Temblor Dashed Turnaround Hope for Some Banks : Economy: In the March quarter, four of the area’s largest banks and S&Ls; reported losses or lower profits, and weakness may linger.
Frank Ures, chairman of American Pacific State Bank in Sherman Oaks, began the year with high hopes of breaking through the region’s nagging recession. But then came the Northridge earthquake.
“It just put a halt to everything,” said Ures. “Financing stopped because people stopped buying. Everybody was sort of numb. For a three-month period, it was like we were in a vacuum.”
Ures says his bank would have had a terrific first quarter without the earthquake. As it turned out, American Pacific’s earnings for the latest quarter dropped 7% from a year earlier to $524,000, because of a $200,000 charge for quake damage to bank-owned property.
The Jan. 17 earthquake was also felt by other local banks and savings and loans, which had been showing signs of resurgence. And the quake’s impact on these financial institutions isn’t over.
In the January-March quarter, four out of the eight largest banks and savings and loans based in the San Fernando Valley and Ventura County reported losses or lower profits than a year earlier. Great Western Bank and CU Bancorp posted strong gains, and Ventura-based Levy Bancorp returned to profitability after seven straight quarters of losses.
An eighth institution, Citadel Holding, the Glendale-based parent of Fidelity Federal Bank, has not released its first-quarter results. But the S&L; lost $67 million last year and is up for sale. Citadel has proposed a plan to free itself from nearly $500 million of troubled real estate assets, but that is being challenged in a lawsuit filed in March by one of Citadel’s creditors, Chase Manhattan Bank. Making matters worse, Citadel’s three-story Fidelity Federal building in Sherman Oaks was closed due to severe damage from the quake, and remains boarded up.
Overall, the region’s mainly small financial institutions did not keep pace with the state’s largest banks and S&Ls;, which showed robust gains in the first quarter, reflecting the state’s fledgling recovery. And in a measure of how well an institution uses its assets, in the first quarter none of the region’s eight banks and S&Ls; turned in a return on average assets of above 1%, which is considered a strong showing.
Locally, Glendale Federal Bank recorded the biggest loss in the latest quarter--$144 million versus a profit of $45 million for the same period a year earlier. Glendale Federal, which operates on a fiscal year that ends June 30, said the quarterly loss included a write-off of $136 million of goodwill and other assets related to the sale of the bank’s Florida branches. Glendale Federal, for now the nation’s fifth-largest S&L;, last month agreed to sell its 60 Florida branches for $243.5 million to Barnett Banks Inc., as part of Glendale Federal’s efforts to boost its capital reserves.
With the latest loss, Glendale Federal’s losses through the nine months ended March 31 totaled $203 million, four times more than a year earlier. But Glendale Federal has been making progress in reducing its non-performing assets, or delinquent loans and foreclosed properties. But the earthquake added $20 million of non-performing assets in the latest quarter, and Glendale Federal says it expects more bad loans to show up in the current quarter as a result of the quake.
The earthquake was also behind the 40% earnings decline at TransWorld Bancorp, the Sherman Oaks-based parent of TransWorld Bank. TransWorld took a $300,000 charge for quake damage to two of its branches and a foreclosed property, and that left its earnings of $268,000 in the latest quarter well short of the $450,000 it made a year earlier.
John Marquis, TransWorld’s executive vice president, said if there is a recovery, it’s spotty. “We’re still not seeing very strong demand for commercial loans,” he said, “but we would like to make some.”
Fortunately, the earthquake did not affect the two institutions based in Ventura County--Levy Bancorp and Ventura County National Bancorp--both of which have been struggling but made big strides in the latest quarter.
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Levy Bancorp, parent of Bank of A. Levy, posted a quarterly profit of $1.36 million, in contrast to a loss of $800,000 a year earlier. The profit, the first for Levy since the first quarter of 1992, was due to the sale of real estate and dramatically lower loan-loss provisions. The bank set aside just $1,000 in loan-loss reserves in the latest quarter, compared with $3.8 million a year earlier. It was unclear whether Levy could sustain those earnings in the upcoming quarters. About 5% of Levy’s overall assets are still in the non-performing category; that’s about twice the level of healthy banks.
