A Greener Quarter : Financial institutions: Banks and S & Ls mostly fared better in early ’92 than a year earlier. However, there were also some significant setbacks.
Major banks and thrifts in the San Fernando Valley and Ventura County generally showed improved financial results during the first three months of 1992. But there were some notable exceptions, and most continued to be hurt by sluggish lending and losses in real estate.
Four of the region’s seven largest institutions, as ranked by their assets, reported higher earnings in the latest quarter compared to a year ago, thanks to an increase in net interest income, fees for services and lower operating expenses. But two posted lower earnings, and one, Glenfed Inc., had a huge loss.
Ventura County National Bancorp, the Oxnard-based parent of Ventura County National Bank and Frontier Bank, saw the biggest jump in profit, up 120%, to $520,000. W. E. McAleer, president and chief executive officer, concluded: “We are beginning to see signs of a stronger economy and an improved business climate.”
Frank Ures, president of Sherman Oaks-based American Pacific State Bank, whose earnings rose 9% to $549,077, concurred: “I think continued confidence is taking place in the Valley.”
But the outlook was dampened by some big losses, caused mainly by the slumping commercial real estate market. Glenfed, the parent of Glendale Federal Bank, lost a whopping $106.7 million in its fiscal third quarter ended March 31, compared with a profit of $1.4 million a year earlier.
Glenfed was forced to increase reserves set aside for loan losses by sixfold, to $131.8 million, in the latest period. With the latest quarterly loss, Glenfed, the nation’s fourth-largest thrift with assets of $19 billion as of March 31, fell out of certain capital levels that, unless bolstered soon, could prompt federal regulators to pressure the S & L into a merger or to take control of it.
That’s just what happened to Valley Federal Savings & Loan Assn. After more than 60 years in business, the S & L folded April 10 when federal regulators arranged for its sale to American Savings Bank.
The shutdown of Valley Federal was preceded by the January closing of Independence Bank of Encino, once the Valley’s largest commercial bank, which was rendered insolvent because of bad real estate loans.
Levy Bancorp, the Ventura-based parent of Bank of A. Levy and now the region’s largest bank with assets of $869.1 million as of March 31, saw its profit increase by 12% in the latest quarter, to $1.7 million.
While Levy lowered reserves for loan losses, most of the other major regional banks and thrifts, even while reporting increased earnings, boosted provisions for loan losses.
Citadel Holding Corp., parent of Fidelity Federal Bank, posted a 39% increase in first-quarter earnings, to $6.1 million. But the Glendale-based company’s provisions for loan losses jumped by 50%, to $9 million.
The commercial real estate market and the sluggish economy in general have also weakened demand for loans, which affects a bank’s net interest margin--the spread between what banks pay for deposits and what they charge for loans.
CU Bancorp, the parent of California United Bank, said its commercial loans outstanding in the first quarter dropped by more than a third, to $167.1 million from $258.7 million a year earlier. And its non-performing loans, thought to be an indicator of what future loan-loss reserves will be needed, were up 38%, to $20.6 million from $14.9 million.
“As far as commercial real estate, it’s still going to get worse,” predicted John Keating, CU’s president and chief executive.
But Keating said his bank was finding other ways to make money. Although CU’s earnings fell 40% in the first quarter, to $595,069, Keating said the bank enjoyed an increase in fees and net interest income from its mortgage banking operations, particularly in home refinancing. “That’s where we’ll make more money,” he said.
Banks are also fighting the tough lending market by cutting operating expenses.
Howard Stanke, executive vice president and chief financial officer at TransWorld Bancorp in Sherman Oaks, said his bank reduced data-processing and equipment expenses and lowered personnel costs. Last year TransWorld reduced its staff by 7%.
Although TransWorld’s first-quarter earnings dropped 4% to $479,000, non-interest income and service fees are up, Stanke said. “And we’re watching our expenses.”
Another encouraging sign for some area banks, including Ventura County National and American Pacific, is that older deposits bearing high interest rates are maturing, allowing the banks to reprice the deposits with lower current rates.
American Pacific’s Ures said his bank had some time deposits that dated back to the early 1980s, when interest rates were well above 10%, compared with the current rate of about 5%. Repricing those deposits at current rates “improved our net interest margin,” said Ures.
American Pacific said it’s also taking advantage of the sluggish new-lending market. “With so many of the large banks not extending loans to small businesses,” Ures said, “our Small Business Administration loans have flourished.”
American Pacific is the sixth-largest generator of SBA loans in the United States. Because the vast majority of SBA loans are guaranteed by the U.S. government, American Pacific can resell many of those loans to investors, bringing it additional income.
The higher first-quarter earnings brought American Pacific’s return on average assets (ROA) to 1.01%. The ROA measures how profitably a bank uses its assets, and a reading above 1% is considered a strong showing.
American Pacific was the only major bank or thrift in the region with an ROA above 1%. The rest of the area’s financial institutions, with the exception of Glenfed, had an ROA of between 0.48% and 0.78%.
“That’s not great, but that’s not terrible either,” said Gary Zimmerman, an economist with the Federal Reserve Bank of San Francisco. Nationally, the ROA average currently is about 0.50%, he said.
While some area bankers said they thought the recession had bottomed out, Zimmerman offered a more sobering picture for the banking industry.
“There are going to be continued increases in problem loans, particularly in commercial real estate,” he said. “Loan demand is also fairly weak. We’re seeing a noticeable decline in outstanding loans.”
FIRST QUARTER REPORT FROM THE REGION’S LARGEST FINANCIAL INSTITUTIONS
Assets March 31 Change from Bank (millions) Year ago Levy Bancorp $869.1 +33% (parent of Bank of A. Levy) CU Bancorp $523.1 +7% (parent of California United Bank) Ventura Co. Natl. Bancorp $399.6 +4% (parent of Ventura County National Bank and Frontier Bank) TransWorld Bancorp $246.1 +8% (parent of TransWorld Bank) American Pacific $230.4 +13% State Bank Savings & Loan Glenfed* $19,033.6 -13% (parent of Glendale Federal Bank) Citadel Holding Corp. $5,028.7 -11% (parent of Fidelity Federal Bank)
Profit Bank (Loss) Levy Bancorp $1.7 million (parent of Bank of A. Levy) CU Bancorp $595,069 (parent of California United Bank) Ventura Co. Natl. Bancorp $520,000 (parent of Ventura County National Bank and Frontier Bank) TransWorld Bancorp $479,000 (parent of TransWorld Bank) American Pacific $549,077 State Bank Savings & Loan Glenfed* ($106.7 million) (parent of Glendale Federal Bank) Citadel Holding Corp. $6.1 million (parent of Fidelity Federal Bank)
Return on Change from Average Bank Year ago Assets Levy Bancorp +12% 0.75% (parent of Bank of A. Levy) CU Bancorp -40% 0.53% (parent of California United Bank) Ventura Co. Natl. Bancorp +120% 0.54% (parent of Ventura County National Bank and Frontier Bank) TransWorld Bancorp -4% 0.78% (parent of TransWorld Bank) American Pacific +9% 1.01% State Bank Savings & Loan Glenfed* NA NA (parent of Glendale Federal Bank) Citadel Holding Corp. +37% 0.48% (parent of Fidelity Federal Bank)
* Fiscal 3rd quarter ended March 31
NA: Not applicable for comparison due to current or year-earlier losses.
