Small-business lending specialist Sierra Tahoe Bancorp, looking to take advantage of proposed government regulations, will defer completion of the securitization of its SBA loans until 1996.
Sierra Tahoe, the holding company for Truckee River Bank in Truckee, Calif., and Sierra Bank of Nevada in Reno, announced the move last week in expectation of proposed SBA regulations that would increase the amount of the unguaranteed portion of SBA loans that could be securitized. The new regulations would go into effect next month.
Currently, banks in the preferred lender program must hold in portfolio a minimum of 20% of the loan value for loans made under the SBA's preferred lender program. The new rule would reduce the percentage to 10%, enabling $228 million-asset Sierra Tahoe to double, if it wanted to, its SBA loan securitization program. Currently Sierra's $20 million of the company's SBA loan portfolio has been securitized and sold.
"This allows them to free up capital, which they can turn around and lend," said Campbell Chaney, an analyst with Rodman & Renshaw in San Francisco.
Officials at the company said the decision could boost earnings per share by as much as 10 cents.
In July, Sierra Tahoe adopted the strategy of holding in portfolio more of the government-guaranteed portion of SBA loans and securitizing unguaranteed portions, a move that bodes well for the credit quality of the company's loan portfolio. Typically, only SBA-guaranteed portions of the loans are securitized and sold. The regulation change will allow the company to sell off more of the loans it wishes to securitize.
The bank retains servicing rights on its securitized loans.
"We're the first bank in the nation to securitize the unguaranteed portion of SBA loans," said David Broadley, Sierra Tahoe's chief financial officer. "This will give us additional noninterest income, and we'll have the ability to rechannel those funds back into the bank, which will enable us to increase our SBA program."
He added that the regulation change will allow preferred lenders to gain a equal footing with "certified" lenders, who currently need only to retain 10% of loan value.
Sierra Tahoe is among the largest commercial bank SBA lenders in the country. Mr. Broadley said Sierra Tahoe was ranked seventh nationally last year and has more than 1,200 SBA loans outstanding.
