Most Regional Banks Report Earnings Gains in 4th Quarter : Results: Five of the area’s nine largest institutions post modestly higher profits at the end of 1990, and Valley Federal rebounds. Glenfed shows a huge loss.

Most of the major banks and thrifts in the San Fernando Valley and surrounding regions posted modestly higher profits in the fourth quarter of 1990, aided by a gradual decline in money-market interest rates.

Five of the area’s nine largest financial institutions, as ranked by their assets, reported higher earnings. A sixth, Valley Federal Savings & Loan, rebounded from recent losses by earning $4.2 million in the three months that ended Dec. 31.

But the region’s biggest thrift, Glenfed Inc., incurred a whopping $140.8-million quarterly loss because of problem real estate loans and a corporate restructuring. The largest bank, Independence Bank, suffered a quarterly loss of $2.5 million, and CU Bancorp posted a 28% decline in its fourth-quarter earnings.

The institutions’ performance in the quarter rested in large part on how much they had to write off bad loans or cushion their reserves against loans that might go bad. Because the economy in general--and the real estate market in particular--was soft during the fourth quarter, several banks and thrifts felt it necessary to add significantly to their loan-loss reserves.

For instance, CU Bancorp, the Encino-based parent of California United Bank, added $1.45 million to its loan-loss reserves during the quarter, compared with adding only $600,000 a year earlier, which dragged down its latest net income to $1.28 million from $1.77 million a year earlier. For all of 1990, CU’s profit slipped 6% to $5.86 million from $6.25 million.

CU President John J. Keating termed CU’s current bad loans as relatively modest. “Given the prevailing uncertainty in the national and regional economy, however, we deemed it prudent to strengthen reserves,” he said.

CU has enjoyed one of the highest returns on average assets among the region’s financial institutions. The ROA, calculated by dividing a bank’s profit by its average assets during the quarter, is a key indicator of how profitably a bank employs the assets at its disposal.

Because of its earnings slide, CU’s ROA dropped in the latest quarter to 1.16% from 1.70% a year earlier. However, a return above 1% is still considered a strong showing for a commercial bank.

The bank with the highest ROA in the region was American Pacific State Bank, which posted a return of 1.27% in the fourth quarter. American Pacific, a relatively small bank based in Sherman Oaks that specializes in Small Business Administration loans, said the drop in market interest rates led to a 17% rise in its net income, to $654,000 from $558,000. For all of 1990, American Pacific’s profit was $2.11 million, up 22% from $1.73 million in 1989.

Banks, of course, earn a profit on the spread between what they pay for deposits and cash acquired in the money markets, and the interest that they charge for lending those funds, a spread known as the “net interest margin.” As money-market rates fell during the fourth quarter, the banks left their lending rates unchanged for as long as possible, thus fattening their margins slightly.

For instance, rates on three-month Treasury bills fell to about 6.5% by Dec. 31 from 7.3% on Sept. 30, and the rate on federal funds--excess reserves that banks lend each other overnight--dropped to about 7.3% from 8.3%.

Eventually, however, the banks were forced by competitive need to cut their lending charges, namely their prime, or base, interest rate. Most banks’ prime rates stood between 9.5% and 10% as of Dec. 31, down half a point or more from three months earlier. And that squeezed some banks’ profit margins.

“Most of our loans are tied to the prime rate,” said American Pacific President Frank J. Ures Jr. “And when the prime drops, I’m scrambling.”

Or consider Ventura County National Bancorp, the Oxnard-based parent of Ventura County National Bank. Despite a lower cost of funds in the fourth quarter, it was forced to drop its lending rates as well to the point where its $4.2-million net interest income was virtually flat compared with a year earlier.

Still, “we had the relief we needed from market interest rates,” said Ventura County National President William E. McAleer.

Ventura County National’s earnings also were hurt by costs related to its recent acquisition of two smaller banks. So its fourth-quarter profit edged up only 2%, to $709,000 from $698,000, while its full-year earnings rose 28% to $3.6 million from $2.8 million.

Independence Bank in Encino, with assets of $678 million at year’s end, said its fourth-quarter loss compared with a loss of $800,000 a year earlier. For all of 1990, the privately held bank said it earned a mere $94,000, compared with a $3.8-million loss in 1989.

