Bad Real Estate Loans Still Haunt Banks, S&Ls; : Finance: The pain spread and worsened for the region’s major institutions in the third quarter, as six of eight posted losses.
With still too many bad real estate loans in their books, local banks and savings and loans took another hard hit in the third quarter.
Led by Glendale Federal Bank and Great Western Financial Corp., six of the eight major financial institutions based in the San Fernando Valley and Ventura County posted losses in the third quarter, compared with just three in the previous quarter.
Only CU Bancorp and American Pacific State Bank reported a profit in the latest quarter.
“There’s a severe storm out there,” said Frank Ures, chairman of Sherman Oaks-based American Pacific State Bank. “Loan demand is a little flat.” When will the local banking environment get better? “I don’t see any turnaround until the end of 1994,” Ures said.
Ures’ bank specializes in U.S. Small Business Administration loans and has generally weathered the state’s persistent recession.
He opened the bank’s sixth branch in Van Nuys earlier this month. Still, in the third quarter Ures set aside more reserves for possible loan losses, and that resulted in a 26% drop in quarterly earnings, to $476,584 from $641,582 a year earlier.
Other local lenders also added large reserves for future loan losses, and this time they also did not have the cushion of as wide a net interest margin as in earlier quarters. Net interest margin is the difference between what banks pay on deposits and charge on loans.
This year banks and savings and loans have benefited from falling interest rates, which widen the gap between their cost of funds and income from higher yielding loans and securities they already have on their books.
But that gap narrowed in the latest quarter as interest rates stabilized and borrowers continued to refinance loans at lower rates.
Local banks and thrifts, however, are moving to dispose of problem assets. And there were some bright spots in the third quarter.
In September, Glendale Federal Bank completed a $425-million recapitalization of the thrift and its former parent, Glenfed Inc.
The infusion of capital was approved narrowly by shareholders and brought Glendale Federal’s capital levels above regulatory requirements.
That saved the nation’s fifth-largest savings and loan from government takeover. But Glendale Federal has yet to turn around its earnings.
Glendale Federal, which operates on a fiscal year that ends June 30, reported a loss of $19.9 million in its fiscal first quarter that ended in September.
That figure included special one-time gains from the sale of certain securities.
Excluding that, Glenfed’s quarterly loss was actually $34 million, compared with a loss of $12.7 million in the same period a year earlier.
Despite the loss, Stephen J. Trafton, Glendale Federal’s chairman and chief executive officer, took heart in the promise of a new beginning.
“With the successful recapitalization behind us, we are unleashing an aggressive marketing campaign designed to enhance relationships with existing customers, re-establish relations with previous customers and attract new customers.”
There was also good news from Stephen G. Carpenter, president and chief executive officer of CU Bancorp, the Encino-based holding company of California United Bank. CU Bancorp earned $566,000 in the third quarter, compared with a loss of $297,000 a year earlier.
It was the bank’s third consecutive quarter of earnings, and that helped set the bank free from federal regulatory constraints.
Since June, 1992, CU Bancorp had been operating under an agreement with regulators to improve its balance sheet.
But the bank has since reduced non-performing loans from $21 million to $1 million as of Sept. 30.
Earlier this month, in another step to focus on its core mid-sized business clients, CU Bancorp sold its mortgage banking division to Republic Bancorp of Ann Arbor, Mich., for $4 million in cash and some additional future payments.
But while federal actions were lifted against CU Bancorp, new orders were imposed on Levy Bancorp, the Ventura-based parent of Bank of A. Levy, the county’s largest independently owned bank.
In July, Levy Bancorp signed an administrative order with the Federal Deposit Insurance Corp. that requires the bank to improve its loan portfolio and get FDIC approval for any new directors or senior officers.
In the third quarter, Levy Bancorp reported a loss of $440,000, up tenfold from a year-earlier loss of $44,000.
But in light of what Levy did in the second quarter, when the bank lost $3.5 million, President Marshall C. Milligan called the third quarter results “heartening.”
Regulators also prompted TransWorld Bancorp in Sherman Oaks to increase to $1.2 million its provision for credit losses.
