Rebound From Weakness a Year Ago : Valley-Area Banks, S&Ls; Report Sharp Gains in 2nd Quarter

Bouncing back from weak performances last year, most of the largest banks and savings and loans with headquarters in the San Fernando Valley area posted sharp gains in profits during the second quarter of this year.

Seven of the 10 locally based banks and S&Ls;, with more than $100 million in assets, reported making more money in the second three months of 1985 than in the same period a year earlier.

Rebound From Losses

All three of the institutions that chalked up losses in the second quarter of 1984--Valley Federal Savings & Loan Assn., American Pacific State Bank and Valley State Bank--reported profits in the same period this year.

Only one of the 10 biggest institutions, San Fernando-based Camino Real Savings Bank, lost money in the second quarter this year. Two other institutions, Encino-based Independence Bank and Investment Savings & Loan Assn. of Woodland Hills, showed reduced profits, but still made money.

Analysts said the overall improvement among Valley-area banks and S&Ls; dovetails with the trend among financial institutions. Jim Alexander, president of Los Angeles-based J. Alexander Securities, a brokerage firm that specializes in trading bank stocks, said earnings were depressed last year because many financial institutions gave up on their troubled loans and wrote them off as losses.

Alexander noted that “1984 was a year when a lot of the accountants had awfully heavy pencils.”

The decline in interest rates this year had mixed effects on the area’s financial institutions.

It hurt banks to the extent that they rely on floating-rate business loans. The spread between the interest that banks pay on their deposits and receive from their floating-rate loans narrows when interest rates fall.

But the lower interest rates raised the value of bonds owned by financial institutions--some fixed at older, higher rates--and many of the banks and S&Ls; sold their securities at a profit during the three-month period.

Lower interest rates also helped S&Ls; with large portfolios of fixed-rate home loans and banks with a number of fixed-rate consumer loans. Those institutions profited because their income from fixed-rate loans remained steady while the interest they pay on deposits declined.

Relatively Modest

For most of the financial institutions, profits were relatively modest. Gary Findley, part-owner of the Brea-based Findley Reports bank consulting firm, said many California institutions’ profits were pinched by the slumping real estate market and the competition bred by the deregulation of the financial services industry.

Some of the area’s biggest banks and S&Ls; showed improvement in the second quarter, however, by putting dozens of new loans on their books and increasing their assets. Others operated cautiously and saw their assets stay flat or decline but, after clearing the bad loans off their books last year, showed more profit.

Measured by return on assets, Encino-based Valley State Bank was the most profitable bank or S&L; in the Valley area--from Burbank west to Camarillo--during the second quarter of 1985.

Valley State, which lost $113,061 in the second three months of 1984, earned $444,612 during the same period this year. That profit was equivalent to an annual after-tax return on assets of 1.54%.

Favorable Comparison

Return on assets, determined by dividing an institution’s profits by its average assets during the same period, reflects how efficiently a bank or S&L; does business. Keefe, Bruyette & Woods, a brokerage firm specializing in the stocks of financial institutions, said the median return on assets during the second quarter for 24 large U.S. banks its follows was 0.71%. The median return for 13 Western S&Ls; tracked by the firm was 0.82%.

Jules Huppert, president and chief executive of Valley State, said much of the bank’s second-quarter profit came from selling bonds in its investment portfolio and from increased lending.

The other two local financial institutions that came back from unprofitable second quarters in 1984 still performed relatively sluggishly in the corresponding period this year. Van Nuys-based Valley Federal Savings & Loan Assn., with nearly $2.6 billion in assets and by far the biggest bank or S&L; based in the area, reported a relatively moderate profit of $2.8 million.

Valley Federal, which suffered a $6.6-million loss during last year’s second quarter because of real estate loan losses, said its earnings were helped by lower interest rates this year.

APSB Bancorp of North Hollywood, the bank holding company whose operating unit is American Pacific State Bank, bounced back from a $39,789 second-quarter loss in 1984 with a profit of $79,044 during the same period this year. Frank Ures, the bank’s president and chief executive, said the cost of converting its data processing system held profits down during this year’s second quarter.

Higher Returns

Higher returns on assets were recorded by the four institutions that showed improvement this year over their already profitable results in the second quarter of 1984.

Encino Savings & Loan Assn. reported that its second-quarter earnings more than doubled to $380,000. Sherman Oaks-based TransWorld Bank saw its earnings climb 96.6% to $226,000.

David Hender, TransWorld’s president and chief executive, said the bank absorbed loan losses during last year’s second quarter and was “really just coming back to the norm” this year.

New lending produced better results at Santa Clarita National Bank in Valencia and at Lincoln Bancorp, the Encino-based parent of Lincoln National Bank. Santa Clarita National reported that its profits climbed 45.7% to $523,000 and that Lincoln’s rose 51.4% to $272,140.

Independence Bank, the largest bank in the area with $218.8 million in assets, reported that its profits fell 3.6% because it took some loan losses and cut back on lending because of sluggish business.

Sharp Decline

Investment Savings reported that its profits fell 64.1% to $149,770, largely because of the costs of entering new businesses. The S&L; also said its net income declined because it reduced its lending while looking for ways to increase its relative net worth, the difference between assets and liabilities.

Camino Real Savings Bank, acquired by an Orange County developer in June, has yet to report its results but said it lost money in this year’s second quarter after earning $211,000 in the three months ended June 30, 1984.

SECOND-QUARTER REPORT FROM THE VALLEY’S LARGEST FINANCIAL INSTITUTIONS

Banks

Assets as Net income Return of June 30 on assets Independence Bank $218.8 million $375,000 0.58% Santa Clarita National $161.8 million $523,000 0.67% TransWorld Bank $149.6 million $226,000 0.64% APSB Bancorp $144.7 million $79,044 0.23% (parent of American Pacific State) Lincoln Bancorp $139.6 million $272,140 0.87% (parent of Lincoln National) Valley State Bank $118.8 million $443,612 1.54%

*Change in earnings Independence Bank -3.6% Santa Clarita National +45.7% TransWorld Bank +96.6% APSB Bancorp NA (parent of American Pacific State) Lincoln Bancorp +51.4% (parent of Lincoln National) Valley State Bank NA

Savings and loans

Assets as Net income Return of June 30 on assets Valley Federal $2,574.5 million $2.8 million 0.34% Investment Savings $289.8 million $149,770 0.20% Encino Savings $171.9 million $380,000 1.0%

*Change in earnings Valley Federal NA Investment Savings -64.1% Encino Savings +117%

*From year ago.