‘It’s a Wonderful Life’ for Fullerton S&L; : Finance: The offices of the rock-solid thrift that has prospered on home loans and homey virtues might be the setting of the Frank Capra movie.
Whenever Carl W. Gregory finds the going tough for his Fullerton Savings & Loan, he recalls the story he heard about a Van Nuys thrift that failed in the 1960s.
That thrift, Gregory recalled recently, offered to pay its depositors a full percentage point more than other financial institutions were giving customers. The flood of money that poured into the thrift couldn’t be reinvested fast enough in good assets. Nor could the thrift earn enough off its loans to pay depositors the interest due them.
The thrift soon sank into red ink from bad loans and the inability to cover its deposit rates. Regulators seized and closed it.
“That was an object lesson for me,” said Gregory, president of Fullerton Savings. “Our operating philosophy is not to be an innovator but to adapt for our use those things that appear to be successful elsewhere.”
It is a philosophy that has kept his thrift healthy.
At a time when fraud, reckless investments, poor management and even federal regulation have scuttled once-mighty thrifts, Fullerton Savings is staying afloat by maintaining strong local ties and by investing in nothing but home loans--the raison d’etre for the industry.
Last year, the thrift’s net income of $7.2 million gave it a return on assets--a key measure of profitability--of 2.05%, the second highest in the state.
“It’s a role model for the small, local savings and loan,” said William D. Davis, commissioner of the state Department of Savings and Loan. “I don’t know anybody who can run that institution any better than it’s being run now.”
But the management of the seven-branch thrift will be tested in the coming years as it deals with tougher competition and more restrictive laws, says Gerry Findley, a Brea financial-institutions consultant.
“Under the new rules, even traditional institutions like Fullerton will have problems,” Findley predicted.
Gregory is aware of the traps that lie ahead. About 10% of the thrift’s $347 million in assets are invested in joint ventures with three real estate developers, and those deals must be unwound by the end of 1994 under the federal law passed a year ago to restructure the industry. It expects to complete the job a year or two early.
“Our profit margins are squeezed and are going to be squeezed further,” Gregory said. “Our business plan is in flux more often than ever before. The rules we have to live by are changing constantly. There were about 800 pages of regulations issued after (the federal law) was passed last year.”
So far, Fullerton Savings is rock-solid, part of the better half of the 2,500 thrifts still left in the industry. Its capital--the final reserve against losses--already exceeds the levels that federal law will impose on thrifts after 1994.
To walk into the headquarters of Fullerton Savings is to enter a time warp. Suddenly, it seems like the 1950s. There is no pretense--neat and orderly, yes, but no frills, no effort to impress customers with rich woods, lush carpeting and fine art.
An old gum-ball machine filled with candy beckons waiting customers. The quarter it takes to release a handful of chocolate goodies goes to charity.
Gregory’s office has the feel of a wood-paneled country cabin. A Remington print, “A Dash for Timber,” several Colt pistol replicas and an old side-by-side shotgun hang on the wall. A recent business award and a few plaques honoring the thrift’s sponsorships of local sports teams sit atop a four-drawer, metal file cabinet in one corner.
Fullerton Savings appears almost as if it could have been the setting for the classic Frank Capra movie, “It’s a Wonderful Life,” about the mythical banker and hero George Bailey. In fact, like the Bailey Bros. Building & Loan in the movie, the thrift was called Fullerton Building & Loan when it opened its doors in 1927, and it kept that name until 1953.
Fullerton Building even got through the Great Depression in true Bailey form. The directors bought the bad loans from the bank to clean up the bank’s balance sheet and to give cash-strapped borrowers more time to pay off their mortgages. In the interest-rate debacle of the early 1980s, its well-stocked capital absorbed $6 million in losses over three years.
Gregory’s father, Richard, bought a little more than 50% of Fullerton Building in 1941 when it had about $200,000 in assets. The elder Gregory, now 85, is Fullerton’s chairman and works twice a week in a small office at the thrift’s headquarters.
The younger Gregory, 49, who joined the institution in 1972 as an appraiser and rose to president in 1979, said that Fullerton Savings has shunned fast growth and expanded investment powers and sticks to some fairly basic thrift operations:
* It relies primarily on word-of-mouth referrals from customers, advertising only infrequently when it needs funds. Ignoring modern money-desk operations that bring in huge deposits from around the nation, it obtains its deposits from the local area and allows only existing customers to open jumbo certificates of deposit of $100,000 or more.
* Nearly all its deposits are funneled into home and apartment loans in Orange County, mainly the North County. Even the real estate subsidiary’s joint ventures with three local contractors build mostly residential units.
* Bucking the trend to sell mortgage loans to the secondary market, Fullerton Savings usually keeps all the loans it makes. It last sold loans two years ago when interest rates made it a good deal. It last bought a package of loans three years ago, and those loans were all on Southern California properties, which the thrift inspected before buying the loans.
In the late 1970s, Richard Gregory started to put a small amount of money into real estate joint ventures after deciding that it would eventually be difficult to make money strictly off home mortgages, his son said. The S&L; also put up a few small shopping centers, industrial buildings and three small office buildings.
The idea was to build a portfolio of income-producing properties to boost the thrift when its mortgage profits were slim, he said. But Congress, hearing enough about how some reckless entrepreneurs wasted deposits on risky, speculative real estate ventures, decreed last year that all thrifts must remove those assets from their books within five years.
Fullerton Savings eventually invested about $13 million of depositor funds in its real estate subsidiary, and the unit now has $6 million in cash from earnings that it will use to pay back the S&L.; Eventually, Gregory said, the thrift will repay all deposits, spin off the unit to shareholders and continue to operate it as a separately funded company.
But will the S&L; be able to continue making a profit only on local home lending?
“That’s an interesting question,” Gregory said. “We’re very flexible. Nothing has really jelled. We have two more years where we think we’ll earn over 1% return on assets. As we go strictly into home lending, we’ll obviously be looking at different things to do.”
FULLERTON S&L;’S PERFORMANCE
While hundreds of thrifts have failed nationwide in the 1980’s, Fullerton Savings & Loan has gradually increased its size and profitability by sticking to the traditional business of making home loans.
Assets (millions) 1980: $238.8 1989: $351
Net Income (thousands) 1980: -$180 1989: $7,188
Source: Fullerton Savings & Loan
