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Santa Cruz County Bank touts profitability in tough times

May 25, 2010

By Jondi Gumz - Santa Cruz Sentinel

Banks that started up six years ago have had tough times, according to statistics Santa Cruz County Bank chairman George Gallucci cited for 100 stockholders at the annual meeting Tuesday at Bittersweet Bistro in Aptos.

"Of 83 banks started since February 2004, only 18 were profitable. We were one of those," Gallucci said. "Of those 83, only four have a cumulative profit. Your bank is one of those banks."

Shareholders applauded.

The past two years have been "extremely challenging," Gallucci said, citing interest rates that ranged 3.25 to 7.25 percent.

David Heald, the bank's president and chief executive officer, compared the bank's year-end performance with 10 others that opened in 2004. It was second in total assets with $265 million, second in deposits with $239 million and has the most retained earnings at $315,000.

"It was a very encouraging report," said stockholder Dobie Jenkins, who is retired from the travel and real estate business. "They're in a better position than any of the other banks in this group."

Jenkins noted the 65 percent loan-to-deposit ratio.

"They have a significant opportunity for growth as the lending environment improves," he said. "They have the resources to make the loans."

Santa Cruz County Bank has $1.897 million in non-performing assets, although Heald said the bank's exposure is only $195,000 because of a U.S. Small Business Administration loan guarantee.

Eight of the 11 banks have more non-performing assets; the total is $13 million at one bank.

Five of the 11 banks have loan-to-deposit ratios that exceed 100 percent, and eight of the 11 have cumulative deficits instead of profits.

One stockholder asked about the stock price, which initially was $10. As of Dec. 31, the price was $8.83; the other 10 banks were lower, with one at $1.10.

Heald said the bank will not focus on growth in the coming year, but on earnings.

He doesn't anticipate construction lending to rebound soon, or interest rates to soar, so he's concentrated on building non-interest income to $2 million a year from servicing, fees and merchant income.

"We love the bank, how it's fiscally managed," said Becky Campos, a Watsonville real estate agent who is married to county Supervisor Tony Campos. "It doesn't take a lot of chances."

Bill Arnold, a retired carpenter, added, "We need a community bank," predicting it will be a good long-term investment.

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