Loan Losses Still a Drag on Regional Banks : Institutions: A weak real estate market is primarily to blame. Glenfed posts the biggest third-quarter deficit.
Dragged down by bad real estate and commercial loans, the area’s banking industry turned in a dismal performance in the third quarter, with one thrift edging closer to government seizure and another usually stalwart bank being forced to meet with federal regulators.
Five of the eight largest institutions based in the San Fernando Valley and Ventura County posted losses or sharply lower earnings in the latest quarter, their bottom lines hurt by the need to set aside additional reserves for future loan losses. The remainder benefited from improved net interest margins, but their profits were relatively slim.
Glenfed Inc., the parent of Glendale Federal Bank, posted the biggest loss in the quarter ended Sept. 30--losing $16.8 million, compared to a profit of $24.1 million a year ago. As a result, Glenfed--which is under government order to raise its capital levels by mid-1993--increased its chances that it will ultimately be seized by regulators.
Stephen J. Trafton, Glenfed’s chairman, said the S & L was trying to dispose of certain non-performing assets, which now make up 5% of its total assets--compared to 2% for a healthy institution. But he said there was “persistent weakness in California’s economy and real estate market,” raising doubts about Glenfed’s ability to meet its capital requirements.
But Glenfed isn’t alone among area institutions facing regulatory action. After posting a loss of $44,000 in the third quarter, historically conservative Levy Bancorp halted its quarterly dividend for the first time since the 1960s, and then it was ordered by regulators last month to cut its loan losses or risk government action.
Levy, the Ventura-based parent of Bank of A. Levy, earned $1.1 million in the third quarter of 1991.
But in the last quarter, Levy boosted its provisions for loan losses to $3.1 million, almost triple those of a year ago.
“It’s an acknowledgment of the disruption in real estate value,” said Douglas Peck, Levy’s executive vice president.
Levy’s smaller competitor in the county--Ventura County National Bancorp--set aside $1.9 million in loan-loss reserves during the third quarter, contributing to that bank’s quarterly loss of $640,000, compared with earnings of $655,000 a year earlier. To cut costs, the bank-holding company has proposed merging its two subsidiaries, Ventura County National Bank and Frontier Bank.
Once again, the bright spot among local financial institutions was American Pacific State Bank in Sherman Oaks. American Pacific, the nation’s sixth largest provider of Small Business Administration loans, posted a profit of $641,000 in the third quarter, up 6% from a year ago.
Frank Ures, American Pacific’s president, attributed the higher earnings to a roughly 20% boost in the volume of SBA loans and improved net interest margin, as it reduced the interest rates paid to depositors more rapidly than the rates it charged on loans.
The higher third-quarter earnings brought American Pacific’s return on average assets (ROA) to 1.12%. 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%.
Two other regional institutions also showed a profit: TransWorld Bank and CU Bancorp.
David Hender, president of Sherman Oaks-based TransWorld, said continued cost control helped his bank increase its earnings to $447,000 in the third quarter, up 78% from a year ago.
TransWorld was also helped by the fact that it, like American Pacific, has few real estate loans.
CU Bancorp, the parent of California United Bank, realized a small profit of $135,800 in the third quarter, but bank officials said that was because it had previously boosted provisions for loan losses. In the third quarter of 1991, CU had a net loss of $7 million.
“Previous decisions to augment loan losses have allowed the company to post a marginally profitable third quarter,” said Stephen G. Carpenter, president and chief executive officer.
Still, the problems at the larger banks and S&Ls; overshadowed the gains by their smaller counterparts.
Great Western Financial Corp., which with $38.5 billion in assets is the nation’s second largest S&L;, made a profit of $31.7 million in the third quarter.
But that was a 59% decline from a year ago. Like many of the other institutions, the conservative Chatsworth-based institution suffered in the last quarter because of a sharp increase in loan-loss provisions.
Great Western said it set aside $129 million for loan-loss provisions, compared to $40.7 million in the same quarter a year earlier.
“Essentially all of the third quarter increase in non-performing assets involves single-family residential mortgages,” James F. Montgomery, Great Western’s chairman and chief executive officer, said in a statement.
Similarly, Citadel Holding Corp., the Glendale parent of Fidelity Federal Bank, increased its loan-loss provisions to $8.6 million in the third quarter, up from $2.2 million a year ago. As a result, Citadel lost $14.9 million in the quarter, compared with a loss of $21.1 million a year earlier.
Richard Greenwood, Citadel’s president and chief executive officer, said the company would continue to monitor its bad loans. But he did not sound optimistic about an imminent recovery.
“If current downward trends continue,” he said, “it is likely that the company will need to further increase its allowance for estimated loan and real estate losses.”
Third Quarter Report From The Region’s Largest Financial Institutions
Banks: Levy Bancorp (parent of Bank of A. Levy) Assets Sept. 30 (millions): $861.5 Change from Year ago: -6% Profit (Loss): ($44,000) Change from Year ago: NA Return on Average Assets: NA
Banks: CU Bancorp Assets Sept. 30 (millions): $454.1 (parent of California United Bank) Change from Year ago: -4% Profit (Loss): $135,000 Change from Year ago: NA Return on Average Assets: 0.14%
Banks: Ventura Co. National Bancorp (parent of Ventura County National Bank and Frontier Bank) Assets Sept. 30 (millions): $416.6 Change from Year ago: +12% Profit (Loss): ($640,000) Change from Year ago: NA Return on Average Assets: NA
Banks: TransWorld Bancorp (parent of TransWorld Bank) Assets Sept. 30 (millions): $251.3 Change from Year ago: +3% Profit (Loss): $447,000 Change from Year ago: +78% Return on Average Assets: 0.8%
Banks: American Pacific State Bank Assets Sept. 30 (millions): $227.0 Change from Year ago: +6% Profit (Loss): $641,000 Change from Year ago: +6% Return on Average Assets: 1.12%
Savings & Loans: Great Western Financial Corp. (parent of Great Western Bank) Assets Sept. 30 (millions): $38,463.4 Change from Year ago: -3% Profit (Loss): $31.7 million Change from Year ago: -59% Return on Average Assets: 0.33%
Savings & Loans: Glenfed Inc.* (parent of Glendale Federal Bank) Assets Sept. 30 (millions): $17,840.1 Change from Year ago: -16% Profit (Loss): ($16.8 million) Change from Year ago: NA Return on Average Assets: NA
Savings & Loans: Citadel Holding Corp. (parent of Fidelity Federal Bank) Assets Sept. 30 (millions): $4,793.6 Change from Year ago: -13% Profit (Loss): ($14.9 million) Change from Year ago: NA Return on Average Assets: NA
* Fiscal 1st quarter ended Sept. 30
NA: Not applicable for comparison due to current or year-earlier losses.
