Southland banks navigate in choppy seas.

Many shrink assets to meet stringent regulatory rules

By virtue of the disappearance of Security Pacific Corp. -- a $76.5 billion-in-assets bank which ceased to exist when it merged last month with San Francisco-based BankAmerica Corp. -- First Interstate Bancorp. with $48.9 billion in assets becomes the largest bank headquartered in Los Angeles, according to this week's List.

Encino-based Independence Bank, which was No. 12 on last year's List with $707 million in assets, was closed by state Superintendent of Banks James E. Gilleran in January. He seized Independence after it was discovered the bank was secretly controlled by the Bank of Credit & Commerce International and an investigation revealed real estate loan problems.

But those are only two of many changes on the List of the largest banks headquartered in Los Angeles County, as many area banks underwent big changes last year, shrinking or growing in asset size.

"We are having a major restructuring in the banking industry, as banks decide if they want to be bigger or smaller," said Lynn Reaser, chief economist with First Interstate.

Many banks are shedding loans, and therefore assets, through write-offs of bad real estate loans, Reaser said. Meanwhile, in a downbeat economy, loan demand is shrinking, she said.

Faced with new, tougher capital requirements to comply with, banks have a rough time raising capital in this economy, Reaser said. For some banks, the only way to improve capitol ratios is to shed assets, she said.

Normally, banks grow at about the same rate as the economy, which in the 1980s was about 8 percent a year, Reaser said. But nothing these days is normal, she noted.

Guardian Bancorp grew from $480.4 million in assets to $728 million, a 51 percent increase. The Los Angeles-based bank moved to No. 13 on this year's List from No. 20 on last year's.

Inglewood-based Imperial Bancorp boosted assets by 25 percent, to $3.8 billion from $3 billion, growing closer in size to No. 2 ranked City National Corp. Meanwhile, Beverly Hills-based City National Bank shrank by 8 percent to $4.5 billion in assets from $4.9 billion.

Tokai Bank of California grew by 5.9 percent, to $2.26 billion in assets from $1.19 billion, moving up The List to No. 5 from No. 8 last year. Los Angeles-based Tokai jumped over Community Bank which shrank its assets by 4 percent and Manufacturers Bank, former Mitsui Manufacturers, which shrank by 5.3 percent.

Rian Lidschin, vice president of marketing for Tokai Bank, said that the bank expanded its assets because it increased its middle-market business customers through a number of innovative, new financial products.

Other banks that achieved large asset growth last year were Farmers & Merchants Bank of Long Beach, to $1.48 billion from $1.36 billion; Cathay Bank, to $749 million from $659 million; and GBC Bancorp, to $791 million from $698 million.

Banks which shrunk in asset size include First Interstate, to $48.9 billion in assets from $51.3 billion, and Mercantile National Bank, to $396 million from $492 million, a $19.7 percent drop. Mercantile National Bank also underwent a shake-up in management with Donald Thornburg replacing William Hughes as president and chief executive officer, bank officials told the Business Journal.

Newcomers to The List include Los Angeles-based American International Bank, with $475 million in assets, and Glendora-based Foothill Independent Bancorp, with $262 million in assets.