Silicon Valley Bank is shutting down its division that lends to religious organizations, eliminating 17 jobs.
The Santa Clara, Calif., bank said last week that though it did not lose money on loans to church groups, increased competition in that market has resulted in lower-than-expected returns. By cutting jobs and shifting the portfolio to its commercial finance department, Silicon Valley expects to save about $1.5 million a year.
"This decision is a result of our process of continually reevaluating our lines of business to ensure that they contribute both to the bank's strategy and to our financial performance," said John C. Dean, president and chief executive at Silicon Valley Bank and its $3.2 billion-asset parent, Silicon Valley Bancshares.
Silicon Valley said it will take a $400,000 charge this quarter to cover the cost of discontinuing the division, which has made about $175 million in commercial real estate loans to religious groups since 1995. The loans are about 10% of Silicon Valley's total loan portfolio.
David Winton, a bank analyst at Keefe, Bruyette & Woods Inc., said Silicon Valley assumed little credit risk in lending money to religious groups and had never charged off any of these loans. He estimated that the bank approved two out of every 100 such loan applications.
But he agreed that competition from other banks and insurance companies has made the business less profitable.
"The pricing just wasn't there," said Mr. Winton.