Hard Times Continue for Area Banks, Thrifts : Earnings: Three of the region’s largest financial institutions incur quarterly losses. Two others see their profits erode from a year earlier.
The statewide economic downturn, now in its fourth year, and sagging property values in the San Fernando Valley and Ventura County continued to take their toll on local banks and savings and loans in the quarter that ended June 30.
Three of the area’s eight largest financial institutions, as ranked by total assets, posted losses for the period, including Levy Bancorp, Ventura County National Bancorp and Glenfed Inc. Two others--American Pacific State Bank and Great Western Financial Corp.--saw their profits erode from a year earlier. Only CU Bancorp and TransWorld Bancorp had higher profits. Citadel Holding Corp., parent of Fidelity Federal Bank in Glendale, whose profit plunged in the first quarter, has not yet reported its earnings for the latest three months.
In general, lower interest rates are benefiting both banks and thrifts by widening their net interest margins--the difference between what they pay on deposits and charge on loans. Some are also beginning to reduce their problem loans.
But most local financial institutions are still struggling with too many bad real estate loans. In a troubling sign that the worst may not be over, many institutions set aside additional reserves during the second quarter in case of future loan losses.
One of these was Ventura County National Bancorp, which operates Ventura County National Bank and Frontier Bank. The Oxnard-based parent company named Richard S. Cupp its new president two weeks ago, after announcing that it added $4.3 million to its reserves in the past three months. The increase resulted in a $2.7-million loss for the quarter, contrasted with a net income of $383,000 in 1992’s second quarter.
For the past six months, Ventura County National Bancorp posted a $4.2-million loss, contrasted with a $903,000 profit a year earlier.
Cupp, formerly an executive at California Federal Bank and First Interstate Bank, succeeds William E. McAleer. McAleer resigned in May, citing a clash with Ventura County National Bancorp’s board over the company’s future direction.
Meanwhile, Levy Bancorp, parent of Ventura County’s largest bank, Bank of A. Levy, reported that its loss widened in the latest quarter, to $3.5 million from $2.3 million for the same quarter last year. The Ventura company lost $4.3 million for the six months, contrasted with a $640,000 loss in 1992’s first half.
Last month, Levy agreed to comply with an administrative order from the Federal Deposit Insurance Corp. aimed at substantially reducing its problem loans by the middle of next year. Under the order, Levy must restrict additional loans to only certain borrowers, pay no cash dividends and get FDIC approval for any new directors or senior officers.
Marshall Milligan, Levy’s president and chief executive, said the bank has applied for permission to close three of its 20 offices in the fall, which would also allow it to cut headquarters staff.
In the Valley, CU Bancorp continued to benefit from a shift away from real estate and back to its core business of lending to small and medium-sized companies.
The Encino-based parent of California United Bank posted a $556,000 profit in the second quarter, contrasted with a $3.5-million loss a year earlier. For the six months, CU reported $940,000 in net income versus a $2.9-million loss a year ago.
“Our strong performance (reflects) the decisive steps taken last year to improve our credit quality, reduce our cost structure and improve our deposit mix,” Stephen G. Carpenter, CU’s president and chief executive, said.
TransWorld Bancorp’s profit increased 6%, to $539,000 from $508,000 in last year’s second quarter. The Sherman Oaks-based parent of TransWorld Bank cited lower interest rates, along with acquiring Premier Bank from the FDIC in April, which boosted its fee income. The acquisition increased TransWorld’s total assets 27%, to $325.1 million as of June 30. TransWorld’s earnings for the past six months rose 2%, to $989,000 from $987,000 a year earlier.
TransWorld also posted the best return on average assets (ROA) of the local institutions, with 0.69% for the quarter ending June 30. But reflecting the hard times, that reading was still below 1%, which is considered strong. ROA measures how profitably a bank or thrift employs its assets.
