Westcorp Posts Lower Earnings; Slump in Junk Bonds Blamed

The continued depressed state of the junk-bond market forced Westcorp, the Irvine holding company for Western Financial Savings Bank, to place $8.1 million in reserves and post lower annual net income of $9.3 million.

The company’s earnings fell 32% from 1988, when it had a net profit of $13.6 million.

However, executives said the company reported record revenue of $317.9 million, an increase of 37% over $232.5 million in revenues the previous year.

The writedown of Western Financial’s junk-bond portfolio was prompted by recent changes in thrift regulations and a slump in the high-risk debt instruments that have played a major role in funding corporate takeovers in recent years.

A federal law enacted in August to bail out the savings and loan deposit insurance system requires S&Ls; to sell their junk-bond holdings within five years. It does not require them to devalue the bonds to reflect the current market value, but most S&Ls;, including Western Financial, have been doing that anyway.

Without the need to write down the securities portfolio, the company’s earnings would have been 14% greater, said Stephen W. Prough, the company’s president.

Prough said he was pleased with the quality of the S&L;’s loans, pointing out that Western Financial ended the last two years with no property held in foreclosure.

For the fourth quarter ended Dec. 31, the company posted net income of $2.3 million, down 28% from $3.2 million earned in the previous year’s last quarter. Revenue climbed 27% to $84.9 million from $66.7 million the previous year.

The company’s assets grew 16% to $2.9 billion at the end of December from $2.5 billion a year earlier.

Formed in 1982 from the merger of an S&L; and a thrift and loan, Western Financial has grown steadily on an equal diet of home loans and automobile loans, an unusual combination for a savings bank. Also unlike most S&Ls;, it does not offer checking accounts, only traditional savings accounts.