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Region’s Big Banks, S & Ls Sing the Blues : Finance: The institutions lost money or had lower earnings in the third quarter. Bad loans and the poor housing market are blamed.

TIMES STAFF WRITER

Major banks and savings and loans in the San Fernando Valley and Ventura County areas turned in a dismal performance for the third quarter, with all but one posting losses or lower earnings as problem loans and real-estate woes continued to take their toll.

Three of the region’s nine largest financial institutions lost money during the quarter, contrasted with profits a year earlier, and five had lower earnings than in the third quarter last year. The results reflected the recession and the real-estate slump, which forced many financial institutions to boost reserves against loan losses.

The only bright spot was American Pacific State Bank, which posted a 7% increase in third-quarter profits contrasted with a year earlier, continuing a streak of 27 quarterly earnings increases. Profits at the Sherman Oaks-based bank grew to $604,000 from $567,000 last year while assets rose 5% to $214.1 million, the result of conservative lending practices and a record year in its profitable Small Business Administration loan department. SBA loans account for 25% of the loans made by the bank.

American Pacific’s return on average assets for the quarter was 1.13%, and was the only one among the nine institutions to post an ROA above 1%. The ROA, calculated by dividing a bank’s profit by its average assets during the quarter, is a key indicator of how profitably an institution uses its assets. An ROA above 1% is considered an excellent showing for a bank or savings and loan.

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“Either we’re brilliant or lucky, but either way we’re very pleased,” said Frank J. Ures, American Pacific’s president and chief executive. “We learned from the 1982 to ’83 recession, so when times got good, we sort of overstocked our loan-loss reserves.”

Meanwhile, Citadel Holding Corp., the Glendale parent of Fidelity Federal Bank, lost $32.7 million in the quarter, the biggest loss among the region’s financial institutions. Citadel had to set aside $40.4 million for sour loans. Through September, the savings and loan boosted its loan-loss reserves by $52.4 million, contrasted with $8.9 million for the first nine months of 1990.

It was a sharp setback from the second quarter, when Citadel stood out among local S & Ls by posting a 4% earnings gain from a year earlier, to $7.09 million. Still, Citadel’s net interest income--the difference between what it pays for funds and what it charges to lend those funds--grew 38% to $38.2 million during the third quarter contrasted with the year-earlier period.

Savings and loans have benefited in recent quarters because overall interest rates, such as the prime rate, dropped faster than the interest rates paid by homeowners on adjustable-rate mortgages, the dominant loan made by California thrifts.

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Wider interest margins also helped ailing Glenfed Inc. earn $17.1 million in its fiscal first quarter that ended Sept. 30, a 5% drop from the year-earlier profit of $18 million but a sharp rebound from its record $231.7-million loss in the fiscal year that ended June 30.

Glenfed, the parent of Glendale Federal Bank, saw net interest income in the latest quarter grow 15% to $130.2 million.

Glenfed has reportedly been in merger negotiations over the past few months with CalFed Inc., the nation’s fifth-largest thrift, but Glenfed executives have called the reports inaccurate.

But wider interest margins couldn’t help the area’s third-largest thrift, troubled Valley Federal Savings & Loan Assn., which last month was put up for auction by the federal government’s Office of Thrift Supervision. Valley Federal had kept regulators at bay for nearly two years while it tried to boost its capital, or cushion against bad loans, up to the federal minimum, but it had no hope of meeting those capital requirements by the Dec. 31 deadline.

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Last quarter, Valley Federal’s profits plunged 80% to $1.1 million from $5.5 million last year, in part because it added $14.1 million to its loan-loss reserves contrasted with $800,000 for the same period last year.

Regional banks as a group fared worse during the quarter than did savings and loans, partly because interest on bank loans, which are typically closely tied to the prime rate, fell faster than rates on loans made by S & Ls. The prime, which has steadily fallen over the past year and now stands at 7.5%, is the base rate on corporate loans at large U.S. commercial banks.

Traditionally strong CU Bancorp, the Encino parent of California United Bank, lost $6.9 million in the quarter contrasted with a $1.1-million profit in the third quarter last year. In the latest quarter CU Bancorp added $12.2 million to its loan-loss reserves, and the bank expects to post its first annual loss since it was founded in 1982.

CU’s assets as of Sept. 30 inched up 2% to $473.9 million from last year, in sharp contrast with the bank’s rapid growth in the mid-1980s that propelled the bank into the ranks of the region’s largest financial institutions. The third-quarter loss prompted CU to suspend its third-quarter dividend in accordance with its policy of only paying dividends from earnings. CU had paid a 7 1/2-cent dividend per share in the second quarter.

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Economic woes also hit home at Ventura County National Bancorp, the Oxnard parent of Ventura County National Bank and Frontier Bank, which last quarter had record loan charge-offs totaling about $1 million. That helped push profits down 52% to $655,000 from $1.4 million last year.

