Banks, S&Ls; Benefit From Falling Rates : Financial institutions: Thrifts report much better results compared with the same period in 1989.

TIMES STAFF WRITER

Most major banks and savings and loans in the area stretching from Ventura to Glendale reported higher profits than a year ago in the quarter that ended June 30, thanks to falling interest rates that favored both types of institutions.

It was the second quarter of dramatically better results for the area's thrifts, which had slumped in 1988 and 1989. Meanwhile, the three-month period marked the continuation of a stretch of prosperity for most banks, although some banks' earnings grew more slowly this quarter than they had in the last few quarters.

Banks and S&Ls; could credit their performances to interest rates and their effect on how the institutions "buy" money by attracting deposits and "sell" it by making loans.

Banks are more able to cope with changing rates because the loans they make adjust quickly to the interest rates they must pay on deposits.

Thrifts, on the other hand, loan most of their money in the form of adjustable-rate mortgages (ARMs), which change slowly with the S&Ls;' costs of attracting and keeping deposits. Thus, when market interest rates rise, S&Ls; must also pay higher rates on their deposits--but it is often weeks or months before they can charge higher interest rates on the ARMs. In the meantime, their profits suffer.

Such was the case a year ago for most savings and loans as market interest rates climbed until the middle of the year. But for the most part rates have been falling lately, granting the thrifts some badly needed relief.

A good example is Glenfed, parent of Glendale Federal Bank, the largest financial institution based in the region. Compared to a year ago, when Glenfed earned $29.2 million in the period that ended June 30 (Glenfed's fiscal fourth quarter), the thrift's net income fell 16% to $24.4 million.

But the fall was attributable to inflated earnings by Glenfed a year ago due to a one-time $23-million gain from the sale of foreclosed land. Glenfed's net earnings from continuing operations--excluding the land sale--actually grew 26%.

The key to the improvement was falling rates. "A lot of our loans were repricing downward, but fortunately, our cost of funds was going down faster," said David T. Hansen, chief financial officer of Glendale Federal Bank.

The same conditions favored banks as well. APSB Bancorp, Sherman Oaks parent of American Pacific State Bank, saw second quarter net income jump 25% from a year earlier to $451,000. The bank's assets grew 14% from a year ago to $198 million on June 30.

And APSB did well in another measure of bank performance--return on average assets, which is calculated by multiplying a bank's quarterly earnings by four to arrive at an annual figure, then dividing by the average level of assets during the period to arrive at the rate of return. A return on average assets of about 1% is considered quite good, and APSB's ROA for the period was 0.94%.

That was a good performance for the bank, but not an unusual one--"just kind of a yawner," according to Frank J. Ures Jr., APSB's chief executive. "My board says: 'Frank, keep it boring.' "

With interest rates falling during the period, Ures said, "I was concerned that, if interest rates on loans started to drop too quickly, they would reprice quicker than I could reprice my savings accounts and CDs." But that didn't happen.

The area's largest bank, Independence Bank in Encino, reported a net income of $1.3 million for the second quarter, compared to a loss a year ago. The bank's assets increased 14% from a year ago to $718.3 million on June 30. Independence's return on average assets for the period was 0.71%.

Levy Bancorp, the Ventura-based parent of Bank of A. Levy, said its profits climbed 32% from a year earlier to $1.9 million for the three months ended June 30, while its assets grew 9% to $615 million as of June 30. The bank reported for the second quarter a very healthy return on average assets of 1.26%.

CU Bancorp--which recently changed its name from Lincoln Bancorp, while its subsidiary changed its name from Lincoln National Bank to California United Bank--reported that its net income for the second quarter increased 13%, compared to the year-earlier period, to $1.8 million. Even while CU Bancorp's assets grew 35% in one year to $532.7 million as of June 30, CU racked up an impressive 1.56% return on average assets.

Bolstered by its acquisition of Frontier Bank, Ventura County National Bancorp, which is also the parent of Ventura County National Bank, earned $814,000 in the second quarter, 29% more than a year ago. The bank's assets swelled 72% to $410 million as of June 30. Ventura County National Bancorp's quarterly return on average assets was 0.86%.

TransWorld Bancorp, the Sherman Oaks parent of TransWorld Bank, saw its profits increase 13% to $601,000 in the second quarter that ended June 30, resulting in a strong return on average assets of 1.13%. The bank had assets on June 30 of $219.1 million, 9% more than a year before.

Citadel Holding, the Glendale parent of Fidelity Federal Bank, said that its net income for the second quarter was $6.8 million, marking a substantial 79% increase from the same period in 1989. Citadel's assets rose a modest 5% to $5.1 billion, and it reported a return on average assets of 0.54%.

Valley Federal Savings, which is operating under the terms of a strict agreement with the federal Office of Thrift Supervision because its capital reserves do not meet federal standards, had a very strong showing in the three-month period.

After losing $2.6 million in the second quarter of 1989, Valley Federal reported a $6.3-million profit in the second quarter of 1990. Valley Federal had a return on average assets of 0.86%, which is very respectable for a thrift. Meanwhile, in accordance with the plan, the thrift's assets dropped 15% compared to a year ago to $2.9 billion as of June 30.

SECOND QUARTER REPORT FROM THE REGION'S LARGEST FINANCIAL INSTITUTIONS

Change Change Assets from from June 30 Year Profit Year Banks (millions) ago (Loss) ago Independence Bank $718.3 +14% $1.3 million NA Levy Bancorp $615 +9% $1.9 million +32% (parent of Bank of A. Levy) CU Bancorp $532.7 +35% $1.8 million +13% (parent of California United Bank) Ventura Co. National Bancorp $410 +72% $814,000 +29% (parent of Ventura County National Bank and Frontier Bank) TransWorld Bancorp $219.1 +9% $601,000 +13% (parent of TransWorld Bank) APSB Bancorp $198 +14% $451,000 +25% (parent of American Pacific State Bank) Savings & Loans Glenfed* $25,454.4 -1% $24.4 million -16% (parent of Glendale Federal Bank) Citadel Holding $5,100.7 +5% $6.8 million +79% (parent of Fidelity Federal Bank) Valley Federal $2,851.2 -15% $6.3 million NA

Return on Average Banks Assets Independence Bank 0.71% Levy Bancorp 1.26% (parent of Bank of A. Levy) CU Bancorp 1.56% (parent of California United Bank) Ventura Co. National Bancorp 0.86% (parent of Ventura County National Bank and Frontier Bank) TransWorld Bancorp 1.13% (parent of TransWorld Bank) APSB Bancorp 0.94% (parent of American Pacific State Bank) Savings & Loans Glenfed* 0.38% (parent of Glendale Federal Bank) Citadel Holding 0.54% (parent of Fidelity Federal Bank) Valley Federal 0.86%

* Fiscal 4th quarter ended June 30

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

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