Solid Profits Cheer Bankers : Earnings: Some see better times coming after a lengthy recession and earthquake losses. All but one institution post improved results for the quarter.

After spending the early ‘90s holding on for dear life, local bankers could finally take a moment to wipe their brows in the quarter that ended March 31.

Having survived deep losses inflicted by Southern California’s recession and the economic havoc from last year’s Northridge earthquake, eight of the largest banks and savings and loans based in the San Fernando Valley area and Ventura County reported solid profits in the first quarter. Their confidence recovering, a few bankers professed to see economic daylight.

“It appears the tail end of the lingering recession is finally approaching,” said Frank Ures, chief executive of American Pacific State Bank in Sherman Oaks.

“We see a gradual improvement in the economy,” said David Hender, chief executive officer of TransWorld Bancorp, just across Ventura Boulevard from American Pacific.

Four local banks reported higher profits in the first quarter than in the same three-month period a year earlier, and a fifth, Ventura County National Bank, reversed a year-earlier loss. Meanwhile, two large local savings and loans--Glendale Federal Bank and Great Western Financial Corp.--reported quarterly profits exceeding $40 million, and a third S&L;, Fidelity Federal Bank, posted its first profit in two years.

Glendale-based Fidelity, which was on the verge of collapse before undergoing a recapitalization last year, reported losses of $128 million in 1994 and $66 million in 1993. But in the first quarter this year, the company posted a profit of $1.05 million, compared to a loss of $14.2 million in the same quarter a year ago.

Much of the first-quarter profit was due to a one-time gain of $4.3 million on the sale of part of Fidelity’s loan servicing portfolio. But the S&L; also benefited from improvement in the quality of its assets. Delinquent loans, foreclosed properties and other non-performing assets represented 2.5% of Fidelity’s asset base as of March 31, compared to 6.87% a year earlier.

Despite Fidelity’s progress, the Office of Thrift Supervision, a federal agency that oversees S&Ls;, apparently found some trouble spots in its year-end review of Fidelity. The S&L; said it will probably be required to sign an agreement with the agency specifying deadlines for Fidelity to achieve certain capital and asset-quality goals.

Mark Mason, chief financial officer of Fidelity, said that the details of the agreement have not been worked out but that the agency’s action is “reflective of some residual asset-quality issues.” Over 70% of Fidelity’s outstanding loans are on apartment buildings and other multifamily dwellings, and the recession “has not been kind to rental or occupancy rates,” Mason said.

Like their borrowers, banking institutions pay interest on money too, and in an effort to widen profit margins by reducing its cost of funds, Fidelity launched a major campaign this year to attract deposits in accounts that pay relatively low interest rates, Mason said.

In one newspaper ad, Fidelity touts a 3% interest rate it offers on checking accounts. That’s more than many competitors pay, but compared to higher rates customers now expect on certificate of deposit and other fixed-term accounts, “that 3% is still relatively cheap money for us,” Mason said.

Glendale Federal Bank, also based in Glendale, reported earnings of $40.9 million in the latest quarter, contrasted with a $144-million loss a year earlier. The recent profit reflected a one-time gain of $29.7 million on the sale of Glendale’s University Savings Bank subsidiary.

Glendale’s fiscal year begins in July, and the S&L;’s year-to-date earnings totaled $63 million, compared to a net loss of $204 million in the same nine-month period last year. Total assets stood at $15.6 billion as of March 31, down 10% from $17.3 billion a year earlier. Non-performing assets had dropped to 2.58% at the end of the first quarter, down from 5% a year earlier.

Officials at Glendale said the S&L; has seen early returns on a recent advertising blitz that playfully touts Glendale’s commitment to customer service while portraying competitors as hostile institutions that do all they can to dodge customers. Glendale said the ads were a key factor in gaining $730 million in deposits during the latest quarter.

Great Western Financial Corp., the nation’s second-largest S&L;, posted a first-quarter profit of $43.5 million, down 12% from $49.5 million a year earlier. Great Western said rising interest rates led to narrower profit margins, at least temporarily, because the S&L; had to raise rates on deposits before it could ratchet up rates charged on many loans.

But the Chatsworth-based company reported $2.5 billion in new real estate loan volume in the first quarter, compared to $1.7 billion in the first quarter of 1994. That helped Great Western build its asset base to $43.6 billion by March 31, up 17% from $37.4 billion a year earlier.

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Among the large local banks, TransWorld Bancorp reported the biggest earnings gains of the first quarter. The Sherman Oaks-based parent of TransWorld Bank reported a quarterly profit of $980,000, more than triple the earnings of $268,000 a year earlier.

