Profits Up at Banks, but Thrifts Slow Up : Finance: 1989 was a year to forget for area savings and loans, with stagnant or sinking profits. But most banks posted gains.

Banks in the region stretching from Glendale to Ventura largely prospered in 1989, but most local savings and loans suffered through a year of poor profits--with one performing so badly that the federal government slapped it with severe restrictions.

Of the seven biggest banks with headquarters in Ventura County or the San Fernando or Santa Clarita valleys, all but one posted impressive double-digit growth in profits for the year, compared to 1988, while all but two matched that growth in the fourth quarter, compared to the year-earlier period.

“It was like we were on a run and couldn’t do any wrong,” said Frank J. Ures Jr., chief executive of APSB Bancorp, the North Hollywood parent of American Pacific State Bank, whose annual profits jumped 29% last year to $1.7 million, while its fourth-quarter profits surged 43% to $568,000.

But last year was one to forget for big thrifts in the area, as Glenfed Inc. and Citadel Holding Corp. showed stagnant or sinking profits in 1989. And then there is struggling Valley Federal Savings & Loan based in Van Nuys. In January the federal government imposed tight controls on Valley Federal because its capital reserves were badly depleted by losses. The government is now reviewing Valley Federal’s plan to boost its capital, but if the plan is turned down, the government might seize the S&L.;

Interest rates overall were higher in 1989 than in 1988, and this accounted for the disparity in performance between banks and savings and loans. Banks and S&Ls; operate very differently in how they buy money, mostly through deposits, and how they turn around and invest it, mostly through loans.

For most S&Ls; their bread and butter remains making adjustable rate mortgages, which have interest rates that rise or fall more slowly than general market interest rates. So when overall interest rates rose in 1989, adjustable mortgage rates lagged behind--leaving many S&Ls; with relatively low revenues from lending money.

By contrast, the commercial loans most banks write have interest rates that adjust quickly to market interest rates, so banks kept a healthy profit margin when rates rose. And since many banks’ deposits include large numbers of checking accounts for businesses--which pay no interest at all--their profits were actually boosted by higher interest rates in 1989.

With one exception--Independence Bank--the region’s seven largest banks performed well last year according to a key banking yardstick, return on average assets, which measures a financial institution’s rate of profit. A return on average assets of 1% is considered excellent, and six of the banks posted ROAs of 1% or more in the fourth quarter and for all of 1989.

The return on average assets for a year is calculated by taking a bank’s annual earnings, then dividing it by the bank’s average assets over the year to get the rate of return.

One bank that has consistently posted a high ROA for several years, Santa Clarita National Bank in Valencia, was rewarded for its efforts last week when Security Pacific Corp. agreed to buy the bank for about $52.5 million in stock.

Santa Clarita posted a 54% increase in its net income to $1.2 million in the fourth quarter, compared to a year before. The bank’s assets, meanwhile, climbed 4% to $258.2 million on Dec. 31, compared to twelve months earlier.

For the full year, Santa Clarita’s net income increased 31% to $4.2 million, and it posted an eye-popping ROA of 1.66% for the year.

The bank has thrived since it was founded 25 years ago by concentrating on loans to small and medium-sized businesses, and by taking advantage of its position as the bank with the largest market share in the fast-growing Santa Clarita Valley.

Levy Bancorp, the Ventura-based parent of Bank of A. Levy, posted a $1.6-million profit in the fourth quarter, a 64% increase from the year-earlier period. The bank’s ROA for the period was 1.11%. Meanwhile, Levy Bancorp’s assets increased 8% to $606.6 million on Dec. 31 compared to a year earlier.

For all of 1989 Levy Bancorp’s net income climbed 41% to $6.1 million compared to 1988. Its ROA for the full year was 1.08%.

Levy Bancorp Chief Executive Marshall Milligan said that as interest rates declined late last year, his bank’s revenues remained fairly high because interest rates on its business loans fell more slowly than the rates it paid on deposits. Milligan also said that Levy has been helped by a booming real estate market in Ventura County.

Lincoln Bancorp, the Encino parent of Lincoln National Bank, saw its profit for the fourth quarter of 1989 climb 23% to $1.8 million, giving the bank an ROA of 1.70%. Lincoln’s assets on Dec. 31 were $501.1 million, a 20% increase from a year before.

For 1989, Lincoln posted net income of $6.3 million, up 49% from 1988, while the bank recorded the highest full-year ROA in our survey with 1.67%.

Lincoln has thrived in part by catering to the so-called middle market, that is, loans to medium-sized businesses that typically must pay a higher rate of interest on loans than do major corporations.

Ventura County National Bank in Ventura, which is the parent company for both Ventura County National Bank and Frontier Bank, saw its fourth-quarter profit climb 8% to $699,000, while its assets of $314.3 million on Dec. 31 marked a 43% rise from a year earlier.

