142.7 million, from nearly $145 million at the end of March 2009. Deposits also declined to $107 million from $109 million. Total assets were $162 million compared with $164 million.

Thanks to a hefty rise in profit, the bank has stronger capital levels, with total risk-based at 13.36 percent, up from 10.74 percent in the first quarter of 2009.

The bank also has problem loans totaling $3.78 million and foreclosed real estate at $2.89 million, bringing total problem assets to $6.68 million, or 4.1 percent of total assets. For the first quarter of 2009, the bank had nearly $7 million in problem assets, or 4.2 percent of total assets, it reported.

Webb said the bank will soon launch a mortgage banking division to make conforming mortgages it intends to quickly sell to government agencies. “Our family has two other banks in the Midwest with similar mortgage departments and it’s a good business,” Webb said. He’s already hired the manager, Claude Duncan, and one other person.

• • •

Small Change: PacWest Bancorp declared a quarterly cash dividend of 1 cent per common share payable June 4 to stockholders of record as of May 24 … U.S. Bank completed the conversion of eight San Diego National branches into its computer systems, along with other banks previously owned by Chicago-based FBOP Corp. USB, with $282 billion in assets, has 656 branches in California, including 80 in the county … Accion San Diego, the nonprofit micro lender, relocated its office from the World Trade Center in downtown to the Joe and Vi Jacobs Center at 404 Euclid Ave. Since its inception in 1994, the group has made nearly $14 million in loans of up to $35,000 to about 1,400 small business owners … Four more banks failed as of May 17, bringing the tally to 72 for 2010.

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