One surprise was American Pacific State Bank, also based in Sherman Oaks. Its second-quarter profits fell 40%, to $333,000 from $554,000 a year earlier. For the first six months, American Pacific’s earnings dropped 19%, to $897,000. Previously, the bank, which focuses on Small Business Administration loans, had been doing better than other local financial institutions.
American Pacific blamed the decline in profits on an unexpected three-month shutdown of the SBA program in April, when the agency ran out of funds. Last month, Congress gave the SBA $175 million to restore the program. American Pacific said it expects to increase its loan production in the third quarter and recoup earnings lost because of the temporary SBA shutdown.
Real estate losses continued to plague Great Western Financial Corp., the Chatsworth-based parent of Great Western Bank and the nation’s second-largest thrift, in the second quarter. Although Great Western reported increased sales of foreclosed real estate and a slowing of new delinquent loans during the period, the bank added $86 million to its loan-loss provisions. The increase contributed to a 24% decline in its earnings for the latest three months, to $52.6 million from $69 million in net income a year earlier. Great Western’s six-month earnings fell 35%, to $97.8 million, contrasted with a profit of $151 million in last year’s first half.
Great Western said its volume of new loans and fee income grew in the second quarter, despite the weak economy. But James F. Montgomery, Great Western’s chairman and chief executive, said the bank’s “foremost priority remains the acceleration of the disposal of non-performing assets.”
Glenfed Inc., trying to recapitalize to avert a government takeover, said its real estate and commercial lending problems were slowly improving, even though its second-quarter loss widened.
In the three months that ended June 30 (Glenfed’s fiscal fourth quarter), the Glendale-based parent of Glendale Federal Bank lost $29.9 million, contrasted with a $26-million loss a year earlier.
For all of fiscal 1993, Glenfed lost $80.8 million versus a loss of $120.9 million in fiscal 1992. The 1993 results included a $58.3-million extraordinary gain, mainly from an exchange offer Glenfed completed in March of $137 million of bonds for preferred stock. The debt-for-equity swap was part of its strategy to increase capital.
But Glenfed Chairman and Chief Executive Stephen J. Trafton said the thrift’s charge-offs for loan losses declined in the latest three months for the second consecutive quarter. It also made smaller additions to its provisions for future losses.
Trafton said unless Southern California’s real estate market worsens significantly, Glenfed expects to see further improvements in its loan portfolio.
Second-Quarter Report From the Region’s Largest Financial Institutions
For the quarter that ended June 30: Banks: Levy Bancorp (parent of Bank of A. Levy) Assets June 30 (millions): $724.1 Change from year ago: -19% Profit (Loss): ($3.5 million) Change from year ago: NA Return on average assets: NA
Banks: CU Bancorp (parent of California United Bank) Assets June 30 (millions): $331.0 Change from year ago: -24% Profit (Loss): $556,000 Change from year ago: NA Return on average assets: NA
Banks: Ventura Co. National Bancorp (parent of Ventura County National Bank and Frontier Bank) Assets June 30 (millions): $398.0 Change from year ago: -3% Profit (Loss): ($2.7 million) Change from year ago: NA Return on average assets: NA
Banks: TransWorld Bancorp (parent of TransWorld Bank) Assets June 30 (millions): $325.1 Change from year ago: +27% Profit (Loss): $539,000 Change from year ago: +6% Return on average assets: 0.69%
Banks: American Pacific State Bank Assets June 30 (millions): $227.2 Change from year ago: 0% Profit (Loss): $333,000 Change from year ago: -40% Return on average assets: 0.60%
Savings & Loans: Great Western Financial Corp. (parent of Great Western Bank) Assets June 30 (millions): $38,178.9 Change from year ago: -1% Profit (Loss): $52.6 million Change from year ago: -24% Return on average assets: 0.55%
Savings & Loans: Glenfed Inc.* (parent of Glendale Federal Bank) Assets June 30 (millions): $17,900.0 Change from year ago: 0% Profit (Loss): ($29.9 million) Change from year ago: NA Return on average assets: NA
* Fiscal fourth quarter ended June 30
NA: Not applicable due to current or year-earlier losses.
