Imperial Capital Bank of La Jolla is one of six California banks to receive a cease-and-desist order from the Federal Deposit Insurance Corp. (FDIC).
The order requires the bank to reorganize its operations, boosting capital levels, beefing up management and reining in risky loans; however, the FDIC would not provide details.
With its delinquent loans having more than quadrupled in the last year, Imperial Capital on Feb. 17 entered into and agreed to a cease-and-desist order with the FDIC, a primary regulator of many state-chartered banks as well as guardian of federally insured bank deposits.
Answering e-mail questions, Timothy Doyle, Imperial Capital Bank’s chief financial officer, noted the FDIC’s order states the bank is required to “have and retain qualified management,” but stops short of requiring it to hire a new CEO.
He said George Haligowski, who is on medical leave, remains the bank’s CEO and that the board of directors’ executive committee has assumed decision-making authority in his absence.
Doyle said the bank’s directors are confident its current management team will guide it through these challenging times. “The FDIC’s order requires Imperial to increase its capital ratios, though the bank isn’t specifically required to raise capital,” he said.
Doyle said Imperial Capital is undertaking measures to improve its position in 2009.
“We believe we will meet our current obligations, strengthen our liquidity position, and effectively respond to the challenges we are facing by implementing our strategic plan,” Doyle said.
He said none of the FDIC’s timeframes under its order have lapsed and added that the bank is in the process of responding to the FDIC order. But he characterized that response as a resizing and refocusing, rather than a restructuring.
“We expect to return to profitability by intensely focusing on four key areas: reducing our size, stabilizing our losses, managing problem assets, and reducing expenses,” he said. “These objectives are steps we were taking before we received the regulatory order, not a result of it.”
When asked why the FDIC cited Imperial Capital, Doyle pointed to the national economic slowdown, the precipitous decline in housing prices and illiquidity of credit markets.
“These economic conditions affected the banking industry and contributed to significant deterioration in the credit quality of our real estate loan portfolio, particularly our construction and land development loan portfolio,” he said.
Many of our construction borrowers, who rely on the sales of homes to repay loans, are not able to find buyers. These borrowers, in turn, have defaulted on loans, which has impaired our ability to recognize interest and has resulted in significant provisions for loan losses.”
Doyle said he expects these negative factors will be offset.
“The majority of these construction loans have finished product available for sale which will be a source of repayment for these loans in the future,” he said. “In addition, we believe that we currently have sufficient projected revenue generation capacity from securities and loan portfolios to offset future loan losses.”
Initially formed in 1974 as Imperial Thrift and Loan, the bank became Imperial Capital in 1996 when it went it became a public company (initially as ITLA Capital Corp.).
The company reported total assets of $4.4 billion as of Dec. 31, 2008.