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Banks, Thrifts Still Troubled : Economy: Three of the region’s eight largest financial institutions post losses. Four show declines in profit.

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TIMES STAFF WRITER

A sluggish statewide economy and troubled real estate and commercial loans continued to plague banks and thrifts in the San Fernando Valley and Ventura County in the quarter that ended June 30.

Three of the region’s eight largest financial institutions, as ranked by assets, posted losses for the quarter, including Levy Bancorp, CU Bancorp and Glenfed Inc. Four others--Ventura County National Bancorp, TransWorld Bancorp, Great Western Financial Corp. and Citadel Holding Corp.--saw their profits decline from a year earlier. Only American Pacific State Bank had a higher profit in the latest quarter, but the earnings gain was slim.

In most cases, institutions’ bottom lines were hurt by the need to set aside additional reserves in case of future loan losses. The increased loan-loss provisions largely offset any benefits to savings and loans of higher net interest margins--the difference between the interest institutions charge borrowers and what they pay to depositors.

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Although a few bank and thrift officials sounded somewhat optimistic, reasoning that the economic slump had hit bottom and a gradual recovery was under way, most remained cautious in predicting when their earnings would rebound.

The one bright spot among local financial institutions was American Pacific State Bank in Sherman Oaks, the nation’s sixth largest provider of Small Business Administration loans. American Pacific saw its earnings rise 9% in the quarter, to $557,000 from $509,000, which it attributed to increased fee income, strong SBA loan demand and tight cost controls.

Unlike savings and loans--which generally benefit from falling interest rates because home loan rates drop more slowly than the interest rates paid out to depositors--many banks have seen their net interest margins squeezed because they make more short-term loans. Despite its lower net interest margins, Frank J. Ures Jr., American Pacific’s president and chief executive, said, “The bank’s philosophy of controlled growth has been the primary reason for its continued increase in assets and earnings . . . during this recession.”

In a sign of hard times, none of the banking institutions managed a return on average assets (ROA) above 1% in the quarter ending June 30. ROA measures how profitably an institution employs its assets, and a reading above 1% is considered strong. American Pacific posted the best ROA, with 0.97% for the quarter.

Yet another sign of hard times was that in the second quarter two top executives at local institutions lost their jobs.

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In June, longtime CU Bancorp President John J. Keating was replaced by Stephen G. Carpenter, a former Security Pacific Corp. executive. Officials at CU, the Encino-based parent of California United Bank, said Keating’s resignation was the result of a “mutual” decision between Keating and the board to bring in new leadership.

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CU experienced exceptional growth in the 1980s by focusing on loans to small and mid-size businesses. But a year ago it was hit hard by the recession and sour real estate loans, and the problems have continued. In the second quarter, CU lost $3.49 million, compared with a year-earlier profit of $1.08 million. The loss reflected a $7.54-million provision for loan losses, compared with a similar provision of $900,000 a year earlier.

Citadel Holding Corp., the Glendale parent of Fidelity Federal Bank, also announced in June that chief executive William C. Walbrecher had left the thrift holding company “for personal reasons,” and had been replaced by Richard M. Greenwood, a former CalFed Inc. executive.

Although Citadel has generally performed better than most other thrifts in California, in part because its loan portfolio is weighted more toward home mortgages than riskier commercial real estate loans, it also added to its loan-loss provisions in the second quarter. The increased reserves contributed to a 37% decline in its second-quarter earnings, to $4.5 million from $7.1 million a year earlier. Citadel also warned that it might not be able to meet future federal capital requirements, but it is planning a common stock rights offering that it hopes will raise $30 million and help shore up its capital.

Even giant Great Western Financial Corp., the parent of Great Western Bank and the nation’s second largest thrift, has not been untouched by the soft economy. Great Western was the most profitable thrift in the country last year, but its earnings in the second quarter that ended June 30 fell 14%, to $69 million, from $80.2 million a year earlier.

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Great Western moved its headquarters from Beverly Hills to Chatsworth in May. The company--known for its cowboy television commercials with Dennis Weaver and the late John Wayne--is regarded as a conservatively run business that has prospered by sticking to home mortgage lending and avoiding junk bonds and commercial real estate that doomed many other thrifts.

Nonetheless, Great Western also increased its loan-loss reserves in the second quarter by 77%, which countered its strong net interest margins and 60% increase in fee and commission income.

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James F. Montgomery, Great Western’s chairman and chief executive, said the increased reserves reflected growing home loan delinquencies.

“We’ve got an awful lot of customers who are struggling and losing their jobs,” Montgomery said, adding that California’s economy “doesn’t seem to be getting better.”

