Lending
The bank offered loans to income-producing manor owners (about 70–80% of total loans) or property owners in cities. Long-term loans were paid not in cash, but in mortgage bonds which provided for a fixed annual interest to their holders. Initially, that interest was 6%. Twice a year, the borrowers had to pay the interest to mortgage bondholders plus a 1% administrative fee to the bank. This fee was lowered several times and in the 1900s it was 0.25% for manor owners and 0.5% for city residents. The loans were provided for only up to 60% of the appraised value of the mortgaged real estate. The terms of the long-term loans varied over the years. Initially, the loans for manor owners were offered for 43.5, 48.67, or 54.5 years. More terms were added later, the longest being 66.17 years. The loan terms for city residents were shorter: initially up to 27.5 years and later up to 38.33 years. Most borrowers (more than 80% in 1912–1914) opted for the longest possible loans. Short-term loans, for one to three years, were available only for up to 10% of the appraised real estate value.
The outstanding loans grew from 5 million rubles in 1874 to 148.8 million in 1912. Correspondingly, mortgaged properties grew from 148 manors (approx. 192,700 dessiatins of land) in 1874 to 12,480 manors (approx. 4,135,200 dessiatins or approx. 45000 km2) in 1914. Already by 1895, 15% of all privately owned land in the Russian Empire was mortgaged to land banks and Vilnius Land Bank commanded a 4% share. The average manor size dropped showing that the loans were taken out by smaller nobles and, in some cases, well-to-do peasants. The bank was very conservative in its lending practices, often using very low valuations of mortgaged properties for which it faced criticism and pressure both from the shareholders and the clients. The average loan per dessiatin increased from 12.4 rubles in 1874 to 28.6 rubles in 1913.
The default rate was low (just 0.8% or 434,000 rubles in 1890), but increased sharply during economic downturns. In the early 1890s, due to an agricultural crisis (caused by international trends as well as the Russian famine of 1891–92) and a tariff war with Germany, the default rate increased to 1.9 million rubles in 1895 and 2.9 million rubles or 3.8% in 1898. The defaults increased during the Russian Revolution of 1905 and were 4.1 million rubles in 1907. The bank offered many forms of relief to the struggling nobles, protecting local Polish landed nobility and attracting ire of Russian regulators. Russification policies called for a two-thirds land ownership by Russians and prohibited Catholic gentry and Jews from purchasing land. Therefore, there were very few land sales (as nobles could not repurchase the land later on) and auctioning foreclosed land was one of the few ways for Russians to acquire it. In 1905–1906, the bank foreclosed and sold a record 55 manors in auctions.
The share of urban borrowers kept slowly increasing to about 30% of all loans but those were riskier loans. The share of loans to merchants, who were mostly Jewish, was particularly low – just 2.2% in 1889 when the average of other banks was 13.5%. A big jump in urban loans was seen in 1892 due to the agricultural crisis (from 8 million to 13.4 million). These loans helped industrialisation, but were blamed for a construction boom which later resulted in a bust. From 1901 to 1907, the bank auctioned 659 urban properties but managed to sell only 452 and suffered 2 million rubles in losses. There were no restrictions of Catholic nobles or Jews on acquiring urban properties. In 1902, to reign in the perceived abuses, the government limited urban loans to 30% of outstanding loans. Despite the losses and regulations, the bank continued to lend to city residents and the outstanding loans amounted to 35.9 million and represented 2,891 properties in 1915.
Mortgage bonds
The mortgage bonds were a way for the bank to raise funds. The bonds, nominal value 100 rubles, were sold to the public by the borrower or the bank. The bank guaranteed redemption of the bonds with its capital and the mortgaged property. A market developed for these bonds. Initially, the market price fluctuated between 81 and 93.25 rubles. Due to the Russo-Turkish War (1877–1878), the price dropped to 78 rubles. When prices rebounded and stabilized at 92–96 rubles, Russian government ordered to lower the interest rate to 5% in 1886. In 1895, the bonds traded at 99–102 rubles and the government lowered the interest to 4.5%. In 1900, among Russian land banks, only Moscow Land Bank had more outstanding mortgage bonds. During the Russian Revolution of 1905, the bond price dropped to 68 rubles. After the revolution, the market recovered and in early 1913 Vilnius Land Bank had 146.5 million rubles worth of mortgage bonds outstanding. In 1913 they traded at an average of 86 rubles.
Capital and reserves
According to banking regulations, the bank could lend not more than 10 times its capital. Therefore, as lending increased every year, new shares had to be issued almost annually. Up to 1902, the bank issued 33,700 additional shares (nominal value 250 rubles). The shares were first offered to existing shareholders who often bought majority of the new shares using their annual dividends. In 1896, Vilnius Land Bank had third largest capital among land banks after Moscow and Kharkiv banks. In 1898, Vilnius Land Bank had a profit of 1.6 million rubles, second largest after Moscow Land Bank (1.9 million). In 1912–1914, Vilnius Land Bank was the second largest, after the Bank Handlowy w Warszawie, among Polish banks in terms of capital. The annual dividend grew from 4.35% in 1873, 8% in 1874, and 14.0–14.9% in 1878–1885, to 16% in 1896–1900. The dividends dipped to 13.12% in 1904. The bank took great care to keep the dividend high and consistent, cutting bonuses for board members and even reducing bank's capital in a bad year. The capital grew to 10.6 million rubles in 1913–1914. This capital was used to provide short-term loans and any excess was required to be invested in Russian government bonds.
The bank was also required to have a reserve capital which could be used to cover losses, guarantee 8% annual dividend, or timely payment of interest on mortgage bonds in case of a borrower's default. The reserve capital had to be at least a third (later half) of its stock capital and at least a third of it had to be invested in Russian government bonds or deposited with the State Bank of the Russian Empire. Investment income from Russian government bonds and 5% of annual profit were transferred to this reserve capital. From 1883, newly issued shares were required to be sold at a premium over the nominal face value to build up the reserve. The bank achieved the required reserve level (4.8 million rubles) in 1904. From 1899, the bank had a second special reserve to cover investment losses. Due to requirements of keeping capital invested (mostly stocks of railway companies and Russian government bonds), the bank suffered significant losses (10.4 million rubles) in 1900–1905.