That resulted in a loss of $98,000 for the third quarter, compared with a profit of $447,000 a year earlier.
Chatsworth-based Great Western Bank, the nation’s second-largest thrift, set aside $100 million in reserves in anticipation of bulk sales of $475 million in non-performing assets--mostly foreclosed properties and delinquent loans for single-family homes.
That resulted in a loss of $17.5 million in the third quarter, versus earnings of $31.7 million in the same quarter last year.
So far this year, Great Western has sold almost $1 billion in distressed assets.
As a result, its non-performing assets are down from a peak of $2 billion in April to $1.4 billion at third quarter’s end.
Because non-performing assets bring in no revenue and are costly to maintain, James F. Montgomery, Great Western’s chairman and chief executive, said reducing those assets remains the S&L;’s top priority.
In the third quarter, Montgomery also announced plans to make deep cuts in payroll and administrative costs by year-end.
That could result in the loss of as many as 1,800 jobs, mostly in Chatsworth.
Ventura County National Bancorp is also developing a Spartan operating budget.
The Oxnard-based parent of Ventura County National Bank and Frontier Bank lost $4.3 million in the third quarter, compared with a loss of $640,000 a year earlier.
The cause: $6 million added for future real estate loan losses.
“The large addition to loan-loss reserve represents an important step in our plan to restore the company to core profitability,” said Richard Cupp, who was appointed president and chief executive officer three months ago.
He has a lot of work ahead of him. As of Sept. 30 the company’s non-performing assets totaled $20.7 million, more than double the amount a year ago.
Non-performing assets also hurt Citadel Holding Corp.’s bottom line. In the third quarter the Glendale parent of Fidelity Federal Bank had a loss of $14.7 million, about the same as a year earlier.
Citadel said foreclosed properties in its books resulted in operating expenses of $6.4 million in the third quarter.
Citadel has been struggling because most of its loans are tied up in apartment units in Southern California, which have been hard hit by the real estate slump.
In June, Citadel said it is considering the sale of its 42 Fidelity Federal branches.
Richard Greenwood, president and chief executive officer, said Citadel was accelerating a program to dispose of foreclosed properties.
But he concluded on a sobering note.
The weak Southern California economy, he said, “may require us to make additional loss provisions as we resolve our problem assets.”
Third-Quarter Report From the Region’s Largest Financial Institutions
For the quarter that ended Sept. 30: Banks: Levy Bancorp (parent of Bank of A. Levy) Assets Sept. 30 (millions): $688.4 Change from year ago: -20% Profit (Loss): ($440,000) Change from year ago: NA Return on average assets: NA
*Banks: CU Bancorp (parent of California United Bank) Assets Sept. 30 (millions): $296.6 Change from year ago: -16% Profit (Loss): $566,000 Change from year ago: NA Return on average assets: 0.65%
*Banks: Ventura Co. National Bancorp (parent of Ventura County National Bank and Frontier Bank) Assets Sept. 30 (millions): $370.4 Change from year ago: -11% Profit (Loss): ($4.3 million) Change from year ago: NA Return on average assets: NA
*Banks: TransWorld Bancorp (parent of TransWorld Bank) Assets Sept. 30 (millions): $324.7 Change from year ago: +29% Profit (Loss): ($98,000) Change from year ago: NA Return on average assets: NA
*Banks: American Pacific State Bank Assets Sept. 30 (millions): $232.5 Change from year ago: +2% Profit (Loss): $476,584 Change from year ago: -26% Return on average assets: 0.82%
*Savings & Loans: Great Western Financial Corp. (parent of Great Western Bank) Assets Sept. 30 (millions): $37,650 Change from year ago: -2% Profit (Loss): ($17.5 million) Change from year ago: NA Return on average assets: NA
*Savings & Loans: Glendale Federal Bank* Assets Sept. 30 (millions): $17,957 Change from year ago: +1% Profit (Loss): ($19.9 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): $4,453 Change from year ago: -7% Profit (Loss): ($14.7 million) Change from year ago: NA Return on average assets: NA
* Fiscal first quarter ended Sept. 30
NA: Not applicable for comparison due to current or year-earlier losses.
