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Friday, Mar 29, 2024

Lending Up at Banks

Lending Up at Banks By CARLOS MARTINEZ Staff Reporter More customers and more loans drove high third quarter earnings at San Fernando Valley’s independent banks in the third quarter. Thanks to growing loan portfolios, Santa Clarita-based Valencia Bank & Trust Inc., Glendale’s Verdugo Banking Co. and Encino’s First Commerce Bank reported earnings increased more than 13 percent over the same period last year. The strong results were tied to increases in construction lending, and new loans and refinancing of commercial buildings. “Interest rates have been squeezed and we’re in a declining interest rate environment, so loans are really pushing those numbers,” said S. Alan Rosen, a Calabasas-based attorney who advises local banks. Rosen explained that many business owners are taking advantage of low interest loans, thus driving loan-based earnings for banks. “There is a lot of loan activity and that means a lot of interest income is going to the banks,” Rosen said. One exception to the generally strong trend was Pacific Crest Capital Inc. of Agoura Hills, which reported that earnings for the period ended Sept. 30 were lower than those of the comparable quarter in 2000. But for most other banks, the third quarter brought good news. Verdugo Banking Co. posted the strongest gains of the four community banks during the third quarter. Its loan portfolio increased 25 percent to $106.7 million over the same period last year, when the bank’s portfolio was $85.2 million. “For us loans have stayed very strong because of the rates. We have not noticed significant non-performing loans,” said Verdugo Banking CFO Bob Prout. Likewise, Valencia Bank & Trust’s loan business pushed its net income for the quarter up by 24 percent to $753,940, compared to $606,594 for the same period last year. The bank’s total revenue remained nearly flat at $4.5 million compared to $4.4 million a year ago. The company saw its total loans increase by 13 percent, from $134.1 million to $151.6 million over the same period last year. “We just had tremendous growth in our commercial loans for business, though not so much for construction, but in terms of lines of credit and business loans for expansion and improvements,” said Valencia CFO Jeff Pollard. Rosen said Valencia’s third quarter growth was fueled by the area’s growing economy and business base. “Their loan portfolio grew more than their assets so they obviously put more emphasis on their loans,” Rosen said. “But you can only go so far with loans. You can’t have that without liquidity. You need to have the funds.” Rosen said the four local banks also showed growth in other areas, such as ATM and banking fees, travelers cheques and other non-interest earning sources of revenue. “It’s simple growth that comes from more customers,” he said. “People are turning more to community banks because they’re smaller and because they can get more personal service. With more customers you’re going to have growth.” One example of continued growth, Rosen said, is First Commerce Bank. The bank saw loan revenues increase by 36 percent to $66.6 million from $49 million a year ago. For First Commerce, however, the increased loan business did not translate entirely to earnings. The bank posted net income of $248,000 in the third quarter, up only slightly over the $243,000 of a year ago. First Commerce’s CFO Wendy Moskal attributed the increase in its lending business to the company’s aggressive efforts to attract more customers. “We’ve been very aggressive with our business development program in particular,” said Moskal, who noted that the company’s overall performance improved with growth in customers and deposits. “Lower interest rates are attracting more loan customers, but it’s a double edge sword because it really pushes our margin. You end up making less money on each loan,” she said, noting that the bulk of the growth came from commercial building refinancing, construction lending and commercial building loans. But Rosen credited First Commerce’s CEO Jack Feldman’s leadership for the company’s third quarter upturn. “They’re coming off years of historic losses. Feldman has done a super turnaround job,” Rosen said, referring to Feldman’s emphasis on attracting local customers after years of losses due to a downturn in the real estate market in the mid-90s. “But the bottom line is that all these banks are saying that their loan portfolios are solid, and that they don’t have (bad) loans,” said Rosen. “So that shows that Southern California has not been hit as hard as the rest of the nation.” Pacific Crest Capital reported its net income declined slightly to $1.32 million compared to $1.37 million of a year ago on revenues of $11.9 million and $14.1 million, respectively. Pacific Crest CEO Gary Wehrle blamed dropping interest rates for the softness. He said the lower rates hampered the company’s ability to sell its SBA loans to other financial institutions. Rather than underwrite its own loans, Pacific Crest sells its loans to other banks. Because interest rates have fallen, many other institutions are no longer buying those loans. Rosen said the company’s heavy reliance on Small Business Administration loans and their declining interest rates and declining demand led to the company’s revenue drop. “It just got tougher to find customers for some of those loans,” he said. “The rates were just too low.”

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