Darts & Letters
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I have to applaud you for trying to make some sense of the drastic change in the San Diego banking environment. I’m very disappointed in what appears to be incorrect coverage of First National Bank in your article (Whippersnapper Bankers Emerge To Succeed Old-timers, May 2000). Seems like we had this conversation a few years ago when you had an out-of-towner do a similar article for you. Nevertheless, I'd like to make some observations. 1) Loan Loss Reserves. You make reference to First National Bank having a "rough time taking a $1.8 million provision for losses last year." Making provisions for loan loss reserves can be either good or bad depending why you take them. If a bank has actual losses from bad loans and needs to replenish its reserves, that’s bad. In our case, we were successful in growing our loan portfolio by over 50 percent last year, and took the prudent decision to grow our reserves in a similar fashion. That's good. In fact, we have one of the cleanest loan portfolios in the industry as well as one of the healthiest loan loss reserves ratios. At 1.7 percent of total loans, this reserve is well above most of our peers. Most banks have taken very little in charges to their P&Ls in the past few years for such reserves because of two significant reasons. First, with this healthy economy there are very few credit problems and, second, the average loan growth of even aggressive banks is in the 10 percent to 20 percent range, which does not require much, if any increment in loan reserves. By the wording you used in your article I believe you mistakenly understood us to have taken a hit to P&L for actual "loan losses," which is not the case. I’m proud of our loan officers for having exceeded their goals last year, establishing many new lending relationships, and if we need to make these one-time charges to build our reserves, we’re very happy to do so. 2) Net Income. You state that we "barely earned a profit." Despite building our loan reserves by $1.8 million, we achieved a 24 percent increase in earnings over the previous year with total net income of $4.25 million in 1999. It’s not where we want to be, but it is according to our growth plan and much better than you insinuate in your article. 3) Executive Revolving Door. I’m enclosing our recent Corporate Report, which shows our executive directors on the final three pages. The directors on the first two pages have been with us since 1996 except for Corky McMillin and Ira Katz who joined almost two years ago. On the last page you will see two relatively new members of executive management (Roger Smock and David Whittemore) of the six. There has been very little turnover at the executive level. In a bank that has grown from $150 million in assets some four years ago to nearly $700 million today you will logically see changes of people as we reorganize to meet the needs of the business. Indeed we have had people adjustments at several levels because we are a "growth" bank, but not much change at the executive level. First National Bank has a long-term business plan. We are not looking to have a Minneapolis, Salt Lake City or any non-San Diego located headquarters. It’s not that we don’t have faults that can be written about, but our business plan is much different than most other banks in California and we are at a different point of the cycle than our peers. Therefore it is somewhat difficult to compare us to more mature financial institutions, but I accept the fact that comparisons will be done. I told you three or four years ago that return on assets is certainly as important to shareholders as return on equity, for example. I believe FNB was the top bank on your "ROA" list about three years ago but we didn’t have nearly as good a franchise then as we do today. I don’t fault you for how you want to present your comparisons; however, I ask that you research your data a bit more before printing it, especially if you are going to do it in a negative fashion. You didn’t call me to verify your information. To print negatively about someone without attempting to get a direct comment, I believe, is unfair. The comments you printed from other bank CEOs were very good. It is unfortunate that San Diego is going through another round of "local bank expropriation" and I encourage you to follow it to see how it affects this dynamic community. I respect my counterparts in the financial industry and hope those remaining few will be able to keep their local presence. Leon H. Reinhart Publisher's Note: In May 2000, the Metropolitan reported First National Bank's year-end 1999 return at 0.79 percent of total assets of $607.9 million; assets up 17.39 percent; core capital at 6.96 percent of adjusted total assets, "prov. for loan & lease losses" at $1.85 million; an operating profit of 0.23 percent of average assets; liquidity amounting to 16.3 percent of total assets; and return on average equity of 12.35 percent. Based on ROA, FNB ranked 11th out of 18 local banks, for which similar data were provided. We also commented: "First National Bank CEO Leon Reinhart, who qualifies as a whippersnapper because of his newness to San Diego, has had a rough time at the helm, taking a $1.8 million provision for losses last year, barely earning a profit, while spinning a revolving door of executives." The Metropolitan regrets not being more specific by explaining that provisions for losses do not necessarily mean a loss has occurred or will occur. Binational Excitement I greatly enjoyed the article in the San Diego Metropolitan ("It Takes A Vision," The Connection by Patrick Osio, June 2000). How refreshing to see the binational vision I so fervently espouse eloquently described in your column. Felicidades! Yolanda S. Walther-Meade |
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