One of the largest banks in Los Angeles has been quietly grappling with dangerously low capital levels since incurring substantial losses during the financial crisis.
After the souring of investments in mortgage giants Fannie Mae and Freddie Mac, California National Bank is among the worst- capitalized banks in California, according to Highline Financial, an Austin, Texas-based provider of banking data.
Moreover, FBOP Corp., an Oak Park, Ill., holding company that owns Cal National and seven other banks, has been unsuccessful in repeated attempts to raise capital.
Cal National is not expected to report much better results in its quarterly financials in the coming weeks, but Cal National's chief executive said he expects the bank to return to well-capitalized levels by the end of the second quarter.
Indeed, the uphill climb is steep after a recent financial decline that has surprised even seasoned banking experts. The bank took a roughly $500 million loss last year on securities held as available for sale, according to its fourth quarter regulatory filing.
"Wow," said bank consultant Bert Ely last week upon reviewing Cal National's most recent financial report. "I just am really amazed at the magnitude of the loss on available-for-sale securities. It's a mind-boggling number for that size balance sheet."
Cal National is the fourth largest locally based bank with $6.3 billion in assets. In the fourth quarter filing, it reported an annual loss of $281 million. The bank also upped its provision to cover future loan losses to $66 million, about five times higher than just six months prior.
In the process, Cal National's total risk-based capital ratio, which regulators use to determine whether a bank is appropriately reserved to cover future operations, dropped to 5.36 percent, among the lowest of any bank in California, according to Highline Financial.
Banks must maintain a capital ratio of at least 10 percent to be considered well capitalized. Falling below that figure can draw the attention of regulators, though Cal National is not operating under any regulatory enforcement action.
The bank maintains that its core earnings are solid and its problems largely stem from investments in the two government-sponsored mortgage companies. The bank also expects capital-raising efforts to pay off soon.
"By the quarter ending June 30, we will be back to well capitalized," said Gregory Mitchell, chief executive of Cal National.
Despite operating 68 branches and employing some 900 people across Southern California, the downtown L.A. bank has largely avoided public scrutiny as it has run into trouble.
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