Volume 6, Number 12

Investments in Mortgage Backed Securities

The Department of Financial Institutions has noted a significant increase in the amount invested by
California state-chartered banks in mortgage backed securities (“MBS”), and the related percentage that
such investments represent of the total assets and capital of the banks and credit unions. The average
investment in MBS of the banks is 105 percent of capital, while approximately 17 percent have
investments in MBS in excess of 200 percent of capital. These securities have proved to be an attractive
investment vehicle for excess funds during a period of very low investment returns. However, in past
interest rate cycles we have noted a very high volatility in market price of such securities during periods
when the direction of interest rate changes reversed. This primarily results from the imbedded
prepayment option in the underlying mortgages, which can cause a dramatic change in the duration of
the security.
In the recent environment of declining mortgage rates, the expected duration of such securities is only
two to three years, because of rapid refinancing of the underlying mortgages. However, when the market
believes that the long term rate environment has changed, refinancing will slow and the expected life
“duration” could immediately jump to a five to seven year time horizon. This could result in a much
more rapid decline in the market value of MBS when interest rates eventually rise than would otherwise
be expected.
Our examiners will be monitoring the efforts of management at all banks and credit unions to manage
their risk to market sensitivity. For those banks and credit unions that have significant investments in
MBS, or other fixed rate securities, in relation to their capital, quarterly “stress” tests should be
performed. Effective risk management requires measurement and mitigation of risk. Now is the time to
review the level of interest rate risk in your securities portfolio.
2 Monthly Bulletin June, 2003
2003-04 Assessment Due
DFI now Offers EFT Payment Option
Assessment invoices were mailed to the following licensees on June 30, 2003. For the first time ever,
licensees will be able to remit payments by electronic funds transfer (EFT). This will enable DFI to
better manage its funds by reducing or eliminating costly and time-consuming manual processes. Please
refer to the cover letter and assessment invoice for more information about this new payment option or
contact Eli Karam at (415) 263-8525 or by e-mail at ekaram@dfi.ca.gov.
Banks, Foreign Banks and Trust Companies
The base rate will increase from $1.038585 to $1.35 per thousand dollars of total assets. The higher
assessment was due to a business decision by a major licensee to consolidate its licenses in another state
and for the Department to be able to provide for a prudent three-month reserve fund. The statutory
maximum rate is $2.20 per thousand dollars of total assets.
Invoices were mailed to each licensee on June 30, 2003 and become delinquent if not paid by July 20,
2003.
Industrial Banks
The assessment rate for industrial banks this year at $0.80231 per thousand dollars of total assets is
unchanged from the previous fiscal year ended June 30, 2002. Invoices were mailed to each licensee on
June 30, 2003 and become delinquent if not paid by July 20, 2003. Insurance premium finance
companies will be assessed on November 30, 2003. The statutory maximum rate is $2.20 per thousand
dollars of total assets.
Credit Unions
The 2003-04 assessment rate is unchanged from last year’s rate of $0.747282343 per thousand dollars of
total assets. Invoices were mailed to each licensee on June 30, 2003 and become delinquent if not paid
by July 20, 2003. The statutory maximum rate is $2.20 per thousand dollars of total assets.
Savings and Loan Associations
The 2003-04 assessment rate for savings and loan associations is unchanged from last year’s rate of
$0.495100 per thousand dollars of total assets. Invoices were mailed to each licensee on June 20, 2003
and become delinquent if not paid by July 10, 2003.
3 Monthly Bulletin June, 2003
DFI Collecting Data for 26th Annual Executive
Officer and Director Compensation Survey
Forms for the 26th Annual Executive Officer and Director Compensation Survey were mailed to the
CEOs of all state-chartered banks, industrial banks and national banks headquartered in California on
June 30, 2003. Recipients are asked to respond by August 1, 2003 so the results can be compiled into a
summary report that will be mailed to participating banks in the fall. If you do not receive your forms,
please contact Patrick Carroll at (415) 263-8559 or by e-mail at pcarroll@dfi.ca.gov.
The survey results for the 2002 Executive Officer and Director Compensation Survey are now available
from the DFI Web site at http://www.dfi.ca.gov/execsum/default.asp.
Commercial Bank Activity
New Bank
Five Star Bank of Natomas
2400 Del Paso Boulevard, Sacramento, Sacramento County
Correspondent: Gary Steven Findley, Esq.
Gary Steven Findley & Assoc.
