Bailed-Out Sacramento Bank Favors Insiders for Loans

A California bank that received $3.9 million in bailout funding has directed most of its recent loan activity to its own directors and their close associates.

Since it opened more than three years ago, West Sacramento-based Community Business Bank has lent approximately one-third of its loan portfolio of $100 million to company insiders, their relatives and their business partners, the Sacramento Bee reported.

Much of the insider lending activity was steered towards housing projects, a risky endeavor in northern California’s overheated and then battered real estate market. In one 2007 case, a bank director was lent $6 million for a development project in the nearby city of Vacaville.  Construction has yet to begin, the Bee reported.

According to the Federal Deposit Insurance Corp., Community Business’ proportion of loans to bank directors is larger than 90 percent of banks of similar size.

Bankrate.com, an online banking information resource, said in a December 2008 evaluation that the bank “exhibited a significantly below average condition, characterized by substantially lower than normal overall, sustainable profitability, very questionable asset quality, strong capitalization and lower than normal liquidity.”

The Sacramento Bee report is the latest in the past week to cast doubt on the Treasury Department’s claim that the $700 billion Troubled Asset Relief Program was carefully designed to improve liquidity by funneling money to healthy banks.

BailoutSleuth reported yesterday that three banks had suspended dividend payments to the Treasury partly in an effort to improve straggling capital ratios.

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