San Fernando Valley banks with more than $100 million in assets posted a 38% earnings gain as a group in 1986, thanks to low interest rates and a generally strong economy.
Despite the improved earnings, however, the group continued to show a mediocre aggregate return on assets of 0.68%, up from 0.63% in 1985. In contrast, California banks in the $100- million to $499-million asset range had an ROA of 0.82% for the first six months of 1986, according to the California Bankers Assn.
A 1% return on assets is a benchmark of superior banking performance, but only one major Valley bank surpassed that mark in 1986: Santa Clarita National Bank.
Blessed with a booming business area, Valencia-based Santa Clarita has been a steady performer. Its ROA was 1.12% last year, 1.18% in 1985 and 1.09% the year before. The bank boosted its assets by 16% in 1986, while earnings rose 8%.
Santa Clarita also had a big fourth quarter as its earnings rose 39%, to $588,000.
Other Valley banks also fared well last year. Encino-based Independence Bank, for example, reported a whopping 192% earnings increase, while return on assets jumped to 0.64% from 0.28% the year before. Its return on equity for 1986 was a mere 8.8%, but that was still a big improvement over 3.1% a year ago. In the fourth quarter, Independence's net income rose 9% to $408,000.
"It's been a pretty good year" for the industry, said Gerry Findley, editor of Findley Reports, a banking newsletter.
The Valley's savings and loan institutions had mixed results. Valley Federal Savings & Loan Assn., with $2.7 billion in assets by far the biggest financial institution based here, had a banner year. Earnings rose 64% while total assets grew by 7%. And while its return on assets was 0.65%, it still was an improvement over 1985's 0.41%.
Jack R. Allewaert, Valley Federal's chief financial officer, attributed the strong performance to favorable interest rates that spurred the housing market. Valley Federal enjoyed a record $1.3 billion in loan originations last year, as well as good performances from subsidiaries such as All-Valley Acceptance, which makes loans for manufactured housing.
In contrast, Investment Savings & Loan Assn. had a tough year. It reported 35% lower earnings for the nine months ended Dec. 31 as its assets shrank 11% thanks to the sale of a branch office. For the nine months, its return on assets was 0.37%.
Hurt by Loan-Loss Provisions
The Woodland Hills-based financial institution was hurt by $1.6 million in loan-loss provisions. It had just $121,000 in such provisions in the first nine months of 1985.
Republic Federal Savings & Loan Assn., which moved to Woodland Hills from Altadena last fall, turned in a stronger performance given its past financial troubles.
Earnings for the year were $11.4 million, and assets grew 20%. But Republic lost money on operations and was profitable overall only because it sold some securities and loans. In the fourth quarter it lost $973,000, against a loss of $653,000 a year ago.
Republic was ailing when it was acquired by Weyerhaeuser Real Estate in September, 1985, and controller Chris Oman said it expects to be profitable by the middle of this year.
Encino Savings & Loan Assn., based in Van Nuys, enjoyed a steady year in 1986. Earnings rose 8%, while assets were up 10%.
Northridge-based Unified Savings, which was seized by federal regulators last October, continued to struggle. For the nine months ended Sept. 30, it lost $1.3 million with assets of $102.9 million, according to the Federal Home Loan Bank Board. Unified executives would not disclose any year-end results.
Encino-based Valley State Bank is trying to recover from the embezzlement of $600,000 last year by an employee. Bank President Jules Huppert said he could not provide year-end results because of the theft, but for the nine months ended Sept. 30, Valley State lost $25,000. For all of 1985 the bank lost $1.7 million. Huppert said Valley State's assets were down to about $95 million, compared to $108 million the prior year.
APSB Bancorp, on the other hand, reported 234% higher earnings in 1986 as assets grew 5%. It also recorded a striking 20.2% return on equity for the year, compared to 6.4% in 1985. Its return on assets jumped above the Valley average, to 0.75%, compared to 0.22% a year ago.
North Hollywood-based APSB, the parent company of American Pacific State Bank, attributed the improved results to two years of stringent cost cutting, and a dramatic improvement in the bank's interest margin--the difference between what a bank pays for money and what it lends it for.
Fast Growth Continues
Encino-based Lincoln Bancorp, parent of Lincoln National Bank, continued its fast growth. Earnings grew by 37% over 1985 as assets jumped by 56%. Lincoln' return on assets rose to 0.88% for 1986 compared to 0.79% the year before.
Chairman John Keating said the strong results were due to the bank's aggressive efforts to bring in more demand deposits, for which Lincoln pays no interest. He noted that despite the strong asset growth, the bank added just four new staff members.
TransWorld Bancorp, parent of Sherman Oaks-based TransWorld Bank, reported 6% higher earnings for 1986 as assets grew by 9%, and it boosted regulatory net worth to 6.6% of assets.
Citing increased lending, First State Bank of the Oaks, based in Thousand Oaks, recorded 20% higher earnings for the year with a 19.5% jump in assets. Its return on assets was a solid 0.92% for the full-year.
1986 REPORT FROM THE VALLEY'S LARGEST FINANCIAL INSTITUTIONS Listings are for financial institutions in the Valley with assets of at least $100 million.
Assets Net income (loss) Independence Bank $336.7 million $1.8 million Santa Clarita National $195.7 million $2.0 million Lincoln Bancorp $242.0 million $1.4 million (parent of Lincoln National Bank) TransWorld Bancorp $163.7 million $959,000 (parent of TransWorld Bank) APSB Bancorp $143.6 million $1.0 million (parent of American Pacific State Bank) First State Bank of the Oaks $131.1 million $1.1 million
Return Change on assets in earnings Independence Bank .64% +192% Santa Clarita National 1.12% +8% Lincoln Bancorp .88% +37% (parent of Lincoln National Bank) TransWorld Bancorp .63% +6% (parent of TransWorld Bank) APSB Bancorp .75% +234% (parent of American Pacific State Bank) First State Bank of the Oaks .92% +20%
Savings and loans
Assets Net income Return on assets Valley Federal $2,670.4 million $17.0 million .65% Republic Federal $843.4 million $11.4 million 1.35% Investment Savings* $288.7 million $842,000 .37% Encino Savings $180.9 million $1.2 million .69% Unified Savings** $102.9 million -$1.3 million 0%
Change in earnings Valley Federal +64% Republic Federal NA Investment Savings* -35% Encino Savings +8% Unified Savings** NA
* Figures for nine months ended Dec. 31 ** Figures for nine months ended Sept. 30