Loan Portfolios Rise at Valley Banks; Lower Rates Push Commercial Activity

By CARLOS MARTINEZ

San Fernando Valley Business Journal

More customers and more loans drove higher third quarter earnings at San Fernando Valley’s independent banks.

Thanks to growing loan portfolios, Santa Clarita-based Valencia Bank & Trust Inc., Glendale-based Verdugo Banking Co. and Encino-based First Commerce Bank all reported earnings increases.

The strong results were tied to increases in construction lending and the 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 attorney who advises Valley banks.

Rosen said many business owners are taking advantage of low interest loans. “There is a lot of loan activity and that means a lot of interest income is going to the banks,” he said.

Verdugo 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 like period last year.

Similarly, Valencia’s loan business pushed its net income to $753,940, compared with $606,594 for the like period a year ago. Total loans increased to $151.6 million from $134.1 million over a year ago.

Rosen said the banks showed growth in other areas, such as ATM and banking fees, travelers cheques and other non-interest earning sources of revenue.

One example of continued growth, Rosen said, is First Commerce. The bank saw loan revenues increase by 36 percent to $66.6 million from $49 million a year ago. The bank posted net income of $248,000 in the third quarter, up slightly from $243,000 a year ago.

One exception to the higher earnings was Pacific Crest Capital Inc. of Agoura Hills, which reported net income for the quarter of $1.3 million, compared with $1.4 million of a year ago. Chief Executive 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.