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Bank Is Facing Federal Deadline to Beef Up Capital : Mandates: Ventura County National Bank must meet the strict requirements by Sept. 30 or face harsher measures by regulators, including civil penalties.

March 01, 1994|DON LEE | TIMES STAFF WRITER

OXNARD — Ventura County National Bank, trying for the past year to reorganize and get out from under a heap of bad real estate loans, now faces a Sept. 30 federal deadline to shore up its capital levels.

In a new consent agreement with the Office of the Comptroller of the Currency, the Oxnard-based bank agreed to meet unusually tough capital requirements or confront harsher measures by regulators, including civil penalties or removal of personnel.

The capital mandates are on top of other stringent operating constraints that were imposed in a broader consent agreement signed in March, 1993. The latest action was announced last week as the bank's holding company, Ventura County National Bancorp of Oxnard, reported a fourth-quarter loss of $3.5 million. The quarterly loss reflected lingering problems with troubled commercial real estate loans, and brought the company's total loss in 1993 to $12.1 million, compared with a profit of $685,000 in 1992.

Ventura County National Bancorp, with assets of about $340 million, also owns Frontier Bank, a smaller institution based in La Palma. Frontier is operating under a separate consent order, but its capital levels are above regulatory requirements.

Richard S. Cupp, chief executive officer of Ventura County National Bancorp since July, said the company would consider a number of steps to raise capital levels, including selling more stock to existing shareholders, a private placement of securities and the sale of certain assets, including Frontier Bank.

Cupp, 53, was confident that Ventura County National Bank, which has three branches, would be able to meet the Sept. 30 deadline to boost its capital.

Regulators declined to comment.

Reid Nagle, an analyst at SNL Securities, a banking research firm in Charlottesville, Va., said the new capital requirements suggest that "there's still significant regulatory concern" about Ventura County National Bank.

Nagle said the bank has shown improvement in the last year by putting in stronger management and cutting costs. But he said: "The institution's non-performing assets continue to grow, the company continues to lose money and it's situated in what is today the most troubled economy in the country."

Cupp has been reorganizing the company since he replaced William E. McAleer, who resigned in May amid regulatory pressures. In an interview, Cupp said he has hired a new team of credit officers, cut expenses and staff by outsourcing departments such as data processing, and tried to identify and better manage troubled assets. The bank holding company, and its two banking units, have a total of about 200 employees.

"Our expectation is that we have most of the problems behind us," Cupp said. "We intend to return to profitability this year."

But the bank has yet to stem the growth of non-performing assets, which surged to $21.8 million as of Dec. 31, more than double the supply of bad loans and leases it had on its books at the end of 1992. Those non-performing assets Dec. 31 represented 6.4% of the bank's total assets, much higher than the industry average and up from 2.02% at the end of 1992. Most of the bank's bad assets are commercial real estate loans.

As a result, the bank last year was forced to set aside $16.2 million in loan loss provisions, compared with $3.4 million in 1992.

In a positive sign, however, Ventura County National Bank's loan loss provisions declined in the fourth quarter to $1.8 million, from $6.1 million in the third quarter. Also, the bank's fourth-quarter loss of $3.5 million, which compared with a profit of $422,000 in the same period in 1992, included onetime charges of $2.2 million for writing off goodwill, tax write-offs and other reorganizing steps, all aimed at reducing operating costs and improving profitability in the future.

Still, Ventura County National Bank must now comply with more stringent capital requirements than those mandated at healthier banks.

Under the latest consent agreement, the bank must achieve a so-called Tier 1 capital ratio of 12% and a leverage ratio of 7%. As of Dec. 31, the bank had a Tier 1 capital ratio of 6.24% and a leverage ratio of 5.49%.

Both ratios reflect a bank's equity as a percentage of risk-based assets.

The new consent agreement also restricts the bank's ability to declare or pay a dividend, and requires the bank to develop a three-year capital program.

These requirements and restrictions are in addition to numerous regulatory controls agreed to by the bank in March, 1993, including supervision of bank staffing, policies and strategies.

Nagle, the analyst, said the bank has "done as well as expected" since March, 1993. But for the future, he said, "the real issue is how many more problem assets will be discovered and the California economy."

Cupp said he did not expect a big improvement in the regional economy this year. But he asserted that the bank would return to profitability this year anyway.

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