Levy Bancorp in Ventura, which owns Bank of A. Levy, said its fourth-quarter profit rose 12% from a year earlier to $1.9 million from $1.7 million. For all of last year, Levy’s earnings climbed 21%, to $7.4 million from $6.1 million, producing a return on average assets last year of 1.19%.

TransWorld Bancorp, the Sherman Oaks-based holding company for TransWorld Bank, said its fourth-quarter profit rose 3%, to $570,000 from $551,000, while its full-year earnings advanced 13%, to $2.4 million from $2.1 million.

Glenfed, the parent of Glendale Federal Bank with $24.4 billion in assets, suffered its loss in its fiscal second quarter that ended Dec. 31 when it dramatically boosted its reserves--by $153 million--to cover potential losses from bad loans. Glenfed also is paring its business to focus on the traditional S&L; basics of taking retail deposits and making home loans.

The loss compared with Glenfed’s profit of $39.9 million in the year-earlier quarter, and left Glenfed with a $121.6-million loss for the first half of its fiscal year, compared with year-earlier profit of $52.4 million.

Citadel Holding Corp., the Glendale-based holding company for Fidelity Federal Bank, cited the decline in market interest rates for its 22% gain in fourth-quarter profit, to $4.35 million from $3.61 million. But the latest earnings still produced a lackluster 0.31% return on assets for Citadel. For all of 1990, Citadel’s earnings nearly tripled to $23.3 million from $8.14 million the previous year.

And Valley Federal Savings, a Van Nuys-based thrift, said its $4.2-million fourth-quarter profit compared with a year-earlier loss of $64.7 million. Valley Federal earned $25.7 million for all of last year, a record profit for the company that produced a strong ROA of 0.90%. In 1989, the thrift lost $137.7 million.

Despite the earnings rebound, Valley Federal remains technically insolvent after years of massive losses, and it still must come up with about $166 million in additional capital before June 30 or risk a government takeover. The capital is needed to shore up Valley Federal’s financial cushion against future problem loans.

FOURTH QUARTER REPORT FROM THE REGION’S LARGEST FINANCIAL INSTITUTIONS

Assets Change Dec. 31 from BANK (millions) Year ago Independence Bank $678.1 + 7% Levy Bancorp $648.9 +7% (parent of Bank of A. Levy) CU Bancorp $476.3 -5% (parent of California United Bank) Ventura Co. Natl. Bancorp $384.4 +22% (parent of Ventura County National Bank and Frontier Bank) TransWorld Bancorp $223.7 +5% (parent of TransWorld Bank) Amer. Pacific State Bank $209.8 +10% SAVINGS & LOAN Glenfed* $24,403.9 -3% (parent of Glendale Federal Bank) Citadel Holding Corp. $5,697.7 +14% (parent of Fidelity Federal Bank) Valley Federal $2,688.1 -12%

Return on Profit Change from Average BANK (Loss) Year ago Assets Independence Bank ($2.5 million) NA NA Levy Bancorp $1.9 million +12% 1.05% (parent of Bank of A. Levy) CU Bancorp $1.3 million -28% 1.16% (parent of California United Bank) Ventura Co. Natl. Bancorp $709,000 +2% 0.75% (parent of Ventura County National Bank and Frontier Bank) TransWorld Bancorp $570,000 +3% 1.02% (parent of TransWorld Bank) Amer. Pacific State Bank $654,000 +17% 1.27% SAVINGS & LOAN Glenfed* ($140.8 million) NA NA (parent of Glendale Federal Bank) Citadel Holding Corp. $4.4 million +22% 0.31% (parent of Fidelity Federal Bank) Valley Federal $4.2 million NA 0.62%

* Fiscal 2nd quarter ended Dec. 31

FULL YEAR 1990 REPORT FROM THE REGION’S LARGEST FINANCIAL INSTITUTIONS

Change Return on Profit from Average BANK (Loss) Year ago Assets Independence Bank $94,000 NA 0.01% Levy Bancorp $7.4 million +21% 1.19% CU Bancorp $5.9 million -6% 1.31% Ventura Co. Natl. Bancorp $3.6 million +28% 1.09% TransWorld Bancorp $2.4 million +13% 1.10% Amer. Pacific State Bank $2.1 million +22% 1.07% SAVINGS & LOAN Glenfed* ($121.6 million) NA NA Citadel Holding $23.3 million +186% 0.44% Valley Federal $25.7 million NA 0.90%

* First six months of fiscal year ended Dec. 31

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