The bank's non-performing assets consist of about 50% income-producing properties and 50% construction lending, says CFO Tim Doyle. "The commercial stuff I'm concerned about, but we know we'll be OK because we loan in markets where there's high demand in real estate," Doyle says, adding that the bulk of the bank's commercial loans are in the Western US, including San Francisco, Los Angeles and San Diego.
While there are "People sitting on the sideline," Doyle says, "I don't feel that we're going to have a lot of credit losses associated with income-producing properties. Our feeling is that income properties are situated in markets where there's going to be demand for those properties."
As for residential related construction lending—in residential, the bank focuses on land development loans, track residential development, condo conversion and ground-up condo project loans—it may take time to recover from ongoing losses, but Doyle sees long-term stability.
"If the economy continues to plod along at the current pace, we'll be able to work though our construction loan portfolio," he says, adding, "But let's be honest, there's a lot of blood in the water. Obviously, the markets are so filled with fear that it's almost irrational. We have exposure, but it's nowhere near what our peers have with respect to construction lending."
The bank reported net interest income before provision for loan losses increased 13.5% to $24.8 million for the quarter compared with $21.8 million for the same period last year. The increase was primarily due to an increase in interest earned on investment securities held-to-maturity, as well as a decline in average cost of funds, as deposits have repriced to current market interest rates, the company said.
During the quarters ended June 30, 2008 and 2007, the average balance of the company's investment securities held-to-maturity was $567.4 million and $181.6 million, respectively. At June 30, 2008, investment securities held-to-maturity totaled $914.4 million compared with $159 million at December 31, 2007. These increases were primarily related to the purchase of approximately $784.6 million of AAA-rated corporate sponsored collateralized mortgage obligations during the current year, which are secured by Alt A first lien residential mortgage loans, predominantly all of which carry fixed interest rates, the company said.These CMOs were acquired at an average cost of 88% of their current par value, the company said.
"The banking industry today is suffering a severe crisis," Doyle says. "It's obvious that not only is the financial industry having its issues right now but the general economic conditions have slowed and deteriorated. And as much as we're not happy, becuase profits are off, we are cautiously optimistic."
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
