Top Banks, S&Ls; Boost Profits : Stable Interest Rates Aid Performance for the Year

Most of the largest banks and savings and loans based in the San Fernando Valley area got a lot better, but not much bigger, last year.

The area’s leading financial institutions responded to the bad-loan problems that crippled many U.S. banks and S&Ls; in 1983 and 1984 by braking their asset growth and concentrating instead on boosting profits. The fourth quarter proved a fitting conclusion to 1985, as earnings increases accelerated while growth slowed further.

Among the nine locally based banks and S&Ls; with more than $100 million in assets that have disclosed their 1985 results, only one, Independence Bank, reported declining profit for the year. During the fourth quarter, all nine financial institutions posted higher profits than in the corresponding period the year before, paced by Independence, which rallied with a 406.7% increase.

Two institutions that have suffered losses in recent years--Camino Real Savings Bank and Valley State Bank--failed to respond to repeated requests for their year-end results. San Fernando-based Camino Real, acquired by Orange County developer Mervyn Phelan on July 1, lost roughly $10 million over 1983 and 1984 and continued to post quarterly deficits last year.

Encino-based Valley State, after losing a total of $976,035 in 1983 and 1984, chalked up a profit of $647,833 during the first nine months of 1985, but barely broke even in the third quarter.

The biggest local financial institutions in 1985 generally performed better than banks and S&Ls; across the state and nation.

‘Gradual Comeback’

“It was not a banner year, just a gradual comeback,” said Gary Findley, a lawyer and banking consultant.

Analysts said the pattern of relatively low, stable interest rates, with some declines late in the year, generally improved profits and freed bank and S&L; executives to focus on eliminating the bad loans in their portfolios. But Salvatore Serrantino, president of the California Research Corp. consulting firm, said some California institutions’ earnings were depressed by the lingering effects of bad real estate, energy and agriculture loans and by regulators’ demands that more money be put into reserves as a hedge against possible loan losses.

S&Ls;’ Profits Jump

Among Valley-area financial institutions, the S&Ls; showed both the biggest improvement in profitability and the least growth in 1985. The year’s relatively low interest rates widened the spread between the interest lenders paid on deposits and the amount they received from home mortgages and other fixed-rate consumer loans.

Valley Federal Savings & Loan Assn., by far the largest financial institution based in the Valley with assets of $2.5 billion, rebounded from a loss of $11.5 million in 1984--largely the result of a mortgage brokerage fiasco--to a profit of $10.4 million last year.

During the fourth quarter, Van Nuys-based Valley Federal earned $3.7 million, a reversal from a loss of $3.2 million in the same period of 1984. Officials cited the lower interest rates, expense controls and profits from mortgage-banking subsidiaries.

Investment Savings & Loan Assn., the second-largest financial institution based in the area, saw its assets rise a modest 6.2% during 1985 to $319.2 million at year-end. The Woodland Hills-based S&L;, whose fiscal year ends March 31, posted a profit of $1.3 million during the nine months ended Dec. 31, up from a loss of $33,597 during the same period the year before.

Most of Investment Savings’ profits came in its third quarter, when it earned $736,527, a reversal from a loss of $15,846 the same period in 1984. The quarterly earnings came despite a hefty injection into loan loss reserves of $767,000, up from $200,000 the year-ago quarter. Provisions for loan losses are subtracted from earnings.

Sold Real Estate

Richard G. Voll, Investment Savings’ chief financial officer, said the provision was made after taking “a harder look” at the S&L;’s real estate loans. Voll attributed Investment Savings’ increased profits in part to gains from selling mortgages and real estate that the S&L; obtained through foreclosure.

Powered by profitable securities sales, Encino Savings & Loan Assn.’s profits jumped 143.5% during 1985 to $1.1 million. They soared nearly fivefold from $93,000 in the fourth quarter of 1984 to $442,000 in the final three months of 1985.

Eugene A. Cazier, a senior vice president with Encino Savings, said the S&L;, which has suffered from bad real estate loans, would have turned only a slight profit if it had not sold some of its securities. Encino Savings’ assets edged up 4.9% to $164.9 million during the year.

The area’s banks and bank holding companies easily outpaced the local S&Ls; in profitability as well as growth. The most profitable financial institution in the area--with a return on assets of 1.2%--was Santa Clarita National Bank.

