San Diego National Bank simply doesn’t have much in the way of problem loans to work out, way less than 1 percent of its portfolio. But because of its size, $1.4 billion in assets, SDNB has more to work on than most smaller banks.

In the last three years, the lender has set aside $9.4 million in loan loss reserves, more than any San Diego County bank that can reasonably call itself a community bank. This includes $4.8 million set aside in 2000 alone, more than any other San Diego bank last year except for First National Bank. And you know what happened to the president of First National Bank.

But San Diego National Bank President and Chief Executive Officer Robert Horsman apparently has no reason to worry about job security. That’s because, in part, banking is a matter of managing risk and keeping ratios in line. The numbers can be intriguing to watch and downright fun if you’re improving performance and getting paid for it.

The $7.7 million that First National set aside for loan losses as 1.1 percent of $696.3 million in assets last year is much more significant than SDNB’s $4.8 million set aside, a mere 0.3 percent of $1.43 billion in assets.

Better to set aside reserves than incur a loss, but the set-aside at First National nearly wiped out profit. The reserve at San Diego National Bank was on top of $29 million in earnings, a record amounting to 2.16 percent of assets, the most profitable bank in San Diego County last year.

“Look at the growth in loans,” says Horsman. “If I am growing, I have more risk to manage. I’m up 11 percent over March 31, 2000, up roughly $200 million in loans in that period.

“The next thing you need to look at in terms of the loan loss reserves is nonperforming loans. At March 31, 2000, I had $5.76 million in nonperforming loans. That’s 0.5 percent of my total loans. At Dec. 31, 2000, I had 0.2 percent in (four) nonperforming loans, $2.5 million, so I cut it better than in half.

“And then as of March 31, 2001, I’m still at 0.2 percent at $2.59 million. It went up $32,000 in the first quarter.”

Ever book as performing something that was not performing?

“Of course not,” says Horsman. “In fact I just finished a very good exam with the OCC,” the Office of the Comptroller of the Currency.

Eyes bleeding yet?

“Let’s talk about (loan loss) reserves as a percentage of loans. At March 31, 2000, I had 1 percent of my total loans outstanding in reserves, $11.2 million. As of Dec. 31, 2000, I had 1.4 percent of my loans in reserves, for a total of $16.08 million. And as of March 31, 2001, I have 1.3 percent of total loans at $16.19 million.

“Then you also need to look at OREO, Other Real Estate Owned, real estate we’ve foreclosed upon. At March 31, 2000, I had $7.2 million and Dec. 31, 2000, I had $3.09 million (in two properties). At March 31, 2001, I had $2.85 million. So those trends tell you my OREO is going down.

“You should also be aware of charge-offs. For the year-ended Dec. 31, 2000, I had net charge-offs after recoveries of $420,735. For the three months ended March 31, 2001, I have a net recovery of $117,373 to the positive.”

Loans outstanding stood at $1.14 billion at March 31, 2000, at $1.18 billion at year-end and $1.203 billion at March 31, 2001.

When one of those loans goes bad or is in danger of going bad, it is referred to a work-out team known as a “special asset committee” that includes Tom Sperla, senior vice president and credit administrator; Sam Jeppson, executive vice president and chief credit officer; Michael Wastila, assistant vice president, credit department manager, credit administration; Margherita Stuz, vice president and real estate administration manager; and Adam Metzger, vice president and real estate loan officer.

It may be illegal for a banker to hold only one title. But we digress.

The loan officer who originated the crummy credit probably will get called in to join or counsel the work-out team. “If they’ve been very close to the customer it’s important they communicate and be in the loop,” says Horsman, who assures he’s “absolutely not” ever yelled at a loan officer for a customer who’s turned bad.

Indeed, the affable Horsman doesn’t seem like the yelling type. While his Texas charm is just the right ingredient for a bank president, bank presidents don’t often enough possess the no-bull bottom-line qualities of a top credit officer. Credit officers are the guys who throw things back at loan officers. But that was Horsman’s first job at San Diego National Bank upon its founding 20 years ago, chief credit officer, following a career at the former Southern California First National Bank, which trained many of San Diego’s older bankers and later became California First Bank, then Union Bank. (That makes Horsman, 54, one of the youngest to be trained there.) The U.S. Naval Reserve moved Horsman to San Diego in 1970 and he never left, although he did change jobs almost every nine months during his nine years at the Union Bank predecessor.

The SDNB special assets committee can really get ugly when the loan officer who brought in the bad credit turns out to be a board director, but we needn’t go there. Directors of SDNB are Chairman Murray Galinson, Horsman’s predecessor as president and CEO; general contractor Doug Barnhart; civic activist Midge Costanza; personnel entrepreneur Karla Hertzog; corporate meeting planner Patti Roscoe; tuna fisherman Julius Zolezzi; SDNB Vice Chairman Mike Kelly; and banker Robert Heskett. Kelly is chairman and Heskett is president of FBOP Corp., the Oak Park, Ill., bank holding company where the motto might be, “The more you invest in San Diego the more you have to visit.” FBOP bought SDNB for $26.6 million on Feb. 28, 1997, a really cold day in Chicago.

“We were well capitalized, profitable, and had a good management team,” prior to the acquisition, Horsman recalls. “Strategically our board decided either to make acquisitions or sell the bank. At the time, very few banks were for sale and everyone wanted to buy, and we saw an opportunity (with the sale) to be bigger and better with larger lending limits and saw an opportunity to retain our employees. If you’ll look back, a lot of banks were under strict directive orders from the OCC, and our bank was not among those. That was more than four years ago. The largest loan we could make due to our capital structure at that time was a little over $2 million. Today I can do just about anything that walks in the bank (up to a) $105 million limit.”

Horsman became president in 1996 and CEO in 2000, succeeding Galinson.

With more than $1 billion in loans, SDNB may be working on eight or 10 shaky loans at any one time. “It could be the customer had a bad quarter, or maybe a concentration in receivables with a company that went sideways, or they couldn’t collect or had to settle for less or their profitability was diminished, which impacted the net worth of the company, those are usually the issues. We don’t see those immediately. It may be 30 days before the (customer) company realizes the impact. Hopefully, we have lines of communication open well enough that they’re sharing information. If we’re working together as a team, we can help them turn around their financial challenge.”

SDNB’s most difficult recent nonperformer was a loan to a law firm, which for common decency and nasty privacy laws shall remain nameless. The firm was breaking up.

“Some partners stay, some go and then it’s a matter of working out the guarantee issues, the collateral, who takes what assets, who takes what business, who collects it,” Horsman says. “Those can be very challenging because of the emotional elements that essentially destroyed the business. To get those individuals to sit down and work out a program ... that can be very challenging. It is resolved. And it was successful .... It was close to a year-long process of working out.”

Actually, when Horsman works out, he’s walking his daily mile and a half with three big dogs. The dogs, he and his wife, Relocation Coordinates Inc. executive Katherine Kennedy, live in Point Loma. Lucky dogs.

“I’m not a work-out guy,” says Horsman. “I just run a bank with a great work-out team. Our focus is on businesses that don’t need working out. More representative of what I do at the bank is my community involvement.”

SDNB directs about 3 percent of its profit into community and nonprofit projects, Horsman says. That would be about $870,000 this year. He serves on the boards of the San Diego Regional Chamber of Commerce, Metro YMCA, co-chairs the San Diego Children’s Initiative and recently joined the board of the California Bankers Association. He’s especially proud of being the first man to chair San Diego Opera’s gala committee, which in a record three weeks already sold out next January’s opening event for “Rigoletto.” “I’m not gala, but I am happy.” And his wife is a diva. But we digress.