Yacht loans are helping to keep Grasshopper Bank afloat

Grasshopper Bank, a New York City-based commercial bank, has been buoyed over the past year by its yacht and commercial real estate loans while it looks to turn its other lines of business profitable.

The bank launched in 2019 with $131 million in initial capital and a mission to serve New York's innovation economy and venture capital firms. It looked to do the same in other major innovation economy centers across the country.

The bank relaunched in April 2021 when it hired Mike Butler as its CEO. Since that time, Butler has overseen the bank's expansion from $226 million to $628 million of at the end of 2022.

As recently pointed out by Bank Reg Blog on Substack, Grasshopper's initial focus on lending to early-stage tech companies has been subject to restrictions from the Office of the Comptroller of the Currency, and potentially as a result, the bank has leaned into yacht lending, commercial real estate lending and Small Business Administration loans.

The bank's 2019 charter from the OCC says it must "not take on any credit risk with respect to any venture loan" and, among other conditions, fully secure venture loans with cash. Public information does not indicate whether those conditions remain.

Butler has also said he doesn't intend for any lending area to become more than 25% of his asset mix, and the bank has followed this rule. After he took over, Grasshopper stepped into the world of financing yachts. Consumer loans now represent the largest share of the bank's loan capital.

Loans to individuals for household, family and other personal expenditures made up the largest portion of Grasshopper's loans as of Dec. 31. According to the company's financial disclosures, $141 million of its $440 million in loan balances (32%) fell into that category.

None of those loans are credit cards; they are all other consumer loans, which would include yachts. The bank does not advertise consumer loan offerings other than for yachts on its website.

Consumer loans account for a growing portion of the bank's income from loan interest and fees. Last quarter, consumer loans generated $3.5 million in revenue for the bank, compared with the $14.4 million it made from loans that quarter. In the same quarter in 2021, the bank made $70,000 on consumer loans.

Commercial and industrial loans remain a significant loan revenue driver for the bank, with $6.3 million coming from interest and fees on them last quarter. In the same quarter of 2021 that figure was $2.6 million.

Grasshopper has yet to turn a profit, but it has gotten closer over the past year. It had net losses in 2019 of $27.2 million, then $22.2 million in 2020, $25.8 million in 2021 and $13 million last year.