Family Savings, the Black-Owned S&L;, Appears on Mend

Los Angeles-based Family Savings & Loan Assn., the nation’s third-largest black-owned thrift institution, had many of the same problems that have led other thrifts to fail.

It had money-losing real estate holdings and heavy operating expenses stacked onto an under-funded capital base. It had strayed from its traditional business, residential mortgages, to try its hand at commercial lending. It had a leader, former Chairman Oliver A. Trigg Jr., who left his post under the cloud of a federal investigation.

But perhaps the similarities end there.

Family so far has managed to survive. Under new ownership since January, the Los Angeles-based thrift--renamed Family Federal Savings Bank--has taken several dramatic steps to get back on its feet:

* It has switched its emphasis back to mortgage lending. For the first six months of 1990, it has made $26 million in mortgage loans, versus $31 million for all of last year.

* It has slashed operating expenses from more than $500,000 a month in 1987 to about $360,000 a month now, through wage freezes, layoffs and other measures.

* It has sold off, and taken losses on, large chunks of real estate holdings put on the books while Trigg was in charge.

The moves have produced some encouraging financial results. After losing more than $3 million over the last three years, Family expects to eke out a small operating profit this year, according to its chief financial officer, Ed Wilson. The thrift, with a main office at 3683 Crenshaw Blvd. and a Pasadena branch, has assets of about $140 million.

Family still faces major challenges. Late last year, regulators were poised to push the thrift into receivership after determining that it was $4 million short of federal capital requirements. The regulators placed Family under restrictions that require it to provide the Office of Thrift Supervision with frequent updates on its financial status. The monitoring has continued, even after Family’s new owners invested an additional $4 million to bring capital up to the required levels.

The rescue effort began last January when Washington, D.C.-based OFC Inc., a black-run venture capital firm, took control of Family by buying 51% of its stock for $850,000.

OFC had hoped to address Family’s $4-million capital shortfall by offering stock to investors in a private placement, but there were no takers. So OFC covered the entire shortfall--investing $4 million last May in exchange for more Family stock, which brought OFC’s ownership level to 93%.

OFC inherited--and kept--a management team headed by President Wayne-Kent Bradshaw. Bradshaw, a former Union Bank executive, was hired in July, 1989, to stop the financial hemorrhaging.

“I knew it would take time to turn things around,” Bradshaw said, recalling his thoughts on his first few days in charge. “Family was headed in the wrong direction. But an institution is like an aircraft carrier in the ocean--you can’t simply spin it around in another direction. First, it takes time to stop. Second, it takes time to gradually turn the ship around.”

The Family ship followed an unusual course during the two years that Oliver Trigg had the helm.

Trigg, a Los Angeles real estate investor, became heavily involved in the day-to-day management of Family after joining the thrift’s board in 1986, some Family executives say. Under Trigg, Family stepped up its commercial lending and made direct investments in real estate.

One such investment is the subject of a federal investigation into possible fraud at the thrift. The grand jury probe, begun in 1988, was prompted by an October, 1987, Times story that said a company formed by Trigg had sold land to Family for a large profit while Trigg was on the thrift’s board of directors.

In a 1989 lawsuit, Family accused Trigg of using $1.2 million in profit from the land deal to buy his 51% stake in Family’s stock in 1987. The suit also charges that Trigg made financial deals without his fellow directors’ knowledge.

Trigg has denied making money on the land deal, which involved a residential tract in Whittier.

His lawyer, Arthur Barens, also defends Trigg’s performance at Family. Although the thrift suffered a major loss in 1987, its earnings reached an all-time high--$1.6 million--in 1986, Barens said.

“He (Trigg) did an exemplary job,” Barens said.

Recently, attorneys for Trigg and Family have been negotiating to try to settle their civil dispute out of court.

There have been no indictments by the grand jury, but its investigation continues.

Family executives say they were unable to resell at a profit the land that Trigg allegedly foisted on the thrift. Under terms of an agreement with federal regulators, Trigg agreed in June, 1988, to place the stock in a trust fund and allow proceeds from its sale to revert to Family to make up for its losses on the Whittier land.

