Levy Bancorp Posts Another Quarterly Loss
The Bank of A. Levy’s parent company reported its fifth straight quarter of net losses on Friday, three days after it signed an agreement to comply with FDIC orders to tighten up on problem loans responsible for the financial troubles.
Levy Bancorp posted a net loss of $3.5 million for the quarter ending June 30, compared with a net loss of $2.3 million for the same quarter last year. The bank’s net loss for the year as of June 30 stands at $4.3 million, compared with a midyear net loss of $640,000 a year ago.
The Ventura-based Bank of A. Levy--the county’s largest independently owned bank--has already been operating for a year under a memorandum of understanding with the Federal Deposit Insurance Corp.
The FDIC recommended last year that the bank review its policies and procedures for managing problem loans--loans made to borrowers whose collateral or ability to pay became devalued or who failed to pay at all.
But upon re-examining the institution this year, the FDIC found that more of the bank’s loans had developed problems, said George Doerr, assistant regional director of the FDIC.
As a result, the FDIC made further recommendations to help the bank cut its number of problem loans substantially by next June, and the bank agreed on Tuesday to comply with the FDIC orders for improvement.
“The bank’s been fully cooperative with us,” Doerr said.
“We want the level of problem assets brought down,” he said. “Many of their borrowers are experiencing financial difficulties, so it’s a matter of working with the borrowers and eventually realizing collection--but without suffering major losses.”
Under the administrative order signed Tuesday, the bank must get FDIC approval for any new directors or senior officers, restrict additional loans to only certain borrowers, pay no cash dividends and maintain a leverage capital ratio of 6.25%.
Marshall C. Milligan, the Bank of A. Levy’s president, said the bank has raised its leverage capital ratio--an indicator of the financial cushion a bank keeps against losses--from 6.14% in the second quarter to more than 6.25% this week.
Milligan said that much of the second quarter’s $3.5-million net loss can be attributed to “conservative bookkeeping.”
The bank is trying to identify borrowers whose collateral or earning potential--and therefore net worth as investment risks--has become devalued during the recession, he said.
“Our priority is on identifying and conservatively evaluating loans,” Milligan said in an interview. “It takes a couple of years more or less to work through the effects of a recession cycle like this, to catch up with the identification of problem loans and work through them.”
As it has in the past, the bank chose to “write down” or devalue loans rather than dip into the $13.4-million fund it sets aside to cover loan losses, said Mary Kaiser, the bank’s executive vice president.
Rather than spend money from the fund to cover the deterioration of two commercial loans, for instance, the bank chose to write them down by $4.3 million--a number which contributed to the quarter’s net loss of $3.5 million, Kaiser said.
“We could have used the loan-loss reserve to take the write-down and not replenish it, but we have a level of reserve that we want to keep,” she said. “The economic times continue to be pretty shaky, and we feel the current level of the reserve is an adequate one.”
The county’s struggling commercial real estate market has contributed to most of the bank’s losses, but the bank is working to reduce the losses partly through negotiating with borrowers to repair problem loans and partly through property foreclosures, she said.
“This is very representative of what’s going on in the rest of the country,” Kaiser said. “It’s going to take patience. I think a lot of people are waiting for a quick fix, and this type of economy doesn’t produce a quick fix. We’re working with as many borrowers as we can, as a community bank, to stick by them in these tough times.”
