Small Calif. Bank Jumps to Head of SBA Pack

San Diego's Bank of Commerce has emerged from an area ravaged by bank failures and thrift closures to capture the crown of the biggest Small Business Administration bank lender in the nation.

The $325 million institution made $62 million worth of SBA loans in fiscal 1995, more dollar volume than any other bank in the country, according to the SBA. The bank is on pace to generate more than $120 million in SBA loans this year.

"We might not be around if we hadn't gotten into SBA lending," said David Bartram, senior vice president. "In banking today, you have to define a niche for yourself. Without our emphasis on SBA lending, we probably wouldn't have $325 million in assets and we probably wouldn't be as profitable."

The bank's profitability is on the rise again after a calculated downturn. In 1993, Bank of Commerce made nearly $3 million, but that dropped to a little more than $1 million the following year because of a strategy change.

Instead of selling off all its SBA loans, the bank began holding on to a portion of the SBA portfolio. By not selling the loans, the bank is forfeiting immediate income; but with loan life averaging nine and a half years, the potential spread income down the road more than compensates.

"You can sell the loans for about 10 basis points, but by holding on to them you can make about 5 basis points per year in spread income over cost," Mr. Bartram said. "But, it wasn't an easy decision because it meant we had to give up some short-term profits."

By last year the bank's net income had risen to $2 million, and Mr. Davis said he expects it to increase to $3 million this year, with higher profits anticipated in the future.

Bank of Commerce was founded in 1975 as a business bank, and turned to SBA lending a short while later. Before he joined Bank of Commerce, chief executive Peter Q. Davis had done SBA lending at Bank of America and knew the opportunities it presented.

SBA lending allowed the bank, which didn't have an abundance of capital in its early years, to lend substantially more money than it would have through conventional lending alone.

By 1982, the bank had opened a separate SBA lending department, with two-and-a-half employees. That department has swelled to 83 staff members, with eight loan production offices around the West.

The bank has five loan offices in California, two in Nevada, and one in Arizona. It plans to open offices in Tucson, Ariz., and Portland, Ore., this month, and is contemplating offices in Denver, Salt Lake City, Seattle, Albuquerque, and Texas.

"Opening offices far outside of San Diego is a gutsy thing for a bank their size, but it makes a lot of sense," said Howard Levenson, chief executive of Western Financial Corp., San Diego. "There might have been some criticism of Bank of Commerce when they first started doing that, but I don't think you could find anyone now who thinks it isn't a good idea."

Loan production offices have give the bank an inexpensive entry into new markets. Commerce expanded its loan production offices because the San Diego SBA market was becoming increasingly crowded.

Concentrating on high-growth areas has proved profitable.

"When we moved into Phoenix we found that because most of the local banks had failed and a lot of out-of-state banks had moved in, most of the small-business people felt like they didn't have a home," Mr. Bartram said.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER