Investment S&L; Tries to Rebuild Profits With Aid of New Leader

The slogan at Investment Savings & Loan Assn. in recent years was “Setting a New Standard of Excellence.” The words amounted to more than a motto, the Woodland Hills thrift bragged in its 1984 annual report. “It is a promise that we fulfill every day.”

But you can’t take every promise to the bank. Over the last two years, bad loans have saddled Investment with $4.5 million in losses, and eroded its capital base to a point below regulatory minimums, forcing Investment to sell its headquarters, offer more stock for sale and otherwise search for ways of raising cash.

Moreover, in the last two years, Investment tried to offset the loan losses by trading interest-rate futures, where speculators essentially bet on which way interest rates are headed. It’s an extremely risky market, and one Investment didn’t master. The 10-year-old thrift lost close to $1 million in futures trading in the year ended March 31, sources at Investment said.

So closely-held Investment, with $297 million in assets as of March 31, decided it needed some new leadership and brought in Alfred I. Puchner as president. Puchner’s job: Set another new standard, one that will rebuild Investment’s capital, earn a profit and keep Investment away from disastrous loans.

“I like challenges,” Puchner said. “This company needs to be turned around.”

Record of Rescuing

This is not the first time Puchner, 56, has come to the rescue of an ailing S&L.; In 1982, he became president of Far West Savings & Loan in Newport Beach, with $1 billion in assets, and led the thrift from an $18.5-million loss in 1982 to a profit of $12.8 million in 1984, when he left to start another S&L.;

Puchner “brought in a direction, a way to get business done, which I think we lacked,” said Jule Keen, who was Far West’s senior vice president during Puchner’s reign.

Puchner has found lots to dig through at Investment, although he termed its problems manageable. In its fiscal year ended March 31, Investment lost $2.8 million, largely because it set aside $2.7 million (before taxes) to cover the bad loans, and because of the futures trading. The previous year, Investment lost $1.7 million.

Moreover, the losses during its fiscal 1988 caused Investment’s regulatory capital to plummet to $3.04 million from $5.92 million. Regulatory capital, effectively an S&L;’s lifeblood, is a measure similar to a corporation’s net worth or stockholders’ equity and determines how well a company can expand or cushion itself against losses.

The drop meant Investment’s capital amounted to just 1% of its assets. That’s well below the 2.5% to 3% required by federal and state regulators, Puchner said.

Higher Than Average Ratio

The average capital to assets ratio for thrifts in California at March 31 was 4.04%, and nationally it was 3.56%, FHLBB figures show.

“We are not insolvent,” Puchner emphasized. But he added, “We need to replace the capital that you need to support a $297-million operation, and we need additional capital for expansion.”

Puchner (pronounced Puk-ner), disclosed that Investment plans to sell 7.5 million additional shares of stock by year’s end to raise cash. He declined comment on how much Investment expects to raise, but said Investment’s existing stockholders would have priority over other investors in buying the new stock. Investment’s stock now is thinly traded because the thrift has only about 430 stockholders and just under 600,000 shares.

Also, Investment recently agreed to sell its headquarters for an undisclosed price, and now plans to lease space for a new headquarters in Chatsworth in November.

While raising capital, Puchner wants Investment to establish a balanced business. It would include residential mortgage banking, whereby Investment makes mortgage loans and then sells them to rid itself of the loans’ risk; car and other consumer loans, and even some apartment and commercial real estate loans.

More Assets Needed

He also believes Investment, and most S&Ls;, must have $500 million or more in assets to stay profitable because profit margins on mortgages “are so thin and the cost of raising deposits is high, you’ve got to have size, you’ve got to have volume,” Puchner said.

So Investment’s assets must grow by another $200 million, but regulators will not allow that until Investment’s capital base is well above minimum levels. “We have to figure out a way to do that” over the next three to five years, he said.

How did Investment get in this jam?

The company is a medium-sized S&L; with 106 employees operating seven Valley offices, including its single-office subsidiary Valley Thrift & Loan in Van Nuys.

Investment was formed 10 years ago by a group of local business executives, including Herbert F. Boeckmann II, who remains an Investment director and owns Galpin Motors, an auto dealership in Sepulveda; Robert A. Nordskog, head of Nordskog Industries in Van Nuys and Investment’s chairman until last January, and William A. Miller, an Encino builder who succeeded Nordskog as Investment’s chairman.

Investment’s seven directors own a combined 23% of the thrift. Puchner owns none, but has an option to buy 5% of the shares.

The company’s initial operating chief was Ted C. Hill, who was president until late 1986, when he resigned to run a grocery store in central California. Most of Investment’s problems started on Hill’s watch. After Hill left, Richard G. Voll was named interim president until Puchner was hired; Voll remains chief financial officer.

Investment grew rapidly, partly because of an aggressive effort to arrange commercial real-estate loans in exchange for a fee. Its assets soared from $5.4 million in early 1979 to more than $320 million six years later.

But its profit was much less steady, even though, starting in 1985, Investment scaled back its commercial lending and focused on residential mortgage loans. In the last five years, Investment has never matched the $2.08 million it earned in fiscal 1983, despite a near doubling of its assets in the period.

Default Problems

It was during Hill’s term that the thrift made the problem loans in which the borrowers defaulted. Some of the loans have since been written off Investment’s books, but others account for $16 million of Investment’s $204 million in overall loans outstanding, Puchner said.

Several of the bad loans were made to real estate partnerships arranged by Craig Hall, a major real estate syndicator in Dallas who ran into financial problems in 1986. “We’ve got six Hall apartment buildings in Arizona on our books,” Puchner said.

Other bad loans covered a hotel in New Mexico, a shopping center in Northern California, land in Southern California and “a piece of raw land in Denver that isn’t worth very much,” he said.

Hill declined comment on the loans, and Nordskog, who was chairman when the loans were issued, did not return a telephone call.

As for the futures trading, Puchner will only confirm that there was trading and that the losses totaled less than $1 million. “That was terminated, those people are gone,” he added.

Puchner will not publicly blame anyone for Investment’s troubles. But when he uncovers problems, Puchner calls government regulators. “If I find anything negative, I let them know immediately,” he said. “I want them to feel there are no surprises here.”