Under OFC, Family has finally begun to turn around, Bradshaw said.

According to unaudited financial reports, the thrift had earnings of about $900,000 in the first six months of the year. However, $850,000 of that was a non-recurring gain resulting from Trigg’s agreement. When OFC bought the stock for $850,000, regulators allowed Family to count the proceeds as income related to the Whittier land.

Still, Family is on a financial track that will lead to second-half earnings and year-end profits, said Wilson, the chief financial officer.

Including the $850,000 OFC investment, Wilson projects full-year earnings of $1 million. The thrift had a loss of about $825,000 in 1989.

“Family now has a different management style,” Wilson said. “If we’re going to provide a better service to the community, we have to have the right resources and we have to watch the bottom line and control our expenses.”

Expenses have been cut dramatically since 1987, when Family registered a loss of $1.1 million. Expenses dropped from $6.6 million in 1987 to $4.9 million at the end of 1989. The cost-cutting has accelerated since OFC took control in January.

The new owners reduced expenses through wage freezes, small staff cuts and reductions in advertising, office and travel expenses. Monthly expenses totaled $513,000 last December, but by June they had dropped to $360,000, Wilson said.

Interest expense--the money paid on deposits--has been another problem at Family. Interest costs rose from $10.3 million in 1987 to $11.7 million in 1989 as Family offered higher returns on certificates of deposits to attract much-needed cash.

However, Family executives say they are now steering away from the costliest deposits--$100,000 “jumbo” certificates of deposit. Instead, they plan to emphasize long-term certificates of deposit in lower denominations and at lower rates.

Family executives say the thrift suffered heavy losses primarily because large sums that could have been used for mortgage loans were spent on real estate. And many of the real estate investments went bad, as Family’s attempts at land development failed.

Meanwhile, Family’s interest income on mortgage loans was virtually flat between 1987 and 1989 because the thrift wasn’t generating many loan applications, Wilson said. Loan-related interest income totaled $12.628 million in 1987 and rose to only $12.684 million in 1989.

To obtain more cash and make more mortgage loans, Family has been rapidly selling off its real estate. In 1987, the thrift’s real estate portfolio had holdings valued at $8.8 million and losses of about $3.4 million. By the end of 1989, the holdings were valued at $1.4 million and the losses had fallen to $136,221. As of June, the portfolio was valued at about $500,000, Wilson said.

Family’s unaudited reports from the first six months of 1990 show other major changes. The thrift has made $26 million in loans during the first half of 1990, compared to only $31 million in all of 1989. And all of the 1990 loans were mortgage-related. About 85% of Family’s $140 million in assets are mortgage loans, compared to 79% at the end of 1989.

Family’s new orientation actually mirrors the philosophy of its founder--M. Earl Grant. Family has traditionally catered to the borrowing needs of black home buyers in the Los Angeles area. An Altadena businessman, Grant founded Family in 1948 because he--like other blacks in that era--had difficulty getting mortgage loans from white-run banks and thrifts.

However, Family’s neighborhood has changed as large numbers of Latinos have moved in, in recent years. Family is now making marketing and personnel changes to attract Latino depositors, said Ron Walker, president of OFC and the recently installed chairman of Family Federal.

“We won’t survive if we don’t seek new markets and address the changing demographics of the community,” said Walker, a Harlem-born accountant. “Family is African-American-owned, but its orientation will be multicultural.”

Latinos already receive between 30% and 40% of Family’s loans, but they account for only about 10% of Family’s depositors, Walker said. To lure more Latino depositors, Family is now advertising in La Opinion, a Spanish-language newspaper in Los Angeles. The thrift has also tried to accommodate current and potential customers by hiring more Spanish-speaking tellers. It also hired a chief lending officer who is of Mexican descent.

Family--currently dependent on a customer base that is mainly over 40 years of age--is also trying to generate more deposits and loan applications from people in the 25-to-40 age range, Walker said. He said he is trying to develop services and programs to attract young professionals.

“We have a disproportionate number of senior citizens--and they are very good customers,” Walker said. “But we need younger upscale black and Hispanic customers.”