Security Pacific to Increase Arizona Loan-Loss Reserves

Security Pacific Corp., stung by Arizona’s continuing real estate woes, said Friday that it will substantially increase loan-loss reserves for its bank there and put the unit’s problem loans into a separate holding company.

The loan-loss reserves--money set aside to cover future losses--will be boosted by an unspecified amount in the fourth quarter, but earnings in the period are still expected to be higher than a year earlier, Security Pacific said. That is because the move will be offset by gains from sales of assets, including an office in Singapore, said John F. Kooken, Security Pacific’s chief financial officer.

Separately, the Los Angeles-based banking company said its Security Pacific Bancorp Northwest subsidiary has reached agreement to buy Mountain West Savings Bank in Idaho for $31.5 million. The bank would be Security Pacific’s first in that state, a spokesman said.

Security Pacific, parent of Security Pacific National Bank in Los Angeles, is one of a number of banks hurt by Arizona’s soft real estate market. Last month, for example, First Interstate Bancorp, the Los Angeles-based parent of First Interstate Bank, reported a loss of $15.5 million stemming from problem loans at its Arizona bank.

Kooken said in an interview that Security Pacific’s Arizona bank has lost $50 million after taxes through the first nine months of the year.

Kooken said Security Pacific has $465 million in non-performing loans in Arizona, about 40% of its portfolio there. Putting those assets into a separate company will allow Security Pacific to deal more easily with its problems in the state, he said.