Valley Banks’ Earnings Sluggish in 1st Quarter
In the first quarter, Citicorp, the nation’s largest bank, had to wrestle with the problem of bad loans from Brazil and ended up taking a $2.5-billion loss. In the San Fernando Valley area, local banks dealt with more indigenous problems, such as taking a $105,000 loss on a foreclosed beachfront home and trying to out-hustle the Big Three auto makers in order to grab more car loans.
Those were some of the problems endured by the Valley’s largest financial institutions--those with assets of $100 million or more--that led to special charges against earnings. For the most part, local earnings were lackluster, especially when contrasted with healthy performances throughout last year because of low interest rates and a strong economy.
One analyst suggested that the recent, unspectacular results will continue. “It’s going to be hard to match the good performances we have seen,” said Sal Sarrantino, president of California Research Corp., a Santa Monica firm that monitors financial institutions. “Low interest rate cycles are good for earnings. Now that they are moving up, the margins are being squeezed.”
One of the exceptions was Santa Clarita National Bank, which reported a 44% rise in first-quarter earnings, to $586,000. Based in the fast-growing area of Valencia north of the San Fernando Valley, the bank, which specializes in lending to smaller businesses, continued to be one of the area’s strongest performers. Santa Clarita’s first-quarter return on assets was 1.2%. A figure of more than 1% is considered a superior banking performance.
Lincoln Bancorp, parent of Lincoln National Bank, reported that its earnings rose 25%, to $308,144, in the first quarter. Alton Cogert, Lincoln’s chief financial officer, attributed the rise to increased lending activity.
The Encino-based bank did reduce its loan-loss reserves--money put aside for potential losses on loans--in the quarter by 53%, to $180,000 from $380,000 a year earlier. But, Cogert noted, those gains were offset almost entirely by a 75% decrease from the previous year in profits on the sale of government and agency bonds--from $226,000 to $56,000.
TransWorld Bancorp in Sherman Oaks reported that its quarterly earnings grew 4%, to $221,000, from a year earlier. Assets for the holding company, the parent of TransWorld Bank, also increased 4% from a year earlier, to $157.7 million on March 31.
Independence Bank in Encino, with $333 million in assets, is the largest bank with headquarters in the Valley. It reported that earnings fell 11% from a year earlier, to $369,000, in the quarter. Morton R. Michaels, the bank’s president, said the bank reported sizable gains from securities sales last year.
Independence Bank increased its loan-loss reserves to $420,000 from $90,000 a year earlier, which Michaels said was done in anticipation of rapid growth this year.
Net Income Declines 16%
First State Bank of the Oaks in Thousand Oaks, which has been one of the area’s fastest-growing banks because of its presence in the growing Conejo Valley, saw its net income decline 16%, to $262,385. President Fred Raio cited a softening of loan demand, a condition banks nationwide faced in the first quarter.
Car loans in particular, he said, have declined because of competition from financing units of the major U. S. auto makers. First State’s car loans dropped nearly 25%, to $13 million, from a year earlier.
APSB Bancorp, the North Hollywood-based parent of American Pacific State Bank, reported that its earnings fell 16%, to $209,388. President Frank Ures said insurance costs were up by $30,000, and there was a $105,000 write-off on the sale of a Huntington Beach home that was in foreclosure.
Valley State Bank, an Encino-based institution plagued by various problems such as a $600,000 embezzlement last winter, has agreed to be acquired by Capital Bank of California in a stock transaction that probably won’t exceed $3 million.
Capital is a subsidiary of Miami-based Capital Bancorp. Valley State Bank had $94.5 million in assets on March 31.
Among the area’s savings and loans, Valley Federal Savings reported that its earnings climbed 21% in the quarter, to $4.3 million. The Van Nuys-based savings and loan, with $2.6 billion in assets, is the largest financial institution with headquarters in the Valley. It benefited from lower interest rates and the success of its mortgage-banking subsidiary.
Republic Savings, which moved to Woodland Hills from Altadena last year and was acquired by Weyerhaeuser Real Estate in 1985, reported that its net income fell 54% in the quarter, to $5.9 million.
Nevertheless, the latest quarterly profit gives Republic an unusually high return on assets of 2.7%, thanks in part to Republic’s $8.8 million in pretax gains from the sale of securities in the quarter, and $460,000 in pretax income from operations.
Unusual Charges
Encino Savings & Loan, based in Van Nuys, reported that its earnings fell 78% in the first quarter, to $49,000. Encino Savings had two unusual charges--$76,000 was written off for a commitment fee paid to Federal Home Loan Mortgage Corp., and there was a $100,000 loss on futures contracts on 30-year treasury bonds.
Unified Savings in Northridge, which was seized by federal regulators in October, has not filed first-quarter results.
Investment Savings & Loan in Woodland Hills reported that its results for the fourth quarter ended March 31 will not be available until early next month.
FIRST QUARTER REPORT FROM THE VALLEY’S LARGEST FINANCIAL INSTITUTIONS
Listings are for financial institutions in the Valley with assets of at least $100 million.
Banks
Assets Net income (loss) Independence Bank $332.7 million $369,000 Lincoln Bancorp $196.7 million $308,144 (parent of Lincoln National Bank) Santa Clarita National $193.9 million $586,000 TransWorld Bancorp $157.7 million $221,000 (parent of TransWorld Bank) APSB Bancorp $141.2 million $209,388 (parent of American Pacific State Bank) First State Bank of the Oaks $131.5 million $262,385
Return Change on assets in earnings Independence Bank .46% -11% Lincoln Bancorp .67% +25% (parent of Lincoln National Bank) Santa Clarita National 1.2% +44% TransWorld Bancorp .56% +4% (parent of TransWorld Bank) APSB Bancorp .59% -16% (parent of American Pacific State Bank) First State Bank of the Oaks .80% -16%
Savings and loans
Assets Net income Return on assets Valley Federal $2,607.9 million $4.3 million .65% Republic Federal $927.5 million $5.9 million 2.7% Encino Savings $182.0 million $49,000 .11% Investment Savings NA NA NA
Change in earnings Valley Federal +21% Republic Federal -54% Encino Savings -78% Investment Savings NA
NA= Not Available
