Bank of A. Levy Ordered to Cut Losses on Bad Loans : Finance: Officials blame the recession. Analysts say the company is still solid despite its problems.
Federal and state regulators have ordered the Ventura-based Bank of A. Levy to reduce its losses from bad loans or risk penalties or other action from bank examiners.
Bank of A. Levy officials blame the bad loans on the recession, which has made it hard for some borrowers to make loan payments on time. Many loans were made to developers in the late 1980s, when real estate appeared to be a safe investment, said Douglas Peck, executive vice president. In recent years, growth has been sluggish and vacancy rates are high, he said.
“We’re only really as successful as the customers we serve,” Peck said. “It’s really embarrassing for us to be in this position, but we think we’ll get through this because we have good customers.”
Bank President Marshall C. Milligan said the institution has had to “write down” $7.8 million in bad loans and in reserves to cover such loans in the first nine months of this year, compared to $2.1 million during the same period in 1991. The bank also has had its real estate devalued by $2.6 million this year.
Bank analysts and other bankers said the Bank of A. Levy, which is the largest bank headquartered in the county, is still considered to be a solid institution despite its recent loan problems. The family-run bank is a closely held public company with about $861 million in assets.
Last year, the 110-year-old bank ran an advertising campaign saying, “No News From the Boring Bank.” The bank prides itself on its stodgy image, and the ad campaign was a tactic to emphasize its quiet financial strength and to distance itself from the savings and loans fiasco.
But for the first time since the 1960s, shareholders will not receive dividends because the bank’s profit statement showed a $684,000 net loss in the first nine months of the year, compared to a $3.7-million profit a year earlier.
During a routine audit of the bank’s books through June 15, regulators decided that it was losing too much money in loans, Peck said. Last week, the bank and regulators entered into a memorandum of understanding that outlines what steps the bank will take to stanch the flow of red ink.
Citing confidentiality laws, federal and state regulators refused to comment on the details of the agreement.
Peck also declined to be specific, but said, “we don’t feel their demands are unreasonable. We are well on the way to implementing the changes. . . . We just have to give a closer eye to loans.”
If the bank does not satisfy regulators--and there is no set deadline--there would be no immediate penalties because a memorandum of understanding is an informal action that cannot be enforced in the courts, said Andrew Porterfield, spokesman for the Federal Deposit Insurance Corp. in Washington, D.C.
But if considered necessary, regulators could revisit the bank with a new agreement and threaten formal enforcement action, Porterfield said.
If formal action is taken, bank examiners could impose fines, order the bank to stop or change its practices, remove bank officers and terminate deposit insurance. The FDIC is the federal agency that insures the deposits in member banks up to $100,000 per account.
“In general terms, if the bank agrees to an informal action, and the informal action proves to be unsatisfactory or the bank’s condition continues to deteriorate, then in all probability a formal action will follow,” said John Paulus, chief bank examiner of the California State Banking Department.
But memoranda of understanding usually scare banks into cooperating, Porterfield said. The FDIC issued 450 last year, and issued only 156 formal enforcement actions, he said.
Bank analyst Gerry Findley said, “The Bank of A. Levy is not going broke, in my judgment. In California, sadly, we have an economic situation that is a little worse than the rest of the country. We’ve been high fliers out here, and we’re adjusting to that.”
About 60% to 70% of banks in California are under some kind of regulatory action, said Findley, who works for a bank-rating firm in Anaheim. “We don’t consider a memorandum of agreement to be too adverse in today’s environment. My own feeling about the Bank of A. Levy is that they’re solid. They’ve been around forever.”
Rival banker William E. McAleer, chairman and chief financial officer of the Ventura County National Bank, said his competitor is not suffering any unusually heavy losses given the sour economy. “I think what they have experienced is a sign of the times,” said McAleer, adding that his own bank has seen declining profits.
In the last few years, the Bank of A. Levy has been trying to expand its business through internal growth and corporate takeovers. It has 20 branches in the county, and its size jumped by a third last fall when it bought Santa Paula Savings, which was a troubled savings and loan institution.
