Orange County Thrifts May Be on Recovery Road

Times Staff Writer

Second-quarter results offer a glimmer of hope that Orange County’s savings and loans might produce their first profitable year in five years and one of their few this decade.

Buoyed by the closure of two insolvent banks in June, the county’s remaining 34 S&Ls; posted an aggregate net income of $49 million for the second quarter, a sharp turnaround from the $152-million loss reported in the first quarter, according to regulatory figures released Friday.

“The numbers certainly reflect the absence of big losers more than the presence of big winners,” said Edward Carpenter, a Costa Mesa financial institutions consultant.

In June, federal regulators closed down American Diversified Savings Bank and North America Savings & Loan, both big money losers that were based in Costa Mesa. In the process, the government paid $1.35 billion to depositors at both thrifts.


The county’s industry also was helped in February when regulators sold the insolvent Ramona Savings in Orange to a Minneapolis thrift, burying another brain-dead S&L.;

The regulatory figures for Orange County’s S&Ls; also show that:

- There were 21 profitable thrifts, which earned $265.2 million, and 13 money-losing thrifts, which lost $216.1 million. In the first quarter, the picture was reversed--22 S&Ls; posted losses and 15 reported profits.

- Seven of the 13 losers were insolvent, including American Savings & Loan, accounting for $160.2 million of the total loss. Eliminating those seven, the remaining county thrifts posted a combined profit of $262.9 million.


- The negative net worth--assets minus liabilities--accumulated by the seven insolvent S&Ls; amounted to nearly half the $2.7 billion in total net worth held by the other 27 thrifts.

County, state and national figures still show the overwhelming effect that problem institutions--about a third of the industry--can have on the rest of the S&Ls.;

Nationwide, the industry is still plagued with scores of insolvent thrifts, especially in Texas. Those problems caused the country’s 3,092 S&Ls; to record a $3.6-billion loss for the second quarter.

Efforts by federal regulators to sell or close insolvent S&Ls; have helped to rid the industry of some of the bigger money losers, benefiting both California and Orange County. The state’s 200 S&Ls; posted combined profits of $133 million in the second quarter, more than three times the $39 million earned in the first quarter.


Picture Brightening

Continuing efforts to sell or close insolvent thrifts should help improve this year’s annual financial results, especially in Orange County, where the collapse of 11 thrifts in recent years has earned the county the dubious distinction of having more failed S&Ls; than any other county in the state. Orange County’s thrifts last posted a profit in 1983.

American Savings, the nation’s second-largest thrift and biggest single sick institution, is in the process of being sold to the Robert M. Bass Group in Dallas.

American is based in Stockton but has been operated out of the Irvine office of its former parent, Financial Corp. of America, and is included in county statistics. FCA became bankrupt after regulators seized American earlier this month to facilitate the sale.


At least three insolvent county thrifts--Pacific Savings in Costa Mesa and Butterfield Savings and Perpetual Savings, both in Santa Ana--are likely candidates for sale before the end of the year, managers at all three have said.

That would leave two other insolvent county S&Ls; run by regulators--First California in Orange and Beverly Hills Savings in Mission Viejo, which now has the industry’s biggest deficit at $597.6 million.

The seventh insolvent county thrift is Western Empire Savings in Yorba Linda, which is still being operated by its owners. A New York City merchant banking firm has an agreement pending to buy the S&L;, and the thrift has set up $800,000 in reserves for loan losses to protect itself and make the acquisition more attractive.

Capital Losses


Several other thrifts are losing capital also and falling below the standard benchmark for net worth, which is 3% of capital to total assets.

Huntington Savings in Huntington Beach, which is looking for a buyer, added nearly $200,000 of capital to its operation but still wound up close to insolvency by the end of June. The others with low levels of capital are Constitution Federal in Tustin, Security Federal in Garden Grove and Delta in Huntington Beach.

A number of financially healthy savings and loans showed stronger earnings in the second quarter.

Among the larger S&Ls;, Lincoln Savings in Irvine came back from a $2.4-million first-quarter loss to earn $28 million in the second quarter. And Western Financial Savings in Orange nearly doubled its income to $3.7 million in the second quarter from $1.9 million in the previous quarter.


Among mid-size S&Ls;, United California Savings in Anaheim rebounded from a first-quarter loss of $703,000 to post a small second-quarter profit of $115,000. Guardian Savings in Huntington Beach and Newport Balboa Savings in Newport Beach are padding their vaults with profits for the first six months--$3.8 million for the former and $2.2 million for the latter.

The small S&Ls; had the toughest time, with half of those under $100 million in assets posting losses. Only Plaza Savings in Santa Ana and Cornerstone Savings in Mission Viejo reported profits in both quarters, $314,000 for Plaza and $26,000 for Cornerstone.


Total Total Capital Net Assets Capital As % of Income Savings and Loan (Mil.) (Mil.) Assets (Thous.) American $30,162.2 -308.4 -1.0 -$160,232 Lincoln 4,753.5 267.9 5.6 28,022 Far West 4,116.0 179.6 4.4 2,546 Household Bank 3,995.3 220.5 5.5 -1,245 Downey 3,238.7 222.3 6.9 4,732 Mercury 2,438.1 87.3 3.6 1,855 Western Financial 2,105.3 195.7 9.3 3,728 Beverly Hills 1,368.3 -597.6 -43.7 -29,963 Pacific 1,107.8 -191.1 -17.3 -11,581 United California 656.1 35.2 5.4 115 Butterfield 561.7 -132.8 -23.6 -6,497 Newport Balboa 555.1 33.5 6.0 1,272 Guardian 485.9 18.1 3.7 2,532 Fullerton 341.0 21.3 6.2 1,184 San Clemente 280.9 10.9 3.9 238 Universal 278.7 10.2 3.7 643 Charter 219.1 9.8 4.5 -39 First California 185.3 -70.2 -37.9 -2,983 Malibu 182.7 8.5 4.7 205 Sterling 178.6 15.6 8.7 699 Westport 160.4 7.3 4.6 491 Standard Pacific 127.3 10.3 8.1 179 Western Empire 118.7 -1.6 -1.3 -1,781 Huntington 110.6 0.5 0.4 216 Irvine City 91.0 4.3 4.7 -15 Security 83.9 2.1 2.5 -184 Constitution 81.3 1.7 2.1 73 Beach 78.4 5.5 7.0 60 Cornerstone 63.4 3.8 6.0 5 Plaza 61.0 3.4 5.6 302 Delta 58.1 1.4 2.4 -81 Perpetual 38.4 -10.8 -28.1 -717 American Interstate 32.5 1.3 4.0 -754 Pioneer 18.7 .9 4.8 10 Orange County Totals 58,334.0 1,378.7 2.4 49,107


Source: Federal Home Loan Bank of San Francisco