Popejoy Says Firm Now Operating Profitably : FCA Sets Major Addition to Loan-Loss Reserve

Financial Corp. of America’s earnings in the third quarter will be sharply reduced because the savings and loan holding company has had to make “major additions” to its reserves for loan losses, FCA Chairman William J. Popejoy said Monday.

At the same time, Popejoy noted that FCA is now operating profitably for the first time in seven quarters. The company posted a small profit in the third quarter of 1984, but it resulted from the sale of assets.

“We’re making real profits now, not Mickey Mouse ones,” Popejoy said during an interview at FCA’s headquarters in Irvine. FCA is the parent of American Savings & Loan, the nation’s largest S&L.;

The boost to loan-loss reserves is necessary largely because a sluggish real estate market has caused thousands of foreclosures in American Savings’ portfolio of single-family mortgages, Popejoy said. The problem is particularly acute in the overbuilt condominium market, both new and used. The new condominiums aren’t selling, and the older ones are being abandoned by homeowners who can’t sell them.

“This is a surprising turn of events,” the chief executive noted. “The single-family mortgage used to be the safest kind of loan you could make.”

Wall Street analysts have estimated that FCA will earn about $15 million in the third quarter ended Sept. 30--an amount that Popejoy said was “in the neighborhood” but a “little on the high side.” The company is expected to report its financial results Wednesday.

Popejoy declined to disclose the size of the increase in loan-loss reserves, but he suggested that the amount will slash earnings by two-thirds from what they would have been.

Financial institutions establish these reserves, which cut directly into profits, to take care of expected losses in their loan portfolios.

FCA posted a loss of $591 million in 1984--largest in the history of the savings and loan industry--largely because it added $422 million to its loan-loss reserve in the fourth quarter. No further additions were made in the first and second quarters of this year.

In the interview, Popejoy appeared anxious to dispel the impression, adhered to by some industry insiders, that he has become a caretaker chief executive who has little real hope of turning FCA around because American Savings’ loan problems are so immense.

Popejoy, who became chairman and chief executive 14 months ago, said he believes that the company will be able to survive on its own if real estate prices don’t plunge or interest rates don’t take off.

But he also estimated that it will take five years for American Savings to recover fully from its past lending problems, adding that he wants to see the job through to the end.

“I’m enjoying myself immensely,” he said. “It’s not a fun job, but it’s terribly satisfying.”

He also said that FCA may even become attractive to outside investors because of the profits that it is beginning to show and its nearly $500 million of tax credits, known as tax-loss carry-forwards, that can be applied to future earnings.

“I think more people will be interested after our third-quarter results come out,” he said. “But I think we can continue to rebuild without an outside infusion of capital.”

American Savings would need about $1 billion in new capital to bring it up to federal regulatory standards.