Endresen Had Butterfield S & L Riding High Before Fall

Donald W. Endresen brought to the staid, tradition-bound savings industry some ideas from the outside business world that made his Butterfield Savings & Loan Assn. one of the hottest entities--ignited by the sparks of federal and state deregulation laws.

Using everything from hot-air balloons at the S&L;’s first main office in Temecula in Riverside County to toll-free telephone numbers and national advertising, Endresen prodded, bullied and pushed Butterfield to grow rapidly.

As president and chief executive of the Santa Ana-based S&L; and its parent company, Butterfield Equities Corp., he gathered huge deposits and made big investments in such untraditional projects as Wendy’s and Love’s restaurants and run-down apartments that he suspected had nowhere to go but up.

His investments in “hamburger stands” were constantly criticized by the nation’s chief S&L; regulator, Edwin J. Gray Jr., chairman of the Federal Home Loan Bank Board.

But it was bad loans and real estate investments that drained the S&L;’s capital and led regulators to take it over on Aug. 7, 1985.

“He (Endresen) is one of those creative entrepreneurs who knows how to make things happen,” said Richard Ferree, who ran a Butterfield securities subsidiary and now heads a Santa Ana real estate investment company. “His style is very appropriate for the real estate business he had been in, but that kind of entrepreneurial style apparently doesn’t fly in the savings and loan industry.”

Endresen, 41, a big, bear-like man with a friendly smile and a charming manner, was “very good” at marketing, said Robert S. Bennett, a former senior loan officer who now is vice president and loan manager in the Los Angeles office of San Francisco’s Atlantic Financial Savings Bank.

Bennett said the entrepreneur “was always looking at the (S&L;’s) charter to see what he could do differently.” Endresen set up a Visa credit card department, something severely limited before deregulation, and generated up to 25,000 accounts.

It was marginally profitable. “It was not supposed to be a big money maker,” Bennett said. “It was to make a client list to cross-sell other products, like certificates of deposit, money market accounts, car loans or real estate loans. And it worked.”

An industry consultant familiar with the Butterfield operation said Endresen was articulate, had interesting ideas and was candid. “He admits he screwed up,” the consultant said.

Some former insiders were less kind.

“Don had a very big problem with ego,” said one former executive who did not want to be identified. “He didn’t listen to subordinates, and he didn’t delegate authority. He thought he knew how to run anything.”

Although Butterfield executives met to try to find legal ways around new restrictive regulations, Endresen’s approach was “to ride through and challenge the regulation,” the former insider said. “He thumbed his nose at regulators.”

Endresen said he defied regulatory orders, at least temporarily.

Regulators had ordered him to halt the S&L;’s dramatic growth in 1984, when assets totaled about $800 million. But Endresen said he funded an additional $30 million in loans before scaling back the company’s operations.

In an interview just a few hours before the S&L; was seized, Randy Grimm, Butterfield’s marketing director in 1983 and part of 1984, said Butterfield was a case history of a good concept, good people and good resources “being destroyed by an entrepreneur who was unwilling or unable to put a solid business plan under it all.”

Grimm said he saw “a real penchant by management to spend heavily” in a seat-of-the-pants approach to operating the conglomerate. “I was always told not to worry about where the money was coming from, that Don had always found the money somewhere,” he said.

A former state Department of Savings and Loan executive said Endresen liked to be up on a podium. “He was the loudest person I ever heard,” the former official said.

Worked on Development

Endresen said he isn’t sure if his ego was the driving force behind the institution or if it got in the way of operations. His approach to managing, he said, “was to get people to develop, to encourage them to make decisions.”

Much of the top management he hired in the early 1980s went on to bigger challenges both in and out of the savings industry, including three who are or were heads of their own S&Ls.;

“I had good rapport with most people,” Endresen said. “I had more trouble with people on the S&L; side than on the real estate side. We grew up together with real estate people. On the S&L; side it was more structured for employees and more difficult.

“The primary problem with the S&L; was the tremendous resistance to change,” he said. “Our corporate motto was, ‘If there’s a better way, we’ll find it.’ But it’s tough to find experienced people who would look at things differently.”

Meanwhile, Gray, the bank board chairman, was criticizing S&L; investments in hamburger stands “in every speech he gave for two years,” and Endresen said he reacted with a “classic political blunder.”

He helped to organize a meeting of small S&Ls;, which constituted a majority of S&Ls; in the state, and roundly scored the powerful California League of Savings Institutions, a trade group, for not giving them a vote in league affairs.

In return, he said, he was vilified and threatened by industry leaders. Undaunted, he sent a copy of the recommendations made at the meeting to Gray. He believes his actions made him a man marked by industry leaders and regulators as a troublemaker who should be forced out of the business.

A former state regulator said “there well could have been a vendetta” against Endresen and other S&L; executives critical of Gray. But, he added, the ones yelling the most were the ones doing the most damage to their institutions.

It was an unlikely end for what started as such a modest proposal.

