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Banks, S&Ls Show Signs of Recession Recovery : Banking: Amid restructuring, five of eight largest area institutions tally profits after year-earlier losses.


Banks and savings and loans in the San Fernando Valley area are still nursing financial wounds from the recession and the Northridge earthquake, but third-quarter results indicate the banking industry has moved out of intensive care and into a recovery ward.

"Many banks and thrifts have been hit very hard by the recession," said Richard S. Cupp, chief executive of Ventura County National Bancorp. "But we're all beginning to see the benefits of the plans to correct those problems."

Five of the eight largest institutions in the Valley area posted solid profits after year-earlier losses, and two reported year-to-year earnings gains. Fidelity Federal Bank has not reported its earnings yet, but the third quarter brought major changes to the Glendale-based S&L, which stepped out from under the umbrella of its longtime parent, Citadel Holding Corp.

One improved institution is Glendale Federal Bank. A year ago it was buried under a mountain of bad loans and was on the verge of being seized by federal regulators. "We were all going to lose our jobs," Stephen J. Trafton, chief executive of Glendale Federal, recalled last week in an interview before the S&L's annual shareholder meeting.

But last week the S&L posted its first quarterly profit since December, 1991. It reported earnings of $9.37 million in the September quarter (which is Glendale's Federal's first fiscal quarter), in contrast to a $19.9-million loss reported in the same quarter a year ago.


The results followed a year of major restructuring. In September, 1993, Glendale Federal averted federal seizure with a $451-million recapitalization, and the S&L is now considered "adequately capitalized" by regulators. Then Glendale Federal began selling off delinquent loans, troubled properties and all of its out-of-state operations, cutting non-performing assets from $1.02 billion in February, 1993, to $590 million on Sept. 30.

As a result, Glendale Federal's assets shrank to $16.8 billion on Sept. 30, down 6% from a year earlier. But the remaining assets were much healthier, and the S&L set aside just $18.8 million in the latest quarter to cover expected loan losses, less than half the $42.4 million set aside in the same quarter of 1993.

Trafton said Glendale Federal is now looking to build its deposit base through acquisitions, but only in California. The thrift has also spent more than $2 million in launching an aggressive television advertisement campaign that ridicules big commercial banks. "Wells Fargo and Bank of America don't want their customers in their branches," Trafton said. "We're taking the opposite tack, and we're gaining customers every day."


Still, Glendale Federal has plenty of work ahead. Loan demand is spotty, Trafton said, and non-performing assets are 3.32% of total assets, a figure Trafton hopes to get under 2.5% in the coming months. Return on average assets, a statistic that measures how well an institution is using its assets to generate income, was 0.22% in the latest quarter, far below the 1% that industry experts consider to be a strong showing.

Ventura County National Bancorp, the Oxnard-based parent of Ventura County National Bank and Frontier Bank, reported a profit of $565,000 for the September quarter, after a year-earlier loss of $4.3 million. Meanwhile, total assets shrank 26% to $272 million, as the bank continued to unload problem loans. For the first nine months of 1994, the bank reported earnings of $480,000, compared with a loss of $8.5 million a year earlier.

The bank did miss a Sept. 30 deadline imposed by federal regulators to raise some of its capital ratios, but no sanctions have been imposed because regulators recognize that the bank is "making strong and regular progress," said the bank's CEO, Richard S. Cupp. To meet regulators' goals, the bank is planning a $5-million stock offering for the first quarter of next year.

Loan demand remains weak and uneven, Cupp said. Local companies "just doing business in the Valley are the slowest to do well."

Great Western Financial Corp., the Chatsworth-based parent of Great Western Bank and the nation's second-largest S&L, reported a profit of $57.2 million in the September quarter, reversing a $17.5-million loss the previous year. For the first nine months of the year, Great Western posted a profit of $163 million, double the $80.3 million reported a year earlier. Assets totaled $40 billion on Sept. 30, up 6% from a year earlier.

Great Western's non-performing assets totaled $978 million, down 32% from a year earlier and at the lowest level since December, 1988. As a result, loan loss provisions in the latest quarter were $51.2 million, compared to $232 million for the third quarter of 1993.

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