Though its yearend net income rose 30%, Vallicorp Holding Inc. will likely count 1995 as one of its worst years on record.

Staggered by a tough third quarter, which included more than $5 million in bad loan reserves, Vallicorp's overall performance was anything but smooth. The net income gain looks impressive, but merger and restructuring costs had sapped 1994 profits, putting a different perspective on 1995's $10.2 million of net income.

The company had been one of the few community banking bright spots in California in the early 1990s; as it acquired banks, its income and profits grew apace. It didn't hit a bump until the third quarter of last year.

Based in Fresno, Vallicorp operates throughout the state's Central Valley, which is still struggling with sluggish economic conditions even as Southern California begins a rebound.

"In California the engine for growth has been the Bay Area and the trade coming out of the ports," said Philip L. Hage, analyst at Van Kasper & Co., San Francisco. "But the economic engine that really drives the Central Valley is the L.A. basin, which hasn't done a whole lot."

Wolfgang T.N. Muelleck, executive vice president and chief financial officer of Vallicorp, said the Central California region remains relatively stagnant.

"The economy is getting a bit better," he said, "but there haven't been any signs of a real improvement."

Despite the slowdown, Vallicorp has continued its acquisition activity. The $1.2 billion-asset company completed its merger with El Capitan Bancshares in early February, and CoBank Financial Corp. will formally be welcomed into the fold in coming weeks.

Mr. Hage said the mergers may have had some effect on Vallicorp's bottom line.

"I would say some of Vallicorp's asset-quality problems arose out of the acquisitions," he said. "It's the right strategy in the long term, but in the short term you have to expect some of these kinds of problems."

Despite those external influences, net income for the fourth quarter was $3.1 million, compared to $412,000 the year before.

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