Inching Ahead on a Rough Road : Banks and S&Ls; Post Improved Results, but the Quake’s Impact, Weak Loan Demand Limit Upside


Half of the San Fernando Valley and Ventura County area’s largest banks and savings and loans reported improved earnings during the latest quarter as the recession loosened its grip on the region. But banking executives complained of sagging demand for loans and said that damage from the Northridge earthquake continued to hurt their profits.

In the quarter ending June 30, four of the area’s eight largest banks and S&Ls; reported improved earnings, and two posted profits after year-earlier losses. Glendale Federal Bank reported a narrower loss, while Citadel Holding Corp. of Glendale has not yet filed its second-quarter results.

American Pacific State Bank in Sherman Oaks watched its profit climb to $360,000 in the second quarter ended June 30, up 8% from the year-earlier period. But were it not for the Northridge earthquake and its rattling of consumer confidence, “We’d have doubled our earnings,” said Frank J. Ures, chief executive of the bank.

The earthquake hurt commercial and residential property values just when they appeared to be stabilizing, Ures said, and tripped businesses that had begun to gain momentum, including restaurants, car dealerships and other mid-size businesses that are among American Pacific’s customers. As a result, the bank is still uncertain about how many firms will be able to survive earthquake-related setbacks. So the bank’s provision for loan losses was $3.25 million on June 30, up 35% from a year earlier. The uncertainty could linger through the spring, when damaged businesses may finally be finished making repairs, Ures said.


“It’s like a cancer,” Ures said. “You don’t know whether you’ve licked it or not.”

One banking institution that was troubled before the earthquake is Glendale-based Citadel Holding Corp., the parent of the S&L; Fidelity Federal Bank. Citadel announced Friday the closure of a deal in which several unnamed investors purchased a combined 80% ownership of its Fidelity Federal Bank subsidiary.

Fidelity Federal received $109 million from the investors in the deal, giving the S&L; a badly needed cash infusion. Citadel lost $67 million in 1993, and concern over deteriorating capital has prompted the Office of Thrift Supervision, the federal agency that regulates S&Ls;, to increase its oversight of the company. Citadel, which has also planned a separate bulk sale of $465 million in problem assets, said it expects to post a second-quarter loss of about $92 million.

Glendale Federal Bank’s $4.81-million loss in the latest quarter was an improvement over the $29-million loss reported a year earlier, but still came as a disappointment in light of the S&L;'s goal to reach profitability by the end of its fiscal year on June 30. For its full fiscal year, Glendale Federal reported a $209-million loss, compared to $80.8 million a year ago, largely due to a third-quarter write-off of goodwill and other assets related to the sale of its Florida branches. Glendale Federal’s total assets on June 30 were $16.8 billion, down from $17.9 billion a year earlier.


Last September, Glendale Federal averted government seizure by undergoing a $451-million recapitalization.


Despite its struggles, Glendale Federal showed several signs of improvement. Its non-performing assets--delinquent loans or foreclosed properties--declined to 4% of its total assets as of June 30, from 5% a year earlier. And the decline of its deposit base--fueled by customers’ concern for the S&L;'s financial condition--slowed to a $696-million outflow in fiscal 1994 after deposits declined by $2.1 billion a year earlier.

One local bank that has been in existence since the 19th Century will soon be sold. Last week, Levy Bancorp, parent of Bank of A. Levy, announced that it had agreed to be purchased by Los Angeles-based First Interstate Bancorp in a stock deal valued at $86.5 million. Marshall Milligan, president of 112-year-old Levy, said the bank welcomed the deal because it allowed Levy to choose a suitor at a time when options are dwindling because of increasing consolidation in the banking industry. Milligan also said Levy had grown increasingly concerned with the pitfalls of being a local bank.


“We see increasing price competition being driven by non-bank competitors, and that favors larger banks because they are the ones that are more efficient,” Milligan said.

Milligan acknowledged that some of Levy’s 275 employees are likely to lose their jobs in the restructuring, and that some of the bank’s 17 branches in Ventura County will be closed.

In the latest quarter, Ventura-based Levy reported a profit of $1.87 million, compared to a loss of $3.48 million for the second quarter of 1993. For the first six months of 1994, Levy had income of $3.23 million, compared to a $4.28-million loss through the first six months of 1993.

With a 1.16% return on average assets, Levy was the only local financial institution to exceed the 1% ROA benchmark that is considered a strong performance. Levy’s non-performing assets were $30.5 million at the end of the latest quarter, down 55% from a year ago. Still, 5% of the bank’s assets were in the non-performing category, and 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, reported meager earnings of $29,000 for the June quarter. But that marked the bank’s first profitable quarter since 1992, although the latest results were boosted by $791,000 in income from its Small Business Administration loan portfolio as a result of an accounting change. For the first six months of 1994, VCNB reported an $85,000 loss, compared to a $4.25-million loss posted for the same period last year.

Richard S. Cupp, president of Ventura, declined to comment on whether the bank wants to be purchased or is up for sale. “There will always be room for profitable, well-run independent community banks,” Cupp said.

