The Business Press: Inland bank earnings show surprising strength

01:38 PM PDT on Thursday, May 6, 2010 (www.thebizpress.com)

By CHRIS H. SIEROTY
Contributing Writer

Security Bank of California, Chino Commercial Bank, Premier Service Bank, and Provident Savings Bank have all reported better than expected earnings but remain cautious as economic conditions in the two-county region remain weak.

The regional banks, which have been hurt by foreclosures in the housing market and losses to their commercial real estate portfolios, continue to set aside revenue to cover loan losses, albeit at more moderate levels than in the past quarters.

Most of the profits reported were due to increases in non-interest income. Michael R. Natzic, senior vice president Community Bank Group at Stone & Youngberg in Big Bear Lake, said increases in non-interest income wasn’t a surprise since Inland banks continue to deal with real estate loans that have soured.

“As the lending environment improves, interest income will improve,” Natzic told The Business Press. “It doesn’t look like an attractive market at the moment, but these guys are in an advantageous position to grow over the next several years.”

While loan losses are showing some signs of easing, banks such as Premier Service said that their profits for the first-quarter were partially offset by an increase in their allowance for loan losses.

Based in Riverside, Premier Service Bank reported net income of $94,000, or 0.07 cents per share, for the first quarter, compared to net income of $32,000, or 0.02 cents per share, for the same period a year ago. The bank attributed the increase to better control of funding costs and non-interest expenses, however, the provision for loan losses in the first quarter totaled $340,000, compared to $110,000 last year.

As of March 31, Premier Service had $6 million of non-performing loans, equal to 4.68 percent of the bank’s total loans, compared to $4.7 million, or 3.8 percent, for the same period last year.

The allowance for loan losses totaled $2.19 million at March 31, or 1.71 percent, of total loans as of that date, compared to $1.67 million, 1.35 percent, last year, according to Premier Service’s earnings report. Despite reporting a profit, the bank said at the end of the first quarter its total assets had declined by $2.2 million to $158 million, compared to the same period a year ago.

“We are cautiously optimistic with the progress we have made in improving our core earnings, as well as our operating efficiency,” said Kerry Pendergast, Premier Service’s president and chief executive officer, in a statement. “This provides additional cushion for the institution as we continue to make contributions to the Bank’s allowance for loan losses, to address dynamics within the credit portfolio, as well as to meet the guidelines articulated by the regulators.”

Chino Commercial Bank, the subsidiary of Chino Commercial Bancorp, reported net earnings for the first quarter decreased 65.4 percent to $41,285, or 6 cents per share, from net income of $119,269, or 17 cents per share, for the first quarter last year.

Dann H. Bowman, president and chief executive officer, attributed the drop in earnings to the bank’s decision to make significant provisions to loan loss reserves in the quarter. The provision for loan losses increased by $247,534 to $263,685 in the first quarter of 2010, compared to $16,151 in the first quarter of 2009.

Bowman said that actual “charge offs were $148,000 and were a reflection of grading of loans and trends in the economy” such as continued foreclosures and unemployment.

Loans decreased $940,706 during the first quarter from Dec. 31, with a remaining balance of $60.5 million at March 31. Non-interest income totaled $293,835 for the first quarter, or an increase of 18.8 percent from $247,452 earned during the first quarter of 2009. As of March 31, total assets were $110.8 million, an increase of $7.2 million, 7 percent, from Dec. 31, and an increase of $21.9 million, or 24.7 percent, from March 31, 2009. This is a direct result of the growth of the bank’s deposits and the company recently opening a third branch in Rancho Cucamonga, he said.

Meanwhile, Security Bank of California, wholly owned and sole subsidiary of Security California Bancorp, announced a profit in the first quarter. Based in Riverside, the bank reported net income of $201,588, or 6.7 cents per share, compared to a loss of $487,369, or 16 cents per share, compared to the same period a year ago.

In its earnings report, Security Bank of California said its assets increased by 19.5 percent to $307.9 million, loans grew 20 percent, or $43.5 million, to $261.7 million and deposits grew by 29.3 percent, or $59.8 million, to $263.9 million, compared to the first quarter of 2009.

For the second straight quarter, Provident Savings Bank, a subsidiary of Provident Financial Holdings Inc., reported a profit from operations.

For the quarter ended March 31, the company reported net income of $371,000, or 3 cents per share, compared to a net loss of $2.57 million, or 41 cents per share, in the comparable period a year ago. Income in the third quarter was primarily attributable to a decrease in the provision for loan losses, a decrease in non-interest income and an increase in operating expenses, the company said.

However, for the nine months ending March 31, Provident reported a net loss of $2.09 million, or 26 cents per share.

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