Banks, S&Ls; Report Mixed Results

What a difference three months does not make, at least for the San Fernando Valley’s biggest financial institutions.

After posting mixed results in the second quarter this year, the area’s major banks and savings and loan associations repeated the performance during the three months ended Sept. 30.

Six of the 10 institutions, which have at least $100 million in assets and maintain their headquarters in the Valley, announced higher earnings relative to a year ago. Two had lower net income and two others suffered losses.

While a majority announced higher earnings, most of the institutions reported lower returns on average assets (ROA) than in the third quarter of 1986.

A bank’s ROA is closely watched by industry analysts because it indicates how much a bank or S&L; is able to earn with the assets at its disposal. The figure is calculated by dividing the institution’s quarterly profit by its average assets in the quarter, then multiplying that number by four to produce an annualized rate of return.

An ROA of 1% or more is considered excellent, but none of the major Valley institutions managed that feat in the quarter ended Sept. 30.

Although explanations varied for the mixed showing, in many cases, the institutions’ results were due to how well they coped with the rise in interest rates during the quarter.

Between June 30 and Sept. 30, the banks’ prime lending rate rose to 8.75% from 8.25%, and the yield on 30-year Treasury bonds climbed to 9.75% from 8.5%. Also, local rates on conventional 30-year, fixed-rate mortgages rose to between 10% and 11.75%, compared to a range of 9.75% to 10.75% in the second quarter.

That created problems for First State Bank of the Oaks in Thousand Oaks. As rates rose, demand for home mortgages from the bank dried up, leaving it with a 12% drop in third-quarter profit to $234,837 from $266,105 a year ago. Its ROA dropped from 0.95% to 0.74%.

“With the high rates, people just held back” applying for mortgages, said Les Mosley, chief operating officer. Residential mortgages account for 15% of the bank’s total loans outstanding, Mosley said, and the drop in demand was enough to push earnings lower.

But the climb in lending charges was not a problem for Lincoln Bancorp, the Encino-based parent of fast-growing Lincoln National Bank.

Alton Cogert, Lincoln’s chief financial officer, said 95% of the bank’s $126 million in loans outstanding are to businesses, and most of the loans carry interest rates that fluctuate with money-market rates.

As rates rose in the third quarter, so did Lincoln’s income. The bank’s net interest income, which is roughly the interest it earns minus the interest it pays on deposits, soared 62% from a year ago to $3.4 million from $2.1 million.

Lincoln’s overall profit doubled from a year ago to $592,470 from $295,894, and the bank’s ROA jumped from 0.71% to 0.93%.

But it was Santa Clarita National Bank in Valencia, with a return of 0.98%, that continued its recent streak of having the highest ROA among the local institutions. The bank had consistently posted an ROA of 1% or higher in the preceding quarters, but its return dipped below 1% in the latest quarter as its net income edged up only 1% to $494,000 from $488,000 a year ago.

The only other major bank to post improved third-quarter earnings was TransWorld Bancorp in Van Nuys, whose profit rose 10% to $317,000 from $287,000. Its ROA inched up to 0.77% from 0.76%.

The only bank to post a loss in the third quarter was privately held Independence Bank in Encino, which reported a $109,000 loss against year-earlier profit of $383,000. Independence is the largest commercial bank in the Valley with $388 million in assets.

APSB Bancorp, the North Hollywood-based parent of American Pacific State Bank, said earnings dipped 8% to $284,635 from $310,074, and its ROA fell to 0.82% from 0.93%. APSB said the profit decline was due to $300,000 less in special fee income compared to a year ago. Last year when interest rates were falling, APSB sold off a package of its small business loans. Now that interest rates are rising, APSB is holding on to more of its loans.

As for the S&Ls;, area leader Valley Federal in Van Nuys--with $3.1 billion in assets--continued its recent streak of steady profit gains. That performance apparently has not been lost on Citadel Holding Corp., the Glendale-based parent of Fidelity Federal Savings & Loan. Last week, Citadel announced it would try to acquire Valley Federal.

Valley Federal said it was withholding comment until its advisers reviewed the bid. But in the mean time, the S&L; replaced Donald C. Headlund as president and chief executive with a four-member office of the chief executive.

Valley Federal has been considered a takeover candidate for the past year and, in August, the S&L; arranged to sell 15% of its stock to Fisher Bros., a New York investment group, as a protective step against unwelcome suitors. However, Valley Federal said Friday that Fisher Bros. is reassessing its agreement to buy the stock.

In the third quarter, Valley Federal’s net income rose 14% to $5 million from $4.4 million. Its ROA, however, slipped to 0.65% from 0.67% a year ago.

Jack Allewaert, Valley Federal’s chief financial officer, said the S&L; continued to benefit from a record pace of new loans, which totaled $659 million in the quarter compared with $401 million a year ago.

Most of the new loans were adjustable-rate mortgages for single-family homes, he said. “That produced for us record loan origination fees” of $8.2 million, he said, up from $6.5 million in the third quarter last year.

Allewaert said Valley Federal’s return on assets should continue to improve as the rates on its adjustable-rate mortgages, which have low “teaser” rates for the first year, are later ratcheted up to match money-market rates. About $600 million, or 22%, of Valley Federal’s $2.75 billion in loans outstanding are mortgages still in their first-year “teaser” period, he said.

Encino Savings, meanwhile, rebounded in the third quarter with a $172,000 profit, equal to an ROA of 0.35%, compared with a $15,000 loss in the second quarter and a $17,000 loss a year ago.

Eugene Cazier, Encino’s chief financial officer, said the S&L; benefited from having increased assets--$203 million compared with $192 million June 30--while holding its costs steady. Also, Encino had a $9,000 gain on the sale of securities in the latest quarter versus an $89,000 loss from investments in the second quarter.

As for the other two big S&Ls; in the Valley, Investment Savings in Woodland Hills lost $393,000 in the third quarter, against a $239,000 profit a year ago.

Republic Federal, also based in Woodland Hills and a unit of Weyerhaeuser Co., the Tacoma, Wash.-based forest products concern, enjoyed a surge in net income to $1.8 million from $463,000, and its ROA in the latest quarter was 0.72%. The higher earnings largely reflected a $1.3-million gain from the sale of real estate.

THIRD 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 Sept. 30 (loss) Independence Bank $388.0 million ($109,000) Lincoln Bancorp $280.8 million $592,470 (parent of Lincoln National Bank) Santa Clarita National $203.3 million $494,000 TransWorld Bancorp $165.9 million $317,000 (parent of TransWorld Bank) APSB Bancorp $142.3 million $284,635 (parent of American Pacific State Bank) First State Bank of the Oaks $124.4 million $234,837

Banks Return Change on assets in earnings Independence Bank 0% NA Lincoln Bancorp .93% +100% (parent of Lincoln National Bank) Santa Clarita National .98% +1% TransWorld Bancorp .77% +10% (parent of TransWorld Bank) APSB Bancorp .82% -8% (parent of American Pacific State Bank) First State Bank of the Oaks .74% -12%

Savings and loans Assets Net income Return (loss) on assets Valley Federal $3,126.6 million $5.0 million .65% Republic Federal $1,184.0 million $1.8 million .72% Investment Savings* $273.2 million ($393,000) 0% Encino Savings $203.2 million $172,000 .35%

Savings and loans Change in earnings Valley Federal +14% Republic Federal 292% Investment Savings* NA Encino Savings NA

NA: Not applicable due to current or year-earlier losses

* Figures for 2nd Quarter ended Sept. 30.