Banks Still Feeling Recession : Economy: Most of the area’s larger financial institutions continue to suffer from falling interest rates and the real estate slump. A few improved in the quarter that ended Dec. 31.
Most of the major banks and savings and loans in the San Fernando Valley and surrounding regions continued to suffer from the slumping real estate market and falling interest rates in the quarter that ended Dec. 31. But a few institutions showed improved financial results and indicated that the worst of their recession-related problems might be past.
Of the region’s largest institutions, as ranked by their assets, four posted lower earnings in their latest quarter, including Levy Bancorp, TransWorld Bancorp, American Pacific State Bank and Valley Federal. CU Bancorp’s profit was about even with a year earlier, while Citadel Holding reported a higher profit and Glenfed posted a profit after a year-earlier loss.
Ventura County National Bancorp has not released its fourth-quarter results.
There was one notable absence from the quarterly results. Independence Bank of Encino, which was once the Valley’s largest bank, was abruptly closed by federal regulators in late January. Independence, which was secretly controlled by the scandal-ridden Bank of Credit & Commerce International for many years, was closed after regulators determined that bad real estate loans had rendered the bank insolvent.
Levy Bancorp, the Ventura-based holding company for Bank of A. Levy, is now the region’s largest financial institution with $915 million in assets, and it has long promoted itself as a quiet, conservative bank.
Even so, Levy has also been hurt by the depressed real estate market and declining interest rates, and its profit fell 23% to $1.34 million in the fourth quarter from $1.73 million a year earlier. In all of 1991, Levy earned $5.09 million, down 31% from $7.39 million in 1990.
The lower fourth-quarter earnings dropped Levy’s return on average assets (ROA) to 0.58% from 1.05% in the year-earlier period. ROA measures how profitably a bank employs the assets at its disposal. A reading above 1% is considered a strong showing.
In a recent interview, Levy’s president and chief executive, Marshall C. Milligan, said a recovery will be slow because the downturn in the local economy continues to cause problems for banks.
“Businesses and individuals are reluctant to borrow money,” Milligan said. “Without the demand for credit, we’re going to have a tough time making the good loans we want to make.”
Despite the weak economy, CU Bancorp, the Encino parent of California United Bank, saw a return to profitability in the three months that ended Dec. 31, after a large loss in the third quarter, when the bank bolstered the reserves it sets aside for possible future loan losses. CU earned $1.29 million in its fourth quarter, for a healthy ROA of 1.13%, in contrast with a loss of $6.9 million in the third quarter.
However, CU had a full-year loss of $3.64 million.
John J. Keating, CU’s president and chief executive, said he has grown more optimistic about the economy in recent weeks. “There is some evidence we’re on the way out” of the recession, he said, including an increase in demand for new mortgage loans.
At TransWorld Bancorp in Sherman Oaks, the parent of TransWorld Bank, falling interest rates have been a key reason for declining profits, said Howard Stanke, TransWorld’s executive vice president and chief financial officer.
TransWorld saw its profit fall 8% to $522,000 in the fourth quarter from $570,000 a year earlier. For all of 1991, TransWorld’s profit was $1.79 million, down 26% from $2.41 million in the previous year. For the fourth quarter, TransWorld’s ROA was 0.83%.
Lowering interest rates have had varying effects on financial institutions, which typically make money on the spreads between the rates they charge on loans and the interest they pay depositors. For savings and loans that rely on mortgage loans, for instance, falling interest rates have helped because the rates they charge on high-interest mortgage loans are locked in for long periods. And as thrifts lower the rates they pay on depositor accounts, their spreads widen.
But banks tend to make more short-term commercial loans with adjustable rates and have been under pressure to lower the interest rates they charge, so their spreads have been shrinking. What’s more, some banks say there’s a limit to how far they can lower depositors’ rates to maintain their spreads.
“Our loan rates are dropping very quickly and our deposit rates aren’t,” Stanke said.
Ventura County National Bancorp, the Oxnard parent of Ventura County National Bank and Frontier Bank, recently said it expected to report an operating loss for the fourth quarter because of its plan to add $1.3 million to its loan-loss reserves. Through the first nine months of 1991, VCNB’s profit tumbled 49% from a year earlier, to $1.5 million from $2.9 million.
American Pacific State Bank in Sherman Oaks reported an 18% drop in its profit in the fourth quarter, to $535,021 from $653,943 a year earlier, and its fourth-quarter ROA was 1.00%. Its full-year profit gained slightly to $2.15 million from $2.11 million.