TransWorld Bancorp, the parent of TransWorld Bank in Sherman Oaks, enjoyed a 12% hike in its fourth-quarter profits to $551,000, while its ROA for the quarter was 1.07%. For all of 1989, TransWorld’s profits increased 42% compared to 1988, to $2.1 million. The bank’s ROA in 1989 was a healthy 1.07%.

The only bank in our survey that stumbled was Independence Bank in Encino, which posted a loss of $800,000 in the fourth quarter, due to $3.5 million in writeoffs in the bank’s loan and investment portfolio, and because of a $700,000 increase in the bank’s loan loss reserves. Independence declined to elaborate on its results.

Independence’s assets on Dec. 31 were $639.8 million, up 6% for the year. For 1989 Independence’s profits sank by 78% to $1.1 million, while the bank’s full-year ROA was a miserable 0.17%.

Among local S&Ls;, Glenfed, the parent company of Glendale Federal Bank, turned in the best performance in the last three months of 1989, which is Glenfed’s second quarter. In the period Glenfed’s profits soared 34% to $47 million, compared to a year earlier, giving it an ROA of 0.75%. The S&L;’s assets inched up 1% last year to $25.26 billion on Dec. 31.

For the six months that ended Dec. 31, Glenfed’s net income was virtually unchanged from 1988 at $66.6 million, while its ROA was 0.52%.

Glenfed’s problems were similar to those of the S&L; industry generally: a narrow profit margin between the interest it earned on adjustable rate mortgages and the interest it had to pay on deposits.

Citadel Holding Corp. in Glendale, the parent of Fidelity Federal Savings & Loan, saw its fourth-quarter profits fall 26% to $3.6 million. Citadel attributed some of its sluggish results to $5.3 million it put aside to cover the costs of settling a lawsuit filed against a trust officer in its Citadel Service Corp. subsidiary.

For all of 1989, Citadel’s net income nose-dived by 66% to $8.1 million, compared to a year earlier, while its full-year return on average assets was a mere 0.17%.

Valley Federal Savings & Loan has not yet reported its year-end or fourth-quarter financial results. The S&L; in January was ordered by the federal government to stop making new loans and investments while regulators from the Office of Thrift Supervision reviewed the company’s plan to boost its capital reserves. Those capital reserves were depleted by $155.9 million in writeoffs in November and January, mostly due to a problem-plagued Valley Federal subsidiary that made loans on mobile homes.

Valley Federal’s stock has collapsed from a 52-week high of $12.75 per share to a recent price of about 75 cents. And the S&L; has admitted that it’s in danger of being seized by the federal government if its capital-boosting plan is turned down by government regulators.

QUARTERLY BANKING PROFITS

For the quarter ended Dec. 31

Change Return on Profit From Average BANKS (Loss) Year Ago Assets Independence Bank ($800,000) NA NA Levy Bancorp $1.6 million +64% 1.11% Lincoln Bancorp $1.8 million +23% 1.70% Ventura County National $699,000 +8% 1.01% Santa Clarita Nat’l Bank $1.2 million +54% 1.87%** TransWorld Bancorp $551,000 +12% 1.07% APSB Bancorp $568,000 +43% 1.23% SAVINGS & LOANS Glenfed* $47.0 million +34% 0.75% Citadel Holding $3.6 million -26% 0.29%

* Fiscal 2nd quarter ended Dec. 31

**Times estimate

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

1989 RESULTS FOR THE REGION’S LARGEST FINANCIAL INSTITUTIONS

Assets Profit Return on Dec. 31 Change from (Loss) Change from BANKS (millions) Year ago (millions) Year ago Independence $639.8 +6% $1.1m -78% Bank Levy Bancorp $606.6 +8% $6.1m +41% (parent of Bank of A. Levy) Lincoln Bancorp $501.1 +20% $6.3m +49% (parent of Lincoln National Bank) Ventura County $314.3 +43% $2.8m +34% National (parent of Ventura County National Bank and Frontier Bank) Santa Clarita $258.2 +4% $4.2m +31% Nat’l Bank TransWorld $213.8 +9% $2.1m +42% Bancorp (parent of TransWorld Bank) APSB Bancorp $191.0 +16% $1.7m +29% (parent of American Pacific State Bank) SAVINGS & LOANS Glenfed* $25,258.9 +1% $66.6m +0% (parent of Glendale Federal Bank) Citadel Holding $4,980.6 +7% $8.1m -66% (parent of Fidelity Federal)

Average BANKS Assets Independence 0.17% Bank Levy Bancorp 1.08% (parent of Bank of A. Levy) Lincoln Bancorp 1.67% (parent of Lincoln National Bank) Ventura County 1.20% National (parent of Ventura County National Bank and Frontier Bank) Santa Clarita 1.66% Nat’l Bank TransWorld 1.07% Bancorp (parent of TransWorld Bank) APSB Bancorp 1.00% (parent of American Pacific State Bank) SAVINGS & LOANS Glenfed* 0.52% (parent of Glendale Federal Bank) Citadel Holding 0.17% (parent of Fidelity Federal)

* First six months of fiscal year, ended Dec. 31

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