Hender, chief executive of TransWorld for the past 24 years, said that last year’s earnings were hurt by a $300,000 charge for earthquake repairs but that much of the gains in the latest quarter were the result of the bank’s ability to control its cost of funds while interest rates on loans have soared. Hender said about 40% of the bank’s deposits are in checking accounts that pay no interest.

TransWorld also reported an 11% gain in total assets to $376 million as of March 31, compared to $338 million a year earlier. Meanwhile, non-performing assets dropped to 0.55% of total assets, down from 1.08% a year ago.

Hender also said the bank has seen increased demand for business loans, especially from small manufacturing companies and professional firms such as lawyers’ and doctors’ offices. Rising confidence in the economy “is being translated into businesses making improvements,” Hender said.

American Pacific State Bank reported a profit of $577,000 in the first quarter, up 10% from $524,000 a year earlier. But American Pacific officials acknowledged the bank’s profits have been pinched by recent changes in the federal Small Business Administration lending program.

On Jan. 1, the SBA imposed a $500,000 limit on the size of loans backed by its loan-guarantee program. That change has hurt American Pacific, one of the largest SBA lenders in the state, to the tune of about $50,000 in quarterly profits, said Tamara Gurney, chief administrative officer at the bank.

In the first quarter, American Pacific funded nine SBA loans totaling just $1.3 million, Gurney said. In contrast, the bank funded six loans for $4.3 million in the same quarter last year, including four that were over the since-imposed $500,000 cap.

“Those larger loans are more profitable because it’s just as much work to fund a $1 million credit as a $100,000 credit,” Gurney said.

Ventura County National Bancorp, the Oxnard-based parent of Ventura County National Bank and Frontier Bank, reported a profit of $273,000 in the first quarter, compared to a loss of $114,000 in the same quarter a year earlier. Much of that rebound was due to a cost-cutting campaign that slashed non-interest expenses by $566,000 in the first quarter, compared to the same quarter in 1994.

The largest saving came from the elimination of the bank’s mortgage and credit card departments last year, a move that yielded $381,000 in reduced payroll in the first quarter, said Simone Lagomarsino, chief financial officer at Ventura County National Bank. Lagomarsino also said the bank is beginning to attract deposits from former customers of the Bank of A. Levy, a century-old Ventura-based bank that was sold in the first quarter to First Interstate Bancorp.

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Ventura County National Bancorp reported total assets of $254 million, down 20% from $317 million a year earlier, as the bank continued to unload problem assets. But the percentage of non-performing assets remained high at 5.33% as of March 31.

“Are we happy with that? Absolutely not,” said Lagomarsino, who signaled that the bank will continue to prune away problem loans.

CU Bancorp, the Encino-based parent of California United bank, reported earnings of $710,000 in the first quarter, up 23% from the same period a year earlier. Assets totaled $317 million as of March 31, up 4% from $304 million a year earlier.

Valencia National Bank, a three-branch bank based in Santa Clarita, reported earnings of $117,154 in the first quarter, compared to a profit of $51,766 in the first quarter of 1994. The bank’s assets totaled $77.1 million as of March 31, up 1% from $76.4 million a year earlier. Non-performing assets were 1.04% of total assets at the end of the latest quarter.

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First-Quarter Report From the Region’s Largest Financial Institutions

For the quarter that ended March 31:

Assets March 31 Change from Profit Change from Banks (millions) year ago (Loss) year ago American Pacific $280.0 +16% $577,000 +10% State Bank CU Bancorp $316.8 +4% $710,000 +23% (parent of California United Bank) TransWorld $375.9 +11% $980,000 +266% Bancorp (parent of TransWorld Bank) Valencia $77.1 +1% $117,154 +126% National Bank Ventura Co. $253.5 -20% $273,000 NA National Bancorp (parent of Ventura County National Bank and Frontier Bank) Savings & Loans Fidelity Federal $3,680.9 -11% $1.05 million NA Bank Glendale Federal $15,610.1 -10% $40.9 million NA Bank * Great Western $43,605.5 +17% $43.5 million -12% Financial Corp. $43,605.5 +17% $43.5 million -12% (parent of Great Western Bank)

Return on average Banks assets American Pacific 0.84% State Bank CU Bancorp 0.95% (parent of California United Bank) TransWorld 1.08% Bancorp (parent of TransWorld Bank) Valencia 0.60% National Bank Ventura Co. 0.44% National Bancorp (parent of Ventura County National Bank and Frontier Bank) Savings & Loans Fidelity Federal 0.11% Bank Glendale Federal 1.04% Bank * Great Western 0.41% Financial Corp. 0.41% (parent of Great Western Bank)

* Fiscal third quarter ended March 31

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