Second-Fastest Growth Rate

During 1985, the Valencia-based bank’s profits climbed 21.0% to $1.9 million and its assets rose 16.9% to $168.7 million, the second-fastest rate of growth among the nine financial institutions surveyed.

In the fourth quarter, Santa Clarita National’s profits jumped 37.7% to $424,000. Frank Ficke, a senior vice president, attributed the increase to its expanded loan portfolio.

The fastest-growing banking organization was Lincoln Bancorp, parent of Encino-based Lincoln National Bank, whose assets climbed 24.3% to $155.4 million at year-end. Lincoln Bancorp’s profits jumped 30.8% for the year to $1.0 million and were up 32.5% in the fourth quarter to $375,606.

John Keating, the bank’s chairman and chief executive, attributed the gains largely to loans brought in by Lincoln’s new Beverly Hills office and the bank’s more vigorous collection of service charges. He noted that a $285,000 severance payment to Morris Danon, who resigned last year as the bank’s president and chief operating officer, kept profits from being even higher.

Thousand Oaks-based First State Bank of the Oaks posted a 29.4% rise in profits to $910,644 and a 12.5% increase in assets to $109.7 million during 1985. In the fourth quarter, profits rose 8.5% to $233,137. Much of the bank’s profit growth for the year resulted from its acquisition of three Union Bank branches in late 1984.

Interest Rates Declined

TransWorld Bancorp, the parent of Sherman Oaks-based TransWorld Bank, boosted its profits 31.1% to $902,000 and expanded its assets 7.8% last year. Fourth-quarter profits were up 27.5% to $241,000. Howard J. Stanke, TransWorld’s senior vice president for finance, cited increased lending and reduced interest expenses because of the decline in interest rates.

APSB Bancorp, the holding company for American Pacific State Bank, reported relatively skimpy profits of $51,106 for the fourth quarter and $329,550 for the year. Bad real estate loans--the principal reason for its loss of $930,231 in the fourth quarter of the previous year and its shortfall of $994,798 for all of 1983--continued to haunt the North Hollywood-based bank.

Severance payments to 22 employees dismissed by the bank also reduced profits in the fourth quarter. Over the year, APSB’s assets were up 15.9% to $137.9 million

The results of Independence Bank were skewed by its acquisition in October by Saudi financier Ghaith Pharaon for $23 million. Independence’s net income for 1985 was off 14.6% to $933,000 as its loan loss provision was nearly doubled to $1.3 million largely because of the way the acquisition was structured, said Morton R. Michaels, the Encino-based bank’s president and chief executive.

He said accounting adjustments for the transaction, along with new deposits brought into the bank by its new owner, contributed to its approximately fivefold profit increase in the fourth quarter to $451,000. Independence remained the largest bank in the Valley area at year-end, with assets of $232.2 million, up 10.2% from 12 months before. 1985 REPORT FROM THE VALLEY’S LARGEST FINANCIAL INSTITUTIONS Banks Assets Net income Return Change (loss) on assets in earnings Independence Bank $232.2 million $933,000 .42% -14.6% Santa Clarita $168.7 million $1.9 million 1.2% 21.0% National Lincoln Bancorp $155.4 million $1.0 million .79% 30.8% (parent of Lincoln National Bank) TransWorld Bancorp $150.4 million $902,000 .62% 31.1% (parent of TransWorld Bank) APSB Bancorp $137.9 million $329,550 .25% NA (parent of American Pacific State Bank) First State Bank $109.7 million $910,644 .91% 29.4% of the Oak

Savings and Loans

Assets Net income Return on assets Valley Federal $2,499.7 million $10.4 million .41% Investment Savings* $319.2 million $1.3 million .57% Encino Savings $164.9 million $1.1 million .68%

Change in earnings Valley Federal NA Investment Savings* NA Encino Savings 143.5%

* Figures for nine months ended Dec. 31

FOURTH-QUARTER EARNINGS Banks Change Net income (loss) in earnings Independence Bank $451,000 408.7% Santa Clarita National $424,000 37.7% Lincoln Bancorp $375,608 32.5% TransWorld Bancorp $241,000 27.5% APSB Bancorp $51,106 NA First State Bank $233,137 8.5% of the Oak

Savings and Loans Change Net Income (loss) in earnings Valley Federal $3.7 million NA Investment Savings $736,527 NA Encino Savings $442,000 375.3%