Housing problems hit small banks

Some of the Asian American community banks that have prospered in Southern California also have been forced to swallow housing-related losses. Aaron J. Deer, an analyst at Sandler O'Neill & Partners, cut profit estimates recently for Pasadena's East West Bancorp and Los Angeles' Preferred Bank and Cathay Bancorp, whose core depositors are ethnically Chinese, because of exposure to construction and related loans.

Home builder troubles haunted even City National Corp. of Beverly Hills, the Southland's largest commercial bank with more than $15 billion in assets. City National avoided the riskier segments of home-mortgage lending and suffered none of the losses on mortgages and bonds backed by home loans that have plagued larger competitors.

But City National's clients have always included home builders, and the bank paid the price as losses on builder loans contributed to a 22% drop in first-quarter earnings. That was despite the fact that such loans made up only 5% of the company's $11.8-billion loan portfolio, and few of them were made in the Inland Empire or Central Valley, CEO Russell Goldsmith said.

Nor are out-of-state banks immune to the problems here. Central Pacific Financial Corp., a Honolulu bank that sought to diversify on the mainland, said Inland Empire construction loans played a major role in the $54.2 million in loan losses recorded by the company in the first quarter, up from just $4.3 million a year earlier.

Central Pacific Chief Executive Clint Arnoldus said the bank, with $5.8 billion in assets, has a "solid plan" to "aggressively manage our California loan portfolio." But he added that it was tough to make projections about a turnaround.

"No one can predict when California's housing market will stabilize," he said.

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scott.reckard@latimes.com