Housing problems hit small banks

According to data tracker Foresight Analytics of Oakland, 15.8% of single-family home construction loans were at least 30 days delinquent in Riverside and San Bernardino counties last quarter, up from just 1.7% a year earlier. The delinquency rate was 14.7% in Los Angeles County, 14.9% in Orange County and 15.4% in Ventura County. It was 30.4% in Merced County, near Sacramento.

Regulators were late to recognize the severity of the problems with these loans, Morford said. But this year they have taken notice.

In a report last week on regional economic activity, the Federal Reserve said of conditions in the West: "Credit quality eroded a bit further, mainly for loans related to the housing sector, with the most significant adverse impacts on asset portfolios noted for smaller community banks."

Regulators are now aggressively requiring banks to write down the value of questionable loans and to raise more capital to make up for those write-offs. That creates a pinch for banks, one that is apparent in their regulatory filings.

Security Pacific Bancorp of West L.A. -- which resembles in name only the former L.A.-based banking giant acquired in 1992 by what is now Bank of America Corp. -- has written off millions in dud Inland Empire housing loans. In a recent order, the Federal Deposit Insurance Corp. and state regulators required Security Pacific, with $585 million in assets, to diversify its operations, cut off deadbeat clients and "determine that the lending staff has the expertise necessary to properly supervise construction loans."

Other Inland Empire-based construction loan specialists also are feeling the pain.

Corona-based Vineyard National Bancorp, with $2.3 billion in assets, lost $70 million in its last two quarters, and its stock is down 82% from a year ago. It has blamed inland housing loans, though it also specializes in another tricky business, financing builders of expensive custom homes in West L.A., the South Bay and coastal Orange County. Its executives declined to be interviewed.

Regulators now classify Vineyard and its subsidiary, Vineyard Bank of Rancho Cucamonga, as troubled. The company had postponed its annual meeting while it negotiated for new investment, but said last week that discussions with an interested party had fallen through.