Great American Planning Expansion Into Northwest

Great American First Savings Bank plans to expand its retail banking business into the Pacific Northwest through a merger with Capital Savings Bank, an Olympia, Wash.-based thrift with $725 million in assets, company officials said Thursday.

Great American, which last year expanded into Arizona through a $102-million merger with Tucson-based Home Federal Savings & Loan, has signed a letter of intent to merge with Washington’s fifth-largest S&L;, according to Great American President James C. Schmidt.

The proposed merger would “keep Great American one step ahead of its competition,” according to Sal Serrantino, a Santa Monica-based S&L; consultant, who credited Great American with “establishing a strong regional presence.”

Great American described Capital Savings as “profitable,” but the institution posted a $2.16-million net loss for the fiscal year ended Sept. 30. It has, however, generated profits during each of its three most recent quarters, including $872,000 during the first quarter ended Dec. 31, according to Capital Savings President Robert Wolfe.

Early in its fiscal year Capital Savings absorbed a $6-million write-down on loans, which Wolfe described as a necessary step in readying the mutual association for what turned out to be an unsuccessful attempt at going public.

That charge helped push Capital Savings’ regulatory net worth at Dec. 31, 1986, to $17.5 million, or 2.4% of assets, according to Wolfe. Federal regulations require a minimum net worth equal to 3% of assets.

Capital Savings’ aborted public offering occurred “at a time when the (stock market) dropped 90 points,” according to Wolfe. “Consequently, the market for new issues, and not just for thrifts, became really bearish.”

The thrift subsequently “shelved the public offering” and began considering a merger, said Wolfe, who then described Great American as its “first choice” for a merger partner.

If the deal is completed, Wolfe would remain as chief executive of Great American’s Pacific Northwest Division. His father, Harold T. Wolfe Sr., chairman of the Capital Savings board, would join Great American’s board.

Great American, which opened a mortgage banking office in Seattle in 1984, views Capital Savings, with 37 offices in Washington and five locations in Montana, as a logical way to introduce its retail banking business to the Pacific Northwest, according to Schmidt.

‘Very Successful Company’

“We were picked in a competition with other institutions that were interested in merging with Capital Savings,” Schmidt said. “We’re going to enter a dynamic state with a strong population, including Seattle, and we’re dealing with a very successful company.”

Great American’s proposed merger with the fifth-largest Washington-based S&L; would be one of the first deals made possible following recent changes to banking and savings and loan laws in California and Washington, Schmidt said.

Both California and Washington belong to the Western Regional Compact, a consortium of states that, on July 1, will permit the acquisition of in-state institutions by financial institutions located in other states belonging to the compact.

S&L; industry analysts were uncertain, however, if federal regulations that have governed past interstate mergers would force Great American to acquire a troubled thrift before federal regulatory approval is granted.

In the past, the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corp. have only approved interstate deals involving the acquisition of a failing institution by a healthy institution.

When Great American acquired Phoenix-based Home Federal, it also agreed to acquire Hacienda Federal Savings & Loan in Oxnard and First Federal Savings & Loan of Redding, both of which were under conservatorship by FSLIC.

Great American’s merger with Capital Savings would be non-dilutive to the S&L;’s stock because the deal will be handled as a “conversion merger,” similar to the deal that resulted in Los Angeles Federal Savings Bank becoming a Great American subsidiary. Great American will issue new stock equal to the value of Capital Savings, which will be offered to Capital Savings’ investors.

The deal is subject to completion of a definitive agreement and approval of the Federal Home Loan Bank Board and the California Department of Savings and Loan, according to Schmidt, who said the merger will be governed by federal regulations.

The merger would give Great American 214 offices in California, Arizona, Washington and Montana.