American Pacific is the sixth largest provider of U. S. Small Business Administration loans in the United States.
Frank J. Ures Jr., the bank’s president and chief executive, said in a statement that despite a difficult year, American Pacific managed to turn a profit because of tight controls over expenses, few loan losses and strong demand for SBA loans. However, the bank said it also added to its loan-loss reserves in the fourth quarter because of “the uncertain economic climate.”
Among local thrifts, Glenfed Inc. has been struggling to survive by selling or scaling back several businesses it entered into in the 1980s, including title insurance, retail brokerage and real estate development. Glenfed, the Glendale-based parent of the nation’s fourth-largest thrift, Glendale Federal Bank, has also cut its work force and bolstered its loan-loss reserves.
There are signs that Glenfed’s efforts are paying off. In its fiscal second quarter that ended Dec. 31, it earned $27.6 million, in contrast with a year-earlier loss of $140.8 million. The third-quarter profit figure was restated from a previously reported $20.5 million profit because of an accounting change.
But the outlook for Glenfed remains uncertain. Last week, Glenfed said it might post a loss in the present quarter because of the recession and continued real estate-related problems, and probably won’t meet minimum federal capital requirements.
Meanwhile, Citadel Holding Corp., the Glendale parent of Fidelity Federal Bank, reported a jump in its fourth-quarter earnings to $12.3 million from $4.4 million a year earlier. It attributed the increase to a wider interest-rate spread and a gain from the sale of some real estate loans. In the fourth quarter, Citadel’s ROA was 0.92%, but for the full year, its ROA was a tiny 0.05%.
In 1991, Citadel’s profit plunged 88% to $2.7 million from $23.3 million in 1990 because of higher loan-loss provisions.
And Valley Federal Savings & Loan Assn., an ailing Van Nuys thrift that has been put up for auction by the federal Office of Thrift Supervision, said its fourth-quarter profit plunged 76% to $1 million from $4.24 million a year earlier, and its ROA was an anemic 0.18%. Its 1991 earnings fell 64% to $9.35 million, and its assets dropped to $2.2 billion as of Dec. 31 from $2.7 billion a year before.
Quarterly Report From the Region’s Largest Financial Institutions
Assets Change December 31 from Banks (millions) Year ago Levy Bancorp $915.2 +41% (parent of Bank of A. Levy) CU Bancorp $498.0 +5% (parent of California United Bank) TransWorld Bancorp $253.5 +13% (parent of TransWorld Bank) American Pacific State Bank $219.6 5% Savings & Loans Glenfed* $20,546.7 -16% (parent of Glendale Federal Bank) Citadel Holding $5,126.5 -10% (parent of Fidelity Federal Bank) Valley Federal $2,225.6 -17%
Return on Profit Change from Average (Loss) Year ago Assets Levy Bancorp $1.3 million -23% 0.58% (parent of Bank of A. Levy) CU Bancorp $1.3 million +1 1.13% (parent of California United Bank) TransWorld Bancorp $522,000 -8% 0.83% (parent of TransWorld Bank) American Pacific State Bank $535,021 -18% 1.00% Savings & Loans Glenfed* $27.6 million NA 0.49% (parent of Glendale Federal Bank) Citadel Holding $12.3 million +182% 0.92 (parent of Fidelity Federal Bank) Valley Federal $1.0 million -76% 0.18%
* Fiscal 2nd quarter ended Dec. 31
NA: Not applicable for comparison due to current or year-earlier losses.
Profit Change from Bank (loss) year ago Levy Bancorp $5.1 million -31% (parent of Bank of A. Levy) CU Bancorp ($3.6 million NA (parent of California United Bank) TransWorld Bancorp $1.8 million -26% (parent of TransWorld Bank) Amer.Pacific State Bank $2.2 million +2% Savings & Loans Glenfed* $51.6 million NA (parent of Glendale Federal Bank) Citadel Holding $2.7 million -88% (parent of Fidelity Federal Bank) Valley Federal $9.3 million -64%
Return on Bank avg. assets Levy Bancorp 0.71% (parent of Bank of A. Levy) CU Bancorp NA (parent of California United Bank) TransWorld Bancorp 0.76% (parent of TransWorld Bank) Amer.Pacific State Bank 1.02% Savings & Loans Glenfed* 0.49% (parent of Glendale Federal Bank) Citadel Holding 0.05% (parent of Fidelity Federal Bank) Valley Federal 0.38%
*First six months of fiscal year ended Dec. 31 NA: Not applicable for comparison due to current or year-earlier losses.
