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Saturday, Feb 4, 2023

Local Banks Show Improvement in Quarter

The fourth quarter of 2008 was brutal for state chartered banks in California. Return on assets, return on equity and net income dropped into the negative digits for many, and some banks accessed the Troubled Asset Relief Program (TARP) in anticipation of things getting worse. But first quarter 2009 numbers showed some encouraging signs, according to the latest statistics from the State of California Department of Financial Institutions (DFI), even though the banking industry continues to have a hard time. Regulators, the DFI in this case, do not comment on active financial institutions/licensees, said Alana Golden of the DFI, but in general there are banks that are struggling and banks that are profiting. “Overall, state banks are well capitalized,” said Golden. “They are working very hard to survive the current economic conditions.” In the first quarter of 2009, there were 218 state chartered banks in California. Total assets increased slightly from $242,526.3 (in millions of dollars) in Q4 2008 to $243,552.3 in Q1 2009; total deposits increased from $167,127.2 to $172,543.1 during the same period. But noncurrent loans and leases increased from $4,623.7 (in millions of dollars) in Q4 to $6,049.7 in Q1, and total past due loans and leases increased from $7,180.3 to $9,161.3. Net income increased from -$906.7 in Q4 2008 to -$175.1 in Q1 2009. It should be noted that these numbers do not indicate the overall financial health of institutions. Other issues that factor into financial well-being include capitalization, assets, management, earnings, liquidity and sensitivity to financial risk. Valley state chartered banks have certainly not escaped the recession. Regulators shut down First Bank of Beverly Hills in Calabasas back in April because it was not well-capitalized. Local bankers are doing better now compared to the end of 2008 but remain cautious. There are 10 state chartered banks in the greater San Fernando Valley area including: Americas United Bank; Bank of Santa Clarita; California Oaks State Bank; California United Bank; First California Bank; First Commerce Bank; First Private Bank & Trust; Mission Valley Bank; Wells Fargo Central Bank; and Western Commercial Bank. “The reality is that Q4 2008 was a major downturn and past dues spiked for about two months,” said John Nerland, president and CEO of California Oaks State Bank in Thousand Oaks. “We didn’t know when this was going to stop so we made a fairly aggressive allowance to our reserves.” In Q4 2008, California Oaks’ return on equity was -7.65 percent; return on assets -0.90 percent; and net income -$1,088,000. But in the first quarter 2009, the bank’s return on equity increased to 2.66 percent; return on assets increased to 0.37 percent; and net income increased to $117,000. Nerland said in the first quarter and after, many of the problem credits have resolved themselves. California Oaks has tried to work directly with customers to come up with a game plan for paying loans. And the bank was not invested in residential real estate. California Oaks is one of three state chartered financial institutions in the Valley to use TARP funds. It accessed $3 million from the program on Jan. 23; First California Financial Group tapped $25 million on Dec. 19; and Mission Valley Bancorp used $6 million, according to a list of TARP recipients published by the New York Times. “As bad as it was in the fourth quarter of 2008, it didn’t keep getting worse and worse,” said Nerland, adding in hindsight the bank maybe shouldn’t have taken the TARP funds but it got nervous because of the economy. Whether or not there’s going to be an increase in distressed commercial real estate assets over the next year is a question mark, said Nerland. Fortunately, commercial real estate makes up a fairly small percentage of the bank’s loan portfolio. Carl Raggio, president and CEO of Western Commercial Bank in Woodland Hills, echoed many of Nerland’s statements about weathering the third and fourth quarters of 2008. “What a lot of us did in the third and fourth quarters was build our loan loss reserves,” said Raggio. September of last year was dramatic and November was a shock, because of how hard the big banks were getting hit with decreased deposits and lack of access to credit, he added. In Q4 2008, Western Commercial’s return on equity was -3.97 percent; return on assets -0.34 percent; and net income -$412,000. But in the first quarter 2009, the bank’s return on equity increased to 0.96 percent; return on assets increased to 0.08 percent; and net income increased to $24,000. Western Commercial did not access TARP funds. But Raggio said it has slowed lending in order to stay well capitalized and is holding off on growth plans. It has also escalated the amount of attention it gives to clients and assessing levels of risk. Raggio said many clients are also taking matters into their own hands by cutting costs and streamlining their businesses. But the possibility of more distressed commercial real estate assets coming down the pipe is also a point of concern. “Our management team is talking about our portfolio once a week now compared to once a month,” said Raggio. “I don’t think we’re going to be reading about signs of recovery until the first or second quarter of next year.”

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