Banks, S&Ls; Show Signs of Recession Recovery : Banking: Amid restructuring, five of eight largest area institutions tally profits after year-earlier losses.
Banks and savings and loans in the San Fernando Valley area are still nursing financial wounds from the recession and the Northridge earthquake, but third-quarter results indicate the banking industry has moved out of intensive care and into a recovery ward.
“Many banks and thrifts have been hit very hard by the recession,” said Richard S. Cupp, chief executive of Ventura County National Bancorp. “But we’re all beginning to see the benefits of the plans to correct those problems.”
Five of the eight largest institutions in the Valley area posted solid profits after year-earlier losses, and two reported year-to-year earnings gains. Fidelity Federal Bank has not reported its earnings yet, but the third quarter brought major changes to the Glendale-based S&L;, which stepped out from under the umbrella of its longtime parent, Citadel Holding Corp.
One improved institution is Glendale Federal Bank. A year ago it was buried under a mountain of bad loans and was on the verge of being seized by federal regulators. “We were all going to lose our jobs,” Stephen J. Trafton, chief executive of Glendale Federal, recalled last week in an interview before the S&L;’s annual shareholder meeting.
But last week the S&L; posted its first quarterly profit since December, 1991. It reported earnings of $9.37 million in the September quarter (which is Glendale’s Federal’s first fiscal quarter), in contrast to a $19.9-million loss reported in the same quarter a year ago.
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The results followed a year of major restructuring. In September, 1993, Glendale Federal averted federal seizure with a $451-million recapitalization, and the S&L; is now considered “adequately capitalized” by regulators. Then Glendale Federal began selling off delinquent loans, troubled properties and all of its out-of-state operations, cutting non-performing assets from $1.02 billion in February, 1993, to $590 million on Sept. 30.
As a result, Glendale Federal’s assets shrank to $16.8 billion on Sept. 30, down 6% from a year earlier. But the remaining assets were much healthier, and the S&L; set aside just $18.8 million in the latest quarter to cover expected loan losses, less than half the $42.4 million set aside in the same quarter of 1993.
Trafton said Glendale Federal is now looking to build its deposit base through acquisitions, but only in California. The thrift has also spent more than $2 million in launching an aggressive television advertisement campaign that ridicules big commercial banks. “Wells Fargo and Bank of America don’t want their customers in their branches,” Trafton said. “We’re taking the opposite tack, and we’re gaining customers every day.”
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Still, Glendale Federal has plenty of work ahead. Loan demand is spotty, Trafton said, and non-performing assets are 3.32% of total assets, a figure Trafton hopes to get under 2.5% in the coming months. Return on average assets, a statistic that measures how well an institution is using its assets to generate income, was 0.22% in the latest quarter, far below the 1% that industry experts consider to be a strong showing.
Ventura County National Bancorp, the Oxnard-based parent of Ventura County National Bank and Frontier Bank, reported a profit of $565,000 for the September quarter, after a year-earlier loss of $4.3 million. Meanwhile, total assets shrank 26% to $272 million, as the bank continued to unload problem loans. For the first nine months of 1994, the bank reported earnings of $480,000, compared with a loss of $8.5 million a year earlier.
The bank did miss a Sept. 30 deadline imposed by federal regulators to raise some of its capital ratios, but no sanctions have been imposed because regulators recognize that the bank is “making strong and regular progress,” said the bank’s CEO, Richard S. Cupp. To meet regulators’ goals, the bank is planning a $5-million stock offering for the first quarter of next year.
Loan demand remains weak and uneven, Cupp said. Local companies “just doing business in the Valley are the slowest to do well.”
Great Western Financial Corp., the Chatsworth-based parent of Great Western Bank and the nation’s second-largest S&L;, reported a profit of $57.2 million in the September quarter, reversing a $17.5-million loss the previous year. For the first nine months of the year, Great Western posted a profit of $163 million, double the $80.3 million reported a year earlier. Assets totaled $40 billion on Sept. 30, up 6% from a year earlier.
Great Western’s non-performing assets totaled $978 million, down 32% from a year earlier and at the lowest level since December, 1988. As a result, loan loss provisions in the latest quarter were $51.2 million, compared to $232 million for the third quarter of 1993.
CU Bancorp, the Encino-based parent of California United Bank, reported earnings of $671,000 for the third quarter, up 19% from a year earlier. For the first nine months of the year, the bank posted a profit of $1.86 million, up 23% from a year earlier. Meanwhile, assets declined 5% to $280 million on Sept. 30.
