After years of torrid loan growth, Vineyard National Bancorp in Rancho Cucamonga, Calif., is playing catch-up on the deposit side.
The $1.6 billion-asset parent of Vineyard Bank has converted two of its loan production offices in southern California to full-service branches, hoping to capture more core deposits in one of the country's most deposit-rich regions.
It plans to convert two more loan offices, in Orange and San Diego counties, within a year and has been raising capital to buy a deposit-rich bank or two - either south of Riverside, in Temecula; further east, in Palm Springs; or in the San Gabriel Valley, east of Los Angeles.
Norman Morales, the bank and the holding company's president and chief executive, wants to beef up deposits to match loan growth in a number of business lending lines launched in recent years.
"One of our biggest challenges is getting enough funding," Mr. Morales said. "We want to grow organically by opening more branches ... and we want to make acquisitions of institutions that have a good deposit base to complement our lending activities."
Units that Vineyard has formed since 2001 make, among other things, construction loans for million-dollar homes along southern California's coast and affordable tract homes further east, in the Inland Empire, and apartment purchase loans to income-property investors.
Soaring demand in these markets has resulted in double-digit loan growth and corresponding earnings growth for Vineyard for several years. At midyear its loans totaled $1.25 billion, 32% more than a year earlier. Net income rose 45%, to a record $4.8 million.
Also rising, though, was Vineyard's loan-to-deposit ratio - from 101.4% in the first quarter to 120% at the end of the second. The first-quarter average for all commercial banks in California was 84.4%, according to the Federal Deposit Insurance Corp. (The second-quarter figure is not available yet.)
Adding demand deposits would lower Vineyard's cost of funds, which was 2.05% in the first quarter (when the California average was 1.23%) and 2.5% in the second.
Though its net interest margin of 4.5% is in line with peers', Vineyard officials have made no bones about wanting more low-cost deposits to improve it.
Joseph Gladue, an analyst at Cohen Bros. Securities LLC in Philadelphia, said the bank faces stiff competition for deposits from others that have also capitalized on southern California's real estate boom.
Acquisitions are an option, he said, but they will not come cheaply. "There are a few deposit-rich institutions [in the area] … that do not have as much success in getting loans as Vineyard," Mr. Gladue said, "but they are likely to have quite a few banks also trying to buy them, so it would likely be an expensive acquisition."
In preparation for shopping, Vineyard has raised capital in a variety of ways. In the second quarter it completed a $10 million private placement of preferred stock and a $10 million issue of trust-preferred debt obligations. It got $3.5 million in common equity when investors in a December private placement exercised their rights to buy common stock. And since July 2002 the company has bought back about $12 million in stock, including $5 million in May.
Much of Vineyard's success is attributable to its markets. The Inland Empire, which encompasses Riverside and San Bernardino counties - where Vineyard makes many of its commercial real estate loans and construction loans for affordable tract housing - is the nation's fastest-growing metropolitan market, according to the Census Bureau.
Apartment lending is also strong, with continued demand from income-property investors in Los Angeles and Orange counties. And there will always be a market for luxury home construction in the beach communities, Mr. Gladue said.
"Construction loans for big-ticket homes along the coast has tended to stay fairly robust in both up and down cycles, as there's always somebody with money who wants to build a new house along the coastline," he said.
