First National Girds for $5.5 Million in Losses : * Finance: Bank expects 3rd-quarter deficit due to poor economy and bad loans make to Pioneer Mortgage.
The parent of First National Bank expects to report a $5.5-million third-quarter loss as well as a significant jump in bad loans, due in part to the bank’s dealings with Pioneer Mortgage, the bankrupt La Mesa investment firm, and its former chief executive.
First National Corp. said Friday it will set aside loan-loss reserves of $10.8 million for the quarter ending Sept. 30. In a statement, the bank said the “special addition” to loan loss reserves was due to loan problems caused by “the deterioration in all sectors of the San Diego regional economy.”
In a statement, the bank also “highlighted” its recent regular audit by the federal Office of the Comptroller of the Currency. Stringent OCC examinations frequently lead to banks taking larger-than-usual loan-loss provisions. Final third-quarter results will not be released until mid-October.
In an interview, bank President Michael West said the writeoffs of loans to Pioneer Mortgage also contributed to the expected loss, although West declined to quantify the Pioneer-related writeoffs. West also said the bank will downsize itself in terms of total assets over the rest of the year. Assets currently total about $645 million, he said.
Pioneer, a firm that brokered loans totaling more than $200 million, filed for protection under Chapter 11 of the federal Bankruptcy Code in January after investors stopped receiving interest payments on their loans.
In proxy material mailed to shareholders before this year’s annual shareholders meeting, First National disclosed that $3.5 million in loans made by the bank to Pioneer and its former president, Gary Naiman, were in default.
In addition, the bank disclosed that Pioneer is in default on $1.1 million in loans from financier Frank Goldberg, then a First National board director. Goldberg resigned from First National’s board of directors shortly after his ties to Pioneer were disclosed in the proxy material.
West declined to say by how much First National’s bad loans would increase. As of June 30, the bank’s non-performing assets totaled $11.5 million, or less than 2% of total assets of $640.5 million.
To cut costs, the bank recently has eliminated 15 administrative positions, West said. The bank said its capital remains well above minimum regulatory levels, despite the anticipated loss. First National Corp. stock closed down $.875, to $8.125, in American Stock Exchange trading Friday.
