Bank of L.A. expects $3 million capital hike this month.

Oregon firm's buy-in will bring bank up to U.S. standard

Troubled Bank of Los Angeles should get a $3 million capital injection later this month, which will put it above federal minimum capital standards, Paul Ling, chief executive officer of the West Hollywood-based bank, told the Business Journal last week.

A Salem, Ore.-based holding company, Investors Bancorp, will own a 75 percent stake in BKLA Bancorp, Bank of Los Angeles' parent holding company, when the transaction is completed, Ling said.

The Federal Deposit Insurance Corp. in March ordered Bank of Los Angeles to increase its capital base by $3 million, according to a financial statement filed with the Securities and Exchange Commission.

The bank missed an initial deadline of July 18 to increase its capital, but the regulatory agency extended that deadline, Ling said.

He said Investors Bancorp has agreed to re-capitalize the bank because "they think that Southern California is going to turn around. These people who own this bank (holding company) in Oregon have wanted to come to Southern California for years."

Rights offering planned

After it gets the new capital from Oregon, BKLA will seek an additional $2 million through a rights offering to its shareholders. Investors Bancorp will buy the shares which BKLA shareholders decline to buy, Ling said.

BKLA's shares have been trading on the pink sheets since its stock was delisted by NASDAQ in November 1993, Ling said.

A NASDAQ official said BKLA was delisted because of "insufficient assets."

Ling said the company was delisted after its stock price fell below $1 a share. "The capitalization rule of NASDAQ is, if your shares aren't trading at $1, they kick you off, basically."

Ling said the bank will survive as a result of the capital injections. "We are West Hollywood's only community bank and we are going to move forward," he said.

Warren Heller, director of Research at Veribanc Inc., a Wakefield, Mass.-based bank rating firm, said a $5 million capital injection "would do them just fine ... as long as there are no significant problem loans coming in." And "they don't have a large backlog of problem loans," he added.

Poor ratings

Bank of Los Angeles was placed in the second lowest of nine bank safety and soundness categories by Veribanc, based on the bank's financial data as of June 30, Heller said. Only 77 of the nation's 11,000 banks ranked low enough to be placed in Veribanc's two lowest categories, he said.

Bauer Financial Reports Inc., a Coral Gables, Fla.-based bank rating agency, gives Bank of Los Angeles its lowest rating, zero stars, based on the bank's balance sheet as of June 30.

"Zero stars means they have some major problems and something has to change," said Karen Dorway, Bauer's head of research. Bank of Los Angeles has been on Bauer's list of problem banks since December 1992, she added.

Dorway noted BKLA Bancorp has lost money in each of the last four years, for a total of $7.3 million.

For the nine months ended Sept. 30, BKLA posted a net loss of $787,000, or 63 cents a share, compared with a year-earlier net loss of $1.3 million, or $1.08 a share.

Ling said 90 percent of the losses over the last four years were due to borrowers defaulting on real estate loans. "Real estate values in Beverly Hills have dropped 50 percent in the last several years," he said.