Problems also continued during the quarter at Glenfed Inc., the Glendale-based parent of Glendale Federal Bank. In the three months that ended June 30 (Glenfed’s fiscal fourth quarter), the thrift lost $26 million. Its annual loss totaled $120.9 million.

The losses were narrower than a year before, when Glenfed lost $136.7 million in the fourth quarter and $230.1 million in fiscal 1991. But the latest losses showed that Glenfed’s real estate loan troubles are not over. It increased its loan-loss provisions and took real estate write-downs as problem loans grew during the fourth quarter. Glenfed is now under pressure to boost its financial condition during its current fiscal year or risk being seized by federal regulators.

Levy Bancorp, the Ventura parent of Bank of A. Levy, lost $2.3 million in its second quarter that ended June 30, compared with a year-earlier profit of $1.2 million. The loss largely resulted from increased loan loss reserves and loan charge-offs in commercial real estate.

Marshall Milligan, Levy’s president and chief executive, predicted that the economy would gradually improve as the manufacturing sector strengthens and investment dollars are increasingly channeled toward businesses instead of real estate.

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“Our results will reflect the economy,” he said.

But lower net interest margins led to a 35% second-quarter drop in Ventura County National Bancorp’s profit, to $383,000 from $592,000 a year earlier.

To cut costs, Oxnard-based Ventura County National Bancorp plans to merge its two bank subsidiaries, Ventura County National Bank and Frontier Bank, and is awaiting approval from the Comptroller of the Currency.

Second Quarter Report From The Region’s Largest Financial Institutions

Assets June 30 Change from Banks (millions) Year ago Levy Bancorp $897.4 +39% (parent of Bank of A. Levy) CU Bancorp $435.1 -21% (parent of California United Bank) Ventura Co. $409.2 +7% National Bancorp (parent of Ventura County National Bank and Frontier Bank) TransWorld Bancorp $256.6 +8% (parent of TransWorld Bank) American Pacific $228.0 +9% State Bank Savings & Loans Great Western $38,554.9 -3% Financial Corp. (parent of Great Western Bank) Glenfed Inc.* $17,900.0 -17% (parent of Glendale Federal Bank) Citadel Holding Corp. $4,821.7 -14% (parent of Fidelity Federal Bank)

Profit Banks (Loss) Levy Bancorp ($2.3 million) (parent of Bank of A. Levy) CU Bancorp ($3.5 million) (parent of California United Bank) Ventura Co. $383,000 National Bancorp (parent of Ventura County National Bank and Frontier Bank) TransWorld Bancorp $508,000 (parent of TransWorld Bank) American Pacific $557,000 State Bank Savings & Loans Great Western $69.0 Financial Corp. (parent of Great Western Bank) Glenfed Inc.* ($26.0 million) (parent of Glendale Federal Bank) Citadel Holding Corp. $4.5 million (parent of Fidelity Federal Bank)

Return on Change from Average Banks Year ago Assets Levy Bancorp NA NA (parent of Bank of A. Levy) CU Bancorp NA NA (parent of California United Bank) Ventura Co. -35% 0.40% National Bancorp (parent of Ventura County National Bank and Frontier Bank) TransWorld Bancorp -2% 0.79% (parent of TransWorld Bank) American Pacific +9% 0.97% State Bank Savings & Loans Great Western -14% 0.71% Financial Corp. (parent of Great Western Bank) Glenfed Inc.* NA NA (parent of Glendale Federal Bank) Citadel Holding Corp. -37% 0.37% (parent of Fidelity Federal Bank)

* Fiscal 4th quarter ended June 30

NA: Not applicable for comparison due to current or year-earlier losses.

Six Month Report From Valley’s Largest Financial Institutions

Change Return on Profit From Average Banks (Loss) Year Ago Assets Levy Bancorp ($640,000) NA NA (parent of Bank of A. Levy) CU Bancorp ($2.9 million) NA NA (parent of California United Bank) Ventura Co. National Bancorp $903,000 +9% 0.47% (parent of Ventura County National Bank and Frontier Bank) TransWorld Bancorp $987,000 -3% 0.80% (parent of TransWorld Bank) American Pacific State Bank $1.1 million +9% 0.49% Savings & Loans Great Western Financial Corp. $151 million +1% 0.77% (parent of Great Western Bank) Glenfed Inc.* ($120.9 million) NA NA (parent of Glendale Federal Bank) Citadel Holding Corp. $10.5 million -9% 0.43% (parent of Fidelity Federal Bank)

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* Fiscal year ended June 30

NA: Not applicable for comparison due to current or year-earlier losses.

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