In the late 1970s residents of the sleepy, retirement-oriented Temecula area saw their southwest Riverside County village as the next Mission Viejo. And they thought that a locally owned savings institution would be needed to help fuel the growth in the community located along the old Butterfield-Overland Mail Co. stagecoach route.

Residents Bought Stock

More than 400 local residents bought stock, and founders encouraged Don Endresen to run the institution.

At the time Endresen, his father, David, and family friend Daniel Kiernan were operating a real estate syndication business called KECOR Financial Group Inc. KECOR specialized in finding depressed realty and collecting investors to fix it up and run it or sell it at a profit. KECOR bought into Butterfield, Endresen said, mainly so it could reduce its fees in processing government-financed properties.

The three men bought a little less than 25% of the new S&L;’s stock, and Butterfield S&L; opened in Temecula in 1981.

By the end of its fiscal year in mid-1983, KECOR changed its name to Butterfield Equities Corp. and bought the remaining outstanding shares of Butterfield S&L.; With a new law allowing state-chartered S&Ls; unlimited investment powers, the subsidiary’s growth exploded, rocketing from $105.5 million in assets at the end of June, 1983, to $501.7 million a year later.

The growth, however, was fueled by jumbo certificates of deposits--$100,000 accounts that got top interest rates and were more likely to be shifted quickly to institutions offering even higher rates. Such CDs make it tough to turn a profit because the interest an S&L; pays on the deposits is often as much or more than it earns by investing the money.

The real estate investments proved disastrous when the market went down and values plummeted.

Meantime, the restaurants were losing money, and the otherwise sluggish operations of a business with a great deal of fixed assets and food inventories were ill-suited to the business of an S&L;, which deals primarily with paper work--loans and investments.

It was Endresen’s last grand entrepreneurial idea during the summer of 1984 that held the promise for reversing Butterfield’s sagging fortunes--it had lost $6.5 million on income of $70.5 million for the fiscal year ended that June.

Instead, the scheme led to his institution’s demise.

Endresen figured that Butterfield Equities could issue preferred stock and put the new stock in the S&L;’s capital base for purchasing real estate. The stock would have no value until the S&L; bought property and convinced sellers to take most of the payment in preferred stock.

Would Boost Capital

Once that happened, capital would be boosted significantly. Butterfield, for instance, could purchase a $100,000 property for only $10,000 down and pay the rest off in preferred stock. Although its cash outlay would be low, it could place the full value of the property on its books as new capital.

Even sources at the Federal Savings and Loan Insurance Corp., acting as the receiver for Butterfield, acknowledge that there was nothing offensive about the scheme. Other businesses had done it, though no S&Ls; they could recall had tried it.

The execution, however, left a lot to be desired. A year after taking over Butterfield, the federal agency sued Endresen and others over the preferred stock deal, alleging fraud and mismanagement and seeking $59.5 million in damages.

The suit claims that Endresen and others conspired with brokers and appraisers to pay an inflated $85 million and excessive commissions for about 40 real estate properties, mostly in the Pacific Northwest, causing the S&L; to lose about $20 million on the deal.

“The problem is they bought a $100,000 building for $500,000,” said Peter Diedrich, a Los Angeles lawyer working on the case for FSLIC. “The purchases were executed so quickly and with little underwriting or investigation that they wound up paying substantially higher prices. The problem was aggravated because they bought in an economically depressed area. They were not buying in a hot market.”

The higher prices looked good on the S&L;’s books, too--at least until FSLIC examiners came in and began ordering Butterfield to write down the values of the properties.

According to FSLIC suits against the Endresens and Portland, Ore., broker Michael J. Safley and others, some of the problems with the properties were that Butterfield and Safley incorrectly located parcels, neglected to note that 80% of one parcel was in a forest preserve and couldn’t be developed, neglected to spot a “major arterial highway” running through a parcel, neglected to locate a swamp on a parcel and incorrectly stated the zoning.

Endresen said he was working with Safley to correct the “seven or eight” problem properties when the S&L; was taken over.

Anticipated Breaking Even

The business plan Endresen had mapped out anticipated that the S&L; would break even after it reached a little more than $900 million in assets in early 1985. But the bank board, alarmed by continuing losses, imposed a stop-growth order in October, 1984. Nine months later the board imposed a supervisory order requiring federal approval of most business decisions.

Endresen said he tried to comply and even cut drastically the S&L;’s reliance on expensive jumbo deposits. But the corporation’s losses hit $36.5 million in fiscal 1985--more than $40 million in two years--and its net worth sank to a negative $10 million by the time it was taken over by federal and state authorities.

“He just didn’t know how far regulators could reach,” one former Butterfield executive said.

But Endresen is learning. His brother, William, an officer in the company, has lost his home. His father, who held the title of chairman but was essentially retired, lost most of his money.

And Endresen said he is selling off personal assets to survive. He said he was trying to revive Butterfield Equities, a shell corporation after the takeover, but the FSLIC suit against him ended the effort. Butterfield Equities recently filed for reorganization under Chapter 11 of the federal bankruptcy code.