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Regents Bank Gets Fresh Start By Selling $10.8M in Problem Loans

Regents Bank took a different approach to dealing with a surge of problem loans that ballooned to more than $7 million in the second quarter: It sold them off.

In its most recent call report, the La Jolla-based bank reported selling $10.8 million in nonaccrual loans, or those that hadn’t been paying for more than 90 days. The bank said it received fair market value on the transaction.

Most of the loans had already been written down in value in previous quarters because of various stages of nonpayment, said Chief Executive Officer Dan Yates, who declined to reveal the name of the buyer.

“We wanted to clean up our balance sheet, and have strong capital ratios so we can start playing offense, and not just defense,” Yates said. “We’re going to focus on growing our portfolio rather than spending a lot of our time on (problem) loan management. It does take a lot of time.”

As of Sept. 30, Regents held only $233,000 in nonaccrual loans, or 0.068 percent of total assets. It put aside zero in its loan loss reserves in the past quarter and doesn’t anticipate having to increase its reserves in the fourth quarter either.

For the third quarter, Regents reported net profit of $830,000 compared to the prior year’s third quarter profit of $278,000.

For the nine months, the bank reported a net loss of $68,000 compared to a net profit of about $1 million for the like period of 2009. The difference in the results came from the bank having to boost its reserves in the second quarter by about $2.7 million because of real and potential losses from the problem loans it formerly held.

In other metrics, Regents reported its total loans decreased 5 percent from the second quarter to $226 million, and total assets declined 12 percent during the same period to $341 million, partially from the problem loan sale.

Yates says things are picking up in terms of lending activity. The bank originated 40 new loans totaling $12 million during the third quarter. Also, existing borrowers drew down another $9.4 million from lines of credit during the quarter.

Capital levels at Regents as of the third quarter remain well above levels to be considered as a well-capitalized institution with total risk-based capital at 17.27 percent, above the 10 percent mark for that designation.

The bank opened a new branch in El Cajon in June, bringing its total to five including one in Vancouver, Wash.

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Credit Union Chats It Up: San Diego County Credit Union, the area’s largest with about $5 billion in assets, introduced live chatting to help its customers recently.

The credit union says the service is offered 8 a.m. to 5 p.m. Monday through Thursday, 8 a.m. to 6 p.m. on Friday, and 9 a.m. to 4 p.m. on Saturday. SDCCU also says the chat service “is even more convenient than going to a branch or speaking with us by phone.”

In other news, SDCCU hosted a grand opening for its new office in Kearny Mesa in the new County Operations Center, which brings its total offices to 27.

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Capitol Bancorp Under Duress: Capitol Bancorp Ltd., the Lansing, Mich.-based holding company for about 40 subsidiary banks including Sunrise Bank in San Diego, reported a net loss of $40.7 million for the third quarter, down from an $82.7 million loss for the like quarter of 2009.

For the nine months, Capitol reported a net loss of $129.6 million, compared to a net loss of $119.6 million for the like period of 2009.

The company has been under duress since last year as it deals with surging levels of problem loans that forced the bank to increase its reserves. That, in turn, depleted its capital ratios to well below the minimum regulatory requirements.

As of Sept. 30, Capitol Bancorp said it has shrunk in size by about $1 billion, to $4.2 billion in assets, down from $5.3 billion at Sept. 30, 2009. Capitol said it is selling off its subsidiary banks across the nation in a strategy that reduces its size, and deleverages its balance sheet.

Through the end of September, Capitol Bancorp reported it completed the sale of 10 banks, eliminating about $755 million in assets. It has five pending transactions of banks that hold another $445 million in assets.

The company continues to experience excessive defaults that have pushed its nonperforming assets to $448.6 million at Sept. 30, or 10.46 percent of its total loans. That compared to $412.8 million in nonperforming assets at the end of December, or 8.4 percent of total loans, according to its quarterly securities filing.

The bank’s capital ratios have been damaged to a point from which few banks have returned. As of Sept. 30, its Tier 1, or core capital ratio, was 0.67 percent, while total risk-based capital was 1.89 percent, the bank revealed in its quarterly report.

The regulatory minimum ratios all banks must maintain in those measures are 4 percent and 8 percent, respectively.

According to one veteran banker who requested anonymity, Capitol Bancorp “is in a very deep hole from which it has to dig out of, and certainly the trend isn’t moving in a positive direction.”

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