Ventura County National Bancorp, the Oxnard-based parent of Ventura County National Bank and Frontier Bank, also put aside much less for loan-loss reserves, and that helped cut its loss to $114,000 in the first quarter, from a loss of $1.6 million a year earlier.
Still, Ventura County National Bank remains below certain capital levels that federal regulators imposed earlier this year. The bank has until Sept. 30 to achieve a so-called Tier 1 capital ratio of 12% and a leverage ratio of 7%. Both ratios reflect a bank’s equity as a percentage of risk-based assets. As of March 31, the bank’s Tier 1 capital ratio stood at 7.27% and its leverage ratio was 6.01%.
Richard S. Cupp, the company’s president and chief executive officer, has said he expects to meet the Sept. 30 deadline. But if he doesn’t, the bank could face tougher sanctions.
CU Bancorp, the Encino-based parent of California United Bank, posted its fifth straight quarter of increased profits, earning $578,000 in the latest quarter, up 51% from a year earlier. CU Bancorp went through a painful restructuring two years ago, and it has been paying dividends since.
Stephen G. Carpenter, CU Bancorp’s chairman and chief executive officer, said the recent rise in interest rates will help his and other banks by boosting the net interest margin--or the difference between what banks pay on deposits and what they charge on loans--which is a key measure of a bank’s profitability. Over time, that margin will widen and as a result should produce higher income for financial institutions.
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Great Western Financial Corp., the Chatsworth-based parent of Great Western Bank, also turned in a strong first quarter as earnings climbed 10% to $49.5 million.
Recently, Great Western has disposed of a lot of non-performing assets, most of them single-family houses. Great Western, which is the nation’s second-largest thrift with $37 billion in assets, said it does not expect “material losses” from the earthquake. Still, the bank noted that some 2,000 borrowers had requested forbearance on mortgage loans, and among them, more than 200 reported major structural damage to their homes and said they did not have earthquake insurance.
Ures, chairman of American Pacific State Bank, said there may be many more earthquake-affected borrowers lurking. “I’m just waiting for the rest of the earthquake victims to surface.”
First-Quarter Report From the Region’s Largest Financial Institutions
For the quarter that ended March 31:
BANKS
Levy Bancorp (parent of Bank of A. Levy) Assets March 31 (millions): $654.2 Change from year ago: -13% Profit (Loss): $1.4 million Change from year ago: NA Return on average assets: 0.84%
CU Bancorp (parent of California United Bank) Assets March 31 (millions): $262.5 Change from year ago: -6% Profit (Loss): $578,000 Change from year ago: +51% Return on average assets: 0.92%
Ventura Co. National Bancorp (parent of Ventura County National Bank and Frontier Bank) Assets March 31 (millions): $316.5 Change from year ago: -22% Profit (Loss): ($114,000) Change from year ago: NA Return on average assets: NA
TransWorld Bancorp (parent of TransWorld Bank) Assets March 31 (millions): $338.4 Change from year ago: +27% Profit (Loss): $268,000 Change from year ago: -40% Return on average assets: 0.34%
American Pacific State Bank Assets March 31 (millions): $241.0 Change from year ago: +11% Profit (Loss): $524,000 Change from year ago: -7% Return on average assets: 0.89%
SAVINGS & LOANS
Great Western Financial Corp. (parent of Great Western Bank) Assets March 31 (millions): $37,426 Change from year ago: -1% Profit (Loss): $49.5 million Change from year ago: +10% Return on average assets: 0.52%
Glendale Federal Bank* Assets March 31 (millions): $17,345 Change from year ago: -3% Profit (Loss): ($144 million) Change from year ago: NA Return on average assets: NA
Citadel Holding Corp. (parent of Fidelity Federal Bank) Did not report
* Fiscal third quarter ended March 31
NA: Not applicable for comparison due to current or year-earlier losses.