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The bank has been on a course of recovery since June, 1992, when about 30 new employees arrived with new CEO Stephen G. Carpenter to overhaul a then-ailing institution. Carpenter and his team shifted the bank’s emphasis from real estate to commercial lending and weeded out problem loans. Non-performing assets have dwindled from a whopping $30 million in June, 1992, to $113,000 on Sept. 30.
TransWorld Bancorp, the Sherman Oaks-based parent of TransWorld Bank, posted earnings of $764,000 in the September quarter, compared to a loss of $98,000 for the same three-month period of 1993. For the first nine months of 1994, the bank reported earnings of $1.66 million, up 86% from a year earlier. Assets totaled $385 million on Sept. 30, up 19% from a year earlier.
The bank attributed the improved earnings to cost controls and improved asset quality. The bank set aside $190,000 for anticipated loan losses in the third quarter, down from $695,000 in the same quarter a year earlier.
American Pacific State Bank, also based in Sherman Oaks, had an equally strong quarter, posting a third quarter profit of $576,000, up 21% from a year earlier. For the first nine months, the bank’s net income of $1.46 million was up 6% from the same period in 1993. The bank’s assets totaled $277 million on Sept. 30, a record level for American Pacific and up 19% from a year earlier.
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James Degnan, executive vice president at the bank, said deposit growth has been fueled by disaster relief money that has poured into the region since the Northridge earthquake. But quake damage continues to disrupt many of the bank’s business customers who still haven’t made repairs, Degnan said. As a result, non-performing assets totaled $5.44 million on Sept. 30, up 2% from a year earlier.
Levy Bancorp, the Ventura-based parent of Bank of A. Levy, posted third-quarter earnings of $2.21 million, compared to a year-earlier loss of $440,000. For the first nine months of the year, Levy reported net income of $5.44 million, compared to a loss of $4.72 million a year ago. Assets declined 10% to $617 million on Sept. 30.
Levy echoed others in attributing earnings gains to improved asset quality. Non-performing loans were 4% of the bank’s loan portfolio on Sept. 30, down from 10% a year earlier.
The 112-year-old bank announced in June that it has agreed to be purchased by First Interstate Bancorp in a deal valued at $86.5 million. Shareholders are scheduled to vote on the deal in January, and the sale is expected to close in February.
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Fidelity Federal Bank’s former parent company, Citadel Holding Corp., lost $67 million in 1993. That prompted the Office of Thrift Supervision, the federal agency that regulates S&Ls;, to increase its oversight of Citadel.
To raise capital, Citadel effectively spun off Fidelity Federal by selling to a group of investors who pumped $109 million into the institution. As a result, Fidelity is now officially adequately capitalized, and Citadel’s share of Fidelity is down to 16%.
Third-Quarter Report From the Region’s Largest Financial Institutions
For the quarter that ended Sept . 30:
Assets Sept. 30 Change from Profit Change from Banks (millions) year ago (Loss) year ago Levy Bancorp $616.8 -10% $2.21 mil NA (parent of Bank of A. Levy) CU Bancorp $280.4 -5% $671,000 +19% (parent of California United Bank) Ventura Co. National Bancorp $272.4 -26% $565,000 NA (parent of Ventura County National Bank and Frontier Bank) TransWorld Bancorp $385.0 +19% $764,000 NA (parent of TransWorld Bank) American Pacific $277.0 +19% $576,000 +21% State Bank SAVINGS & LOANS Great Western $39,996.6 +6% $57.2 mil NA Financial Corp. (parent of Great Western Bank) Glendale Federal $16,847.2 -6% $9.37 mil NA Bank* Fidelity Federal Bank**
Return on average Banks assets Levy Bancorp 1.40% (parent of Bank of A. Levy) CU Bancorp 0.96% (parent of California United Bank) Ventura Co. National Bancorp 0.56% (parent of Ventura County National Bank and Frontier Bank) TransWorld Bancorp 0.81% (parent of TransWorld Bank) American Pacific 0.86% State Bank SAVINGS & LOANS Great Western 0.59% Financial Corp. (parent of Great Western Bank) Glendale Federal 0.22% Bank* Fidelity Federal Bank**
* Fiscal first quarter ended Sept. 30
** Has not yet reported its quarterly results
NA: Not applicable for comparison due to current or year-earlier losses.