1470 North Hundley Street
Anaheim, CA 92806
(714) 630-7136
E-mail: gsf@findley-reports.com
Filed: 6/10/03
San Diego Trust Bank
Proposed location: 2550 Fifth Avenue, San Diego, San Diego County
Correspondent: Michael Perry
2472 Wind River Road
El Cajon, CA 92019
Phone: (619) 247-3637
Approved: 6/23/03
Seacoast Commerce Bank
296 H Street, Chula Vista, San Diego County
Phone: (619) 476-7776
Web site: www.seacoastcommercebank.com
Officers: Larry Benthien, President and Chief Executive Officer
Louis Cumming, Chief Credit Officer
Toni Flannagan, Chief Financial Officer
Capitalization: $9,350,000.00
Opened: 6/10/03
4 Monthly Bulletin June, 2003
New Bank (Continued)
United American Bank
101 South Ellsworth Avenue, San Mateo, San Mateo County
Phone: (650) 579-1500
Web site: www.unitedamericanbank.com
Officers: John C. Schrup, President and Chief Executive Officer
William R. Walters, Chief Credit Officer
Sherry A. Price, Chief Operating Officer
Capitalization: $15,125,000.00
Opened: 6/9/03
Conversion to State Charter
First Bank of Beverly Hills, F.S.B., Calabasas, to convert from a federal savings bank to a statechartered bank under the name First Bank of Beverly Hills
Filed: 3/17/03
Merger
First Continental Bank, Rosemead, with and into United Commercial Bank, San Francisco
Approved: 6/27/03
Southland Business Bank, Irwindale, with and into Vineyard Bank, Rancho Cucamonga
Filed: 6/17/03
Sale of Partial Business Unit
California Bank & Trust, San Diego, to sell its trust assets to Western National Trust Company, Salt
Lake City, Utah
Approved: 6/18/03
Acquisition of Control
Hui-Yu Pai, to acquire control of First United Bank
Filed: 5/14/03
Approved: 6/19/03
Premium Finance Company Activity
New Premium Finance Company
Altair Premium Finance Corp.
2501 East Chapman Avenue, Suite 100, Fullerton, Orange County
Approved: 6/19/03
5 Monthly Bulletin June, 2003
New Premium Finance Company (Continued)
CIBA Financial Services, Inc.
523 West 6th Street, Suite 716, Los Angeles, Los Angeles County
Approved: 6/19/03
Premium Payment Plan Inc.
2383 Buena Vista Avenue, Livermore, Alameda County
Approved: 6/11/03
Voluntary Surrender of License
FS Premium Finance Company
114 East 5th Street, Santa Ana, Orange County
Effected: 6/9/03
Foreign (Other Nation) Bank Activity
Discontinuance of Office
Dresdner Bank, A.G.
355 South Grand Avenue, Los Angeles, Los Angeles County (Depositary Agency)
Filed: 5/19/03
Foreign (Other State) Bank Activity
New Facility
Franklin Bank S.S.B. (Facility – Insured Bank)
23001 Del Lago Drive, Suite D-2, Laguna Hills, Orange County
Opened: 6/2/03
Nevada Security Bank (Facility – Insured Bank)
2893 Sunrise Gold Circle, Suite 209, Rancho Cordova
Opened: 3/25/03
The Provident Bank (Facility – Insured Bank)
19000 MacArthur Blvd, Irvine, Orange County
Notified: 1/3/03
Opened: 2/1/03
Discontinuance of Facility
BankWest of Nevada (Facility – Insured Bank)
550 West C Street, San Diego, San Diego County
Discontinued: 6/1/03
6 Monthly Bulletin June, 2003
Credit Union Activity
Conversions to State Charter
Lockheed Federal Credit Union, Burbank
Withdrawn: 6/10/03
Change of Name
Riverside Employees Credit Union to Raincross Credit Union
Filed: 12/20/02
Approved: 1/28/03
Effected: 4/7/03
Field of Membership
13 credit unions received approvals to add 61 new fields of membership during May 2003.
Bylaw Amendments
Eight credit unions received approval for eight bylaw amendments during May 2003.
Variances
One credit union received an approval for a request for variance to sections of the California Code of
Regulations during May 2003.
Transmitter of Money Abroad Activity
New Transmitter
Bancomercio de El Salvador, Inc.
Approved: 6/30/03
7 Monthly Bulletin June, 2003
Change of Name
Banmetropolitano Corp., A Non-bank Affiliate of Banco Metropolitano, S.A. a California Corporation
to Banmetropolitano Corp.
Effected: 5/5/03
DONALD R. MEYER
Commissioner of Financial Institutions
Bulletin for Month ended
June 2003, issued pursuant
to Financial Code, Section 258
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