Bankers' outlook positive

Apr 12, 2009 (Inland Valley Daily Bulletin - McClatchy-Tribune Information Services via COMTEX) -- ICBNE | Quote | Chart | News | PowerRating -- Safe and sound is their game, they say.

The executives of ICB Financial -- the parent company of Inland Community Bank -- moved into their new offices in Ontario at the height of the housing market, when credit was almost overflowing into the streets.

President and CEO Jim Cooper reminisced last week about that short-lived era during an interview in the company's board room.

Locally headquartered community banks were expanding by leaps and bounds, and giants like the now-defunct Wachovia and Washington Mutual were opening new branches by the dozen.

"It was agonizing," Cooper said. "When you take a system that's designed to be the financial backbone of America and turn it into a high performer, you start taking on risk. Those high performers (now) are gone."

ICB's frugality paid off. The bank primarily lends to businesses and kept from dabbling in the risky residential mortgage loan market.

But the company isn't out of the clear just yet.

ICB Financial is sitting on $6million in taxpayer money. The federal government has bought ICB preferred stock through its originally named Troubled Assets Relief Program, now called the Financial Stability Plan.

ICB doesn't need the money, but it wants a financial cushion for any future surprises, according to executives.

Because of loan and lease loss provisions, the company reported $313,000 in earnings for 2008 compared with $963,000 the prior year.

ICB's provision for loan and lease losses came to $2.7 million in 2008 versus $480,000 the prior year.

We talked with Cooper, Tom Griel, chief financial officer of ICB Financial and Robert Littlejohn, executive vice president and chief credit officer of Inland Community Bank.

QUESTION: When New York University Economist Nouriel Roubini came out saying that Treasury Secretary Timothy Geithner's proposed "public-private partnership" won't stop the eventual nationalization of banks, and when billionaire investor George Soros recently said the American banking system is "insolvent," what was your reaction?

COOPER: They're making very global statements ... irresponsible statements. It's sensationalism. It strikes fear in the hearts of everybody. It's a negative prophecy.

They are very bright people, and they can find the positive side to all of this, but they dwell on the negative.

There needs to be a level of positivity.

Q: Did the Financial Accounting Standards Board make the right decision when it recently issued new mark-to-market accounting rules that let banks use flexible rules when booking the value of mortgage-backed securities?

GRIEL: I think it's more realistic of what investment portfolios are worth. These huge banks had to write down huge mortgage-backed securities to practically nothing, which depleted their capital base. Under this new revision ... they can book the value of these securities based on what they'd get if they held them to maturity rather than sell them at one point in time.

Valuing these at fair market value was one of the main causes of our banking problem. One of these ways is through the "exit value." Exit value should've never been used for mortgage-backed securities. There's a lot of value to mortgage-backed securities other than trading them in a market that has no interest in buying them.

Q: How are the Treasury Department's changing rules attached to TARP money affecting the way you view Treasury's investment?

COOPER: We anticipate the rules will change. It's ongoing change. Some will affect us, some won't. We didn't need the TARP money. But in the next three to six months, if the economy deteriorates, would we be able to raise capital? That's what we're preparing for.

Q: In 10 to 20 years, what do you think the Inland Empire's banking landscape will look compared to now?

LITTLEJOHN: I think the outlook is positive. Ten to 20 years is a long time from now, but the Inland Empire will remain an attractive place to live and do business.

The downturn would've occurred eventually (regardless of the housing market meltdown), but the egregiousness was a little greater than everyone thought.

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