Restructuring to Cost SC Bancorp : Finance: $1.9 million in charges and $900,000 in loan reserves wipe out six-month profits at Southern California Bank, the largest in O.C.

The parent company of Southern California Bank said it will take $2.8 million in charges and loan loss reserves this quarter as it restructures the bank and cleans up its loan portfolio.

The amount, consisting of $1.9 million for restructuring operations and $900,000 for reserves, will result in a loss for the three-month period and the first nine months, though bank executives expect a return to profitability for the fourth quarter and the year.

The bank will release its quarterly financial results in late October.

Efficiencies gained from newly computerized operations and consolidations will mean that the bank can cut up to 15% of its payroll costs, though that might not translate into a 15% reduction of staff. The bank has the equivalent of 235 full-time jobs.

“Some layoffs may come from higher-paid employees,” said Larry Hartwig, president of the parent company, SC Bancorp. Many of the layoffs already have occurred, he said, but he would not release the total number until after remaining layoff notices are given in the next few weeks.

“We’re still in a recession,” Hartwig said. “If we were optimistic that the economy would pick up, we’d hang in there. But we don’t see it; the economy is just going to remain flat. We need to do the right thing by shareholders.”

The charges wipe out $775,000 in profits that the bank, Orange County’s largest with $480 million in loans and other assets, had earned during the first six months.

Nearly half of the $1.9 million in restructuring charges come from the bank’s decision to sell certain securities at a loss. The bank is earning less in interest on those securities than it is paying on its one-year certificates of deposit, Hartwig said. The remaining charges were attributed to lease terminations, severance pay and other consolidation costs.

Two weeks ago, two commercial borrowers notified the bank that they were facing difficult times and might not meet future loan payments, Hartwig said. The loans--for a small shopping center and a carwash--are not yet delinquent, but the bank decided to set $900,000 aside as an expected loss in the event it has to foreclose on the properties and sell them at a loss. Hartwig would not disclose where the properties are located or how much is owed.

“This is a cleanup activity,” said Bruce W. Roat, the company’s chief financial officer. “We’re biting the bullet to put us in a better position later.”