William E. McAleer, the parent company’s president and chief executive, said one of the charged-off loans was made to a building materials company in Orange County and the other was made to a food distributor in Ventura County. Both businesses failed during the quarter, he said.

Ventura County National Bancorp also saw its third-quarter net interest income drop 4% from a year ago because all of its loans are tied to the prime rate.

“When the prime drops all our loans immediately reprice,” McAleer said in an interview. “But you can’t reprice deposits until they mature.”

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Another problem is that the Federal Reserve Board’s successive rate drops have not had their intended effect of stimulating loan demand, at least not at VCNB, which caters primarily to medium-sized businesses, McAleer said. “Basically loan demand is down,” he said. “Rather than borrowing, we are finding that these people are drawing down their balances” to make payments in cash.

VCNB’s main locally based rival, Levy Bancorp, also had a difficult quarter and saw its profit drop 45%, to $1.1 million from $2 million last year. But the results stemmed mainly from costs associated with Levy’s acquisition in September of Santa Paula Savings & Loan from the Resolution Trust Corp., the federal government’s repository for failed thrifts.

Levy, the Ventura-based parent of the Bank of A. Levy, acquired Santa Paula’s $236.3 million in deposits (which are liabilities for a bank), and $226.8 million of its assets, including $157.5 million of loans. It also paid a $7.4-million premium to the RTC.

Levy’s earnings also were buffeted by a nearly sixfold increase in loan-loss provisions, to $681,000 from $121,000 a year earlier.

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Higher loan-loss provisions also dampened profits at TransWorld Bancorp, the Sherman Oaks-based holding company for TransWorld Bank. Its profits sank 60% to $251,000 from $620,000 for the same period last year, due in part to a $533,000 increase in loan-loss provisions over the third quarter last year. The higher provision is intended to cover a $424,000 write-down of a loan to a San Fernando Valley industrial manufacturer, said Howard J. Stanke, TransWorld’s chief financial officer.

TransWorld, whose business loans are closely tied to the prime rate, said its net interest margin also continued to narrow during the third quarter as its yield on loans dropped faster than its costs of maintaining deposits.

Meanwhile, Independence Bank, the region’s second-largest bank in terms of assets, had another dismal quarter as it struggled in the face of the growing scandal surrounding the Bank of Credit and Commerce International, which federal investigators say secretly owned the Encino-based bank. Independence lost $16 million during the third quarter, contrasted with a year-earlier profit of $250,000, because of troubled loans and legal fees for BCCI-related litigation. The bank’s assets shrunk 13% to $621.8 million.

Independence Chairman Fulvio Dobrich said last month that the Federal Reserve and state officials are seeking to replenish the bank’s shrinking capital cushion by selling a portion of the $450 million in assets held by BCCI in the United States when the bank was seized in July.

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Meanwhile, a federal grand jury in Washington last month indicted Saudi Arabian tycoon Ghaith R. Pharaon, who allegedly acted as a front man to buy the bank for BCCI, on racketeering charges. Pharaon’s attorney has denied the accusations.

Quarterly Report From the Region’s Largest Financial Institutions

Assets Change Change Sept 30 from Profit from Banks (millions) Year ago (Loss) Year ago Levy Bancorp $912.5 +47% $1.1 million -45% (parent of Bank of A. Levy) Independence Bank $621.8 -13% ($16 million) NA CU Bancorp $473.9 +2.2% ($6.9 million) NA (parent of California United Bank) Ventura Co. Natl. $372.4 -7% $655,000 -52% Bancorp (parent of Ventura County National Bank and Frontier Bank) TransWorld Bancorp $243.1 +7% $251,000 -60% (parent of TransWorld Bank) American Pacific $214.1 +5% $604,000 +7% State Bank Savings & Loans Glenfed* $21,342.5 -14% $17.1 million -5% (parent of Glendale Federal Bank) Citadel Holding 5,480.8 -3% ($32.7 million) NA (parent of Fidelity Federal Bank) Valley Federal $2,323 -15% $1.1 million -80%

Return on Average Banks Assets Levy Bancorp 0.68% (parent of Bank of A. Levy) Independence Bank NA CU Bancorp NA (parent of California United Bank) Ventura Co. Natl. 0.71% Bancorp (parent of Ventura County National Bank and Frontier Bank) TransWorld Bancorp .42% (parent of TransWorld Bank) American Pacific 1.13% State Bank Savings & Loans Glenfed* 0.32% (parent of Glendale Federal Bank) Citadel Holding NA (parent of Fidelity Federal Bank) Valley Federal 0.18%

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* Fiscal 1st quarter ended Sept. 30 NA: Not applicable for comparison due to current or year-earlier losses


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