FCA Turns Profit, Returns to No. 1 Despite Problems

Financial Corp. of America reported its fourth consecutive quarterly profit Wednesday, even though it lost money on its operations and had continued problems in the loan portfolio of its principal subsidiary, American Savings & Loan.

FCA also reported a sharp increase in assets to $29.2 billion, once more making the company the nation’s largest savings and loan institution, a position it had lost in the last quarter to H. F. Ahmanson & Co., parent of Home Savings of America.

The sharp jump resulted from FCA’s purchase of more than $4 billion in mortgage-backed securities in the second quarter.

Sale of Assets Gives Boost

FCA said it made $11.6 million from April through June, bringing its six-month profit to $60.7 million. The company lost $56 million during the first six months of 1985, including second-quarter red ink of $17.9 million.

On an operating basis, however, FCA lost $14.1 million during the second quarter. The net profit resulted principally because dropping interest rates allowed the company to book income of $85.1 million through the sale of assets, a company spokesman said.

FCA’s stock, which hit a 52-week high of $17.12 1/2 on March 11, fell another 37 1/2 cents a share on Wednesday to close at $8.62 1/2. That FCA is making so little money when interest rates are steadily falling is a telling indicator of its financial problems, outsiders say.

“It’s sobering to think their profits are basically negligible with short-term interest rates that are below 6%,” said Jonathan Gray, a financial analyst for Sanford C. Bernstein & Co. in New York. (Falling interest rates mean that banks and savings and loans have to pay depositors less for their savings.)

FCA added another $60.1 million to its reserves for loan losses, bringing the total to $570 million as of June 30. Additions to these reserves cut directly into profits.

FCA Chairman William J. Popejoy said the addition to reserves resulted because real estate values have fallen in the wake of worsening problems in the oil and agricultural segments of the economy.

“We are continuing to review the Texas real estate market, where values have slid downward from appraised valuations which were done only six to eight months ago,” he said in a statement.

The second-quarter figures also included a $5.4-million charge for the continuing special assessment being levied on the entire S&L; industry to bolster the Federal Savings and Loan Insurance Corp. The FSLIC is the federal agency that insures customer accounts up to $100,000.

Popejoy said FCA will not manage an operating profit until later this year at the earliest. To do that, he said, interest rates must keep dropping while sales of the company’s non-earning properties continue toward the goal of $600 million in 1986. Sales at midyear totaled $285 million.

The sharp increase in mortgage securities also reflects the company’s desire to shore up its base of earning assets, Popejoy said in a telephone interview. FCA had been trimming assets in recent quarters.

Popejoy is nearing his two-year anniversary at the company he took charge of in August, 1984, after regulators forced his predecessor, Charles W. Knapp, to resign. Since that time, Popejoy has been blessed by steadily falling interest costs but burdened by problems in the loan portfolio that have been far worse than expected.

Popejoy was generally upbeat in his assessment of the company, noting that sales of problem real estate properties have been higher than expected, that American Savings’ net worth is increasing and that the company’s reliance on unstable, uninsured deposits of more than $100,000 is decreasing.

“The outlook for this company is positive,” he insisted in a statement. “Yes, we have problems, but we believe they are manageable.”

Though outsiders have generally approved of Popejoy’s efforts, they are not overly impressed with the results. Financial analysts remain concerned about the severity of American Savings’ loan problems and the losses that would probably result if interest rates start increasing.

“From an investment standpoint,” analyst Gray said, “the big picture has not changed that much.”