Improvements in VCNB’s loan portfolio enabled it to cut its quarterly loan-loss provision to $2.08 million, half the amount set aside in the same quarter a year ago. But the bank remains below capital ratio requirements imposed by federal regulators earlier this year. The bank has until Sept. 30 to raise two ratios that measure equity as a percentage of risk-based assets. The bank must raise its so-called Tier 1 capital ratio from the current 8.25% to 12%, and its leveraged capital ratio from 6.16% to 7%. Failing to meet the Sept. 30 deadline could lead to sanctions, possibly including civil penalties or removal of personnel.


Great Western Financial Corp., the Chatsworth-based parent of Great Western Bank, had a solid second quarter, as earnings climbed 6% to $55.9 million. For the first six months of 1994, earnings were $105 million, up 7% from the year-earlier period.

The net interest margin--the profit between the interest a financial institution charges its borrowers and what it pays its depositors--expanded to 3.71% from 3.66% in the first quarter, and the S&L; has shed $800,000 in non-performing assets since June 1993. Total provisions for loan losses in the quarter were $58.9 million, down 32% from a year earlier.

CU Bancorp, the Encino-based parent of California United Bank, reported its sixth straight quarter of increased profit after undergoing a major restructuring two years ago. In the latest quarter, the bank earned $608,000, up 9% from a year earlier. For the six months ended June 30, net income was $1.19 million, up 26% from a year earlier.



CU Bancorp’s strategy has been to move away from commercial real estate lending and instead focus on lending to mid-sized businesses.

“Last year . . . we brought in $100 million in new loan commitments to middle market business,” said CU President David Rainer. “This year, we’re ahead of that pace.”

Meanwhile, the bank has aggressively slashed costs: The bank moved its Beverly Hills branch to a cheaper Westwood location 18 months ago, and cut 10 jobs at the branch, which saves the bank $600,000 a year, Rainer said.

CU Bancorp’s assets dipped 16% from a year ago to $278 million on June 30, but non-performing assets for the latest quarter were $1.04 million compared to $9.99 million a year earlier.


The bank’s net interest margin improved to 5.84% in the latest quarter from 5.42% a year ago.

On Friday, CU Bancorp said that its merger discussions with Bay Cities National Bank, based in Redondo Beach, were terminated. On June 8, the two organizations had signed a letter of intent to merge.

TransWorld Bancorp, the Sherman Oaks-based parent of TransWorld Bank, posted earnings of $625,000 for the June quarter, up 16% from the same quarter a year earlier.

Even with a $300,000 charge in the first quarter for earthquake-related damage and foreclosed property, the bank’s earnings for the first six months were $893,000, up 12% from the same period of 1993.



Since January, TransWorld has added $40 million in new deposits, said John R. Marquis, executive vice president. That figure is padded by earthquake insurance money that has poured into the region, but Marquis also said deposits have grown because the economy has strengthened and businesses have more cash. Now the bank is waiting for loan demand to pick up, Marquis said.

American Pacific reported that its assets reached a record $265 million in the June quarter, up 17% from a year ago, thanks to the introduction of new products and the opening of a branch in Van Nuys.

But the bank remains cautious of more earthquake-related loan problems, and has built up its allowance for loan losses to $3.25 million from $2.4 million a year ago.


“Our biggest problem is finding loans,” Ures said. “People who are credit-worthy are still waiting. Nobody wants to borrow.”

Second-Quarter Report From the Region’s Largest Financial Institutions

For the quarter that ended June 30:

Assets Change June 30 from Profit Change from Banks (millions) year ago (Loss) year ago Levy Bancorp $625.5 -14% $1.87 million NA (parent of Bank of A. Levy) CU Bancorp $278.4 -16% $608,000 +9% (parent of California United Bank) Ventura Co. National Bancorp $294.5 -26% $29,000 NA (parent of Ventura County National Bank and Frontier Bank) TransWorld Bancorp $362.8 +12% $625,000 +16% (parent of TransWorld Bank) American Pacific $265.0 +17% $360,000 +8% State Bank Savings & Loans Great Western Financial Corp. $38,506.6 +1% $55.9 million +6% (parent of Great Western Bank) Glendale Federal Bank $16,803.0 -6% ($4.81 million) -84% (parent of Glendale Federal Bank) *


Return on average Banks assets Levy Bancorp 1.16% (parent of Bank of A. Levy) CU Bancorp 0.92% (parent of California United Bank) Ventura Co. National Bancorp 0.01% (parent of Ventura County National Bank and Frontier Bank) TransWorld Bancorp 0.54% (parent of TransWorld Bank) American Pacific 0.56% State Bank Savings & Loans Great Western Financial Corp. 0.59% (parent of Great Western Bank) Glendale Federal Bank NA (parent of Glendale Federal Bank) *

Citadel Holding Corp.: Has not yet reported its quarterly results

(parent of Fidelity Federal Bank)

* Fiscal fourth quarter ended June 30


NA: Not applicable for comparison due to current or year-earlier losses.