Banks Curtail Real Estate, Post Solid Quarter

Most San Fernando Valley area banks reported solid profits and strengthening balance sheets in the most recent quarter thanks mostly to banking services other than real estate.

Battered by the real estate slump of the last several years, local banks are switching from property loans to commercial loans and expanding new retail banking services for checking and savings customers.

Such programs have provided a life raft for once problem-plagued savings and loans such as Great Western Financial Corp. of Chatsworth, which reported substantial gains in the quarter that ended March 31.

Great Western’s earnings were up 64% to $71.3 million from $43.5 million in the first quarter a year ago.

Although Great Western’s assets remained flat at about $43.8 billion compared with last year, nonperforming assets--largely foreclosed home loans--dropped to $791 million compared with $814 million a year ago. At the same time, new loans in real estate were halved to $1.2 billion.

But as Great Western’s focus on real estate diminished, its retail banking income grew to $47.9 million in the first quarter, up 16% from last year.

The change is a result of increased fees in commissions in burgeoning areas such as mutual funds, said Great Western spokesman Steve Hawkins. Fees from mutual fund transactions and other securities operations increased nearly 55% in the first quarter compared with last year.

“Mutual funds were universally bad a year ago, but they are improving dramatically now,� Hawkins said.

Other banks reported similar trends. Glendale Federal’s revenues from fees and services expanded as the bank added 10,000 new checking accounts per month in the first quarter.

The bank reported decreased loan-loss provisions, although earnings of $20.4 million were half last year’s earnings mainly because last year’s figures included the sale of its $30-million Washington subsidiary, Glendale Federal said.

And Glendale-based Fidelity Federal Bank, which was on the verge of collapse before undergoing a recapitalization two years ago, also reported an earnings surge: First-quarter profits were up 50% to $1.5 million from $1 million a year ago.

And as an added sign that the bad times are over for now, federal regulators have reduced their oversight of the bank and assigned it a new “normal� status, the bank said.

American Pacific State Bank of Sherman Oaks saw its profits increase 11% to $653,000 in the first quarter due to a strong market for small-business loans, while another Sherman Oaks bank, Transworld Bancorp, reported earnings decreased by 21% to $770,000 as customers shifted money into CDs from savings accounts, increasing costs to the bank.

Nearly all local banks cited another positive factor affecting results in the first quarter: improved interest margins (interest income minus interest expense).

Changes in interests rates tend to cost banks because of the lag between new rate announcements and the time it takes the banks to adjust. Last year’s rapidly changing interest rates have been replaced by this year’s stable ones, which is good news for banks, Hawkins said.