S&L; Posts Gain as Recovery Efforts Pay Off

Huntington Savings & Loan Assn. expects to post a $130,000 profit for its recently completed second quarter--a quick recovery for the S&L; that just this week revealed a tangle of investment maneuvers that cost it nearly $3 million since June.

James L. Marks, who took the reins of the Huntington Beach S&L; on Jan. 2, said in an interview Tuesday that he still faces a major challenge in restoring the association to profitability.

Marks replaced former president Mark Wright, who left in October. The board of directors held Wright responsible for unauthorized investment transactions made by Randy W. Ruppe, former vice president and controller, according to a proxy statement issued by the S&L; earlier this month. Ruppe was fired in June, but the investments and his dismissal were not disclosed until the proxy was sent to shareholders.

Ruppe, according to the statement, acted on his own last summer to boost the S&L;’s investment portfolio of government-backed securities to $72 million, 225% more than the $32-million ceiling that had been set by the association’s directors. Once the value of the investments reached the ceiling, according to the document, Ruppe continued to buy securities, using certain high-risk margin-buying techniques that violated the S&L;’s investment procedures.

The board discovered Ruppe’s actions in June, by which time the investments were losing value. The directors took control of the investment portfolio and set in motion a chain of events to curb the losses.

First, Huntington liquidated about $25 million of the portfolio that Ruppe had built, which resulted in a loss of $851,703. That loss erased the operating profits for the entire fiscal year, ended June 30, and put Huntington $595,124 in the red. Marks said the securities investments problems were responsible for all of Huntington’s losses in 1984 and in the first quarter of 1985.

In July, the S&L; purchased a large number of futures contracts in an attempt to protect the remainder of the portfolio from further erosion. (At the time a futures contract is bought, the purchaser agrees to buy or sell certain securities, currencies or commodities at a set price on a future date, regardless of the actual market value of the goods on that date.)

In September, the S&L; filed a claim with its bonding agent in hopes of recouping the June loss. But, other than firing Ruppe, it has taken no civil or criminal actions against the former controller, said Marks.

The S&L; lost an additional $2.1 million in December on futures contracts it had purchased in July.

Huntington will spread most of that $2.1-million loss on its books over the next 17 months. However, it will be required to report $152,000 of the loss for its second quarter of 1985, ended Dec. 31, halving its profits to about $130,000.

But Huntington will show a first-half loss of about $20,000, Marks said Tuesday, because of the $109,000 loss it posted in first quarter, ended Sept. 31.

“But that’s done,” Marks said of the investments problems, “and I can’t change any of it. I can work on loan originations and mortgage banking, and that’s what I intend to do.

Now, he said, “The loan portfolio here is very clean, and there are no loan losses.”

Marks believes that Huntington will become profitable again by returning to a “traditional” mortgage banking course: taking deposits, using the funds to originate mortgage loans and then selling most of the loans to investors in the mortgage market.

“I don’t think that small S&Ls; should be involved in securities trading,” he said. “They don’t have the liquidity. The profits are to be made from loan origination fees.”

The return to traditional mortgage banking operations actually began last fall, and since Sept. 31, Marks said, Huntington has trimmed its assets by $25 million to a total of $100 million while increasing its loan portfolio by nearly $12 million, to about $70 million.

Marks, who most recently was founding president of International Savings Bank in San Diego, also has held executive positions with Far West Savings & Loan Assn. of Newport Beach, Gibraltar Savings & Loan Assn. of Beverly Hills and Fidelity Federal Savings & Loan Assn. of Glendale.